Hillenbrand's (HI) CEO Joe Raver on F3Q 2016 Results - Earnings Call Transcript

| About: Hillenbrand, Inc. (HI)

Hillenbrand, Inc. (NYSE:HI)

F3Q 2016 Earnings Conference Call

August 4, 2016 08:00 AM ET

Executive

Joe Raver - President and CEO

Kristina Cerniglia - CFO

Analyst

Daniel Moore - CJS Securities

John Franzreb - Sidoti & Company

Liam Burke - Wunderlich Securities

Operator

Good morning, everyone, and welcome to Hillenbrand's Earnings Teleconferencing for the Third Quarter of Fiscal 2016. A replay of this call will be available until midnight Eastern August 18, 2016, 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, 42034114. This webcast will be archived on the company's website at www.hillenbrand.com through September 03, 2016.

If you ask a question during today's call, 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 is my pleasure to turn the conference over to Joe Raver, President and Chief Executive Officer of Hillenbrand. Mr. Raver, please go ahead.

Joe Raver

Thank you, Operator. Good morning and thanks for joining us on our third quarter fiscal year 2016 earnings call. Kristina Cerniglia, our Chief Financial Officer is on the call with me today.

Prior to getting into our prepared remarks about the business, I would like to remind you that during this call, we may use certain forward-looking statements that are subject to the Safe Harbor provisions of the securities laws. These statements are not guarantees of future performance, and our actual results could differ materially. Also, during the course of this call, we will be discussing certain non-GAAP operating performance measures. I encourage you to take a look at our 10-K, which can be found at our website for a deeper discussion of forward-looking statements and the risk factors that could impact our actual results. More information on our use of non-GAAP operating measures and their reconciliation to GAAP financial measures, please refer to our 10-Q and the slide presented with this call.

Okay. So today, we’ll discuss our third quarter results and provide an update on our outlook for the rest of the fiscal year. I’d like to begin as I usually do, with a few comments about our strategy. We remain committed to transforming Hillenbrand into a world-class, global diversified industrial company; seek to leverage our strong financial foundation, and the Hillenbrand operating model to deliver sustainable profit growth, revenue expansion and free cash flow.

We reinvest our cash in growth initiatives to strengthen our existing businesses, as well as in strategic acquisitions to further develop our industrial portfolio and build leadership positions in attractive end markets. Central component of our strategy is the Hillenbrand operating model, a framework and process that we believe helps produce consistent and sustainable results across our business. We leverage management practices that have been among Hillenbrand’s strength for years, such as our strategy management process, lean business practices, and intentional talent development, and Hillenbrand has grown and evolved.

We’ve enhanced our operating model to increase its impact on our business by incorporating management practices such as 80-20 and voice of the customer. We use the Hillenbrand operating model to bring focus to the critical few things that we think will have the greatest impact on creating sustainable value for our shareholders.

We’re transforming Hillenbrand into a diversified industrial company, serving end-markets around the world, where we see the potential for long-term profitable growth.

Let me begin the discussion of our results with a few highlights from our third quarter performance, followed by an overview of our outlook for the balance of the year. I’ll then turn the call over to Kristina to take us through the financial results for the quarter and the details of our guidance.

Most of you know many of the markets we serve have had significant challenges this year. Those conditions persisted in the third quarter, and we experienced continued soft demand. Order volume and revenue were down year-over-year as a result. Despite the volume shortfall, we were able to drive margin improvement in both Batesville and the Process Equipment Group, helping us deliver adjusted EPS that was slightly higher than the prior year and better than our expectations for the quarter.

Margin performance continues to be a bright spot for us. Additionally, we had another quarter with robust operating cash flow. Batesville continues to execute very well against its strategy and delivered strong results for the quarter. Despite lower revenue, productivity improvements enabled the business to improve margins again. (inaudible) team continues to simplify the business and take cost out and the results are coming through in the P&L. This was the fourth quarter consecutive quarter we have seen year-over-year improvements in gross margin.

Of course our strategy for Batesville goes further than simply improving operational efficiencies. Despite the challenges of operating in a burial market characterized by secular decline, we continue to pursue opportunities to grow the business profitably and we are investing in very focused areas, where we think we can improve our ability to serve our customers and drive profitable growth.

In the Process Equipment Group, revenue was down compared to the prior year. We continue to face very weak demand for equipment used to process proppants for hydraulic fracturing, develop parts and equipment used in coal power and mining. In addition, we experienced lower volume during the quarter for large capital equipment and systems used in the plastic (inaudible). Still the process equipment group delivered another quarter with year-over-year margin expansion despite this lower volume.

That margin performance was driven partly by the changes we are making through the application of the Hillenbrand operating model and partly by a favorable product and business mix. The integrations of our two recent acquisitions in flow control remain on track, as Red Valve completed its first full quarter as part of Hillenbrand. Those businesses also contributed positively to the overall margin performance for this quarter.

Turning to our outlook, as you saw on our press release last evening, we’ve lowered revenue and EPS guidance for the fiscal year. Let me take a few minutes to discuss our outlook and the logic for this change. The decision was driven primarily by the delayed timing of large systems orders during the quarter.

You’ll recall that we had a pretty solid first quarter in terms of closing big projects related to engineered plastics and base resin. In the second quarter, orders for similar projects were lower than we expected and contributed to our decision to guide to the low end of our range for revenue and EPS. That time we knew we had to close a few big orders to meet our revenue goals for the year, but we still had visibility to a solid project pipeline and we were starting to see the backlog build.

Fortunately that trend did not continue this quarter, and we did not get the sequential growth we were expecting from large projects. Sequentially, order volume was down slightly, backlog was basically flat. As a result, revenue this quarter along with our expectations to revenue in the fourth quarter are below our prior estimates.

I want to be clear that the issue is not the projects have cancelled or that we’ve lost them. In fact the number of projects being planned remains reasonably healthy. Most significant factor that the decision cycles for many of these large projects have lengthened, causing project timelines to push out. Customers are exercising added caution as it relates to capital investments. Projects are still planned and our outlook remains positive, however our experience with projects pushing out and the extended timelines for customers to reach final investment decisions have caused us to lower our forecast for the revenue we expect to generate over the next couple of quarters.

As I mentioned earlier, demand for equipment in several of our key end markets remains very low, and in general demand in the industrial sector remains low. We do not expect that to change dramatically in the near future.

I want to point out that even though orders were below our expectations, order volume has been relatively flat for the past few quarters. We are seeing some level of stabilization in the process equipment group end market. We continue to battle these market headwinds by aggressively managing our costs, executing on our previously announced restructuring plans and applying the Hillenbrand operating model to protect the bottom line.

So with that, let me turn the call over Kristina for a bit more color on the results this quarter and the revised guidance.

Kristina Cerniglia

Thanks Joe and good morning everyone. As we reported yesterday, we delivered revenue of $371 million in the third quarter, that’s down 7% from last year. Batesville was down 3% and the Process Equipment Group was down 9%. GAAP net income of $31 million was 4% lower than the prior year resulting in earnings per share of $0.48. Adjusted net income of $34 million was about 2% higher than prior year and resulted in adjusted earnings per share of $0.53.

Despite the lower revenue, adjusted gross profit finished $4 million or 3% higher than the prior year, an improvement of 380 basis points. I’ll talk more about margins as we get in to this segment. Adjusted EBITDA of 67 million increased 1% and EBITDA margin increased 150 basis points to 18.1%.

Our adjusted effective tax rate for the quarter was 26.6%, 380 basis points lower than the prior year. The decrease in the rate was primarily due to a favorable geographic mix of pre-tax income. We now expect our adjusted affective tax rate to be approximately 29% for the full year, which is slightly lower than historical rates.

The balance sheet remains healthy and we delivered another strong cash flow performance in the third quarter. Operating cash flow of $103 million was $37 million higher than last year, largely as a result of the timing of changes in our working capital. Year-to-date operating cash flow of $190 million is significantly better than prior year.

As you will recall, last year we had a substantial use of working capital for large projects in the Process Equipment Group, as well as payments related to the conclusion of litigation settlement.

During the third quarter, we paid down $74 million of debt. We also returned nearly $13 million to our shareholders in the form of cash dividends, and we bought back 412,000 shares of our common stock for a total cost of approximately $13 million.

Turning to the next slide, I will discuss segment performance beginning with the Process Equipment Group. Process Equipment Group revenue of $231 million in the quarter was down 9%. The recent acquisitions contributed approximately $17 million, though organic revenue was down 16%.

Many of our key end markets including mining and hydraulic fracturing continue to deal with the depressed demand we have faced throughout the year. Parts and equipment sales in to those markets are down as a result. We also experienced softness in the demand for large projects in the plastics industry. As Joe mentioned, the timing of those projects has shifted. That shift is largely attributable to orders being pushed in longer customer decision cycle.

Order backlog of $524 million was essentially flat compared to the second quarter and 3% lower than the prior year. The lower backlog is being driven by weak demand for crushing and screening equipment used in mining and in the processing of proppants for hydraulic fracturing. The decreases in those areas are partially offset by increased backlog for projects in the plastics industry compared to the prior year.

However we expect to see more of these plaster projects come in during the third quarter and build our backlog. The Process Equipment Group adjusted gross margin was up 510 basis points to 38.9%, and adjusted EBITDA margin of 18.1% was up 90 basis points over the last year. The margin performance was influenced by a number of factors in the quarter. We continue to drive productivity initiatives to increase efficiency and eliminate unnecessary cost. That’s in our DNA and it’s something we will always pursue.

Price was a positive for us this quarter as well, and we are growing more disciplined in that area, especially as it relates to equipment and parts where we invest significant engineering and applications expertise that creates significant value for our customers.

Finally, we experienced very positive product and business mix in the third quarter. Part of that is related to our focus on higher margin product lines including our aftermarket parts and service businesses, and some of it is attributable to our expanded portfolio with higher margins from the flow control businesses we acquired.

Another factor that was fairly significant this quarter was the lower portion of revenue from large system projects. Given the sluggishness in the large projects, we have been very focused on delivering small to mid-sized projects and spares, which are shorter term but higher margin. We don’t expect the margin business driven by mix this quarter to continue. We expect to see the mix shift and margins return to a more normal level next quarter, as more of those large projects flow through.

Moving to the Batesville business, revenue for the quarter was a $140 million, which was down 3% from last year. The decrease was driven by lower burial unit volume tied to the estimate increased rate at which families opted for cremation. Despite lower volumes, the efficiency of our plans and logistic systems has been excellent.

Adjusted gross margin of 38.5% for the quarter was up 130 basis points from last year, and adjusted EBITDA margin of 24.7% was up 250 basis points, as a result of productivity efforts across the supply chain, lower commodity and fuel costs, as well as the restructuring actions that we initiated earlier in the year.

We are always looking to stay ahead of the cost curve and the Batesville team has worked really hard this year to simplify the business and take cost out. As many of you know, Lien is a never ending dream journey for the Batesville teams and they are doing an excellent job protecting their market leadership and profitability in a challenging market.

With that let me turn to our guidance for the rest of fiscal 2016. As we look forward, we are adjusting our guidance in response to lower revenue expectations for the year. As discussed, we have not closed the number of large systems related projects we expected. Additionally, we do not foresee demand bouncing back in the near term for the industrial markets that we serve.

We are lowering guidance and narrowing the range from adjusted EPS for 2016 to 198 to 205, versus our previous guidance of 205 to 215. We now expect revenue to decrease 5% to 7% organically in constant currency. Previously, we had expected organic revenue to be down 2% to flat. With the acquisitions of ABEL and Red Valve, total revenue is expected to decrease 1% to 3%. That is down from the previous range of 2% to 4% growth.

Revenue growth from the Process Equipment Group is projected to be down 6% to 8% organically, and Batesville is expected to deliver revenue that is down 4% to 6%. Our revenue guidance is based on constant currency growth rates and assumes approximately 2% of negative translation effect compared to fiscal 2016.

Finally, we remain very focused on executing on our previously announced restructuring activities, and aggressively managing cost in response to the challenging end markets. We continue to make good progress on the plans we shared earlier in the year. We expect to achieve the targeted savings from restructuring of approximately $10 million on an annualized basis, with an estimated benefit of $4 million in 2016 as previously outlined.

We believe the resulting footprint reduction and headcount actions will make our operations more efficient and cost effective. That is up (inaudible) effectively as market demands return.

Clearly we are disappointed to have to lower guidance, but I want to plan that there are a number of positives in the business as well. We continue to execute on initiatives to drive margins higher and improve free cash flow. We also maintain visibility to a solid pipeline of projects in the plastics market, and we remain optimistic about long term demand across the business.

At this time, I will turn the call back to Joe for his concluding remarks.

Joe Raver

Thanks Kristina. This has been a challenging year for Hillenbrand and in particular for our Process Equipment Group businesses. The global macroeconomic environment remains sluggish in certain end markets including North American burial caskets that faced considerable headwinds.

Don’t expect significant improvement this fiscal year, but our focus remains on executing our strategy. We continue to work through our restructuring plans to protect our profitability, better position our businesses and return to growth when markets improve. It’s difficult to predict how quickly that improvement will come, but we remain confident that we are on the right strategic path. We’re focused on attractive markets with multiple pathways for growth, driven by long term megatrends of a growing population in an expanding middle class.

We expect the Hillenbrand operating model to help us continue to improve margins across the business and drive accelerated growth on the bottom line. Our journey to transform Hillenbrand in to a world class global diversified industrial company will not always be easy, but our management team remains committed to the long term strategy that we believe will help us achieve that goal and provide an attractive return for our shareholders.

That concludes our prepared remarks for today, and we’re ready to take your questions. Operator would you please open the lines?

Question-and-Answer Session

Operator

[Operator Instructions] our first question comes from the line of Daniel Moore from CJS Securities. Daniel your line is now open.

Daniel Moore

You obviously gave pretty good color as it relates to some of these larger projects largely plastics and polyolefin related that are being pushed to the right. Can you give us - just spend a minute from a macro perspective what is it that is causing those delays and how much visibility do you have that some of the projects that you’d hope to close in Q3 might close in Q4, and I have a quick follow-up.

Joe Raver

Sure. So I think we talked about it in the first quarter if you’ll recall. We felt like demand was pretty and we closed a number of larger projects, we saw oil prices rebound. As you know a lot of our larger customers with these big projects are in the energy space as well as the petrochemicals and plastics space, and I think since the last quarter or so we’ve seen a decline in oil prices. If you can think about some of those larger customers you just saw what their latest earnings were and so a lot of those large companies are having significant profitability challenges right now.

Now I would say that I think the plastics parts of their business are doing pretty well, demand is pretty good and I’ve read in some of their press releases that those are some of the more profitable parts of the business. But what we’re really seeing is through that elongation of approval for capital spend, we felt just a little bit last year, I think we’re seeing it again.

As I mentioned in the prepared remarks, we are not seeing projects cancelled. Typically by the time we are involved, the project is pretty far long, they’ve already invested quite a bit of money. So it’s unusual for the project to cancel, except the project push out.

With said, we’re talking to the customers every day or every week and we’re really in close communication. And while it’s certainly hard for us predict exactly when the projects will close, we feel reasonably good that this is not - these are not going to push-out forever that it’s a matter of months or quarter or two that they push out rather than years that they push out.

So, while we can’t predict exactly what’s going to happen, again we’re still doing engineering work for these projects, we’re talking to customers on a regular basis and we still expect these projects to close over the next couple of quarters.

Daniel Moore

That’s helpful. And in terms of Q4, its always sort of a critical quarter dependent on equipment shipping. How comfortable or confident are you in kind of the revised guidance and how dependent enough is that on having a good quarter in terms of equipment deliveries.

Joe Raver

Well certainly we have to deliver and execute during the quarter. So as we look in to the fourth quarter, you know part way in to the fourth quarter. Most of what we have to get done in the fourth quarter is in the backlog and we need to execute it and ship it. There can be some customer delays, but largely it’s us executing and shipping.

We do expect to close some projects during the quarter, but it’s not going to be a big driver of revenue of profitability in the fourth quarter. So, we have pretty decent visibility in to the quarter and feel pretty good about the fourth quarter achieving our expected results in the fourth quarter.

Daniel Moore

And lastly and I’ll jump back in the queue. It’s a little early to be talking about fiscal ‘17, but at the same time, the environment remains soft here near term. We also have exceedingly easy comps and if some of these larger projects do come through and through its reporters, you could be setting up for a materially improved organic revenue growth in the process equipment side in ’17. Talk about your confidence and sort of getting back to a positive organic growth platform or plain over the next three to five quarters.

Joe Raver

Yes. Let me answer that question through the Hillenbrand level first and then go down a little bit in to the segment. I think we’ve had a really strong year - margin year Batesville casket. I think the team has done - Chris Trainor and his team have done a very nice job in terms of efficiencies and running the business in a more simplified manner that we can effectively serve our customers. And so we’ve had a tough topline year though on the Batesville side. If you remember last year, we had a strong flu season and so we had a pretty depressed top line so far this year on the Batesville side.

You can’t really predict the future with deaths, but if you have a down year, you’re more likely to have a little bit better year at least to flat year in the coming year. So on the Batesville side, we feel really well positioned regardless of what the market does. We wouldn’t anticipate a decline like we saw this year in the market.

The business is running well, the margins are good. So we feel pretty good about the Batesville having a better comparable at the top line as we head in to 2017. And when we talk about the process equipment I think there is really sort of the three parts to the business that we talk about. We’ve really focused a lot on spare parts and services. We feel good about the trends in parts and service; in fact we think we continue to grow that business faster than the market in many of our segments. So we feel pretty good about that going in to ’17, and then there are the smaller projects.

You know this year we had some considerable headwinds in some key markets where the equipment that we make is really profitable and we sell a lot of spare parts. So, frac sand equipment, coal power and mining equipment are used for fertilizer including pot ash. So right now those commodities have sort of stabilized in terms of pricing for the most part, but at a very low level.

So we haven’t yet seen an increase in demand for equipment in those areas. And so that will be an important piece for us going in to ’17. We don’t see that coming in the next couple of quarters, but we expect that to come at some point. So that’s kind of - the comparables get easier as you go in to the first quarter of next year. Those are cyclical markets; we would expect them to come at some point though it’s hard to time.

And then finally the large projects, as I said earlier, we feel pretty good about what’s happening in the plastics industry right now. Demand remains pretty good, projects are out there, they are just elongating and so if we can get some of those projects closed and we see at some of a normal time line in those projects, ’17 in particular second half of ’17 could be a stronger second half of ’17.

So I think next year it’s really a - it’s those three categories of - I think it’s really going to be the big drivers which is the Batesville business, if we get volume there, and then some of the key end markets coming back both for equipment, smaller projects and then of course the larger projects. Does that help? That was a long answer I apologize, but does that make sense?

Joe Raver

No, it gives great color. I appreciate it very much, and as I said I’ll jump back in queue.

Operator

Our next question comes from the line of John Franzreb from Sidoti & Company. John your line is now open.

John Franzreb

Joe just to follow-up on your last commentary, I mean the large projects deferral has been an ongoing theme for a while, and some of it is a little bit boring. But it sounds like you’re saying to me that the first of the major buckets that have been deferred, frac, coal mining, do you expect to come back is chemical, and what are your customers are telling is that where the most pent-up demand is? Can you talk a little about that coming back first?

Joe Raver

I think the petrochemicals and plastics markets are pretty good right now, we’re seeing okay demand across those markets. I think it’s really a question of particularly in the plastics market, those large projects coming to fruition and how quickly that happens. Related to the other markets as I said, I think we’ve got some stability in terms of pricing for those commodities, but we are not seeing demand come back and don’t have any indications of demand coming back right now in frac sand for example. So I hope that - does that makes sense?

John Franzreb

I just want to make sure that the one you expect to come back first is what?

Joe Raver

I guess I would say that we’d expect reasonable demand on the plastics and petrochemical side, and those large projects. And then we don’t have really good visibility to the other markets in terms of when they’ll come back, right now. And so I think on the Batesville side, we expect to have a pretty decent year next year on the Batesville side given that we had a pretty tough top line year this year on the Batesville side, and we’ve done some - taken some nice actions on the Batesville side to make sure that whatever revenue comes through we’ll be able to turn it into profitability and cash flow.

John Franzreb

Got it. And on process on the gross margin, really a good gross margin performance year-over-year. How much is that attributed to the acquisitions ABEL and Red Valve and how much is it to a mix versus parts and how much is it attributed to restructuring. It was a sizeable improvement area.

Joe Raver

Yeah, let me as Kristi to handle that question.

Kristina Cerniglia

Yes. So John when we think about the quarter year-over-year improvement, again as you mentioned peg had a really good quarter. About of that 500 or so basis points improvement about a 100 basis points improvement frankly was from the ABEL and Red Valve acquisitions. So they have a higher gross margin profile than our Process Equipment Group as a total.

Then we did get some improvement on price and productivity. So I think when we think about the gross margins in the third quarter of the 39%, as I said in my prepared remarks, a fair amount of that was mixed up with driving that favorability. So when I say kind of going back to a normal gross margin next quarter, I would say that’s going to be similar to what we delivered in the first and second quarter.

John Franzreb

Got it. And sticking with the ABEL and Red Valve business, it seems the utility water market has been pretty strong with some of the other competitors. Can you talk a little bit about how those two businesses are performing on the revenue side relative to expectations?

Joe Raver

Yeah, this is Joe. They are performing in line with expectations. I think you nailed it, we’re seeing pretty good demand on the municipal side of the business, particularly in North America. So that’s been positive, and that’s mostly on the valve side. On the pump side we’ve seen strong demand, good demand in Europe for pumps. We’ve also had some success in mining; we have a really great story on total cost of ownership, so we help mines reduce their cost which is a big focus right now and in a number of the commodities markets. And so we’ve had some success there.

So we feel pretty good about the performance of those businesses right now, and the markets they serve, particularly the municipal market and the water market is pretty good. And then even though, for example, mining is down our value proposition is pretty strong. We’re actually taking advantage of mining being down. We’re trying to get more efficient and able to sell our value proposition to sell more pumps in to that end market.

John Franzreb

Got it, perfect. And just on Batesville, can you talk a little bit the competitive landscape with it being a more difficult sell-through environment. Has there been any pricing competition out there?

Joe Raver

We had the number two and the number three competitors come together a while ago, and so it’s really changed the dynamics a little in the market place. We haven’t really seen the impact quite frankly on pricing or big shifts in the mix of product being sold. So despite that which is a big deal, the number two and three getting together we’ve seen a pretty sort of steady market place and there’s certainly price competition, but I wouldn’t characterize there’s anything out of the ordinary. It’s always more challenging in a down year, as some of the smaller competitors are trying to move inventory to generate cash. But we are sort of through that period and we’re seeing a pretty stable environment right now on the burial casket side.

Operator

[Operator Instructions] Our next question comes from the line of Liam Burke from Wunderlich. Liam your line is now open.

Liam Burke

Joe you talked about Batesville, with the potential of a rebound in mortality rates in 2017, but you also talked about profitable growth initiatives out of that business segment. Could you give us a little bit more detail on that?

Joe Raver

Sure. And I won’t go into a ton of details just for competitive reasons, but we use our operating model and in particular to use 80-20 and we really try to focus on the more profitable parts of the business, which of course, it’s true that the most profitable parts of the business, those are places where we actually have the best value proposition, we create the most value for our customers, and so Chris Trainor and his team at Batesville have been focused on those areas where we serve our customers best and where we can make more profitability.

So, we’ve taken some cost out of the Batesville business, but we’ve taken it out in areas that we think we were either overstaffed or we didn’t have a stronger value proposition, and weren’t as profitable. And we’ve refocused some of those resources and reinvested those resources in areas where - right in our core. So largely it’s in the Burial Casket section and certain segments of the Burial Casket to go achieve growth.

As you know, it’s a high fixed cost business, and so volume is important for us on the Burial Casket side. So we have reinvested to grow on the Burial Casket side of the business with certain customer segment. So I think the point I’m trying to make is we’re not just taking cost out of that business, we’re certainly sizing the business for the size of the market and to maintain profitability. But we’re also reallocating resources within the business and trying to focus those resources on the most profitable parts of our business, where we can continue to extend our leadership position, continue to increase our value proposition to our customers.

Liam Burke

And the slow control business, the acquisitions are working very well. What does the pipeline look like there in terms of future potential acquisitions?

Joe Raver

That’s a great question, and in the last conference call we talked about our debt-to-EBITDA ratio being at about 2.7 which is the high-end of our guard rails for debt. So we’ve really been focused on paying debt down. We did a really good job I think of paying debt down this quarter, we took a significant amount of debt off the books by paying debt down.

So as we said last quarter, we don’t expect to close any significant transactions during this fiscal year. We remain active in terms of looking at potential acquisitions including in the flow control space. But you shouldn’t expect anything major from us certainly in the next quarter and maybe a little bit longer, given that we’re still focused on paying debt down over the next few quarters.

Operator

Our next question comes from the line of Daniel Moore from CJS Securities. Daniel your line is open.

Daniel Moore

First time I’ve heard a lot about pricing initiatives, maybe you can expand on that a little bit, where are the verticals we’re seeing, our areas of opportunity and is there more to go on that front?

Joe Raver

Yeah, sure. So we’ve been focused on trying to improve our strategic pricing capabilities for a while now. We are starting to see the benefits of some of that, and it’s not as simple - as you know it’s not as simple, you just take price up across the board. It’s really trying to understand which product lines and which customers will we create more value have the opportunity to improve price realization.

And so I think we’ve gotten certainly better at that over the last number of quarters. We’re starting to see that flow through. We continue to think that there is more opportunity going forward, and it’s a significant part of our Hillenbrand operating model. So we’re really working with each of our divisions to work through understanding clearly what their customer and product profitability situation is and how price can optimize profit.

Sometimes that means taking price up, sometimes that means taking price down to actually improve volume. So we’re getting better at that and we expect there appears to be continued opportunity for the foreseeable future with relating to price.

Daniel Moore

Very helpful, and in terms of cash generation obviously improved year-over-year despite the declines in revenue. Do you have sort of a range of expected operating cash flow or free cash flow for the balance of fiscal ’16?

Joe Raver

You know Dan we don’t really guide the cash flow. What we’ve typically said is that cash flow will be greater than net income. If you look at this quarter, we did have really strong cash flow so far this year including this quarter. And a good chunk of that has to do with the mix of business that - and putting together sort of prepayments and all those sorts of things that come in.

We expect that - as we go forward, the mix of business at least in the near term we’ll see not a strong cash flow as we expect to have some uses of cash as we go in to the fourth quarter. But again overall for the year, we feel pretty good about where we are with cash flow. But we will see that flip a little bit in the fourth quarter, given the nature of the projects that we have in-house and sort of what we expect to close as well.

Daniel Moore

And in terms of the cost restructuring, of the 10 million cost savings you expect you’re targeting, how much was actually achieved in fiscal Q3 and how much do you anticipate in Q4?

Joe Raver

Again, I’m not sure if I can answer that question. I can tell you that we do expect to realize the full amount of the restructuring to hit during the year that we had expected. I apologize Kristin is not feeling well so she just stepped out of the conference room here for a second.

Daniel Moore

We’ll give you the hall pass and I can certainly follow-up off line, that’s not a problem.

Joe Raver

So Dan we expect to have the 4 million this to achieve the 4 million this year. I just don’t know how it breaks out by quarter and again its 10 on an annualized basis. But we can get back to you on how that breaks out by quarter.

Operator

We have no more questions. So now I’d like to turn the call back over to Joe Raver for final comments.

Joe Raver

Thank you very much operator. And once again, I want to thank everyone for participating in the call today. We look forward to speaking with you again in November when we report our fourth quarter and full fiscal year 2016 results. Have a good day.

Operator

That concludes today’s conference call. You may now disconnect.

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