Hillenbrand Industries, parent company of Batesville Casket, reported 4th quarter and year end earnings last week.  You can read the company’s press release here.

For the year the company’s revenues increased 11% to $1.77 billion.  As you may know the company operates in two general segments, the Processed Equipment Group and the Batesville Group.  The Batesville side of the business is the historical death care business.

For the year the upside of the Processed Equipment Group was a 19% increase in revenue that was offset by the lower demand for Batesville products which produced lower revenue by 2% to $551 million.

For Hillenbrand, full year operating cash flow was a record $248 million.

The company guidance for FY 2019 is for total revenue growth of 1-3% with the Processed Equipment Group growing revenues by 3-5% and Batesville revenue to continue to decrease by 1-3%.

Hillenbrand Earnings Call:  Last week executives of Hillenbrand also held a public call with analysts who cover the company.  You can read the transcript of that call here.

Here are some quotes we found interesting:

• “Moving to Batesville, our strategy for this business is to build on its leadership position in the death care industry and leverage the Hillenbrand operating model to provide strong predictable cash flow.  The business is facing a secular decline in burial casket demand, which was down in the quarter.  As a result, revenue was also down year over year.”

 

• asked about steel tariffs. . .  “We estimate the overall impact of the announced tariffs to be approximately 1% of incremental cost for the fiscal year 2019. . . the impact is expected to be spread equally across Batesville and Process Equipment Group.”

 

• “We now anticipate higher costs for steel and other commodities compared to earlier estimates.  The industry dynamics for burial caskets make it challenging to fully offset those increases with price, but we continue to take actions to aggressively manage costs to protect profitability.”

 

• “We also need to focus on shoring up the Batesville business following a year in which we faced operational challenges and significant cost inflation that constrained profitability.  We need to take cost out and maintain volume to keep the business stable and producing strong predictable cash flow.  We’re working hard to leverage our operating model to help do that.”

Funeral Director Daily take:  Hillenbrand is a remarkable company that I have known about since I was a youngster.  They are not the same company that I knew as a child — but they have done what they have had to do to stay viable to their stockholders.  President and CEO Joe Raver began the earnings call by mentioning that this was the 10th year of the Hillenbrand transformation from a single business in a declining industry (caskets).  Today, they are a global diversified company that derives nearly 70% of their revenue from non-casket businesses.

There is however, at least from my point of view, this traditional heritage about preserving where they came from.  Yes, the burial casket industry is declining, however it appears to me from what I hear management saying, that they have no plans to exit the industry — and if they want to maintain stable business as they have said, they will need to go out and get market share from competitors.  I see them poised for the battle to do that.

Selling caskets in a upward cremation market is challenging.  And now, we are adding cost pressures by the increased price of steel to the mix as well as the real threat of production runs that are less in number.  Reducing the production runs will take efficiencies away making profits less and the cycle continues.  The one bright spot in the American casket market – even as the percentage of cremation increases – is there is a coming  increase in the number of deaths, so that even a lower percentage of burials could theoretically produce the same number, or more, of casketed deaths.

If you own and operate a funeral home however, as much as Batesville wants to keep the product costs low, I would envision a wholesale price increase on your caskets next year.  Less caskets being produced will be a hindrance to operational manufacturing efficiencies and, as stated in the earnings call, Batesville will have to renegotiate steel prices in January. . . . and unless our President can come to some type of terms with his counterpart from China, I don’t see steel prices going down.  So, unfortunately,  just when you need a break on pricing to try to stem some of the shift to cremation, pricing of the casket to the consumer will not get any less expensive unless you decide to eat the increase in cost.

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