Steven F. Nicola - Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer Joseph C. Bartolacci - Chief Executive Officer, President and Director.

Robert Labick - CJS Securities, Inc. Liam D. Burke - Janney Montgomery Scott LLC, Research Division Scott B. Blumenthal - Emerald Research.

Ladies and gentlemen, thank you for standing by and welcome to the Matthews International First Quarter Financial Results Conference Call. [Operator Instructions] And as a reminder, today's call is being recorded. With that being said, I will turn the conference over to the CFO, Mr. Steve Nicola..

Our strategic cost structure initiatives, particularly with respect to lean and sourcing, will continue. As I noted earlier, we started to realize some of the benefits of these initiatives and, as these projects progress, the unusual costs associated with these actions will also continue.

Consistent with our existing practice, we plan to identify and disclose these costs as they are incurred. Based on published CDC data, we estimated that the number of deaths in the United States in the most recent quarter increased slightly from 1 year ago with a decline in a number of casketed/in-ground burial deaths.

This indicates that the death rate trends have moderated from fiscal 2013 to a more normal trend. As such, this would project a small increase in overall deaths with a decline in casketed/in-ground burial deaths for the remainder of fiscal 2014. The challenges stemming from the European economic weakness are expected to continue.

While we are forecasting some growth, the economic climate is expected to be difficult in the near term and remains a risk to our European business.

And as I indicated earlier, the first quarter declines in our -- in sales in our Cremation and Merchandising Solutions businesses are currently considered to be timing as both segments are still projecting sales growth for the full fiscal year. Based on our first quarter results and current forecast, we are maintaining our guidance at this time.

Accordingly, excluding unusual items, we project our adjusted non-GAAP earnings per share to be in the range of $2.62 to $2.70 for fiscal 2014. In addition, we currently expect the fiscal 2014 second quarter earnings per share to be relatively consistent with the second quarter last year, excluding unusual items.

Lastly, the board yesterday declared a dividend of $0.11 per share on the company's common stock. The dividend is payable February 17, 2014, to stockholders of record, February 3, 2014. This concludes the financial review and Joe will now comment on our operations..

Good morning. Our first quarter was generally as we expected. The funeral packaging innovation projects throughout our businesses caused a slow start for our Packaging Graphics division. Similarly, the delayed timing of projects in our Merchandising business was also expected, causing us to have a slow start in this business as well.

Our Cremation division suffered some anticipated shipment delays by customers, which impacted the first quarter results. While our Cemetery Products and Funeral Home Products divisions saw a decline in casketed deaths versus prior year, bringing our results down in Cemetery Products but up in Funeral Home Products when onetime charges were excluded.

This increase reflected some of the benefits of our strategic initiatives that we started last year. From a very positive perspective, our Fulfillment business had another strong quarter, especially in our Pick-to-Light products business.

And we saw a strong increase in equipment orders for the first time in several years, which we believe bodes well for the economy and for our business. We also have had a very strong order intake in our Pyramid warehouse control business, which we expect to deliver over the balance of the year. We also won some significant new accounts in our U.S.

Graphics business, moving us further down the line of transformation towards CPG customers in this segment, which has lagged for years. Another positive for this segment comes from a multi-year exclusive contract we recently signed with Philip Morris for our European group businesses.

This contract will allow us to expand our penetration in the global tobacco industry, including a new facility in Russia, which we expect to open within the year.

We also expect further good news from our Cremation Division where order rates remain strong, and our Industrial Incineration products business is bidding on several very large projects, which could be impactful on the overall full year results of our business.

We've also landed a very large contract with a major consumer products company in the merchandising business, which we expect to deliver over the full year as well. As you're also aware, we have continued our strategic initiatives and we believe that we are only beginning to see some of the benefits of these actions.

It has taken longer to see those benefits than expected and perhaps some of them will take longer to realize fully. But we can see the path to improved performance from all of our actions. Given our anticipated slow start and the many positives we are beginning to see, we are cautiously optimistic about our full year results.

We expect challenge, but we also expect opportunities. Therefore, we are maintaining our full guidance for the year, which is adjusted for unusual items..

At this time, we would like to open the call to questions.

[Operator Instructions] John?.

[Operator Instructions] And first from the line of Daniel Moore with CJS securities..

This is Bob Labick backing up for Dan. I wanted to start up in the Marking and Fulfillment. You mentioned organic volume growth and then also growth from the acquisition. And Joe, at the end there, you highlighted it a little bit.

Could you just maybe go into a little more detail and tell us what are the drivers that you're seeing there and what are, kind of, expectations? And can this -- does this organic growth have legs?.

Yes, we've got a couple of things there, Bob. First off, for those of you that have followed us for many years, you also are aware that this little -- this division for us has been a leading indicator of economic turnaround and decline, for that matter.

We're starting to see a decline in order -- equipment order rates in somewhere around 2007, 2008, before the crisis actually hit, and it held true and the market kind of collapsed underneath us for a while. This last quarter, we saw very a very high order rate for equipment orders, which we have not seen in, literally, years.

The ink sales that come with that, which is really the indicator of production, they're still lagging. But we expect that to follow now that the equipments are beginning to turn. So what you'll hear in a more macro level about -- maybe this is the year of the capital spend, we're starting to see that in our equipment sales there.

With regard to our Fulfillment businesses, we have developed what we think is a very unique, high-value proposition for the fulfillment of warehouse -- automated warehouse systems. We do have legs, we believe.

When we couple that with all the bits and pieces that we've cobbled together into a sophisticated alternative to some of the larger integrated solutions that are out there and couple that with some of our equipment that we have, and particularly with respect to a new control system that we have out there called Viacode, we think we've got some legs.

Now, Bob, you've known us for years, this is one piece of a 6-piece stool here. So we've got -- it's a good part. We've got great story behind it. We expect to continue to add to that puzzle as we go forward. So we expect to see, as the economy improves, both improvement organically and the opportunities to add pieces to the puzzle through acquisition..

That's great, that sounds terrific.

And then just jumping -- I guess for my "follow-up," you also mentioned, I guess, a multiyear exclusive with Philip Morris in Europe -- can you just update us on the tobacco advertising changes and the timing of when that -- those equipment sales might happen?.

Well, let me kind of give you a little feel. Because over the last couple of years, you saw us, in 2008 or so, acquire one of the gravure businesses, which is the lead player in our European business called Saueressig. About 2 years ago, we purchased a business in Turkey where we saw a little bit of challenges through our integration.

That Turkish business was driven -- acquisition was driven by our large tobacco company's interest in having a strong supplier for the Middle East. We did that acquisition. Last year, about this time, a little earlier, probably November of last year, we acquired the #2 provider to the tobacco industry in Germany, solidifying our position.

Today, we've been rewarded both with a contract and with the trust of Philip Morris to take that model elsewhere in the world. What we've done is entered in an exclusive arrangement with Philip Morris that will start to kick in during the course over the next -- I would say, the next quarter or so, we'll start to see that. Why that is important.

Tobacco is a very, very high-end packaging consumer. That can only be done, frankly, in Europe. As the exclusive provider to Philip Morris, the largest provider of tobacco in the world, we think we've got ourselves a nice little niche to continue to grow that portion of our business.

Tobacco regulation around the world varies, but the reality is that tobacco is growing in other parts of the world, while they remain flat to declining in certain parts of the world. So it's varied, but we entered into a partnership with Philip Morris that will allow us to expand wherever they think they need us. So we're very positive about it..

Our next question is from Liam Burke with Janney Capital Markets..

I just had a follow-on the Philip Morris contract. A couple of things on the Graphics Packaging.

Does that take all of your capacity or do you have the ability to service other customers, especially on a global consumer side?.

We are able to service -- I mean, it's taken more of our capacity, let's put it that way, but nowhere near all of it. For example, one of the places where we're going to be moving some of the businesses is in the Russian market, which is growing, and growing rapidly.

So we're going to add -- you're going to little bit of CapEx in that business over the next 12 months as we put some equipment up there. The good news is, we've had graphic artists sitting in Russia for 4 or 5 years that are already trained.

We -- our ramp-up in Russia, given the contract terms that we have with Philip Morris, should be relatively quick..

Okay. And when you talk about global, obviously, you don't have a presence in the U.S.

Would this give you the opportunity or a large-enough customer to be able to take this business domestically?.

If you understand how Philip Morris and Altria split their business, Altria only has the U.S. business. Philip Morris has Canada, Latin and the rest of the world. So theoretically, could we come to the U.S., we certainly could.

At the end of today, what we're going to have to try to find is a way to service either Canada or Latin America from the U.S., given there's a foothold in the U.S. market..

[Operator Instructions] And go to Scott Blumenthal, Emerald Advisors..

Joe, can you talk about the Memorialization customer sentiment currently.

Are they still buying at the low-end or have you started to get any indication that they're willing to maybe pay up for some of the more premium products?.

We probably have a bifurcated business at this point in time. We -- I would tell you that our lower-end products continue to be our larger product selection that we've seen historically. But I would tell you that there is relative stability at the high end, it's just smaller than what we're used to seeing.

Now as all of you know, we have a new tool that goes live. It's called eVantage [ph], or e-commerce solution. We expect that to go live globally here -- nationally. Wish it were globally, but we're going to go nationally sometime early March.

We don't expect it to have a rapid increase and rapid change in our business model, but it is a system through which we expect to see some increase in our mix over the course of time..

Okay. That was a pretty good lead-in for my next question then, Joe. Steve, if you want to chime in here.

Maybe you can give us a status of some of the other internal projects other than eVantage, maybe some of the other pilot projects that you're working on in Marking and Fulfillment, strategic sourcing lean?.

Good. And Scott, yes, I'll speak to those what we call our strategic cost initiatives. Lean is progressing. We are substantially through, I'll call it, the lean implementation. The lean initiatives in the Cemetery Products. Although, as you're familiar, lean never ends, it's a continuous process.

And this year, we are rolling that into our Funeral Home Products segment and our Merchandising Solutions segment, which is why you see an uptick in the unusual charges in those segments. And strategic sourcing continues also.

It's -- we call it -- this phase of it is our source-to-pay project and that's going to impact all of our segments to some degree or other, and that's really just initiated. So those are the 2 -- lean and sourcing are the significant strategic cost initiatives that are still going on this year..

Steve, I realize I had 2 here.

But since you're on the subject, are you ready at this point to give any kind of cost reduction targets or margin improvement targets related to some of those things, or haven't we've gotten to that point yet?.

Well, the one thing I would tell you, Scott, is the one thing that we have learned, and I had an investor on the West Coast tell me, you're never as big or as fast you think you are, and I think that's what our realization is. It's taking a little longer to get to achieve it than we thought so.

We're a little cautious in putting numbers out there, but we do see significant improvements coming over the next 12 to 24 months..

Yes. And Scott, we've already seen them. I think you see evidence in the Funeral Home Products business where even though volumes declined during the quarter, if you take out the onetime charges associated with these activities, you'll see an improvement in our margins.

And we are still projecting margin expansion in almost all, if not all, of our businesses this fiscal year. And a lot of that has to do with what's going on..

Another way you could see it, Scott, is you could take a look at our Cemetery Products. We did have a decline in our sales rate that Steve talked about in his report. But the decline in the operating profit relative to that is significantly lower than the drop-through of the margins you'd normally see..

Great. Yes. I do realize that, especially in the second half of last year, we did have very good margin performance in Cemetery Products..

Yes. Yes..

[Operator Instructions] And to the presenters, no further questions coming in..

Okay. Well thank you, John. We'd like to thank everyone for participating in the call this morning, and we look forward to our next quarterly conference call, which will be in April. Thank you, and have a good day..

Ladies and gentlemen, once again, this conference is available for replay. It starts today at 11:00 a.m. Eastern, will last until February 7 at midnight. You may access the replay at any time by dialing (320) 365-3844 and entering the access code, 315195. That does conclude your conference for today. Thank you for your participation.

You may now disconnect..