Hillenbrand (HI, Financial), a $2.3 billion diversified industrial, delivered its full-year results on Nov. 16. The company delivered -3.7% change in its sales, down to $1.5 billion and 1.26% profit growth to $112.8 million.
For the period, Hillenbrand did not have any pension-related expenses compared to last fiscal year’s $17.7 million cost and therefore led to slightly lower, -0.4%, operational expenses.
Hillenbrand shares closed up 1% the following day while the broader Standard & Poor's 500 index closed nearly flat with 0.47% change.
“The Process Equipment Group closed out the year with solid fourth-quarter results compared to last year with a strong increase in orders despite the persistent headwinds in several of our end markets. Our Batesville business was ranked No. 1 for the third consecutive year in the Funeral Service Insider's annual survey of funeral professionals for quality, service and innovation. And, thanks to everyone's efforts, we were able to generate strong cash flow for Hillenbrand this year." – Joe Raver, president and CEO of Hillenbrand
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Valuations
Hillenbrand had a trailing 12-month price-earnings (P/E) ratio of 21 times (higher than 53% of its peers), price-book (P/B) ratio of 3.7 times (lower than 75% of peers) and price-sales (P/S) ratio of 1.5 times (lower than 60% of peers; 1). The company also had a trailing dividend yield of 2.19% with a 46% payout ratio.
(Google Finance)
Market performance
Year to date, Hillenbrand outperformed the broader market index with a 28% total return versus 12.8% (2). As observed, Hillenbrand gained a great rush, about 23%, of upward momentum since the U.S. elections. On a five-year total return basis, the company slightly underperformed the market with 14% versus 15.6%.
Hillenbrand
Hillenbrand was incorporated in 2007. In its filing, Hillenbrand is a global diversified industrial company with multiple market-leading brands that serve a wide variety of industries across the globe.
Hillenbrand’s portfolio is composed of two business segments: the Process Equipment Group and Batesville®.
(10-K)
Process Equipment Group
The Process Equipment Group businesses design, develop, manufacture and service highly engineered industrial equipment around the world. The segment conducts business in a wide variety of industries including plastics, processed food, chemicals, fertilizers, industrial minerals, mining, energy, wastewater treatment and forest products. The segment carries the operations of Rotex, Coperion and TerraSource Global.
In fiscal 2016, the segment contributed 62.7%, or $964.7 million, in total Hillenbrand sales. Process Equipment Group had a loss of 2.8% compared to 2015’s $992.8 million in sales. Geographically Hillenbrand derived 55.7% of its revenue from the U.S. and 31% from Germany in fiscal 2016.
Hillenbrand uses non-GAAP measures, such as its adjusted earnings before interest, income tax, depreciation and amortization (adjusted EBITDA) to demonstrate its segments' operating performances (3).
In 2016, the Process Equipment Group had an adjusted EBITDA margin of 16.7% compared to 16.2% last year.
(Abel by Hillenbrand)
Batesville®
Batesville, according to Hillenbrand, is a recognized leader in the North American death care industry. The segment manufactures and sells funeral service products, including burial caskets, cremation caskets, containers and urns, selection room display fixtures, other personalization and memorialization products and web-based technology applications.
In fiscal 2016, Batesville loss -5% in sales to $573.7 million compared to its operations in 2015. The segment also delivered a 25% adjusted EBITDA margin, compared to 2015.
Overall, Hillenbrand had a five-year sales and profit growth averages of 11.7% and 1.23%.
Cash, debt and book value
Hillenbrand had $52 million in cash and $610 million in debt with a debt-equity ratio of 0.97 (2) as of Sept. 30. Hillenbrand also had 60% of its $1.96 billion assets in goodwill and intangibles for the period. The company also had a book value of $632 million compared to $594 million year on year.
Cash flow
(Press Release)
Hillenbrand grew its cash flow by 127% to $238 million as indicated in its press release. According to GuruFocus data, Hillenbrand’s capital expenditures were $21 million, leaving the company with $217 million in free cash flow compared to $74 million last fiscal year. Hillenbrand also allocated $72 million, or 33%, of its free cash flow in shareholder payouts, such as dividends and share repurchases.
On average, Hillenbrand allocated 58.6% of its free cash flow in shareholder payouts over the past three fiscal years – from 2013 to 2015.
The company, meanwhile, also took in $84 million in debt in its recent fiscal year.
Conclusion
Hillenbrand carries with it a unique business mix model, thus being identified as a diversified industrial. The other business segment, Batesville, brings an interesting description, yet profitable in the company’s adjusted EBITDA criteria. The company also carried a quite conservative method of payouts to its shareholders, as dividends and repurchases, over the recent years.
Nonetheless, both of Hillenbrand’s business segments delivered weak growth in fiscal 2016. Book value grew but kept a good amount of debt and intangible assets within.
In summary, Hillenbrand is a pass for conservative investors.
Notes
(1) GuruFocus data.
(2) Morningstar data.
(3) 10-K:
We (Hillenbrand) also provide certain non-GAAP operating performance measures. These non-GAAP measures are referred to as “adjusted” and exclude expenses associated with backlog intangible amortization, inventory step up, business acquisition and integration, restructuring, a pension settlement charge, trade name impairment and certain litigation costs. The related income tax for all of these items is also excluded. This non-GAAP information is provided as a supplement, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.
Disclosure: I do not have shares in Hillenbrand.
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