Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Hillenbrand (NYSE:HI)

Q4 2013 Earnings Call

November 26, 2013 8:00 am ET

Executives

Chris Gordon - Director of Investor Relations

Joe A. Raver - Chief Executive Officer, President and Director

Cynthia L. Lucchese - Chief Financial Officer and Senior Vice President

Kimberly K. Ryan - President

Analysts

Daniel Moore - CJS Securities, Inc.

John Franzreb - Sidoti & Company, LLC

Robert R. Marshall - Davenport & Company, LLC, Research Division

Stephen A. O'Neil - Hilliard Lyons, Research Division

Operator

Good morning, everyone, and welcome to Hillenbrand's Earnings Call for the Fourth Fiscal Quarter of 2013.

A replay of the call will be available until midnight, Eastern time, Tuesday, December 10, 2013, by dialing 1 (855) 859-2056 toll-free in the United States and Canada or +1 (404) 537-3406 internationally and using the conference ID number 72273435.

This webcast will be archived on the company's website at www.hillenbrand.com through December 26, 2013. If you ask a question today, it will be included in any future use of this recording. Also note that any recording, transcript or other transmission of the text or audio is not permitted without Hillenbrand's written consent.

At this time, it's my pleasure to turn the conference over to Chris Gordon, Director of Investor Relations. Mr. Gordon, please go ahead.

Chris Gordon

Thank you, Stephanie, and good morning. Welcome to our earnings call for the fourth quarter and full fiscal year of 2013, which ended on September 30. After the market closed yesterday, we issued our earnings press release and filed our 10-K for fiscal 2013. Both of these documents are available on our website. With me on today's call are Hillenbrand President and Chief Executive Officer, Joe Raver; and Chief Financial Officer, Cindy Lucchese.

Some of the information you will hear today will consist of forward-looking statements within the Safe Harbor provisions of the securities laws. These statements are not guarantees of future performance, and our actual results could differ materially from what is presented in any forward-looking statements. Please see our latest Form 10-K filed with the SEC for more in-depth discussion of forward-looking statements and the risks and other factors that could affect them.

During the course of this call, we will be discussing certain non-GAAP operating performance measures. For more information on the use of those measures and their reconciliation to GAAP financial measures, we refer you to our earnings press release and our Form 10-K on the Investor Relations tab of our website at www.hillenbrand.com.

Now let me provide some information regarding our call. We've scheduled 1 hour, and we'll start with prepared remarks from Joe and Cindy that should last approximately 20 minutes. Joe will start with an overview of the business, and Cindy will follow with financial results. Then Joe will wrap up the prepared portion of the call with some closing comments. After that, we'll move directly to Q&A, when we'll be joined by Batesville President, Kim Ryan; and Coperion President, Thomas Kehl. If you have follow-up questions after the call has ended, please feel free to call me at (812) 931-5001 or e-mail me at chris.gordon@hillenbrand.com.

Now it's my pleasure to turn the call over to Joe Raver, Hillenbrand's President and Chief Executive Officer. Joe?

Joe A. Raver

Thanks, Chris. Good morning, everyone, and thank you for joining our call today. Given that this is my first call as CEO of Hillenbrand, I want to take a moment at the start the call to briefly review our company's recent history and reaffirm our strategy for providing attractive growth and returns for our shareholders.

As many of you know, we started the journey as a separate public company a little over 5 years ago. At that time, our sole business was Batesville, the leader in the North American death care products business. Batesville was and still is characterized by a terrific brand, strong margins and cash flow and very valuable core competencies, especially Lean business practices, intentional talent development and strategy management. However, Batesville also happens to participate in a market in which growth has been difficult. North American deaths have been relatively flat for some years, and there's been a slow and steady shift in society's preference for cremation, resulting in a challenging burial casket market. So while we believe Batesville is a great company, we knew back then that market conditions were such that we needed to diversify into new areas with strong underlying growth trends.

The strategy we developed is straightforward. It's to leverage our strong financial foundation and core competencies to acquire good businesses in growing markets and make them better. While our strategy is straightforward, it's not necessarily easy. We've learned a lot over the past few years about doing business in new industries and in new parts of the world. We've built management talent and expertise through our acquisitions and by adding talent at the executive and board levels. The latest example is the addition of Bill Canady, a long-time industrial products executive, as our new Senior Vice President of Strategy and Industrial Products, reporting directly to me.

In the past 5 years, we've done 3 high-quality acquisitions and have grown from a single $650 million death care company doing business exclusively in North America to a $1.6 billion industrial products company with a presence in more than 30 countries around the world. This year, more than 40% of our revenue came from outside of the U.S. and approximately 60% came from our Process Equipment Group segment. We've invested in our acquired businesses to position them to grow in new markets, expand into new geographies and serve new customer segments. While these growth investments, along with the cost of acquisitions, can occasionally challenge near-term earnings, we believe they create exciting future earnings and cash generation opportunities.

Now I'd like to spend just a few minutes updating you on the strategy of our largest business platform, the Process Equipment Group. We believe our competitive advantage in this segment is the ability to use industry-leading applications expertise, along with core technologies, to improve mission-critical processes for our customers. The diverse industries we serve, plastics, energy, food, minerals, chemicals, have attractive near- and long-term growth prospects as they are geared towards responding to the needs of the increasing world population and more importantly, an expanding middle class.

Our strategy for the Process Equipment Group is to expand globally, penetrate underserved end markets and grow on the top and bottom line through the application of Lean in all aspects of our business. We believe the acquisition of Coperion accelerates our strategy by enabling rapid, low-cost expansion of our other product lines into new geographies using Coperion's worldwide network of manufacturing plants, service facilities and sales and engineering offices. Throughout the Process Equipment Group, we've continued to drive Lean practices into how we manage our business. For example, Coperion is focused on a number of Lean projects to improve on-time delivery, reduce lead times and eliminate waste both in the office and on the shop floor. We believe improvements in these areas will lead to increased customer satisfaction and improved profitability.

Let me now turn to the results for the Process Equipment Group. The group nearly tripled revenue this quarter, driven by the Coperion acquisition. We're moving forward with the full integration of Coperion and K-Tron, and I'm pleased to report that the new group's organization structure and management team have been established. The team is excited and focused on executing the 2014 plan and taking advantage of the tremendous opportunities that lie ahead.

As we've discussed during previous calls, our non-Coperion product lines faced headwinds this year in a few key areas, resulting in a 9% decline in revenue for the full year. Demand in certain end markets, particularly frac sand and potash and North American coal, was difficult. In addition, we experienced lower demand and longer decision cycles on projects due to the sluggish global economy. Despite these headwinds, we remain optimistic about this part of our business in the coming year as we've seen an increase in customer quotes and bookings over the past few months. Additionally, our global growth initiatives are taking hold, and we expect continued success in China and Russia.

From a Coperion perspective, you are all aware of the large opportunity that exists in North America due to our shale oil and gas reserves. There are a number of large polyolefin projects planned for the next few years, and some contracts have already been signed. We're working hard to win our fair share of these orders and expect to do so over the coming quarters and years. While it's difficult to see exactly what the near term holds, particularly from a macroeconomic standpoint, things are improving, and we remain positive on the future prospects for this segment overall.

Let me now turn to the Batesville business. The strategy for this segment remains leveraging its industry-leading position and expertise in Lean to continue generating cash and earnings to support our diversification and growth strategy. As we've discussed in the past, Batesville did significant work in 2012 and in 2013 to rightsize their organization, maintain their market leadership position and improve the mix of products sold, which resulted in an improvement in both gross margins and cash flow in 2013. For the full fiscal year, Batesville's gross margins returned to the 40% range, increasing 170 basis points from 2012.

Now based on preliminary U.S. and Canadian mortality information for fiscal 2013, the death care industry experienced a year-over-year increase in deaths that was equal to or slightly higher than the estimated increase in families choosing cremation, resulting in flat to slightly increasing burial product demand compared to last year, something that we believe has not occurred in over a decade. This, along with the addition of new products containing proprietary features, technology product advancements and several other initiatives, resulted in a 2% increase in revenue compared to 2012.

When we think about the longer-term trends for Batesville, we see that health care continues to improve and people are living longer. And while the demographics of an aging generation of baby boomers are expected to be a factor in the future, it continues to be impossible to predict, with any measure of certainty, the timing of changes in the North American death and cremation rates. As the funeral industry continues to evolve, Batesville is leveraging its Lean capabilities to stay as flexible as possible and to continue generating solid financial results for Hillenbrand.

Now I'll turn the call over to Cindy Lucchese, our CFO. Cindy?

Cynthia L. Lucchese

Thank you, Joe. Well, we're pleased with the performance of both of our business segments this quarter. Revenue exceeded $440 million, which is a record high for us, and grew more than 70% year-over-year, and we saw nice growth at the bottom line, too. Adjusted EBITDA grew over 20% to $68 million, and adjusted net income increased 2% to $32 million or $0.50 per share.

Our 74% revenue growth was largely due to the strong performance of the Process Equipment Group. Their revenue grew more than 180% to $291 million, driven by the acquisition of Coperion. Now without Coperion, we experienced a decrease of 13%, primarily due to lower demand for our equipment in certain end markets, specifically potash and proppants. As we've discussed in previous calls, we've had a tough comparable against the very strong year we had in 2012, when demand for equipment that processes proppants spiked up dramatically. We were also pleased to see order backlog increase by 6% sequentially to more than $600 million, which is a record high for us.

Batesville's revenue for the quarter was $150 million, down about 1% from the prior year, driven by the decline in burial volume. From an annual perspective, this has been a good year for Batesville. Revenue grew more than 2% and adjusted EBITDA more than 5% as the year-over-year increase in deaths was slightly higher than the estimated increase of families choosing cremation.

Turning to gross profit. Our gross profit dollars increased by nearly $45 million or $48 million on an adjusted basis. And as a percentage of revenue, gross profit was about 33% and about 34% on an adjusted basis, which compares to 40% on an adjusted basis in the prior year. While Batesville delivered over 120 basis points of improvement at the adjusted gross margin line, the addition of Coperion has caused our overall gross margin ratio to be lower.

And although we discuss this on every call, I feel it's important to continue to explain how Coperion has changed our gross margin and EBITDA ratios. So the Coperion business model includes large system projects, where their strong application and processing engineering expertise is used to create an entire system for customers. And these projects include Coperion-manufactured proprietary equipment, such as extruders and compounding machines, as well as components manufactured by third parties, such as gearboxes and motors. Coperion earns attractive gross margin percentages, similar to the rest of the Process Equipment Group, on their proprietary equipment and replacement parts and service, which, combined, represent about 2/3 of their revenue. And about 1/3 of their revenue is generated from third-party-sourced products that carry only a small upcharge, resulting in low-single-digit gross margin percentages on these products.

Total adjusted gross margin percentages for Coperion overall has been in the mid- to high-20% range. Factoring the impact of Coperion, adjusted gross margin for the Process Equipment Group is expected to be in the low- to mid-30% range. We expect this ratio to increase over time as the integration of Coperion continues and Lean becomes fully implemented. Our adjusted effective tax rate this quarter was 31.7% compared to 28.9% in the prior year, and our 2012 rate was favorably impacted by the release of some tax accruals.

Operating cash flow was $127 million for 2013 compared to $138 million last year. Now the decrease is primarily due to the same situation we've discussed in the last earnings call, which is our investment in Coperion's working capital, along with about $18 million of acquisition spend related to Coperion and about $17 million more in payments to fund pension plans. Now another important use of cash is the payment of dividends to our shareholders, and in 2013, we've returned nearly $49 million to Hillenbrand shareholders in the form of quarterly dividends.

Turning to bottom line results for the quarter. Net income decreased 7% to $23 million, with earnings per share of $0.37. Now the decrease was driven by costs associated with the Coperion acquisition. And on an adjusted basis, net income increased 2% to $32 million, with earnings per share of $0.50. Note, this includes $3 million of additional recurring amortization expense related to Coperion.

And adjusted EBITDA is an important measure we use to monitor our ongoing performance since it removes the impact of amortization and interest, which naturally result from our acquisition strategy. This quarter, adjusted EBITDA increased 21% to $68 million. As a percentage of total Hillenbrand revenue, it was 16% versus 22% last year. Now the decline was expected and results from Coperion's business model, as I discussed earlier. Coperion's adjusted EBITDA as a percentage of revenue has been about 9% compared to the higher margins in the rest of our business. And again, our overall percentage is expected to increase over time as the integration of Coperion continues and Lean becomes fully implemented.

Turning our attention now to the full year results, I'll echo Joe's comment earlier that this has been a good year for Hillenbrand. We shared our guidance for the year immediately after our Coperion acquisition was completed, and we've delivered. Revenues increased 58% to nearly $1.6 billion, with net income of $63 million and EPS of $1.01 per share. And on an adjusted basis, net income increased 8% to $118 million or $1.88 per share, and adjusted EBITDA grew 19% to $247 million or about 16% as a percentage of revenue. And this includes the swing of about $3 million in losses in our limited partnership investments as we had about $1.5 million of gains last year and about an equal amount of losses this year.

Now turning to 2014 guidance. We expect revenue of approximately $1.7 billion, with about $1.1 billion coming from the Process Equipment Group and about $600 million coming from Batesville. Given current foreign exchange rates, we expect minimal translation impact to revenue when compared to 2013. Adjusted EPS is expected to range from $2 to $2.10. And note that this includes roughly $13 million of amortization expense related to Coperion and about $30 million of amortization expense for Hillenbrand overall.

Now it's important that I spend time talking about what we expect on a quarterly basis this year. The acquisition of Coperion has transformed Hillenbrand, and their quarterly performance will have a significant impact on the phasing of our quarterly results. Further, our 2 segments, Process Equipment Group and Batesville, have very different quarterly performance profiles. So let me start with the Process Equipment Group. A significant portion of Process Equipment Group revenue comes from Coperion-related large system sales, which may have a sizable impact on revenue during quarters where a large portion of the work is completed. And work on these projects can stand 12 to 18 months, but the revenue is not recognized evenly, which may cause lumpiness.

Now in addition, Coperion has a long history of the fourth quarter being significantly larger than the rest, typically, about 30% of revenue for the year. Conversely, the first quarter for Coperion is usually the smallest of the year. Now a key driver of Coperion's large fourth quarter performance is what is seen in many companies, the drive to achieve the business plan, which includes incentive compensation targets that are tied to full year performance. Given that we experienced a very strong fourth quarter from Coperion, a much lower revenue quarter will follow in the first quarter of 2014.

Now Batesville has a very different profile, one that's driven by the seasonality of deaths. Their largest quarter is always the second quarter, where they typically achieve 26% to 27% of their revenue for the year. As we consider quarterly phasing, it is clear we will look very different than we have in the past. Because Coperion is the largest contributor to our revenue, we expect our first quarter to be significantly lower than the remainder of the year from both a revenue and earnings perspective. We expect to achieve about 22% to 23% of our revenue and about 15% to 17% of our earnings per share in the first quarter. And the fourth quarter is expected to be significantly larger than the other quarters, particularly on the bottom line.

So let me summarize our expectations for 2014. While our quarterly performance will look different than it has in the past, we are starting the year with our largest-ever backlog. We expect strong full year results with attractive top and bottom line growth.

Now I'll turn the call back to Joe for his concluding remarks. Joe?

Joe A. Raver

Thanks, Cindy. Before we move to the question-and-answer portion of the call, I'd like to provide some additional comments on our full year performance and outlook for 2014. Let me start by thanking our global team for all the work they've done to ensure that the Coperion acquisition has gone smoothly and performed well this year. I'd also like to recognize Batesville for their great results this year, growing 2% on the top line and significantly improving gross margins in a difficult demand environment.

This has been a challenging year for our non-Coperion Process Equipment Group product lines as the sluggish global macroeconomic environment in certain end markets created significant headwinds. The comments I made earlier in the year, we expected to see a flat year-over-year comparison in the second half of 2013, but those markets have taken a little longer to come back than we expected. However, we do expect that sales in emerging markets will continue to provide growth opportunities for the entire Process Equipment Group. We're also encouraged by the significant renewed interest in the polyolefin industry in North America due to the availability of inexpensive natural gas. The companies that are building these projects have been customers of ours for decades, and we are working hard to win our fair share of the projects.

Our current order rates and strong backlog in the Process Equipment Group give us confidence in our guidance and optimism for the year ahead. Hillenbrand remains focused on growing both top and bottom line, and we continue to pursue strategic objectives that will build shareholder value. These include targeted strategic acquisitions, penetrating growing end markets, expanding globally and growing and maintaining strong margins and cash flow through the continued implementation of Lean throughout our entire organization.

That concludes our prepared remarks. For today's Q&A session, we will be joined by Batesville President, Kim Ryan; and Coperion President, Thomas Kehl. We're ready to take your questions. Stephanie, would you please open the lines?

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Daniel Moore with CJS Securities.

Daniel Moore - CJS Securities, Inc.

Cindy, you mentioned -- touched on cash flow from operations in the prepared remarks, down a little bit year-over-year, but obviously, made up for -- made up quite a bit of ground in Q4, over $75 million in the quarter generated. What were the biggest drivers in terms of working capital? And maybe just give us a little bit of an outlook in terms of fiscal '14 relative to your guidance, what your expectations are, be it growth or a dollar range for cash flow.

Cynthia L. Lucchese

Some of the biggest drivers, we didn't have any of the larger payments that we have had earlier in the year, such as transition expenses and pension payments, et cetera. We also saw a slight improvement in working capital, basically, across the board at the companies. So that really, the biggest driver there was we didn't have any unusual payments. As you think about 2014, there's a couple things to think about. One, Batesville, you can think of that as that -- generating that relatively flat, but very attractive cash flow. We expect all the Process Equipment Group companies to generate attractive cash flow in accordance with their operations. And then the last thing is we have some puts and takes, so we won't have the transition expenses that we experienced this year. However, we haven't made a payment on our U.S. pension plan in a number of years and expect to probably end up needing to do that in the $15 million to $20 million range, and we think we may have some higher tax payments this year of about $15 million. So all in all, it will depend on where those things end up, but we'll certainly have an improved cash flow this year.

Daniel Moore - CJS Securities, Inc.

So some improvement over fiscal '13?

Cynthia L. Lucchese

Yes.

Daniel Moore - CJS Securities, Inc.

Okay. And Joe talked about the opportunity in North America. How many North American polyolefin contracts are in backlog at 9 '13? And how many would you say are on the drawing board that are potential opportunities as we look out over the next couple years?

Joe A. Raver

So when we look at the North American polyolefin projects, I think these are public, and they're somewhere in the low-20s in terms of projects. We've seen a few of those contracts have been awarded already. But the bulk of those are to come over the next quarters and years, and so we'll continue to track those. And we expect -- as I've mentioned earlier, we expect to win our fair share of those as we go forward. But some of those, they're taking a little bit longer than we had initially anticipated, but it's kind of typical with some of these projects. But the projects are still active. The economic dynamics that are driving those projects continue to remain in place with low feedstock prices and increasing demand for plastics around the world, so we feel good about these projects coming to fruition and us getting our fair share of these projects.

Daniel Moore - CJS Securities, Inc.

And if not a number, there is some, at least, already that's included in that up 6% backlog number?

Joe A. Raver

Yes. We signed a couple so far. One was not very large, and the second, we did sign a large $50-plus million contract on one of these projects. That will probably -- these projects take about -- from start to finish, about 5 quarters, 5 or 6 quarters to get to fruition. And so we did -- we were able to realize our first large contract.

Daniel Moore - CJS Securities, Inc.

And lastly, the tax rate for Q4 is a little higher. Adjusting for that, I think EPS would have been $0.01 or $0.02 higher on an adjusted basis. What is the tax rate assumption going forward for '14, Cindy?

Cynthia L. Lucchese

If you use 30%, you're going to be in the ballpark. What really happened in Q4, that's the quarter that we're truing up all the other quarters for the year, basically. And then we also -- in 2012, as I mentioned, we had some tax accrual releases that helped 2012. But yes, use 30% going forward.

Operator

Our next question comes from John Franzreb with Sidoti & Company.

John Franzreb - Sidoti & Company, LLC

If I look at the gross margin profile for the company in the fourth quarter, it was the lowest of the year. Is that solely the disproportionate impact of Coperion, like Cindy pointed out in her comments? Or is there something more going on in that gross margin profile we need to be aware of?

Cynthia L. Lucchese

Yes. John, it's Cindy. It is definitely just the impact of Coperion. If you look at Batesville, they've had a really good year from a gross margin perspective. And our non-Coperion companies have done well from a gross margin perspective as well. So it's really just the impact of layering Coperion in there. As I did mention, we'll be working on improving those margins, so over time, you should expect those margins to improve.

John Franzreb - Sidoti & Company, LLC

But given the quarterly mix, Cindy, would we -- should we assume that Q4 will be the lowest gross margin quarter of the year going forward?

Cynthia L. Lucchese

No. In fact, we now believe that our fourth quarter is going to be our largest by a long shot, and that relates to Coperion, as I had mentioned in my prepared remarks. But that has been, in the past, about 30% of their revenue has come in the fourth quarter, and obviously, with high volumes, that really can drive nice margins. So you got to think about the fourth quarter being the best from a margin perspective as well.

John Franzreb - Sidoti & Company, LLC

All right, fair enough. And Joe, what's your expectations in those, call it, 2 problematic markets, the potash market and the mining market, in general? What are your assumptions in fiscal 2014 for those base businesses?

Joe A. Raver

So first, I'll address the frac sand market, which is really the -- I think the minerals market or the mining market that's had the biggest impact on us this year. So as I -- Cindy and I have talked about on some previous calls, the 2012 was a really unusual year with this rapid increase in demand in frac sand processing equipment. So this was -- this last quarter was the first quarter that -- or is the last quarter that we'll have a tough comparable. So we're seeing signs in that industry that we'll get back to kind of more normal run rates, and so -- but these kinds of run rates are significantly lower than what we've seen in the past. So in 2012, I think we had about $30 million of frac sand business, which was a big chunk of our non-Coperion Process Equipment Group business, and we're more expecting kind of normal ranges of like a $3 million to $5 million range for frac sand equipment going forward. And then, as it relates to potash, this is a crazy market right now with everything that's going on with the cartels and BHP's investment in the Jansen mine. And so there's a lot of uncertainty in this market. We, however, feel good about this in the sort of medium term. And we believe that whatever happens with the cartels or with the Jansen mine, we'll benefit either from brownfield mines being upgraded, upgrading their equipment to get more efficient, especially given lower prices, or if the Jansen mine or other greenfield investments begin to go forward more aggressively, selling new equipment into greenfield mines. We don't think we'll get both, and so it's really a timing issue for us. We don't have a ton of revenue in 2014, some towards the end of '14 and even '15. But we feel good about that long-term market. But right now, there's just kind of a pause in the marketplace given all the dynamics from a competitive perspective with the producers.

John Franzreb - Sidoti & Company, LLC

Got it. And one last question. What progress has been made in cross-selling opportunities between Coperion and K-Tron? Can you just update us on that?

Joe A. Raver

Sure. So the big opportunity on cross-selling for us in this -- related to this acquisition is selling particularly K-Tron and Rotex products into Coperion systems. We've been happy with the take rate, particularly for Coperion feeders. And as we -- we track, on a monthly basis, the percentage of total feeders sold through Coperion, how many of those are K-Tron. We're ahead of where we had expected to be from a percentage take ratio. Our mix of business has been more heavily on the extrusion system side of the business. So from a volume standpoint, we're a little bit below where we want to be. But from a take rate, we're very happy with what's happening. A little bit longer term, we're looking to sell more of Coperion's product line into certain end markets and certain geographies, particularly food and particularly in North America. Those are a little bit longer-term projects, but we've already undertaken training of our sales -- respective sales organizations. We're starting to integrate the product lines to have a single offering. So we feel really good about the progress on cross-selling products across the different businesses.

Operator

Our next question comes from Robert Marshall with Davenport & Company.

Robert R. Marshall - Davenport & Company, LLC, Research Division

Quick question, where does things stand in terms of taking expenses and costs out of Coperion? And how much of the EPS guidance for 2014 is dependent on those efforts?

Cynthia L. Lucchese

Well, let me just jump in real quick and mention, in terms of Coperion's margin improvement, as we have talked about using Lean, et cetera, we expect, just on an annual basis, a gross margin improvement for them of about 100 basis points. And so that is what we have reflected in our guidance.

Joe A. Raver

Right. And I'll just comment on -- so as you can imagine, we have a list of margin improvement opportunities that we've developed with the Coperion management team. We've sized that list, scoped that list, prioritized the list, and then we're working through that list of opportunities and have numerous -- many active projects right now working to drive margins up in that business. And as Cindy said, we have said for -- since the beginning, that we expect to get about 100 basis points EBITDA margin improvement on an annual basis for the foreseeable future, and we believe we're tracking to that.

Operator

Our next question comes from Steve O'Neil with Hilliard Lyons.

Stephen A. O'Neil - Hilliard Lyons, Research Division

Cindy, could you provide the adjusted Batesville and Process Equipment gross margins for the fourth quarter?

Cynthia L. Lucchese

Sure. So for Batesville, the adjusted gross margin for the fourth quarter was 39.1%, and for Process Equipment, it was 31%.

Stephen A. O'Neil - Hilliard Lyons, Research Division

Okay. And I think you may have alluded to this when you talked about hydraulic fracturing being $30 million versus the normal run rate of $3 million to $5 million. So if I wanted to try and subtract that effect from the year, will I take out maybe $30 million from this year and $5 million from last year to get an idea of what the business did excluding frac-ing?

Joe A. Raver

No. I think what you would do is -- so the $30 million was in 2012, significantly lower than that in 2013. So kind of our run rate for 2013, I think, we had just a tiny bit of frac sand equipment sales in 2013. So what you'd really do is you'd want to add the $3 million to $5 million to the 2013 number to get a notion of the impact that -- kind of rebound in frac sand might have for us in 2014 and beyond.

Stephen A. O'Neil - Hilliard Lyons, Research Division

But if I wanted to compare 2012 to 2013, I should probably take the $30 million out of 2012 and just add almost nothing to 2013?

Cynthia L. Lucchese

Yes.

Joe A. Raver

Yes, a bit less than that. I think it's probably closer to $25 million because we did had a little bit of frac sand equipment at the front end of this year so...

Cynthia L. Lucchese

Product sales.

Joe A. Raver

Probably about $25 million, and that's the equipment sales. Just as a reminder, we continue to sell replacements parts and screens into that industry because these machines are still active in the market.

Stephen A. O'Neil - Hilliard Lyons, Research Division

And then, lastly, you've mentioned the backlog grew 6%. What was order growth in the fourth quarter?

Joe A. Raver

That's a good question. Let me think about how -- would that be -- order growth, we did see a nice uptick in bookings. Let me -- we're just looking at some data here. Is that total Process Equipment Group there?

Cynthia L. Lucchese

Yes. So it grew $25 million. Did you want a percent, Steve? Or did you want -- so the dollar growth was about $25 million.

Stephen A. O'Neil - Hilliard Lyons, Research Division

And that's in Process Equipment?

Cynthia L. Lucchese

Yes.

Joe A. Raver

Yes, that's in Process Equipment.

Stephen A. O'Neil - Hilliard Lyons, Research Division

I guess there really aren't that many orders in the casket area, are there?

Joe A. Raver

Right. We don't really have -- it's not a backlog business, so that's kind of a daily order business. So when we're really talking about backlog, it's all the Process Equipment Group. And so from a sequential basis, we saw a nice uptick from Q3 to Q4 this year, as Cindy mentioned, of about a $25 million increase in bookings for the Process Equipment Group.

Stephen A. O'Neil - Hilliard Lyons, Research Division

Sequentially?

Joe A. Raver

Sequentially, yes.

Operator

[Operator Instructions] Our next question comes from Daniel Moore with CJS Securities.

Daniel Moore - CJS Securities, Inc.

Just focusing on the '14 guidance. $600 million revenue of Batesville, take it -- entirely, literally, it would be down 2% to 3%. Is that sort of a ballpark? Do you expect it to be flattish? Or do you -- is there something that you're seeing that you would expect declines of low-single digits in that business this year?

Joe A. Raver

No, Dan. We just provided some rounded ballpark numbers. But we expect it to be -- as we've said in the past, we expect sort of flattish top and bottom line at Batesville.

Daniel Moore - CJS Securities, Inc.

Didn't know if that was a change, great. And second, what sort of organic revenue growth is embedded for the legacy Process Equipment for K-Tron and Rotex?

Cynthia L. Lucchese

What is embedded for K-Tron and Rotex, yes, and TerraSource as well, I assume?

Daniel Moore - CJS Securities, Inc.

Yes, indeed.

Cynthia L. Lucchese

Yes. So they're all -- they will all have organic growth, I think, on average for those 3, and I don't have that number broken out. But specifically, we're looking at low to -- or mid- to high-single-digit organic growth over time. It'll probably be kind of in the mid-5% to 7% overall for that group.

Joe A. Raver

Yes. I think we're a bit higher in the organic businesses year-over-year from '13 to '14.

Daniel Moore - CJS Securities, Inc.

Got it, okay. And just a couple housekeeping. Cindy, you mentioned $30 million amortization. What is total D&A for next year?

Cynthia L. Lucchese

It'll be $60 million, so about $30 million depreciation and $30 million amortization.

Daniel Moore - CJS Securities, Inc.

And CapEx expectations?

Cynthia L. Lucchese

Yes. Right around -- we spent about $30 million this year. And while it could go up a little bit next year, I think if you use 2% of revenue, that's a good guide, but somewhere north of 30 -- a little bit north of $30 million.

Daniel Moore - CJS Securities, Inc.

And lastly, what sort of GAAP EPS should we be thinking about versus adjusted, in terms of narrowing the gaps, so to speak, between GAAP and what your adjusted numbers will be?

Cynthia L. Lucchese

I do not have that number in front of me exactly. But if you think about the big issues that we would have, we have -- this year, really, the biggest thing for us was the Coperion acquisition, and that greatly impacted it. So after the acquisition, the difference between GAAP and adjusted is going to be fairly insignificant.

Operator

Our next question comes from John Franzreb with Sidoti & Company.

John Franzreb - Sidoti & Company, LLC

Considering you're in the process of digesting Coperion, could you just update us on your appetite for additional M&A in the near term?

Joe A. Raver

Sure. So as you mentioned, we acquired Coperion less than a year ago. From an integration perspective, we've got a lot of the work with the corporate center behind us or well on its way, so things like the financial reporting and the transition from IFRS to GAAP, Sarbanes-Oxley, et cetera. And so much of the work right now is happening inside Coperion and K-Tron. So from a corporate perspective, we have the bandwidth, the management bandwidth to do acquisitions, and so we are continuing to actively look at acquisitions. Our corporate development group has really been very active recently. We do have a significant amount of debt compared to where we typically have been. We're comfortable with the debt that we have right now, but we'd like to see some of that debt paid down here in the near future. So right now, we're actively pursuing acquisitions. Obviously, we won't -- if we have something to tell you, we'll tell you when we have something to tell you, but we're still active. It's an important part of our strategy, both to grow our platforms, as well as to continue to look at strengthening Hillenbrand's transition and transformation to become an industrial products company.

John Franzreb - Sidoti & Company, LLC

Okay. And back to Batesville, could you talk a little bit about the competitive landscape? I know there's been some consolidation in the marketplace. What's the pricing environment there? Are you confident you can maintain the margin profile going forward?

Kimberly K. Ryan

John, this is Kim Ryan at Batesville. In terms of the competitive landscape that we're experiencing right now, we've actually not seen huge shift in the last year, certainly since the transition of one of the major companies to private equity ownership. We continue to see -- this continues to be, long term, a slightly declining market. There is still -- there is certainly price competitiveness in this marketplace. But we continue to believe that we have a different value proposition that we're going to be able to maintain those margins and that we're going to -- and in the meantime, considering the long-term outlook for the market, we continue to be very smart about the investments that we make and the Lean activities and the flexibility that we put in our systems to go up and down with volume as required.

John Franzreb - Sidoti & Company, LLC

Okay. So can you say, essentially, you can maintain the margins going forward?

Kimberly K. Ryan

Yes.

John Franzreb - Sidoti & Company, LLC

That the pricing environment is stable, is that a fair assessment?

Kimberly K. Ryan

Yes, competitive but stable.

Operator

Our next question comes from Steve O'Neil with Hilliard Lyons.

Stephen A. O'Neil - Hilliard Lyons, Research Division

Yes, I thought of one more question. Could you give me the price, volume, currency for the Batesville revenue increment for fourth quarter and for the fiscal year?

Cynthia L. Lucchese

Sure. So let me turn to that page here quickly. For Q4, it was -- volume was a decrease of $3.6 million, rate mix was $2.5 million and then the FX impact was $0.5 million negative. So again, volume was a negative $3.6 million; rate mix, a positive $2.5 million; and FX impact, a negative $0.5 million.

Stephen A. O'Neil - Hilliard Lyons, Research Division

I'm sorry. Okay, positive $2.5 million, price mix; negative $3.6 million, volume; plus $0.5 million, currency?

Cynthia L. Lucchese

A negative $0.5 million currency. And then for the year, volume was a positive $3.8 million, rate mix were a positive $10.4 million and FX was a negative $0.3 million.

Operator

And I'm showing no further questions. I will now turn the call back over to Chris Gordon for final comments.

Chris Gordon

Once again, thank you for joining us today. Our next quarterly earnings call will be in February, when we will discuss our first quarter of fiscal year 2014 results. Have a good rest of the day, everyone.

Operator

Ladies and gentlemen, that does conclude today's conference. You may all disconnect, and have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Hillenbrand Management Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts