Executive Summary / Key Takeaways

• Hillenbrand is actively transforming its portfolio into a focused global industrial company providing highly-engineered processing equipment and solutions, moving away from less core businesses like death care and injection molding machinery.
• Recent financial performance reflects significant pressure from global macroeconomic uncertainty, escalating tariffs, and delayed customer capital investments, leading to lower revenue and adjusted EBITDA in recent quarters compared to the prior year.
• Despite near-term volume challenges, the company is leveraging strategic initiatives, including accelerating integration synergies from recent acquisitions (FPM, Linxis) and implementing cost-out actions, to mitigate the impact on profitability and maintain adjusted EBITDA margins better than standard decremental flow-through.
• Debt reduction remains the top capital allocation priority, with proceeds from the completed Milacron majority sale and the planned TerraSource divestiture specifically targeted for deleveraging, although the uncertain order environment prolongs the timeline to reach target leverage ratios.
• The updated fiscal 2025 outlook anticipates continued demand pressure and soft order levels, incorporating an estimated $15 million impact from direct tariffs, signaling management's cautious stance on near-term market recovery while maintaining confidence in long-term secular growth drivers and competitive positioning.

A Portfolio Reshaped: Focusing on Engineered Processing Solutions

Hillenbrand, Inc. is undergoing a significant transformation, strategically reshaping its portfolio to become a more focused global industrial leader. This journey, which began over three years ago, has seen the company divest its historical Batesville death care segment, a business characterized by secular decline, and strategically acquire companies in the attractive food, health, and nutrition (FHN) end markets, including Schenck Process Food and Performance Materials (FPM) and Linxis Group SAS. These moves aimed to build a higher margin, higher growth, and less cyclical portfolio centered on highly-engineered processing equipment and systems. The recent completion of the sale of a majority interest in the Milacron injection molding and extrusion business on March 31, 2025, and the subsequent announcement of the agreement to sell the TerraSource Global business further underscore this strategic pivot, allowing Hillenbrand to concentrate resources on its core strengths in performance materials, food, health, and nutrition, and recycling.

The company's core business revolves around providing mission-critical processing equipment and solutions. Its Advanced Process Solutions (APS) segment is a leading global provider of highly-engineered process and material handling equipment and systems for industries like durable plastics, food, and recycling. The Molding Technology Solutions (MTS) segment, now focused on Mold-Masters (hot runner systems) and DME (mold bases and components) post-Milacron divestiture, serves the plastic technology processing industry. Customers are drawn to Hillenbrand's reputation for designing, manufacturing, and servicing complex, value-added solutions.

Within the competitive landscape, Hillenbrand operates alongside diversified industrial players like Dover Corporation (DOV) and Ingersoll Rand (IR), as well as more focused entities like SPX Technologies (SPXC) and, in its former Batesville segment, Matthews International (MATW). While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Hillenbrand's strategic positioning emphasizes its expertise in systems design, process technology, and engineering, leveraging a strong global footprint. In the APS segment, the company's ability to offer full solutions and integrated systems differentiates it, particularly in complex projects where its engineering capabilities are critical. In the MTS segment, particularly hot runners, the company faces pricing pressure as competitors move upmarket, but Hillenbrand is responding by launching mid-tier products and focusing on the value-added services of its Mold-Masters and DME brands. The "in region, for region" production strategy, accelerated since COVID, aims to mitigate supply chain risks and tariff impacts, a proactive measure in a volatile global trade environment that provides a competitive advantage over less localized rivals.

Hillenbrand's technological differentiation lies in its highly-engineered, mission-critical equipment and its capability in systems integration. This includes expertise in ingredient automation, mixing, extruding, and portioning. While specific, quantifiable performance metrics comparing Hillenbrand's technology directly against all competitors across its diverse portfolio are not extensively detailed, the company highlights its ability to deliver high-quality and high-output equipment. The focus on aftermarket services and modernization projects for its large installed base is a direct result of the long lifecycle of its engineered equipment, providing a stable and profitable revenue stream. R&D initiatives and new product development, such as the launch of mid-tier hot runners for the China and India markets, are aimed at expanding market reach and addressing specific regional demands, reflecting a strategic intent to leverage technological capabilities for targeted growth.

Performance Under Pressure

The macroeconomic environment has significantly impacted Hillenbrand's recent financial performance. In the second quarter of fiscal 2025, revenue decreased 9% year-over-year to $715.9 million, primarily driven by reduced volume in the APS segment stemming from a lower starting backlog. Adjusted EBITDA saw a more pronounced 19% decline to $99 million, as lower volume and cost inflation outweighed productivity gains, synergies, and favorable pricing. This resulted in a consolidated adjusted EBITDA margin of 13.8%, down 180 basis points, largely due to the impact of lower volume on operating leverage. The GAAP net loss of $41 million in the quarter was primarily attributable to a noncash loss on the majority sale of the Milacron business. Adjusted EPS of $0.60, while exceeding expectations due to favorable interest expense and other corporate items, was down 21% year-over-year.

Looking at the segments in Q2 2025, APS revenue decreased 12% to $494 million, and adjusted EBITDA fell 22% to $78.9 million, reflecting the impact of lower volumes and cost inflation. The adjusted EBITDA margin for APS was 16.0%, down 200 basis points. MTS revenue saw a more modest 2% decrease to $221.9 million, largely due to unfavorable foreign exchange, while adjusted EBITDA decreased 4% to $32.2 million, resulting in a margin of 14.5%, down 40 basis points. Pricing in MTS remained challenged but stable.

These results follow a challenging first quarter of fiscal 2025, where consolidated revenue was down 9% year-over-year to $707 million, and adjusted EBITDA decreased 15% to $97 million. The full fiscal year 2024 also saw revenue increase 13% overall due to acquisitions but decrease 5% organically, with adjusted EBITDA up 6% overall but down 12% organically. This trajectory highlights the significant headwinds faced from persistent order delays for mid-sized capital equipment and cost inflation, despite contributions from acquisitions and cost actions.

Management has actively responded to these pressures by accelerating initiatives within their control. The integration of the FPM and Linxis acquisitions has progressed ahead of schedule, with management noting in Q3 2024 that FPM margins were over 300 basis points ahead of original plans due to accelerated cost synergy achievement and operational efficiency gains. The company is on track to achieve its $30 million run rate cost synergy target from these acquisitions by the end of fiscal 2025, significantly ahead of the initial timeline. Additionally, restructuring actions in the MTS segment completed in fiscal 2024 are expected to provide an incremental $12 million benefit in fiscal 2025. These cost-out initiatives, coupled with diligent management of discretionary spending and a focus on trade working capital efficiency, are crucial for mitigating the impact of lower volumes on profitability, as evidenced by the better-than-standard decremental margins observed in APS.

Outlook and the Path Forward

Hillenbrand's updated fiscal 2025 outlook reflects the expectation that the challenging macroeconomic environment, particularly escalating tariffs and customer decision delays, will persist. The company now anticipates total revenue between $2.56 billion and $2.62 billion, a significant downward revision from previous guidance. Adjusted EBITDA is projected to be between $363 million and $395 million, and adjusted earnings per share are expected in the range of $2.10 to $2.45. This outlook incorporates an estimated $15 million impact from direct tariffs for the remainder of the fiscal year, based on policies in place as of late April 2025. Management explicitly stated they do not anticipate order levels to improve over the first half of the year, with a possibility they could decline further, as customers maintain a "wait-and-see approach."

For the third quarter of fiscal 2025, the company expects revenue between $569 million and $583 million and adjusted EPS in the range of $0.46 to $0.53, lower sequentially primarily due to the impact of the Milacron transaction and expected tariff effects.

Despite the near-term headwinds, Hillenbrand remains focused on its strategic priorities. Debt reduction is the top capital allocation priority. Net debt stood at $1.46 billion at the end of Q2 2025, resulting in a net debt to pro forma adjusted EBITDA ratio of 3.4 times, including the ~$265 million cash proceeds from the Milacron sale. The planned divestiture of TerraSource Global is expected to generate approximately $100 million in net proceeds, further contributing to debt paydown and favorably impacting net leverage by roughly 0.2 times. While these actions accelerate deleveraging, the uncertain order trajectory prolongs the timeline for returning to the company's target leverage range. The company also continues to return value to shareholders through dividends, having increased its quarterly dividend in fiscal 2025 to $0.23 per common share.

Key risks to the outlook include the potential for continued or escalating global macroeconomic uncertainty, further tariff impacts, prolonged customer decision delays on capital investments, and geopolitical instability. The company's mitigation strategies focus on controlling internal costs, accelerating integration benefits, optimizing the supply chain, and maintaining a disciplined approach to capital allocation.

Management maintains confidence in the long-term growth potential of its core end markets, underpinned by secular trends like the growing global middle class and the drive for sustainable solutions (including recycling and batteries). The robust quote pipelines and continued high utilization of test labs, despite slow order conversion, are cited as indicators that demand is delayed rather than fundamentally destroyed. The strategic transformation towards a more focused portfolio of highly engineered processing technologies, coupled with accelerated integration and cost actions, positions Hillenbrand to potentially capitalize on demand recovery when macro conditions stabilize.

Conclusion

Hillenbrand is navigating a complex period marked by a strategic portfolio transformation coinciding with significant global macroeconomic headwinds. The divestiture of non-core assets like Batesville and the majority stake in Milacron, alongside strategic acquisitions in the FHN space, are reshaping the company into a more focused industrial player aligned with long-term secular growth trends. While recent financial performance has been pressured by delayed customer investments and escalating tariffs, the company has demonstrated agility through accelerated integration synergies and cost-out initiatives, mitigating the impact on profitability.

The updated fiscal 2025 outlook reflects a cautious near-term view, anticipating continued demand softness and incorporating tariff impacts. However, the underlying investment thesis hinges on the successful execution of the refined strategy, leveraging its highly-engineered technology and systems expertise, capitalizing on integration benefits, and prioritizing debt reduction. The ability to convert robust quote pipelines into orders when macroeconomic uncertainty subsides, coupled with the stability provided by the aftermarket business and the growth potential in FHN, will be critical factors to watch for investors evaluating Hillenbrand's path towards long-term value creation amidst a challenging, yet potentially transient, market environment.