Finance

Hillenbrand reports. . . Batesville segment shows strong results

Foundation Partners why I partnered

Hillenbrand Industries, parent company of Batesville Casket Company, reported their July through September numbers – which happen to be their 4th Quarter fiscal year numbers, as well as their Fiscal Year End numbers last week.  Hillenbrand showed record revenues both for the quarter and the year.  You can access their financial report here.

However, those numbers are somewhat skewed by the additional revenue during the year provided by the company’s acquisition of Milacron.  If you take away the Milacron acquisition revenue numbers, the “organic” revenue of the company actually decreased by 2%.

Batesville was one of the very strong performers for Hillenbrand.  Their 4th Quarter revenue was $147 million which was an 8% increase over the 4Q 2019 numbers.  In addition, their year end numbers finished 4% up for the year.  And, if you remember a year ago, Batesville expected to lose 1-3% of revenues annually for the foreseeable future.

It doesn’t take a rocket scientist to figure out that the COVID-19 pandemic had a materially positive influence on the Batesville numbers.  From our point of view we not only saw revenue increase for Batesville but we noticed an increase in fiscal year EBITDA of over $1 million per month — a total of $12.9 million from $114.2 million in 2019 EBITDA to $127.1 million in 2020 EBITDA.

We would have guessed that most of that EBITDA was gained in the company’s 3rd and 4th Quarters, because that is the time that there was, to this date, an increase in death numbers. . . a time period from April thru September 2020.  And, if you look at the Batesville 4th Quarter EBITDA you will see that is pretty much true. . . . 4Q 2020 EBITDA was $35.7 million — a 16.7% increase  ($5.1 million) over the EBIDTA for 4Q2019.

Again, we believe that while Batesville responded well to the pandemic, that is what this increased financial performance shows — we do not believe it shows an increased appetite by the consumer public for casketed burials nor does it, by itself,  show an increased penetration for market share gains by Batesville.  Hillenbrand management states in the financial report that the EBITDA “was mainly driven by operating leverage, productivity gains, and cost containment actions, which more than offset cost inflation.”

They also acknowledge that the pandemic was a big part of the segment’s success as they also report “Batesville revenue increased 4% for the year with the estimated increased volume associated with the COVID-19 pandemic.”

Going forward, Hillenbrand, using this caveat, “Hillenbrand is providing guidance for the fiscal first quarter 2021. Given the continued uncertainties regarding the duration and severity of the COVID-19 pandemic, the Company has provided the following outlook, on the assumption that a gradual stabilization of the global economy continues, with no increase in pandemic-related disruptions,”  Batesville revenue is expected to increase 12%- 15% for the first quarter of 2021.

Funeral Director Daily take:  As of the writing of this article, Thursday afternoon, I looked up the number of COVID-19 related deaths in the United States.  According to the number that I found, that number stood at 242,000 as of then.  With roughly 1,000 deaths per day through the end of the year that would put the projected number of U.S. COVID related deaths in 2020 at about 290,000.

The Center for Disease Control (CDC) had a pre-COVID expected number of deaths in the United States at about 2.8 million.  Those 290,000 COVID deaths add another 10.3% to the total.  When looking at that number, all other things being equal, casket companies should be looking for higher sales volumes in 2020 because of this.

I’m an optimist and am hoping with a vaccine or vaccines on the way, better therapeutics, and just a general idea of how better to fight the disease, the United States comes no where close to that number of COVID related deaths in 2021.  If that is the case, and as cremation continues to tick up in consumer choice, you would expect the American casket market to soon get back on its projected decline in units sold annually.

That being said, with the aging of America, and the growing number of numerical deaths in the country because of population growth, that expected decline, however,  should be slow enough to continue to allow casket companies to be profitable for a very extended period of time.

We expect smart operators like Batesville to certainly understand this and use the cash-flow generated off of Batesville for the next decade or so to invest in other companies, inside or outside of death care, that will add to the bottom line of the parent company for decades to come.

More news from the world of Death Care:

Disclaimer:  The author of this article holds a stock position in Hillenbrand Industries.

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