Hillenbrand Inc. reported fiscal 2019 sales increased 2 percent, driven mainly by the Process Equipment Group, which includes Coperion compounding extruders.
President and CEO Joe Raver also said the company's purchase of Milacron Holdings Corp. could come later this month.
Companywide, Hillenbrand reported sales of $1.81 billion for fiscal 2019, which ended Sept. 30. Net profit was $121.4 million.
The Process Equipment Group reported sales of $1.27 billion, a 5 percent increase, was partially offset by lower demand for Batesville caskets, which was down 3 percent for the year. Demand for Coperion extruders has remained strong in large projects to make polyethylene and polypropylene and production lines for engineering resins, Raver said.
"Plastics remain the bright spot," Raver said, even as some industrial segments for other Hillenbrand equipment continue to face sluggish demand, such as crushers for coal used for power plants and flow- control systems for the municipal market.
Raver, in a conference call Nov. 14 to discuss Hillenbrand's year-end report, noted the transaction agreement with Milacron says the deal will close within three business days of all outstanding issues being completed. Milacron shareholders are voting Nov. 20. Raver said Hillenbrand has received all regulatory approvals and lined up financing for the purchase.
Raver cautioned that the closing could take longer if new things arise, but even so, it is expected to close by the end of year. He said Hillenbrand has assembled a team to lead the integration of the two companies.
Since the deal is not done yet, Hillenbrand executives announced at the beginning of the conference call that they would not take questions from financial analysts about Milacron's third quarter financial report, issued Nov. 12, just two days before the Hillenbrand's own report. However, Raver did address it in his own comments.
Milacron's sales and orders declined by double digits in the third quarter vs. the year-ago period. But Raver said his company is confident in Milacron, and the future of plastics processing.
"We continue to believe in the compelling strategic merits of the deal. We think Hillenbrand and Milacron will be stronger together," he said.
Within three years after the closing, Hillenbrand expects $50 million in cost savings, much of it from reduced public-company operating costs, synergies among machinery businesses and better buying power for material and components, Chief Financial Officer Kristina Cerniglia said.
Under terms of the $2 billion agreement, Milacron shareholders will receive $11.80 in cash and 0.1612 shares of Hillenbrand stock for each share of Milacron stock they own. Hillenbrand would own about 84 percent of Hillenbrand, with Milacron shareholders owning around 16 percent.
Cerniglia detailed the types and amount of debt Hillenbrand is using to buy Milacron — which makes injection molding machines, extruders and structural foam machines and melt delivery systems such as hot runners and mold bases and components. Milacron also brings its own debt.
Cerniglia said Hillenbrand will aggressively work to reduce debt. The company's Batesville burial casket business is "a non-cyclical business with strong cash flow" and the Process Equipment Group generates a good parts and service business, she said.
Hillenbrand also will temporarily suspend buying back shares to conserve cash, Cerniglia said. Cash generation remains a priority, she added.
The Batesville casket unit has its own pressures. Sales declined in fiscal 2019, Raver said. Caskets face lower burial demand as cremation gains in popularity. But Raver said it's an important business. He said the strategy is "to build strong, dependable cash flow" from caskets.
Answering an analyst's question, Raver said Hillenbrand leaders look at the total portfolio twice a year, and they would be open to selling some smaller businesses if an opportunity arises. Any money raised by such a sale would go to pay down debt — which is the priority for the next one or two years, he said.
Meanwhile, Raver said Milacron and Hillenbrand have some common ground in extrusion. Hillenbrand bought Coperion in 2012. Milacron extruders make construction products like PVC pipe and vinyl siding. Milacron extrusion and Coperion can do some cross selling and share innovation, he said.
Raver said Hillenbrand finished the year strong, with record fourth-quarter sales and adjusted earnings per share. For 2019, order backlog of $864 million — which Raver said was about half from Coperion polyolefin extrusion products — grew 6 percent from the prior year. Coperion is winning jobs for polyethylene in the United States, in part from shale gas production, and in Asia for polypropylene.
One analyst asked how much of the company's business is involved in recycling and how much is subject to what he called the "War on Plastics" against single-use plastics and European recycled-content legislation.
Raver said polyolefins from Coperion compounding lines go to all sorts of markets. He that around 10 percent goes into single-use plastics, and about 5 percent into products exposed to regulatory action around the world.
Milacron has pretty much the same ratio, or a little bit higher, Raver said. "They're not really a bottle and bags type of company. They're a durable goods company," he said.
Growing recycling rates also will help Hillenbrand equipment, especially because of its strength in large extrusion and pelletizing systems, Raver said.
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Post time: Nov-23-2019