Hillenbrand(HI) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for the second quarter was $716 million, down 9% year-over-year primarily due to reduced volume from a lower starting backlog [18] - Adjusted EBITDA decreased 19% to $99 million, with a margin of 13.8%, down 180 basis points compared to the prior year [19] - GAAP net loss was $41 million, a decline from a profit of $6 million in the previous year, attributed to a non-cash loss on the majority sale of Milacron [19] - Adjusted earnings per share were $0.60, down 21% year-over-year but exceeded expectations due to favorable interest expenses [19] Business Line Data and Key Metrics Changes - Advanced Process Solutions (APS) segment saw year-over-year improvement in capital orders for Food, Health, and Nutrition (FHN) products, but larger investments were paused due to tariff uncertainties [11] - Molding Technology Solutions (MTS) revenue decreased 2% year-over-year to $222 million, primarily due to unfavorable foreign exchange [22] - Backlog for MTS was $55 million, excluding the Milacron business, with stable orders for hot runner and mold-based components [23] Market Data and Key Metrics Changes - The ongoing global macroeconomic uncertainty, driven by tariffs, has led to a decline in business and consumer confidence, resulting in delays in customer investment plans [10] - The company noted a strong project pipeline but faced slow conversion to orders due to macro-driven timing rather than a fundamental shift in market position [12] - Tariff impacts have caused multinational customers to pause orders, particularly in China, with a potential shift of orders to India [13] Company Strategy and Development Direction - The company is focusing on highly engineered, value-added processing technologies and systems, targeting less cyclical global end markets [7] - A strategic milestone was achieved with the completion of the Milacron transaction, allowing the company to concentrate on core strengths [6] - The company is implementing cost control initiatives and maintaining focus on growth opportunities in FHN and service offerings despite current challenges [12] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the project pipeline but acknowledged that macroeconomic uncertainties are expected to persist [10] - The updated outlook anticipates total revenue of approximately $2.56 billion to $2.62 billion, significantly down from previous guidance due to lower orders [25] - Management remains confident in the long-term demand drivers for their end markets despite current headwinds [28] Other Important Information - The company has included approximately $15 million in direct tariff costs in its updated outlook for the remainder of the year [16] - Net debt at the end of the second quarter was $1.46 billion, with a net debt to pro forma adjusted EBITDA ratio of 3.4 times [24] - The company is in the process of selling the TerraSource global business for $245 million, with expected net proceeds of approximately $100 million to be used for debt reduction [24] Q&A Session Summary Question: Can you describe the order cadence you saw in the business as the quarter unfolded? - Orders were stable through February but faced delays due to tariff considerations, particularly in Food, Health, and Nutrition [32][34] Question: Can you talk about synergies related to the FHN businesses? - The company is on track to achieve synergies ahead of schedule, with significant integration initiatives already completed [38][40] Question: Which lever to offset tariffs will have the most immediate impact? - Dual sourcing is expected to have the largest near-term impact, with targeted pricing adjustments also being implemented [45] Question: Can you walk us through the TerraSource divestiture? - The TerraSource divestiture is expected to close by the end of Q3 or early Q4, with proceeds primarily used to pay down debt [49][50] Question: What is the outlook for the macro environment? - The company is assuming a mild recession, with expectations for orders to decline from 2024 levels [78]