Hillenbrand second quarter net income decreases 17% to $27M

Hillenbrand (NYSE: HI) revenue for the second quarter of 2012 grew 13% to $260 million compared to the same quarter last year. This was driven by Process Equipment Group revenue growth of 66% to $96 million (18% organic growth). In addition to the strong revenue growth, the group's order backlog continued to grow sequentially, ending the quarter at $137 million, an increase of 6% over the prior quarter.

Batesville revenue dropped 5% to $164 million due to an estimated 6% reduction in the North American burial market. The decline in the burial market was driven by an estimated 3% decline in North American deaths during the first half of fiscal 2012, in part due to a very mild pneumonia and influenza season.  North America experienced the steepest drop in deaths since 1982. 

"Our Batesville business is highly dependent on the seasonal effects on burials, and the decline we've seen is consistent with public reports from government sources, customers and competitors," said Kenneth A. Camp, president and chief executive officer of Hillenbrand.

Consolidated gross profit margin in the second quarter was 40.2% compared to 44.3% in the prior year, due largely to volume declines at Batesville. On an adjusted basis, the consolidated gross profit margin was 41.0%. Other income decreased by $6 million, $3 million due to the full collection of the Forethought Note in April 2011 and $3 million for investment gains that occurred in 2011.

Net income decreased 17% over the prior year to $27 million, with diluted EPS down 17% to $0.44. On an adjusted basis, net income declined 9% to $31 million and diluted EPS declined 7% to $0.50, as the strong growth from the Process Equipment Group was more than offset by lower Batesville volumes and reduced other income. EBITDA was $53 million, a 10% decrease from the prior year.  On an adjusted basis, EBITDA declined by 3% to $58 million. Hillenbrand once again delivered strong cash flow from operations, reporting $33 million in the second quarter, a 30% increase over the prior year.

Due to the decline in Batesville revenue, the company lowered diluted EPS guidance to $1.70 to $1.78 ($1.68 to $1.76 on an adjusted basis). Full-year revenue is now expected to increase between 13% and 15% on a constant currency basis over 2011. This represents a shift toward the lower end of the original revenue guidance range due to the sharp decline in deaths during the first half of the fiscal year, offset in part by stronger-than-anticipated growth in the Process Equipment Group.

"We are pleased with the success of our Process Equipment Group as it continues to grow both organically and through acquisition," said Mr. Camp. "We are also pleased with the response of Batesville in managing its business during this unusual and unanticipated drop in North American deaths."

Year-to-Date Summary

For the six months ended March 31, 2012, Hillenbrand's revenue increased by $50 million (11%) over the prior year to $491 million. Gross profit margin was 40.3% (40.8% on an adjusted basis) compared to 43.8% in the prior year. Cash flow increased 13% to $60 million, while net income of $59 million decreased 2% and diluted EPS of $0.94 decreased 3%. On an adjusted basis, net income decreased 9% to $56 million ($0.89 per diluted share). At $98 million, EBITDA decreased $12 million (11%) from the prior year and $4 million (4%) on an adjusted basis.