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Executives

Chris Gordon - Director of Investor Relations

Joe Raver - Chief Executive Officer, President and Director

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

Kimberly K. Ryan - President, Batesville and Senior Vice President, Hillenbrand, Inc.

Thomas Kehl - President, Coperion

Analysts

Daniel Moore - CJS Securities, Inc.

John Franzreb - Sidoti & Company, LLC

Clint Fendley – NewBridge Group, Inc.

Gary Farber - CL King & Associates

Hillenbrand, Inc. (HI) F1Q 2014 Results Earnings Call February 5, 2014 8:00 AM ET

Operator

Good morning, everyone, and welcome to Hillenbrand's Earnings Call Conference for the First Fiscal Quarter of 2014.

A replay of the call will be available until midnight, Eastern time, Wednesday, February 19, 2014, 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 50525720.

This webcast will be archived on the company's website at www.hillenbrand.com through March 5, 2014. 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 first quarter of fiscal 2014, which ended on December 31. After the market closed yesterday we issued our earnings press release and filed our 10-Q. 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 statement. Please see our latest Form 10-Q 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-Q on the Investor Relations tab of our website at www.hillenbrand.com.

Now let me provide some information regarding our call. We've scheduled one 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. As they are both phoning in from outside the country you may notice some audio quality differences in their phone lines.

If you have follow-up questions after the call has ended, please feel free to call me at 812-931-5001 or email 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 Raver

Thanks, Chris. Good morning everyone and thank you very much for joining us today. As many of you know when we became a public company nearly six years ago we created a straight forward strategy to leverage our strong financial foundation and our exportable core competencies to acquire good businesses and growing markets and make them better.

Through our acquisitions we've transformed Hillenbrand into a global diversified industrial company with businesses in new areas which have attractive growth opportunities. We've worked with our acquired businesses to accelerate their growth through entering in to new markets, expansion into new geographies and serving new customer segments.

We're as excited as ever about the future earnings and cash generation potential of Hillenbrand. We remain focused on leveraging our strong core competencies, lean, talent development, strategy management to accelerate the top and bottom line growth of our acquired companies.

Our balance sheet remains strong, our cash generation capabilities continue to improve. Most importantly I am confident that the initiatives we have underway will yield even greater results in the future providing attractive sustainable returns for our shareholders.

I would like to spend a few minutes updating you on the strategy, performance and results of the Process Equipment Group. As I said before we believe our competitive advantage in this segment is our ability to use industry-leading applications expertise along with core technologies to improve emission critical processes for our customers. The industries we serve engineered plastics, energy, process food, minerals and chemicals are not only diversified but we believe have attractive near and long-term growth prospect as they are geared towards responding to the needs of increasing world population and more importantly a growing global middle class.

Our strategy for 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 this strategy by enabling rapid low cost expansion of our non- Coperion product lines into new geographies using Coperion's worldwide network of manufacturing plants, service facility sales and engineering offices.

We have owned Coperion for a little over a year now and have made significant progress integrating the company. Key corporate areas such as financial reporting, tax, treasury, internal controls legal and human resources have transitioned effectively and are operating smoothly. Significant lean training began shortly after the acquisition and continues to this day. Thus far Coperion is focused on projects that improve efficiencies and eliminate risks both in the office and on the shop floor.

We're very pleased with the improvements we have seen and are excited about the substantial improvements we expect to see in application of lean in the future. We've made good progress in our geographic expansion efforts by leveraging Coperion's global footprint to accelerate our Process Equipment Group operations, particularly in India, China and Russia.

We've been pleasantly surprised with the penetration we've achieved with getting K-Tron included in the Coperion footprint. The customer acceptance rate thus far has been above our initial expectations. We've made progress with leveraging their presence in the U.S. to increase Coperion's sales and look forward to seeing the positive result we expect as this initiative continues to develop.

And finally we have fully combine Coperion and K-Tron with new organizational structure under President, Thomas Kehl. Much of the integration work is behind us and the execution phase is underway. Going forward I will focus my comments on the initiatives that will drive our top and bottom line results. Chief among these will be our initiative to improve Coperion's margins through the application of lean.

Let me now turn to the results for the Process Equipment Group. Revenue increased almost 60% this quarter due primarily to the acquisition of Coperion last December. We are encouraged that backlog continues to grow, but we've $611 million again in the quarter that's a 1% sequential increase from last quarter. Looking forward we are encouraged by the significant interest that's in the Hi open industry in North America which was driven by the availability of inexpensive natural gas.

The companies that are building these projects have been customers of ours for decades and we're confident that we will win our fair share of the projects. Our non-Coperion product lines faced some headwinds this quarter in a couple of key areas. This resulted in a 9% decrease in year-over-year revenue through reduced demand for small systems and equipment in certain end market principally chemicals and engineered plastic.

On the positive side we've seen a gradual increase in quote activity over the past several months particularly related to smaller systems and investments in new pilot and production facilities tied to lower cost raw materials. We remain optimistic about our non-Coperion product lines for 2014, continue to expect attractive mid-single digit revenue growth for the full year.

And the long-term goal prospects remain very attractive across the entire Process Equipment Group as the industries they serve are critical to a growing population and expanding middle class.

Let me now turn to the Batesville business. Batesville continues to leverage its industry-leading position and its advanced expertise in lean to support the company with cash, earnings and talent for our continued growth. As many of you may already know from publicly available statistics the burial rate in North America was down this quarter, primarily due to a decrease in the number of deaths and an increase in the rate of [inaudible].

As a result Batesville's revenue decreased 6% compared to last year. Although we can't control the number of deaths in the quarter we can control our productivity. Despite lower volumes Batesville improved their adjusted gross margin 30 basis points this quarter by its relentless focus on lean initiatives for the past few years to improve both manufacturing and supply chain efficiencies. This is a business that requires very low capital investments and manages its working capital very well.

The success of Batesville management team allows us to consistently generate significant cash to support the execution of our strategy. In the second quarter we expect Batesville's performance to be lower on a year-over-year basis driven by declined burial rate and a large second quarter for Batesville last year.

While the second quarter is historically Batesville's largest quarter year-over-year performance can vary significantly depending on the severity of the flu. Although the flu season here in North America has been active so far this year it's affected primarily the younger population and therefore led to fewer deaths. This was in contrast to last year when North America experienced a significant spike in death due to the flu. In fact we believe the January of last year was one of, if not the largest death months on record. It's important to note that this expected decrease in the second quarter is reflected in our guidance for 2014.

As I've said before the longer-term trends for Batesville show that healthcare continue to improve and people are living longer. The demographics of an aging generation of baby boomers are expected to be a positive factor in the near future. However it continues to be impossible to predict with any measure of certainty what's in store for the North America death rate. As the death care industry continues to evolve Batesville continues implementation of lean and aggressively right size the organization while staying flexible to meet customers' changing needs. Through these efforts we expect Batesville to continue to generate strong cash flow and solid financial result for Hillenbrand.

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

Cynthia L. Lucchese

Thank you, Joe. I'll start by giving a review of our performance for the quarter. Revenue grew 26% year-over-year to $385 million and nearly two-third or $242 million came from the Process Equipment Group and $143 million was generated by Batesville. We saw growth at the bottom line as well with adjusted EBTIDA growing 4% to $53 million.

Now the 26% revenue growth was driven by a strong 58% revenue increase in the Process Equipment Group. This growth was due to the addition of Coperion since this quarter has a full three months of Coperion operations and we only had one month in last year's results for the same quarter.

Revenue in the non- Coperion Process Equipment Group declined about 9% primarily due to softer demand for small systems and equipment in certain end markets mainly engineered chemicals and engineered plastics. Now it's important to reiterate what Joe said earlier, given our visibility in the backlog we still expect this portion of our business to grow in the middle single digits for the full year.

Performance for these product lines is lumpy as we have discussed on many past calls. Now it's typical to see some small quarters followed by large quarters depending upon when large orders are completed and shipped.

And while we are on the topic of the non- Coperion portion of our business I want to remind you that we won't be sharing specific results for this group going forward. Our practice has been to be as transparent period as we can about organic growth when acquisitions cloud underlying results. Now that we have owned Coperion for more than a year, future results will reflect through underlying growth on a comparative basis. We will of course provide pertinent information about the drivers of performance within our Process Equipment Group such as markets, geographies and product lines.

And during our last earnings call we shared with you that we expected Process Equipment Group revenue to be the lowest in the first quarter of this year and the highest in the fourth quarter and I want to confirm that is still our expectation.

Now turning to Batesville, Batesville's revenue for the quarter was $143 million, down about 6% from the prior year or 5% on a constant currency basis and this is due to a couple of factors, lower burial volume and an increase in customers buying ahead of price increases at the end of 2013.

And I also want to give you an little color on expected second quarter performance for Batesville Q2 is historically their largest and we expect that to be the case again this year. However given the very high revenue quarter Batesville had last year, when the number of deaths was the highest it has been in over 30 years, we naturally anticipate a year-over-year volume decrease in the second quarter and it should be somewhat similar to that in the first.

Turning to gross margin, our gross margin dollars increased by over $20 million or approximately $18 million on an adjusted basis. And as a percentage of revenue, gross margin was 34% down about 200 basis points from last year on a GAAP basis and 300 basis points on an adjusted basis. While Batesville's adjusted gross margin was up about 30 basis points to 39%, the Process Equipment Group's adjusted gross margin moved from about 36% last year to 31% this year.

Now as we have discussed with you in the past we expected this shift as Coperion helps us to deliver higher gross margin dollars that have a lower gross margin ratio. And in addition because this is Coperion's lowest revenue quarter of the year lower volumes also impacted the percentage.

Our adjusted effective tax rate this quarter was 29.3% compared to 27.9% in the prior year. The increase was largely due to a prior year tax benefit related to changes in California tax law.

Operating cash flow more than doubled in the first quarter to $46 million. The increase was due to lower working capital levels, primarily in the Process Equipment Group as well as two additional months of earning from Coperion operations. During the quarter we returned over $12 million to Hillenbrand shareholders in the form of quarterly dividend.

Turning to bottom line results for the quarter, net income increased 42% to $20 million with earnings per share of $0.32. The increase was driven by lower acquisition and integration cost related to Coperion in the current year. Now on an adjusted basis net income decreased 15% to $22 million with earnings per share of $0.34. The decrease was largely due to lower volume at Batesville.

Adjusted EBITDA is an important measure we use to monitor our ongoing operating performance since it removes the impact of amortization and interest which naturally results from our acquisition strategy. In this quarter adjusted EBITDA increased 4% to $53 million. Now adjusted EBITDA as a percentage of revenue for Hillenbrand overall was about 14% versus 17% last year. The decrease was expected and results from Coperion's business model as I just said earlier. Our overall adjusted EBITDA percentage is expected to increase overtime as the integration of Coperion continues and lean becomes slowly implemented.

Now turning to guidance we’re reaffirming our full year 2014 guidance. We continue to expect revenue of approximately $1.7 billion for the year and given current exchange rates a minimal translation impact to revenue when compared to 2013. And as we shared with you in November adjusted EPS is expected to range from $2 to $2.10. Now note that this includes roughly $13 million of amortization expense related to Coperion and about $30 million of the amortization expense for Hillenbrand overall.

As we discussed in our last call the fourth quarter is expected to be significantly larger than our other quarters with about 26% to 27% of the revenue and about 30% to 32% of the earnings per share coming in Q4. We discussed in our 10-Q that we filed yesterday that we will have a $5 million investment gain in the second quarter. The gain is from our exercise of warrants related to Forethought, a company that was recently acquired by a third-party and the gain was expected at the time we established guidance and is included in our estimated earnings range.

And since this is my last earnings call with Hillenbrand I wanted to take a moment to say it has been fantastic, being a part of incredible transformation as a company and one of the best part has been the opportunity to work with our investors and analysts. It’s been an honor and a privilege getting to know you and I will certainly miss our interaction. So thank you for your support and friendship over the year and I do hope our path cross again in the future.

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

Joe Raver

Thanks, Cyndi. As a key part of the management team that developed and executed our company’s transformation plan I have been a big supporter and believer in our strategy. In the five months that I have been CEO I had the opportunity to work closely with a variety of our stakeholders, including the management team, customers, investors, analysts and bankers. And I must say I am even more excited and enthusiastic than I was before about the opportunities ahead for Hillenbrand.

We are focused on attractive markets with multiple pathways for growth driven by the long term megatrends of a growing global population and expanding middle class. We expect our core competencies of lean, talent development and strategy management to drive even greater growth on the bottom line and there are number of interesting acquisitions candidates that could help accelerate our growth.

As Cyndi mentioned this is her last earnings teleconference with Hillenbrand. On behalf of the entire company I would like to thank her for all she has done to create a public company that has truly transformed itself from the $600 million North American casket manufacturer to $1.6 billion global diversified industrial company. Cindy has a passion for the company that has influenced everyone who has worked with her. Thank you, Cindy for your efforts on behalf of the company.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We’ll take our first question from Daniel Moore with CJS Securities. Your line is open.

Daniel Moore - CJS Securities, Inc.

Good morning and thanks for taking the questions. First off I just wanted to say Cindy thank you very much for all of your help over the last few years. It's been a pleasure and I wish you the best of luck. I wonder if you could update us on progress in many of the polyolefin projects in North America, Joe are many or most still on schedule, what's the pricing environment like and when should we expect to hear more about potential awards and may be think about when the timing of when we may start to begin contributing more meaningfully to revenue beyond the initial project you were awarded last year?

Joe Raver

Hi, Dan. So we still remain very positive about the capital expenditures that are in process here in North America based on the lower priced natural gas. The projects have pushed out a little bit in terms of the timing of the orders, however we've checked with our customers and in the industry we don't see any structural issues, no big permitting issues, no big capital issues for customers.

So the projects are continuing to move forward. We expect to start to see some of these orders close in the next couple of quarters and so again we remain very positive about what's happening in North American, continue to expect to win our fair share and no big changes in terms of pricing expectations or the competitive environment at this time.

So again a very positive story, I think still North America and we expect over the next couple of quarters to start to see some of these relatively large projects to close.

Daniel Moore - CJS Securities, Inc.

Very good and perhaps in the non-Coperion K-Tron business, mid-single digit growth for the full year implies obviously a significant pick up in H2 in terms of growth. What gives you the confidence there and what are some of the key end markets where you see visibility to improve growth in the back half of the year?

Joe Raver

Well as you, I think as you are aware last year the markets were relatively flat and so we've seen an increase in quotes over the last couple of quarters. We've seen an increase in bookings over the last couple of quarters. And so we're pleased the backlog continues to grow, the small systems where we had -- we do a number of sub systems, we haven't seen much demand for those in 2013 particularly the first two or three quarters of 2013. We're starting to see interest in those pick back up.

So I think we're seeing good demand in the plastics industry, solid demand in the parts, particularly spare parts in coal power and coal mining, the potash industry is a little bit frozen right now but we see -- we continue to see good order activity there. And so we remain positive for the last three quarters of the year on the non-Coperion businesses.

Daniel Moore - CJS Securities, Inc.

Okay. And lastly up till to this point the strategy has certainly been to utilize the strong cash generation to pay down debt from the acquisitions that you've made. Given the opportunity that you see ahead and given the stock trading at about 11 times our estimates of cash earnings for this year, have you given thoughts of taking some of that cash flow and perhaps buying back shares or returning cash to shareholders a little earlier than you might have thought previously.

Joe Raver

Well we certainly always consider that and we constantly evaluate the best way to use our cash flows. I think you see -- we've been paying down debt with cash flows that we've been generating here recently. We would like to continue to pay our debt down to maintain a strong balance sheet, but certainly always consider the possibility of share buybacks to return cash to shareholders.

And so we'll continue to evaluate that as we move forward. But we feel good about right now about our cash flow and really focusing on bringing debt down but also always considering the possibility of buying shares back.

Daniel Moore - CJS Securities, Inc.

Appreciate it. Cynthia I apologize for cutting you off. Thank you once again and I'll jump back in queue.

Cynthia L. Lucchese

Thank you, Dan.

Operator

Our next question comes from John Franzreb with Sidoti. Your line is open.

John Franzreb - Sidoti & Company, LLC

Cindy, good luck on your future endeavors.

Cynthia L. Lucchese

Thank you.

John Franzreb - Sidoti & Company, LLC

Joe just to backtrack on your answer to the previous question, corporate legacy business was down 9%. But you cited in the Q that plastics one of the reason it was down but you also just said that that's one of the growth drivers going forward. Can you kind of reconcile those comments what we were seeing in last quarter and what you expect going forward?

Joe Raver

Yeah sure so if you -- so there’s couple of things; there’s quotations at the very start of the process, then it turns into bookings, then it turns into revenue. We saw little bit of softness in the compounding business, plastic business in 2013. We’ve seen activity pick up there. So we’ve seen increased quotes and increased bookings coming into 2014. So we do expect some solid growth in that part of our business through 2014.

And again that’s driven by increased consumer demand, things like housing and automotive and some of those types of things that are growing around the world as well as in the U.S.

John Franzreb - Sidoti & Company, LLC

Now Joe are these smaller systems orders, are they part of the backlog or is it kind of quotation activity that you have a feel for going forward?

Joe Raver

If we book the order it becomes part of our backlog. The smaller systems typically have two quarter kind of lead times. So they go from order to revenue in two or three quarters. Think about the larger systems, that Coperion does more in the four to five quarter timeframe from the time of bookings over time the equipment is delivered.

So they have a little bit shorter lead time. Many times their sub systems are part of a larger system, maybe a refill system or something that’s part of the larger system and maybe more towards the end of the project.

John Franzreb - Sidoti & Company, LLC

Okay, great. And given some of the restructurings that you already executed in Coperion, can you give us a sense of what your gross margin target for process will be, let’s call it 2-3 years down the line?

Joe Raver

Sure. We’re right now kind of in the mid to high 20s in terms of gross margins in the Process Equipment Group. I mean go forward Coperion it takes on it’s a bit higher than that across the entire group in the low 30s right now. We expect that margin to increase. We’ve looked at from an EBITDA margin perspective we’re expecting in the Process Equipment Group EBITDA margins to grow about 100 basis points a year over the next few years and so good portion of that is at the gross margin line. But we certainly expect gross margin to improve as we go forward particularly as relates to our efforts on the lean front to increase efficiencies in those businesses.

John Franzreb - Sidoti & Company, LLC

Okay, great. And just on Batesville down revenue was no surprise; up margin, gross margin was actually not a surprise either. You talked about productivity improvements for quite some time. I wonder if there’s any benefit on mix at all. I know you have been trying to upsell on different product lines and also improve some of the services side. Have you seen any traction on that front or is that something that has just not turned out as you had hoped?

Joe Raver

Mix has been for at least a decade probably longer, mix has kind of been trending down across the industry. It moderated somewhat in the past quarter, we had mix was slightly down when we do kind of price volume mix analysis, mix was slightly down in the quarter but it’s leveled out a little bit compared to the pace it was dropping in the previous year. So we continue those efforts, there’s a constant battle to keep mix up in an industry that’s trending down on a natural basis but we continue to try to innovate products, particularly above our average price point, make sure that mix stays strong in the business.

John Franzreb - Sidoti & Company, LLC

Okay, thank you very much Joe and go lucky Joe again, Cindy.

Cynthia L. Lucchese

Thank you.

Operator

Our next question comes from Clint Fendley with NewBridge Group. Your line is open.

Clint Fendley – NewBridge Group, Inc.

Thank you. Good morning Joe, Cindy, Kim and Chris.

Joe Raver

Hi, Clint.

Clint Fendley – NewBridge Group, Inc.

Hey guys. I guess first of obviously best wishes to you Cindy. It’s been great working with you the last five years and all the best to you and your family.

Cynthia L. Lucchese

Well, thank you, Clint.

Clint Fendley – NewBridge Group, Inc.

I think it’s probably a Kim question here first off. I am wondering just over the longer term at Batesville how you guys are thinking about your capacity. I guess in light of a market that has continued to show slight declines, is there an opportunity to continue to shift more of your work to other plants possibly Tennessee or other locations?

Kimberly K. Ryan

Hi, Clint it's Kim. Hopefully you can hear me. I am calling from out of country. So hopefully I am coming in clear. As it pertains to capacity for whether it’s our service footprints or our manufacturing footprint, that’s constantly analyzed and we do have a long term game plan that we play out and we found key trends that we see on a macro basis and then also what we are seeing in terms of product mix from year-to-year we've mapped that out. And basically we have a long-term for what we need to do to rationalize our different pieces of our capacity and we continually do that.

So for instance once in a while you will see step changes that we did when took a shift out of Batesville a year ago now. But we know what the long-term plan is both for service and for manufacturing in order to be targeting the 40% margins that we are aiming for to be able to maintain that over the long-term.

Clint Fendley – NewBridge Group, Inc.

Okay. Fair enough. And I guess secondly probably for you, Cindy I am wondering would the $5 million gain that's expected next quarter from Forethought shown as -- you expect to show that as a non-recurring item or is that something that's included in your guidance?

Cynthia L. Lucchese

Yeah Clint that is included in our guidance. And I'll remind you we have had a number of ups and downs with the limited partnership and other investments that we got as part of the spin from our former parents. And what our practice has been is we include any of those earnings in our regular ongoing earnings and we have not adjusted those out. And this Forethought warrant is one of those items.

Clint Fendley – NewBridge Group, Inc.

Okay. Fair enough. That's all I have, I'll get back in the queue, thank you guys.

Joe Raver

Thanks, Clint.

Cynthia L. Lucchese

Thank you.

Operator

(Operator Instructions). Our next question comes from Gary Farber with CL King. Your line is now open.

Gary Farber - CL King & Associates

Yeah. Hi, good morning. And thanks again Cindy for your help. I just had a few questions. One was just on the environment for acquisitions going forward. Can you sort of tell us how the pipeline looks like, how you are thinking about it?

Joe Raver

This is Joe, Gary. It's an interesting transition, I'll just take you back four or five years ago when we first did the spin and become a public company. Particularly in the industrial space when we would contact companies about acquisition to be part of our process they sort of scratched their heads and said what are these guys doing. You fast forward a few years later we have a very strong pipeline and we get a phone call if somebody is interested in selling the business or create some sort of a partnership, we tend to get a phone call.

A couple of years ago we also hired Scott George as our Vice President of Business and M&A Corporate Development. He has got a vast network of bankers around the world and as well as industry connections. So we really have seen a very robust pipeline of acquisitions candidates really of all sizes, kind of large businesses, medium businesses, small businesses. Right now the environment is such that sellers tend to want the higher multiples than what buyers tend to want to pay and so we are seeing a little bit of that in the marketplace.

But we have an active acquisition program. We actively are looking at businesses and it's unlikely that you will see us to do anything significant in the near-term based on us wanting to pay debt down. Also the Coperion and the K-Tron businesses are very busy on their own integration and continuing to come together. We are active and have a very strong pipeline right now.

Gary Farber - CL King & Associates

Okay. And another question was you merged K-Tron and Coperion pretty recently. Can you give us any updates on how that's going?

Joe Raver

Sure. I think it was one of things as we look at these businesses, we knew that these businesses were closely aligned in terms of end markets and geographies and customers. I think on the corporate side we were a bit surprised at how aligned these businesses are and really how tightly they work together in servicing end markets and customers. And so it really made a lot of sense. There is not a lot of duplication in terms of product line. Historically K-Tron is very much a feeders, and pneumatic conveying company.

Their pneumatic conveying tended to be smaller systems, so think about the -- one way to think about it is a diameter of a pipe and so they tended to do pipes that were just let's just say small, so six inches or less. Coperion tended to projects with pipes that are big, 8 inches or larger and so it's a very nice complementary fit really across the board.

Thomas Kehl was named the leader of that combined group. He has brought the management teams together. So he now operates with a single management team. We've made some brand transition and customers have responded very well to the combination of Coperion and K-Tron.

So it's going quite well. We feel really good about the activities that have taken place so far and both of the companies have strong brands. And so it was really nice for the K-Tron people who have great a brand, to be associated with Coperion which also had a very strong brand in the industry. So we're very happy with what's going on right now.

Gary Farber - CL King & Associates

Right. And what -- a question on Batesville, you touched on Batesville sort of having or being down also in the second quarter. Are you referring to sort of the growth rate or more just the absolute dollar amount is going to be similar in the second quarter?

Joe Raver

We look at the year-over-year -- so we really look at the Batesville business because there is some seasonality associated with it on a year-over-year basis and the second quarter is typically the largest quarter for the Batesville business primarily because it's when the most deaths happen due to flu. And as we said in our prepared remarks and as you can see publicly flu, while there is an active flu season the strain of flu that is in the market or I should say in the U.S., in the North American geography right now is a flu that doesn't have a ton of mortality associated with it.

And so last year we had a flu that had a lot of mortality and we saw a big spike in deaths. Thus far this year we have not seen that same big spike in deaths that we saw last year. It's a more typical kind of flu season this year. So on a year-over-year, quarter-over-quarter comparison now we can't -- if it changed tomorrow we can't predict the future but thus far we've seen a relatively modest flu season compared to last year.

Gary Farber - CL King & Associates

Right, okay so it's my interpretation it's going to be down year-over-year, the growth rate being down, it was down somewhat 6% in the first quarter, it could be down less than that in second quarter, could be down similar, is that a fair way to look at it?

Joe Raver

Yeah, I think that's a fair way to look at it.

Gary Farber - CL King & Associates

Okay. And then just wanted two more, just on the backlog, can you just sort of give a sense of the backlog was up slightly, is there any way to get a sense of like what the inbound was in the quarter, sort of what you ran off, even if we can't get into details just to give some kind of direction to sort of understand what's underpinning within that backlog?

Joe Raver

Sure. So in the backlog I think the way to think about our backlog on a sequential basis is it's up slightly. We didn't see any major shifts on a sequential basis from product line to product line or business to business. And so it's relatively across the board increase in backlog, so pretty stable backlog. We didn't have any really large, super large projects closed in this past quarter. So there wasn't a big impact of any $50 million projects or anything like that closing.

So I think what it says is the base business is in pretty good shape and we expect the backlog to grow as the year goes on. The challenge with backlog looking forward is we do have a number of large projects particularly as it relates to the polyolefin plant that the timing is uncertain and they can move -- they can be $30 million, $40 million, $50 million projects and so they can move around a little bit on us and have a big impact on backlog.

But generally pretty stable across the board and we expect continue to increase as the year goes on.

Gary Farber - CL King & Associates

But you would say even given those variables you think your current guidance encompasses that?

Joe Raver

Yes.

Gary Farber - CL King & Associates

Right, okay. I think that's all I have for now, but thank you.

Joe Raver

Thank you.

Cynthia L. Lucchese

Thank you.

Operator

Our next question comes from Daniel Moore with CJS Securities. Your line is open.

Daniel Moore - CJS Securities, Inc.

Thank you again. We've talked a lot about the opportunities in North America, hearing a lot more nervousness in mix manufacturing data out of China, what are you seeing at Coperion in that key market, what are your expectations for growth may be a potential contraction over the coming years or I should say over the coming year or two?

Thomas Kehl

Yeah, this is Thomas.

Joe Raver

This will be a great question for Thomas to answer. Go ahead Thomas. Sorry to interrupt.

Thomas Kehl

Market in China has been growing at a significantly high rate year-over-year the last year. And currently we do see somewhat a slowdown in that growth. However the market is still growing and the reason you are seeing for that is the automotive industry was blooming and it's now going back to a more normal growth but still probably bigger than other regions in that respect. Also that the government in China is controlling the credit lines and the financing opportunities for our customers and that causes somewhat a delay, but we still do see growth and we are confident that we are returning back to the growth rates that we have seen for many years.

Daniel Moore - CJS Securities, Inc.

Okay, very good. And then Joe you mentioned some hundred basis points of sort of margin EBITDA margin uplift per year would be a goal to think about. Was that Coperion specific or the overall Process Equipment Group?

Joe Raver

That's across the Process Equipment group and just to put it into perspective, I mean we really expect and really are seeing margin improvement across the group on a year-over-year basis. So it's really across the group. But as you know, I mean Coperion, breaking out the Coperion K-Tron sort of combined business is really the vast majority of that process equipment group, it's the biggest chunk. But we do expect to see margin improvement across all the businesses inside the Process Equipment Group In this fiscal year.

Daniel Moore - CJS Securities, Inc.

That's great and lastly what was organic growth at Coperion in the quarter? I know this is the last time you are breaking them out.

Cynthia L. Lucchese

Yeah, so organic growth at Coperion I will remind you from the last call that this quarter was substantially lower than the quarter a year-ago because the quarter a year-ago was actually a year-end quarter and the year-end, that's where we see the big push due to hitting plan at month's end et cetera. So they were down in the low single digits, call it 10% or something, 10% to 12% in the quarter but it was largely due to the fact that we are comparing an apple to an orange here in terms of quarters.

Joe Raver

Right, and so Dan just a little more color on that, what you will see in how our second quarter which was there last year so because the end the year, so we had a relatively low second quarter last year, so you will see more year-over-year growth in our second quarter this year because that was their first quarter last year, their historical first quarter.

Daniel Moore - CJS Securities, Inc.

Understood, so it's just in time for Coperion. Obviously there is a push for orders in that last quarter that didn't take place this year.

Cynthia L. Lucchese

That's right, and let me just add real quickly Dan, that as we sit I will reiterate that we expect a nice mid-single digit organic growth rate for Coperion for the year.

Joe Raver

Yeah.

Daniel Moore - CJS Securities, Inc.

Okay. Thank you once again.

Joe Raver

Thanks, Dan.

Operator

(Operator Instructions). Our next question comes from John Franzreb with Sidoti. Your line is open.

John Franzreb - Sidoti & Company, LLC

Yeah, Cindy, couple of quick questions before you ride off into the sunset. The $5 million one-time gain, that's $5 million is a pretax number?

Cynthia L. Lucchese

Yes, that's pretax.

John Franzreb - Sidoti & Company, LLC

Okay, what is your depreciation and amortization and expectations for this year and also your CapEx budget?

Cynthia L. Lucchese

Okay, so depreciation and amortization should be roughly $30 million each. So $60 million in total, $30 million each. It comes to CapEx we spent somewhere in the neighborhood of $30 million last year. We expect to spend a little bit more this year. We talked about using 2% of revenue as a good guide, but I would say somewhere little bit north of $30 million but not a lot.

John Franzreb - Sidoti & Company, LLC

Any meaningful projects there?

Cynthia L. Lucchese

There are no meaningful projects in there, a lot of that is just more or less maintenance CapEx.

John Franzreb - Sidoti & Company, LLC

All right, thanks a lot Cindy.

Cynthia L. Lucchese

You are welcome.

Operator

We have no more questions. I would now like to turn the call back over to Chris Gordon for final comments.

Chris Gordon

Once again thank you everyone for joining us today. I would like to remind you that our annual shareholders meeting is scheduled for Wednesday, February 26th at 10 AM. And our next quarterly earnings call will be in May when we will discuss our results for the second quarter of fiscal 2014. Have a good rest of the day everyone.

Operator

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

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