HI
#Sure.
I think we talked about it in the first quarter, if you will recall.
We felt like demand was pretty good, and we closed a number of larger projects.
We saw oil prices rebound.
As you know, a lot of our larger customers for these big projects are in the energy space as well as the petrochemicals and plastics space.
And I think since the last quarter or so, we've seen a decline in oil prices.
If you can think about some of those larger customers, you just saw what their latest earnings were, and a lot of those large companies are having significant profitability challenges right now.
Now, I would say that I think the plastics part to their business are doing pretty well.
Demand is pretty good, and I've read in some of the press releases that those are some of the more profitable parts of the business.
But what we are really seeing is sort of that elongation of approval for capital spend.
We felt this a little bit last year.
I think we are seeing it again.
As I mentioned in the prepared remarks, we're not seeing projects canceled.
Typically by the time we are involved, the project is pretty far along and they've already invested quite a bit of money.
So it's unusual for the project to cancel, except the projects push out.
We have ---+ with that said, we have ---+ we are talking to the customers every day or every week and we are really in close communication.
And while it's certainly hard for us to predict exactly when the projects will close, we feel reasonably good that this is not ---+ these are not going to push out forever, that it's a matter of months or a quarter or two that they push out rather than years that they push out.
So, while we can't predict exactly what's going to happen, again, we are still doing engineering work for these projects.
We are talking to customers on a regular basis, and we still expect these projects to close over the next couple of quarters.
Well, certainly we have to deliver and execute during the quarter.
So, as we look into the fourth quarter ---+ you know, we are partway into the fourth quarter.
Most of what we have to get done in the fourth quarter is in the backlog, and we need to execute it and ship it.
There can be some customer delays, but largely it's us executing and shipping.
We do expect to close some projects during the quarter, but it's not going to be a big driver of revenue or profitability in the fourth quarter.
So, we have pretty decent visibility into the quarter and feel pretty good about the fourth quarter ---+ achieving our expected results in the fourth quarter.
Yes, let me answer that question sort of at a Hillenbrand level first and then go down a little bit into the segments.
I think we've had a really strong year ---+ a margin year at Batesville Casket.
I think the team has done ---+ Chris Trainer and his team have done a very nice job in terms of efficiencies and running the business in a more simplified manner that we can effectively serve our customers.
And so we've had a tough top-line year, though, on the Batesville side.
If you'll remember, last year we had a strong flu season, and so we had a pretty depressed top line so far this year on the Batesville side.
You can't really predict the future with deaths, but if you have a down year, you are more likely to have a little bit better year, at least a flat year in the coming year.
So on the Batesville side, we feel really well-positioned regardless of what the market does.
We wouldn't anticipate a decline like we saw this year in the market.
The business is running well.
Margins are good.
So, we feel pretty good about the Batesville business having a better comparable at the top line as we head into 2017.
Then when we talk about the process equipment group, I think there's really sort of the three parts to the business that we talk about.
We've really focused a lot on spare parts and service.
We feel good about the trends in parts and service.
In fact, we think we continue to grow that business faster than the market in many of our segments.
So we feel pretty good about that going into 2017.
And then there's the smaller projects.
This year we had some considerable headwinds in some key markets where the equipment that we make is really profitable and we sell a lot of spare parts ---+ frack sand equipment, coal-powered mining equipment, equipment used for fertilizer including potash.
So, right now, those commodities have sort of stabilized in terms of pricing for the most part, but at a very low level.
So we haven't yet seen an increase in demand for equipment in those areas, and so that will be an important piece for us going into 2017.
We don't see that coming in the sort of the next couple of quarters, but we expect that to come at some point.
So that's kind of ---+ the comparables get easier as you go into the first quarter of next year.
Those are cyclical markets.
We would expect them to come back at some point, though it's hard to time.
And then finally, the large projects.
As I said earlier, we have ---+ we feel pretty good about what's happening in the plastics industry right now.
Demand remains pretty good.
Projects are out there; they are just elongating.
So, if we can get some of those projects closed and we see sort of a normal timeline on those projects, 2017, particularly the second half of 2017 ---+ could be a stronger second half of 2017.
So, I think next year, it's really a ---+ it's those three categories of ---+ I think it's really going to be the big drivers which ---+ Batesville business, if we get volume there.
And then some of the key end-markets coming back both for equipment, smaller projects and then, of course, the larger projects.
Does that help.
That was a long answer.
I apologize, but did that makes sense.
I think the petrochemicals and plastics markets are pretty good right now.
We are seeing okay demand across those markets.
I think it's really a question of, particularly in the plastics market, those large project coming to fruition and how quickly that happens.
Related to the other markets, as I said, I think we've got some stability in terms of pricing for those commodities.
But we're not seeing demand come back and don't have any indications of demand coming back right now in frac sand, for example.
So, I hope that ---+ does that make sense.
I guess I would say that we would expect reasonable demand on the plastics and petrochemicals side and those large projects.
And then we don't have really good visibility to the other markets in terms of when they will come back right now.
And so, I think on the Batesville side ---+ we expect to have a pretty decent year next year on the Batesville side given that we had a pretty tough top-line year this year on the Batesville side.
And we've done some ---+ taken some nice actions on the Batesville side to make sure that whatever revenue comes through, we'll be able to turn it into profitability and cash flow.
Let me ask <UNK> to handle that question.
<UNK>, when we think about the quarter, year-over-year improvement, again, as you mentioned, PEG had a really good quarter.
About ---+ of that 500 or so basis points improvement, about 100-basis-points improvement, frankly, was from the Abel and Red Valve acquisitions.
So they have a higher gross margin profile than our process equipment group as a total.
Then, we did get some improvement on price and productivity.
So, I think when we think about the gross margins in the third quarter of the 39%, as I said in my prepared remarks, a fair amount of that was mix that was driving that favorability.
So, when I say kind of going back to a normal gross margin next quarter, I would say that's going to be similar to what we delivered in first and second quarter.
This is <UNK>.
They are performing in line with expectations.
I think you nailed it.
We are seeing pretty good demand on the municipal side of the business, particularly in North America.
So, that's been positive.
And that's mostly on the valve side.
On the pump side, we've seen strong demand, good demand in Europe for pumps.
We've also had some success in mining.
We have a really great story on total cost of ownership.
So, we help mines reduce their cost, which is a big focus right now in a number of the commodities markets.
And so we've had some success there.
So, we feel pretty good about the performance of those businesses right now and the markets they serve.
Particularly, the municipal market and the water market is pretty good.
And then even though, for example, mining is down, our value proposition is pretty strong.
We are actually taking advantage of mining being down.
We are just trying to get more efficient and able to sell our value proposition to sell more pumps into that end-market.
You know, we had the number two and number three competitors come together a while ago, so it's really changed the dynamics a little bit in the marketplace.
We haven't really seen the impact, quite frankly, on pricing or big shifts in the mix of product being sold.
So, despite that, which is a big deal in the number two and three getting together, we've seen a pretty sort of steady marketplace.
There's certainly price competition, but I don't ---+ wouldn't characterize that there's anything out of the ordinary.
It's always more challenging in a down year as some of the smaller competitors are trying to move in inventory to generate cash.
But we are sort of through that period, and we are seeing a pretty stable environment right now on the burial casket side.
Sure.
And I won't go into a ton of detail, just for competitive reasons.
But you know, we use our operating model and in particular to use 80-20, and we really try to focus on the more profitable parts of the business.
Which, of course, it's true that the most profitable parts of the business ---+ those are the places where we actually have the best value proposition and we create the most value for our customers.
So, Chris Trainer and his team at Batesville have been focused on those areas where we serve our customers best and where we can make more profitability.
So, we've taken some cost out of the Batesville business, but we've taken it out in areas that we think we were either overstaffed or we didn't have as strong a value proposition and weren't as profitable.
And we've refocused some of those resources and reinvested those resources in areas where ---+ right in our core.
So, largely it's in the burial casket section ---+ in certain segments of the burial casket to go achieve growth.
As you know, it's a high-fixed-cost business.
And so volume is important for us on the burial casket side.
So, we have reinvested to grow on the burial casket side of the business with certain customer segments.
So, I think the point I'm trying to make is we are not just taking costs out of that business.
We are certainly sizing the business for the size of the market and to maintain profitability.
But we are also reallocating resources within the business and trying to focus those resources on the most profitable parts of our business where we can continue to extend our leadership position and continue to increase our value proposition to our customers.
That's a great question.
And, you know, in the last conference call, we talked about our debt-to-EBITDA ratio being at about 2.7, which is the high end of our guardrails for debt.
So we've really been focused on paying debt down.
We did a really good job, I think, of paying debt down this quarter; took a significant amount of debt off the books by paying debt down.
So as we said last quarter, we don't expect to close any significant transactions during this fiscal year.
We remain active in terms of looking at potential acquisitions, including in the flow control space.
But you shouldn't expect anything major from us certainly in the next quarter and maybe a little bit longer given that we are still focused on paying debt down over the next few quarters.
Yes, sure.
We've been focused on trying to improve our strategic pricing capabilities for a while now.
We are starting to see the benefits of some of that.
And it's not a simple ---+ as you know, it's not a simple, hey, just take price up across the board.
It's really trying to understand which product lines and which customers will we create more value, have the opportunity to improve price realization.
And so I think we've gotten certainly better at that over the last number of quarters.
We are starting to see that flow through.
We still ---+ we continue to think that there is more opportunity going forward, and it's a significant part of our Hillenbrand operating model.
So we are really working with each of our divisions to work through understanding clearly what their customer and product profitability situation is and how price can optimize profit.
Sometimes that means taking price up, sometimes that means taking price down to actually improve volumes.
So we are getting better at that, and we expect there to be continued opportunity for the foreseeable future related to price.
Dan, we don't really guide to cash flow.
What we have typically said is that cash flow would be greater than net income.
You know, if you look at this quarter, we did have really strong cash flow so far this year, including this quarter.
And a good chunk of that has to do with the mix of business that ---+ and putting together sort of pre-payments and all those sorts of things that come in.
We expect as we go forward the mix of business, at least in the near term, will see not as strong a cash flow, as we expect to have some uses of cash as we go into the fourth quarter.
But, again, overall for the year we feel pretty good about where we are with cash flow.
But we will see that slip a little bit in the fourth quarter, given the nature of the projects that we have in-house and sort of what we expect to close as well.
Dan, I'm not sure I can answer that question.
I can tell you that we do expect to realize the full amount of the restructuring to hit during the year that we had expected.
And <UNK> ---+ I apologize.
<UNK> is not feeling well, so she just stepped out of the conference room here for a second.
But (multiple speakers) ---+
Yes, Dan, we expect to have the $4 million this year ---+ to achieve the $4 million this year.
I just don't know how it breaks out by quarter.
And, again, it's $10 million on an annualized basis.
But we can get back to you on how that breaks out by quarter.
Thank you very much, operator.
And once again, I want to thank everyone for participating in the call today.
We look forward to speaking with you again in November when we report our fourth-quarter and full fiscal year 2016 results.
Have a good day.
