Hillenbrand, Inc. (NYSE:HI) is a global industrial company that provides highly-engineered, mission-critical processing equipment and solutions to customers around the world. The company's portfolio is composed of leading industrial brands that serve large, attractive end markets, including durable plastics, food, and recycling.
Business Overview
Hillenbrand has undergone a strategic transformation in recent years, divesting its historical Batesville reportable operating segment and completing three major acquisitions - Schenck Process Food and Performance Materials (FPM), Peerless Food Equipment, and LINXIS Group SAS (Linxis). These actions have strengthened Hillenbrand's foundation as a pure-play global industrial leader, characterized by a portfolio of highly engineered industrial processing technologies and solutions.
Financials
For the full fiscal year 2023, Hillenbrand reported consolidated revenue of $2,826.0 million, up 22% year-over-year. Net income from continuing operations was $107.0 million, while the company generated $207.0 million in operating cash flow and $137.7 million in free cash flow. These results demonstrate Hillenbrand's ability to deliver strong financial performance despite a challenging macroeconomic environment.
The company's two reportable operating segments, Advanced Process Solutions (APS) and Molding Technology Solutions (MTS), each contributed to Hillenbrand's overall success in fiscal 2023. APS revenue grew 9% organically, driven by robust demand in the durable plastics, food, and recycling end markets, as well as strong aftermarket parts and service revenue. MTS revenue declined 2% organically, primarily due to lower volumes for injection molding and hot runner equipment.
Outlook
Looking ahead to fiscal 2024, Hillenbrand provided guidance that reflects the continued uncertainty in the global macroeconomic environment. The company expects total revenue to be in the range of $3,280.0 million to $3,440.0 million, representing growth of 16% to 22% compared to the prior year. This growth is expected to be driven by the full-year impact of the FPM acquisition and solid organic growth in the APS segment, partially offset by a year-over-year decline in the MTS segment.
Adjusted EBITDA is forecasted to be in the range of $530.0 million to $588.0 million, up 10% to 22% compared to fiscal 2023. Adjusted earnings per share is expected to be $3.60 to $3.95, reflecting 7% growth at the midpoint of the range. Hillenbrand's guidance also includes an anticipated adjusted effective tax rate of 28% to 30% for the year.
The company's APS segment is expected to generate revenue of $2,400.0 million to $2,500.0 million, up 32% to 37% year-over-year, largely due to the full-year impact of the FPM acquisition. Organic growth in APS is anticipated to be 3% to 8%, with strong performance expected in the food, recycling, and aftermarket end markets. Adjusted EBITDA margin for APS is expected to be 18% to 19%, down from the prior year due to the dilutive effect of the FPM acquisition, which carries a margin of around 13%. However, Hillenbrand is highly confident in its ability to drive significant margin expansion in APS over the next few years through synergy realization and continuous improvement initiatives.
In the MTS segment, Hillenbrand is entering fiscal 2024 with a significantly lower backlog compared to the prior year, which is expected to put pressure on full-year revenue, particularly in the first half of the year. While orders have stabilized over the last few quarters, the company is taking a cautious approach given the continued macroeconomic uncertainty. As a result, the low end of the MTS revenue guidance range does not assume an improvement in order patterns, while the high end expects a modest uptick in orders in the back half of the year. Hillenbrand is targeting an adjusted EBITDA margin of 18.5% to 19.5% for MTS in fiscal 2024, reflecting approximately 30 basis points of margin expansion at the midpoint as the company focuses on executing productivity initiatives and cost actions to mitigate the macroeconomic headwinds.
Geographically, Hillenbrand generates a significant portion of its revenue from international markets. In fiscal 2023, the company's revenue breakdown was 45% Americas, 26% Asia, and 29% Europe, the Middle East, and Africa. This diversified global footprint provides Hillenbrand with exposure to various end markets and regions, helping to mitigate the impact of localized economic fluctuations.
Liquidity
From a liquidity perspective, Hillenbrand ended fiscal 2023 with $243.0 million in cash and cash equivalents and $718.0 million in total liquidity, including availability under its revolving credit facility. The company's net debt to proforma adjusted EBITDA ratio was 3.2x, in line with its expectations following the FPM acquisition. Hillenbrand is focused on reducing its leverage, with a target of returning to its net leverage range of 1.7x to 2.7x by the end of the first quarter of fiscal 2025.
In terms of capital deployment, Hillenbrand's priorities include driving profitable growth through organic and inorganic investments, returning cash to shareholders through dividends and opportunistic share repurchases, and maintaining an appropriate leverage profile. While the company expects M&A to continue to be an important part of its long-term strategy, its current focus is on integrating its recent acquisitions and deleveraging to its targeted range.
Conclusion
Overall, Hillenbrand's transformation into a pure-play global industrial leader, coupled with its diversified portfolio of leading brands and technologies, positions the company well for long-term growth. The company's recent acquisitions have strengthened its presence in attractive end markets, such as durable plastics, food, and recycling, which are supported by favorable secular trends. While the near-term macroeconomic environment presents some challenges, Hillenbrand's focus on operational excellence, cost management, and synergy realization should enable it to navigate the current landscape and deliver value for its shareholders.