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Executives

Steven F. Nicola - Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer

Joseph C. Bartolacci - Chief Executive Officer, President and Director

Analysts

Daniel Moore - CJS Securities, Inc.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Adam Hamill

Matthews International (MATW) Q4 2013 Earnings Call November 15, 2013 9:00 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Matthews International Year End Financial Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded.

I would now like to turn the conference over to our host, Chief Financial Officer, Mr. Steve Nicola. Please go ahead.

Steven F. Nicola

Thank you, Shannon. Good morning. I'm Steve Nicola, Chief Financial Officer of Matthews. Also on the call this morning is Joe Bartolacci, our company's President and CEO. Today's conference call has been scheduled for 1 hour and will be available for replay around 11:00 a.m. today. To access the replay, dial 1 (320) 365-3844 and enter the access code 306056. The replay will be available until 11:59 p.m., November 29, 2013.

We've posted on our website, which is www.matw.com, the fourth quarter earnings release and financial information we will discuss this morning. On the top of our homepage, under the Investor tab, click on Investor News to access the earnings release. For the quarterly financial data, click on Financial Reports to access the information under the section Matthews International Quarterly Reports. The documents are presented in a PDF file format.

Before beginning the discussion, at the advice of legal counsel, I have been advised to read the following disclaimer as it pertains to forward-looking statements. Any forward-looking statements in connection with this discussion are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the company's actual results in future periods to be materially different from management's expectations. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the company's result to differ from those discussed today are set forth in the company's annual report on Form 10-K and other periodic filings with the SEC.

In addition, please note that the balance sheet, income statement and cash flow information provided today are preliminary data since our annual report on Form 10-K for the year ended September 30, 2013, is not due to be filed with the SEC until the end of this month.

To begin the conference, I will review the financial results for the quarter. Mr. Bartolacci will then provide general comments on our operations. Following that, we will open the discussion for questions.

For the quarter ended September 30, 2013, the company reported earnings of $0.52 per share compared to $0.47 a year ago, representing an increase of 10.6%. On a non-GAAP basis, the company's adjusted earnings per share were $0.74 for the fiscal 2013 fourth quarter compared to $0.61 last year, representing an increase of 21.3%.

For the year ended September 30, 2013, the company's reported earnings of $1.98 per share, which was equivalent to a year ago on a GAAP basis. On a non-GAAP basis, the company's adjusted earnings per share were $2.49 for fiscal 2013 compared to $2.34 last year, representing an increase of 6.4%.

The net amount of non-GAAP adjustments for the current quarter was $0.22 per share. And in our earnings release yesterday, we provided a reconciliation of these adjustments, which mainly included costs related to strategic initiatives and other charges in addition to a pension and postretirement expense adjustment and acquisition-related items.

As we have previously disclosed, we are implementing several strategic cost-structure initiatives that impact all of our businesses. The current projects principally include lean initiatives and strategic sourcing. In addition, we had a voluntary separation program during the recent quarter. The company incurred additional costs associated with these initiatives, which we have reflected as a non-GAAP adjustment.

The pension and postretirement expense adjustment, which is consistent with last year, was made for our non-GAAP disclosure to reflect only the service cost components of this expense. Acquisition-related items primarily reflected a favorable adjustment recording during the fiscal 2013 fourth quarter on contingent consideration ode in connection with the previous acquisition in our Funeral Home Products segment.

Consolidated sales for the fiscal 2013 fourth quarter were $253 million compared to $230 million for the same quarter a year ago, representing an increase of $23 million or 9.8%. Five of the company's 6 business segments reported higher sales for the fiscal 2013 fourth quarter compared to last year. The increase in consolidated sales for the fiscal 2013 fourth quarter principally resulted from higher sales volumes and the benefit of the company's recent acquisitions.

For the year, consolidated sales were $985 million in fiscal 2013 compared to $900 million a year ago, representing an increase of 9.4% in a new annual record for the company. Consolidated operating profit for the fiscal 2013 fourth quarter was $23.5 million compared to $21.9 million a year ago.

Excluding unusual items from both years, fourth quarter consolidated operating profit was $30.6 million compared to $25.8 million a year ago, which represented an increase of 19%. Consolidated operating profit for fiscal 2013 was $95.8 million compared to $93.6 million for fiscal 2012. Excluding unusual charges from both years, consolidated operating profit for the current year was $109.9 million compared to $101.4 million last year, representing an increase of 8.3%. Higher sales, the benefit of recent cost structure initiatives and the impact of acquisitions contributed to the year-over-year improvement in the company's operating profit.

For the Memorialization group, sales for the Funeral Home Products segment were $55.5 million for the quarter ended September 30, 2013, compared to $54.5 million last year. The increase reflected higher unit volume and an improvement in sales mix during the current quarter. Year-to-date sales were $243 million for the current period compared to $231 million last year.

Operating profit for the Funeral Home Products segment for the fiscal 2013 fourth quarter was $7.7 million compared to $5.8 million for the fiscal 2012 Fourth Quarter. The increase reflected higher sales and the benefit of improved production and distribution efficiencies. In addition, unusual items for the current quarter included a favorable adjustment on contingent consideration ode in connection with previous acquisitions.

For the current fiscal year, the segment's operating profit was $37.3 million compared to $26.5 million last year.

Sales for the Cemetery Products segment were $57 million for the fiscal 2013 fourth quarter compared to $59 million a year ago. The decrease primarily reflected lower unit volume of memorial products. Based on CDC data, we estimate that the number of total deaths in the United States was relatively flat compared to 1 year ago with the decline in the number of casketed in-ground burial deaths.

For the year on, Cemetery Products sales were $227 million in fiscal 2013 compared to $216 million last year. The increase primarily reflected last year's acquisition of Everlasting Granite. Operating profit for the Cemetery Products segment was $8.6 million for the current quarter compared to $5.9 million a year ago. Excluding unusual items from both periods, the segment's operating profit was relatively unchanged from a year ago at approximately $10 million.

Cemetery Products operating profit for fiscal 2013 was $32.6 million compared to $33.2 million last year. In addition to the impact of unusual charges, the segment's operating profit for last year was favorably affected by a gain on an acquisition-related settlement. Excluding unusual items, the segment's operating profit was $38.5 million for fiscal 2013 compared to $38.6 million last year.

Fiscal 2013 fourth quarter sales for the Cremation segment were $13.7 million compared to $13.1 million for the same quarter last year. The segment reported higher sales in North America, primarily reflecting an increase in equipment volume. As a result, the segment's operating profit for the current quarter was $1.7 million compared to $566,000 a year ago.

Cremation segment sales for the fiscal year were $48.5 million in 2013 compared to $46 million last year. Higher sales in North America were partially offset by lower sales in Europe and the U.K. Fiscal 2013 operating profit for the segment was $3.1 million compared to $3.9 million last year.

Unusual charges and lower margins in the European and U.K. businesses were the primary factors in the operating profit decline for the year.

For the Brand Solutions group, the Graphics Imaging segment reported sales of $75 million in the fiscal 2013 fourth quarter compared to $62 million last year. The acquisition of Wetzel Holding AG in November 2012 was the significant factor in the improvement.

For fiscal 2013, the Graphics Imaging segment reported sales of $295 million compared to $260 million last year. The benefit of the Wetzel acquisition was partially offset by lower sales in the segment's principal markets due primarily to soft economic conditions, particularly in Europe. The Graphics Imaging segment reported a slight operating loss for the fiscal 2013 fourth quarter as a result of unusual items. Excluding these items, the segment's operating profit was $3.4 million. For the year, the segment reported operating profit of $9.7 million for fiscal 2013 compared to $14.8 million last year. Excluding unusual items from both years, the segment's operating profit was $16 million for fiscal 2013 compared to $18.3 million last year.

The decline in sales, excluding acquisitions, was the primary factor in the lower level of operating profit. Sales for the marketing and fulfillment systems segment for the fiscal 2013 fourth quarter were $29.6 million compared to $21.2 million for the same quarter last year. The increase in sales for the quarter was primarily attributable to higher volume and the December 2012 acquisition of Pyramid. Fiscal year 2013 sales for this segment were $93.5 million compared to $74.6 million last year.

Operating profit for the Marking and Fulfillment segment was $3.6 million for the current quarter compared to $3.8 million a year ago. The increase primarily reflected the impact of unusual charges and higher research and development costs. Excluding unusual charges, the segment's operating profit was $4.5 million for the current quarter.

Marking and Fulfillment Systems operating profit for fiscal 2013 was $8.9 million compared to $10.1 million last year. Excluding unusual charges, the segment's operating profit was $10.2 million dollars for the current year. The favorable impact of higher sales was partially offset by an increase in R&D cost.

Fiscal 2013 fourth quarter sales for the Merchandising Solutions segment were $21.6 million compared to $20.4 million a year ago, resulting principally from increased sales volume. For the year, the segment sales were $79.4 million compared to $73 million last year.

Fiscal 2013 fourth quarter operating profit for the Merchandising Solutions segment was approximately $2.1 million compared to $2.3 million a year ago. Excluding unusual charges, the segment's operating profit was $2.6 million for the current quarter. For the year, the segment reported operating profit of $4.3 million in fiscal 2013 or $5.1 million excluding unusual charges. The segment's operating profit was $5.1 million for fiscal 2012.

Sales and operating profit by segment, including the impact of unusual items for the quarter and year-to-date periods, are posted on our website for your reference. Consolidated operating margin for the fiscal 2013 fourth quarter was 9.3% of sales compared to 9.5% a year ago.

Year-to-date, the consolidated operating margin for fiscal 2013 was 9.7% of sales compared to 12. -- I'm sorry, compared to 10.4% for the same period last year. Excluding unusual items, the company's fiscal year consolidated operating margin was 11.2% for 2013 compared to 11.3% last year. Higher margins in Funeral Home Products were offset by lower margins in the Brand Solutions businesses.

Gross margin for the quarter ended September 30, 2013, was 35.7% of sales compared to 37.4% for the same period a year ago. Gross margin for the year ended September 30, 2013, was 36.2% of sales compared to 37.4% last year. The lower quarter and fiscal year gross margin percentages were primarily attributable to declines in the company's Brand Solutions margins, particularly in Europe.

Selling and administrative expense for the current quarter was 26.4% of sales compared to 27.9% for the same quarter last year. Selling and administrative expense for the year was 26.5% for fiscal 2013 compared to 27% last year. The lower percentages for the quarter and fiscal year period mainly reflected an increased amount of favorable contingent consideration adjustments in the current year.

Investment income for the fiscal 2013 fourth quarter was $810,000 compared to $871,000 a year ago. For the year ended September 30, 2013, investment income was $2.3 million compared to $3.9 million a year ago. The unfavorable variances in the quarter and fiscal year periods resulted from lower rates of return on assets held in trust for certain of the company's benefit plans.

Interest expense for the fiscal 2013 fourth quarter was $3.1 million compared to $3.3 million a year ago. The decline resulted primarily from lower average interest rates. For the year ended September 30, 2013, interest expense was $12.9 million compared to $11.5 million a year ago. The increased interest cost resulted primarily from a higher average level of outstanding debt, which was due primarily to borrowings for acquisitions during the past year.

Other income deductions net for the fiscal 2013 fourth quarter represented the deduction of $557,000 compared to $316,000 a year ago. For the year, other income deductions net for fiscal 2013 represented a deduction of $3.7 million compared to $2.1 million a year ago.

Other income and deduction is generally included among other items, banking related fees and the impact of currency gains or losses on certain intercompany debt.

The company's effective income tax rate for the fiscal year ended September 30, 2013, was 32.7% of pre-tax income compared to 34.2% last year. Excluding the favorable impact of a second quarter unusual item adjustment, the effective tax rate was 34.8% last year. The decline in the current year effective rate primarily reflected the benefit of recent European operating structure changes and the benefit of a European tax loss carry back.

At September 30, 2013, the company's consolidated cash was $58 million, which was relatively unchanged from September 30 a year ago. Our current ratio was 2.2 at September 30, 2013, compared to 2.1 at September 30, 2012. Accounts receivable at the end of the current fiscal year totaled $190 million compared to $175 million at September 30, 2012. Consolidated inventories at September 30, 2013, were $131 million, which was relatively unchanged from the year ago.

Long-term debt at the end of the current fiscal year, including both current and long-term portions, was $374 million compared to $320 million at September 30, 2012. The increase during the current fiscal year resulted from borrowings in connection with acquisitions. At September 30, 2013, $305 million of the outstanding debt balance represented borrowings under our domestic revolving credit facility at an average interest rate of 2.8%.

The borrowing capacity of this facility was recently increased to $500 million with a maturity of July 2018.

The company had approximately 27,250,000 shares outstanding at September 30, 2013, and purchased approximately 620,000 shares under its share repurchase program this fiscal year at a cost of $21.6 million. At September 30, 2013, approximately 1.2 million shares remained under the current share repurchase authorization.

Depreciation and amortization expense for the quarter and year ended September 30, 2013, was $9.8 million and $37.9 million, respectively. Capital expenditures for the quarter and year ended September 30, 2013, was $7.7 million and $24.9 million, respectively.

In developing our expectations for fiscal 2014, the following were the significant factors in our consideration: Our strategic cost structure initiatives, particularly with respect to lean and sourcing, will continue. We started to realize some of the benefits of these initiatives late in fiscal 2013, which should begin to lead to some margin expansion in fiscal 2014.

[Audio Gap]

The unusual costs associated with these actions will also continue. As in fiscal 2013, we will identify and disclose these costs as they are incurred.

The increase in the number of U.S. deaths that impacted our casket memorialization volumes during fiscal 2013 is expected to moderate to more normal trends. This is just a slight increase in overall deaths with a flat to slightly lower casketed death rate for fiscal 2014.

The challenges stemming from the European economic weakness are projected to continue. While we are forecasting some growth, the economic climate is expected to be difficult in the near term and remains a risk to our European businesses. And our recent acquisitions are expected to contribute to our growth next fiscal year. On this basis, we are projecting adjusted non-GAAP earnings per share to be in the range of $2.62 to $2.70 for fiscal 2014, which represents mid- to high-single-digit growth. Further, with respect to our quarterly projections, we expect lower earnings per share for our fiscal 2014 first quarter, with year-over-year growth projected for the remaining quarters of the fiscal year.

Lastly, the board yesterday declared a dividend of $0.11 per share on the company's common stock, representing an increase of 10% in the quarterly dividend rate. This dividend is payable December 9, 2013, to stockholders of record, November 25, 2013.

This concludes the financial review and Joe will now comment on our operations.

Joseph C. Bartolacci

Thank you, Steve. Good morning. Our fourth quarter results ended pretty much in line with our expectations and we're very pleased with our overall growth. Continued strong results from our Funeral Home Products division, strong performance out of our Merchandising Solutions segment, improved performance from our core Marking and Fulfillment business coupled with strong performance out of our recent acquisitions allowed us to achieve our goal. Despite the positive performance, some of our businesses, particularly those in Europe and China continue to struggle with revenue challenges forcing us to take additional action to align our costs.

We continue to believe that Europe will be a challenge at least for the first quarter of fiscal 2014, but we expect improving performance in the out quarters. Regarding our strategic initiatives, we continue to move forward with the roll out of our lean initiative, which now will move to our Funeral Home Products and Merchandising divisions. Although our efforts are slow to be reflected in our results, we expect more of these benefits to flow through fiscal 2014.

Our strategic sourcing initiatives have yielded good results that we must now begin to capture, so we have added the needed resources to assure purchasing compliance while we continue to seek sourcing opportunities.

We have completed our information outsourcing initiative and are now working to maximize our effectiveness by standardizing and automating functions to further efficiencies. Many of these initiatives will have a multiyear impact, but the end result, we expect, is a more integrated and efficient operating model. Similarly, we've begun to beta test our e-managed web-based ordering system for our Cemetery Products division. We have high expectations for this solution and we hope to further differentiate ourselves as the leading provider in memorialization products for the funeral industry.

As we look to fiscal 2014, we see some bright spots in our businesses coupled with possible challenges in others. In our Marking and Fulfillment business, new product development and the integrated offerings of several new recent acquisitions give us confidence in a good performance for this group during fiscal 2014. We believe that we have a unique value proposition that is just beginning to be recognized by some of the largest brand owners and manufacturers in the world. Our Integrated Fulfillment solution, offered through Pyramid Controls, coupled with our new vehicle control system, is truly unique in the marketplace and we have great expectations for where this division can go. We have invested heavily in these new products, and the recent acquisition and the division leadership have a clear pathway for further acquisitions as we hope to gain steam behind us and expand our geographic reach.

Similarly, after some difficult challenges in our European businesses, we expect our Cremation business to show significant improvement over prior year. Again, investments in new product and strong USA leadership has allowed us to continue to gain market share in the U.S. We have also invested in new product offerings for this division, including incineration products that support remote drilling site, waste incineration for the petroleum and gas industry. These products are a small part of our overall business, but a nice addition to what is already an industry leader.

In Europe, new packaging labeling regulations have been issued, which we believe will release pent-up demand for packaging, particularly in the tobacco industry. We've also had good response to our recent acquisitions in Turkey, Southern Germany and Eastern Europe from our largest tobacco companies. These acquisitions have solidified us as the leading provider of printing tools in the packaging industry in Europe and has afforded us an opportunity for geographic expansion with the benefit of significant customer support.

Also, strong order rates in our Engineering business in Europe gives the confidence that our European rotogravure businesses should have a good year. Although we are optimistic, we remain cautious. We expect that the strong death rate that we saw during the early part of fiscal 2013 may subside and our first quarter volumes will be challenged by the slowing death rate.

Although deaths are expected to grow during 2014 and about 1%, our first quarter volume has been challenged. Similarly, several of our businesses in Europe and China continue to be challenged by difficult economic environment and we do not have visibility of when those markets may recover.

Finally, our U.S. Cremation business has recently had an unusually high rate of machine deferrals, which we will make up -- or it will make our first quarter comparables difficult, but we expect to recover those units throughout the balance of the year. Therefore, we are expecting a slow start to our fiscal year, but a full year result of EPS growth within the mid- to high-single growth digit range.

I'd like to open up to questions at this times time.

Steven F. Nicola

[Operator Instructions] Shannon?

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of Daniel Moore with CJS Securities.

Daniel Moore - CJS Securities, Inc.

Joe, in your prepared remarks, you touched on tobacco regulation and its impact on Graphics Imaging business. Changes in regulations around warning labels have typically been a driver in that business. Can you talk about what sort of the various moving parts, what's going on near term, how long -- whether it's been a bit of a headwind in the short run and what the longer-term outlooks still looks like in that business.

Joseph C. Bartolacci

Yes. To help you understand what's happening with our Tobacco business, but more importantly what's happening in European market on the regulation side. The regulations that I referred to are more just general information packaging labeling, not necessarily focused only on the tobacco industry. The tobacco industry warning labels that you're seeing in Europe, that you're starting to see in the United States, have been in place for a while. But the European regulations relating to packaging disclosure, and I don't have the actual regulation number, was recently passed. And we think that's going to be a tailwind for us as we move forward. But in my prepared comments, I also suggested to you that, I think couple of acquisitions we just did recently, one in southern Germany called Wetzel and the other one Chroma in Turkey, has allowed us to solidify a pretty strong position, frankly, in the tobacco industry. And for that matter, in the gravure industry for multinational players. So we think we've got some tailwind that will help us for a while. We are subject to consumer demand over there, because this is a company that at the end of the day, packaging is a marketing spend, but we think we're better positioned than we ever have been right now.

Daniel Moore - CJS Securities, Inc.

That's helpful. And as I look at the '14 guidance, pension expense should be shrinking a bit. The restructuring initiatives, maybe give us a sense of when you expect those to wind down, just trying to get a sense of when GAAP earnings and non-GAAP earnings will start to converge?

Joseph C. Bartolacci

Yes. We expect another year of those usual, maybe we're little longer than that. But for the most part, I think by the end of 2014 into early '15, we should have substantially most of those, if not all of those expenses behind us. It's not to say that we're not going to have unusual items here and there, but not as part of a program like we're running right now. Pension expense is coming down. But as we said, we call out pension expense as part of our non-GAAP adjustment. That adjustment is probably going to go down from $0.18 to $0.09 this year, more or less, $0.10. So we are starting to align our GAAP and non-GAAP as we move forward.

Daniel Moore - CJS Securities, Inc.

And finally, the restructuring initiatives, maybe just rank order of the top, sort of 2 or 3 segments or subsegments, that you expect to see material benefit over the longer term in terms of margins and operating profitability?

Joseph C. Bartolacci

I think you're going to see it coming out of our Funeral Home businesses, our merchandising businesses, our larger businesses, let's put it that way. You're not going to see much out of the smaller businesses like our Marketing and Fulfillment where they have been very forward-looking in their lean initiatives. So there's less to come out of there. But, when we look at Cemetery, Funeral Homes, Merchandising and Graphics in Europe, we think there is opportunity yet to come.

Operator

The next question comes from the line of Liam Burke with Janney Capital Markets.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Joe, on the Funeral Home business, on the casket, specifically, you've been seeing steadily improving operating margins. You discussed, both in your earlier question and your prepared statements, that there's more to go there. Is this the lean initiatives being sort of spread out across the businesses now and how much more lift do you think you can get after moving from low double digits to low teen margins?

Steven F. Nicola

Liam, we've always targeted mid-teens operating margin on there. I'm not going to tell you it's going to happen over the cause of the next 12 months, but we will continue to move that way. The real challenge on it, and you saw it this year, we've been taking action in that business and good action, our team's done a great job over the last several years. Volume that we got, finally came back this year. And you can see that drop, too. And so if the volume holds where more or less where we expect it to hold, we should see that business move into the mid-teens as planned.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Okay. So I mean right now, you're seeing the benefit of volume and you've shown us pretty healthy improvement in margins, 14%, 16% depending on the seasonality?

Steven F. Nicola

Right.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

But from what I understand, you're going back and you see more opportunity to drive more efficiency? Okay.

Steven F. Nicola

We do, absolutely. We're just starting that initiative in our Funeral Home Products business right now as we speak. The issue is not whether or not we think we can get more out of it. As those or even if that may have been part of the lean initiatives that we're going through right now, it's a multiyear project. So what happens is, we install the systems, the processes and the concepts and it just evolves over multiple years. We know the targets. The targets will put us at that mid-teens rate or better. And that's where we're shooting for.

Liam D. Burke - Janney Montgomery Scott LLC, Research Division

Okay. And then getting back to Cemetery Products, a lot of the push has been up, obviously SAP implementation is through. There's been some unusual investments there. Going into '14, do you see directionally margins improvement as a result of some of the work that you've done in 2013?

Joseph C. Bartolacci

Yes. We're going to start to see some of that. I think what we're going to hopefully see better improvement in our margin, which will come when we get our E Vantage solution kind of released, we're in beta right now, 10 locations, very, very, very positive response from what they see. The opportunities that come from our E Vantage solution, are both a cost savings opportunity for us and a sales opportunity for us. So yes, we think margin will continue to grow. And the challenge is going to be, it is volume dependent. So we've got to make sure that we get the volume at the top there to be able to drop through.

Operator

The next question comes from the line of Adam Hamill with Gates Capital.

Adam Hamill

I was just wondering if you could break out how much acquisitions contributed to revenue and EBITDA for the quarter and for the year?

Steven F. Nicola

To revenue acquisitions for the quarter, for the company in total, I would say were almost all of the revenue increase. There was some organic growth in Funeral Home Products, Memorial -- I'm sorry, Marking and Fulfillment, Merchandising, but by and large, especially for Graphics, the increase was acquisition driven. And then on an annual basis, similar story with respect to the acquisition impact versus the organic growth.

Adam Hamill

And on in EBITDA level?

Steven F. Nicola

We don't break that out on EBITDA basis.

Adam Hamill

Okay. And then it looked like I think you guys have guided to $0.23 to $0.26 in the third quarter for charges and ended up being $0.40. I mean, was there something that got pulled forward or, I was just curious what caused that jump?

Steven F. Nicola

We accelerated some of the initiatives. Like I said we have some structural issues as volumes were slowing down in our European businesses. So we just brought some of those changes upfront.

Operator

We have a follow-up question from the line of Daniel Moore with CJS Securities.

Daniel Moore - CJS Securities, Inc.

Joe, you just alluded to the E Vantage solutions, maybe just an update on how that's going. You mentioned 10 in beta test and what should be the expectation in terms of a ramp, is this a 2015 potential material benefit or is this more of a 3 to 5-year before we start to think about the potential opportunity and push the needle?

Joseph C. Bartolacci

Yes. I'll tell you where we stand right now, Dan. We have about 10 locations that are on E Vantage. The response has been very, very, very good. We remain very, very optimistic about what can come out of this and the opportunities that it presents. And our customers are starting to see it. We did a recent poll -- recent survey of our customers who -- #1 question -- #1 response was they saw material upside in their sales opportunities, as well as, they call it a game changer. So we think we've invested in the right place. Having said that, given what's going on in the government, you may not be surprised that the technical challenges of implementing a system like this are a bit challenging. It depends on what web server you're using, what browser you're using, what version of Microsoft. So when we look across our customer base, we're looking at a very diverse technology base out there that we're going to have to adapt to. One of the things that we're looking at doing is taking it off-line and putting it onto a disk so that people can work on it there and then basically batch downloading all the information. I would expect to see modest change for us in '14. And we'll start to see a ramp in '15 and '16 from the benefits of that.

Daniel Moore - CJS Securities, Inc.

Let's let the IT guys that worked on Obamacare to work the operation [ph] ?

Joseph C. Bartolacci

Unfortunately, we can lend them a few.

Daniel Moore - CJS Securities, Inc.

And then 2 quick follow-ups. One, CapEx expectation for next year?

Steven F. Nicola

Right now, Dan, I think we're targeting about $30 million. I think that's the run rate now for our business.

Joseph C. Bartolacci

The only thing I would add to that one comment, we do have one project that is probably on board, that might take us over there. As I said earlier, the acquisitions we did in Europe are kind of giving us a pretty solid position in the tobacco industry and in the packaging industry as a whole. Our tobacco companies have asked us to go to Russia for them.

Daniel Moore - CJS Securities, Inc.

Got it. And then the European tax loss carryback, was that all hitting Q4 and what will the size of that be?

Steven F. Nicola

I would say that was probably about $0.02 a share, just ballpark, and that was basically fourth quarter.

Operator

[Operator Instructions] There are no further questions. Please continue.

Joseph C. Bartolacci

Thank you, Shannon. Well, we would like to thank everyone for participating in our call this morning. And we look forward to our first quarter call in January. Have a great day and a nice weekend.

Operator

Ladies and gentlemen, once again, this conference will be available for playback beginning today at 11:00 a.m. Eastern, running through Friday, November 29, 2013, at midnight Eastern Time. You may access the AT&T playback service by dialing (320) 365-3844 with the access code of 306056. That does conclude our conference for today. Thank you for your participation.

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