MATW
#Thank you, Justin.
Good morning, I\
Thank you, <UNK>, good morning.
We are very pleased with our results for the quarter.
Despite challenging market environments in several of our businesses, our synergy capture and good cost containment allowed us to exceed market expectations for the quarter.
Continued higher volume in our Cemetery Products group and good synergy achievement in our Aurora acquisition all contributed to offset lower death rates.
Similarly, with regard to our brand business, softness in the North American and European markets and significant currency headwinds were offset by execution, which captured the expected synergies.
Good cost management and strong performance in our merchandising, UK and Asia operations, all benefited as well.
Meanwhile, our Automation Group, which is contending with a difficult year-over-year comparable still continues to deliver good results and is expected to have yet another strong year.
All in all, we are headed in the right direction, and we are excited about the many things happening throughout our business.
With regard to the two significant integration efforts that we have underway, we remain on track to deliver our targeted cost synergies and maybe more.
As we have communicated in the past, we began the most significant part of our ERP launch on April 1st for our SGK brand segment, and I'm happy to report it is going very well.
A special thanks goes out to the team across the world who have dedicated a lot of time and effort to make this a successful launch.
Assuming the continued success of the ERP implementation, we remain very confident in our ability to deliver our projected synergies of $45 million, which is at the high end of the range, which was previously communicated.
With regard to Aurora, our plans are finalized, and the integration has begun in earnest.
We are very confident that we will deliver all of the projected benefits of this acquisition and perhaps more as well.
As I've stated before, we must and will continue to provide seamless service to our valued customers so our detailed integration plans to include significant investment to assure exceptional service levels.
Even with these investments, however, we still expect to add over $40 million of incremental EBITDA from this transaction over the 24-month period after acquisition.
As we have previously stated, expected synergies ---+ dissynergies, excuse me, have impacted the immediate benefits of this acquisition.
But during the quarter, we began to see the benefit of early synergy capture.
During the quarter, we have chosen to rename our Industrial segment to better reflect the true nature of the underlining business.
Many of you may recall this segment to have been our Marketing Products division, the historical roots of our business.
Today, given the evolution of this business and the scope of its current and future product lines, there is no better descriptor that encompasses the core of this business other than Industrial Technologies.
With that, our Industrial Technologies segment continues to see great performance despite high R&D spending, which totaled $1.4 million during the quarter.
Expanded products, creative solutions, and great people who focus on innovation every day will allow us to continue to grow this business well beyond its current size.
From a financial standpoint, we generated over $40 million of operating cash flow for the quarter, and we are very confident in our full-year target of approximately $100 million of free cash flow, which includes a substantial investment in both our integration efforts.
With regard to those integrations, we believe that we have peaked in our integration costs, and the amounts are expected to decline significantly during the next six months.
Thus, we expect free cash flow on a forward basis to approach $140 million beginning next year, which will push our free cash flow yield at the current stock price to over 8%.
We also expect to generate around $245 million of adjusted EBITDA for this fiscal year, all while keeping our capital expenditures in check at around $40 million to $45 million.
With this strong cash generation, we have, and we will continue to focus on reducing our outstanding debt.
To that end, we are proud to announce that we have made over $100 million of debt repayment since closing on SGK in late 2014.
Keep in mind, that we made those debt repayments despite having incurred significant integration costs, and those costs are waning.
To that end, we are targeting additional repayments of up to $40 million for the balance of 2016.
Clearly, the addition of SGK and Aurora and continued strong performance from our historical businesses has allowed us to materially change the financial picture of the Company.
As we look to the balance of 2016, we remain confident of our ability to achieve our operating objectives that have been communicated including the amount of synergies that we expect to achieve.
We have exceeded market expectations for the first two quarters and feel very comfortable with our target of $3.25 per share adjusted and possibly more.
We remain cautious of the economies in which we operate but optimistic about our own ability to manage through those difficulties as we have demonstrated this quarter.
We will remain proactive in taking actions to mitigate the potential effects of these and other challenges as we move throughout the balance of the year.
Also, as we have communicated in the past, we have recently made permanent, through a term loan, a portion of our bank revolver debt adding further stability to our balance sheet and affording us the opportunity to lock in favorable interest rates for years to come.
For all these reasons, we are proud of our results for the quarter and optimistic about our internal opportunities and those opportunities that are created by our proven ability to integrate acquisitions.
With that, let's open it up for questions.
For those of you who will be asking questions, we request that you limit them to one question and a follow-up question until all those who wish to participate in the Q&A session have had an opportunity to do so.
Justin.
Well, let's talk about SGK first.
SGK, we have communicated a range of $35 million to $45 million.
Today we have confirmed for you that we're at the high end of that range and maybe a little bit more beyond that.
The run rate at this point in the fiscal year, we're running at about a little more than half that.
We expect that by the end of the year we should be pushing $30 million of that $45 million at a run rate.
So we've communicated historically that's going to take 24 to 36 months to get through.
We're still right on track with respect to SGK.
On the Aurora side, we're pleased to report we're slightly ahead, but, I mean, and it is modest because, frankly, right now, the dissynergies are still outweighing the synergies that we are achieving.
Having said that, we've only recognized several million dollars' worth of the cost synergies we expect.
There's still a lot more to come.
We think we've stabilized the dissynergy portion of it, and it should be upside from here.
$30 million by the end of the year.
The fact of the matter is we can't tell how much that is, but we can't deny that a milder winter is going to make placements a little better.
But we also know some other things.
As you all ---+ for many of you who have been the shareholders for a while, we had a challenging ERP implementation in that segment of the business a few years back.
As we suggested at that time, we lost some of our more regional accounts, and that team right now has done a wonderful job of going back after those accounts.
And we are picking up market share that we had lost during that time period.
Along the same line, the team on our stone side of the business is doing great work.
We're seeing double-digit increases that we think are going to continue for a while.
We've always proposed that we think we can be a significant player in the stone business, which is a good adjunct to what we have on the bronze side, and we're seeing that come to fruition as we speak.
So great performance, I mean, that challenging ERP implementation is paying its benefits now.
Service levels are beyond anything we've had in the last 100 years from a delivery standpoint.
So we're pretty proud of what we've done on that side of the business, and that team has done a great job for us.
We think Europe is turning, as we speak.
We've had some information from customers and clients over there that suggested that we should see some upside tick in volumes as marketing dollars are being freed up a little bit more.
In North America, frankly, our historical customers remain very, very stable but at lower run rates.
But we did see the beginnings of what we think are what the Food Modernization and Labeling Act ---+ a tongue-twister there ---+ that, as we look at Vermont.
Vermont has pushed several of our large consumer product companies on the food side to do GMO labeling, as many of you may be aware, and we've seen good volume coming through as a result of that.
So, it's early, but we think that there's some pent-up demand associated with that regulation, and we'll see that come through in the next 12 to 24 months.
Actually, the revenue side is just starting to turn, <UNK>, as we speak.
Much of the dissynergies occurred prior to our closing on that acquisition in the time period where the Federal Trade Commission doesn't allow us to speak neither to customers nor know too much about the inside of the business.
We've stabilized that, and I would tell you, <UNK>, that today we fully expect to be the most cost-effective manufacturer of caskets in the United States, and we don't think that, long term, that this will be a challenge for us to be able to maintain that revenue, going forward.
Consumables are below what our expectations were but still at a higher rate than historically it has been.
As we've said in the past, the marking portion of our ---+ of what we are calling our Industrial Technologies business, is really the bellwether for us in economic conditions around the word.
Consumables are the part of that that really tells us, pretty early on, what the economy is doing.
And as you've read in the papers, <UNK>, they're reporting a slow first quarter.
We felt that slowness in our Consumables but, at the same time, this team has demonstrated, year over year over year for the last 10 years that they find ways to create new solutions.
We have great promise in that division, and I think good people doing it.
So I think it's a blip in the quarter and, frankly, it wasn't a bad quarter.
All right, well, we'd like to thank everyone for participating in our call this morning, and we look forward to our third quarter earnings release and conference call in July.
Thank you and have a great day.
