Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Matthews International Second Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. .

I would now like to turn the conference call over to your host, Chief Financial Officer, Steve Nicola. Please go ahead. .

Thank you, Allan. Good morning. I'm Steve Nicola. Also on the call, with me, this morning is Joe Bartolacci, our company's President and CEO. .

Today's call has been scheduled for 1 hour, and we will be available for replay later this morning. To access the replay, dial 1 (320) 365-3844, and enter the access code 324027. The replay will be available until 11:59 p.m., May 6, 2014. .

We have posted on our website, which is www.matw.com, the second quarter earnings release and financial information we will discuss this morning. .

On the top of our homepage, under the Investor tab, click on Investor News to access the earnings release. For the quarterly financial data, click on Financial Reports to access the information under the section, Matthews International Quarterly Reports. The documents are presented in a PDF file format. .

Before beginning the discussion, at the advice of legal counsel, I've been advised to read the following disclaimer as it pertains to forward-looking statements. Any forward-looking statements in connection with this discussion are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve known and unknown risks and uncertainties that may cause the company's actual results in future periods to be materially different from management's expectations. .

Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. .

Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-K and other periodic filings with the SEC. .

In addition, please note that the balance sheet income statement and cash flow information provided today are preliminary data, since our quarterly report on Form 10-Q for the quarter ended March 31, 2014 will not be filed with the SEC until the first week of May. .

To begin the conference, I'll review the financial results for the quarter. Joe will then provide general comments on our operations. Following that, we will open the discussion for questions. .

For the quarter ended, March 31, 2014, the company reported earnings of $0.41 per share. On a non-GAAP basis, the company's adjusted earnings per share were $0.59. The net amount of these non-GAAP adjustments was $0.18 per share for the fiscal 2014 second quarter and $0.10 for the same quarter a year ago. .

In our earnings release, we've provided a reconciliation of earnings per share on a GAAP and non-GAAP basis. .

one, pension and postretirement expense. Consistent with last year, for our non-GAAP disclosure, we have adjusted pension and postretirement expense to reflect only the service cost components of this expense; two, acquisition cost. Several weeks ago, we announced the signing of a definitive merger agreement for the acquisition of Schawk. .

During the current quarter, acquisition-related costs, which included due diligence work in integration planning totaled approximately $0.11 per share. This amount also included an unfavorable $0.02 per share income tax impact for the nondeductible portion of these costs. .

Three, cost reduction initiatives. As we consistently reported, we have significant ongoing strategic cost-reduction programs in our businesses. The additional costs associated with these initiatives unfavorably impacted earnings by approximately $0.04 per share during the current quarter compared to $0.06 a year ago. .

For the 6 months ended March 31, these costs totaled $0.09 per share, each for both this year and last year. .

And four, litigation costs. As we've previously reported, our Funeral Home Product segment is currently in a legal dispute. Due to the extent of the anticipated cost in connection with this litigation, we are including this expense as a non-GAAP adjustment in fiscal 2014. .

Non-GAAP adjustments for the prior period also included acquisition costs, a net gain on acquisition-related settlement, and costs related to the ERP implementation for the Cemetery Products segment. .

Consolidated sales for the fiscal 2014 second quarter were $247 million compared to $256 million for the second fiscal quarter a year ago. .

Consolidated sales for the 6 months ended March 31, 2014 were $477 million compared to $482 million for the same period a year ago. The declines resulted from lower sales in the company's Memorialization segments and Merchandising Solutions business, offset partially by higher sales for Graphics Imaging, and Marking and Fulfillment Systems. .

Also, the current 6-month period included incremental sales of $10.5 million related to acquisitions. In addition, year-over-year changes in foreign currency exchange rates had a favorable impact of $4 million on year-to-date consolidated sales for the current year. .

Consolidated operating profit for the quarter ended March 31, 2014, was $20.9 million compared to $25.1 million a year ago, representing a decrease of $4.2 million. Non-GAAP adjustments, recorded for the current quarter, were $5.7 million compared to $2.4 million a year ago.

Excluding the impact of these adjustments, consolidated operating profit decreased approximately 3.2% from the fiscal 2013 second quarter. Higher operating profit, on an adjusted basis, for the Cemetery and Funeral Home Product segments was offset by declines in our other businesses. .

Consolidated operating profit for the 6 months ended March 31, 2014 was $35.9 million compared to $41.6 million a year ago. .

Non-GAAP adjustments recorded for the current period were $8.5 million compared to $5.6 million a year ago. In addition, the current 6-month period included incremental operating profit of $878,000 related to acquisitions. .

Sales for the Cemetery Products segment were approximately $53 million for the fiscal 2014 second quarter compared to $56 million a year ago. Year-to-date, Cemetery Products segment reported sales of $103 million for the current period compared to $109 million, last year. .

Lower unit volume of Memorial products was the main factor in the sales decline. Based on published CDC data, we estimate that the number of casketed, in-ground burial deaths in the United States declined this fiscal year. .

Operating profit for the Cemetery Products segment was $8.1 million for the fiscal 2014 second quarter compared to $5.9 million a year ago. On a non-GAAP adjusted basis, operating profit for the Cemetery Products segment was $8.3 million for the fiscal 2014 second quarter compared to $7.8 million a year ago.

Despite the decline in sales, the segment’s operating profit, on an adjusted basis and related operating margin, increased from a year ago, reflecting the benefit of the company's recent cost structure initiatives, such as lean and strategic sourcing. .

Non-GAAP adjustments for this segment for the current fiscal year primarily included costs related to the company's strategic cost structure initiatives. Non-GAAP adjustments for the prior year included costs associated with the segments ERP implementation. .

Year-to-date, the Cemetery Products segment's operating profit on a non-GAAP adjusted basis was $14.8 million for the current period compared to $15.2 million last year. .

Sales for the Funeral Home Products segment was $63 million for the fiscal 2014 second quarter compared to $68 million a year ago, reflecting a decline in casket unit volume. Year-to-date, the Funeral Home Products segment reported sales of $122 million for the current period compared to $129 million last year. .

Operating profit for the Funeral Home Products segment was $9.1 million for the fiscal 2014 second quarter compared to $9.8 million a year ago. On a non-GAAP adjusted basis, operating profit for the Funeral Home Products segment was $10.4 million for the fiscal 2014 second quarter compared to $10.1 million a year ago. .

Similar to Cemetery Products, despite the decline in Funeral Home Products sales, the segment's operating profit, on an adjusted basis, and related operating margin, increased from a year ago, reflecting the benefit of the company's recent cost structure initiatives. .

Non-GAAP adjustments for the Funeral Home Products segment for the current fiscal year primarily included cost-related to lean initiatives and the litigation-related costs mentioned earlier. The prior year included costs associated with the company's cost structure initiatives. .

Year-to-date, the Funeral Home Products segment's operating profit on a non-GAAP adjusted basis was approximately $18.8 million for the current period compared to $18.2 million last year. .

Fiscal 2014 second quarter sales for the Cremation segment were $9.7 million compared to $12.3 million for the same quarter last year. Year-to-date sales for the Cremation segment were $18.6 million as of March 31, 2014 compared to $23.4 million for the same period last year. Declines in equipment sales, mainly in the U.K.

and Europe, were the principal factors in the change from a year ago. Based on the segment's current backlog, including a significant incineration equipment project in Saudi Arabia, the segment is expecting to fully recover the current decline and is projecting overall sales growth for fiscal 2014.

As a result of the current sales decline, the Cremation segment reported operating profit of $565,000 for the current quarter compared to $997,000 a year ago. Year-to-date, the segment's fiscal 2014 operating profit was $163,000 compared to $1.5 million last year. .

For our Brand Solutions Group, Graphics Imaging sales were $80 million in the fiscal 2014 second quarter compared to $79 million last year. The increase primarily reflected higher European sales, including the benefit of favorable currency exchange rate changes. .

For the first 6 months this fiscal year, Graphics Imaging sales were $153 million compared to $141 million last year. The acquisition of Wetzel in the first fiscal quarter last year and favorable currency rate changes were the primary contributors to the sales improvement. .

Second quarter operating profit for the Graphics Imaging segment was $1.3 million for the current quarter compared to $5.5 million a year ago. .

Non-GAAP adjustments for this segment, which primarily included costs in connection with the pending acquisition of Schawk, totaled $3.7 million for the current quarter. Year-to-date, the Graphics Imaging segment reported operating profit of $2.4 million compared to $5.8 million a year ago. .

Non-GAAP adjustments were $4.1 million for the first half of this fiscal year compared to $1.2 million a year ago. .

Sales for the Marking and Fulfillment Systems segment for the 2014 second quarter were $22.8 million compared to $22.4 million for the same quarter last year. The increase reflected higher volume in North America, offset partially by a sales decline in China.

Year-to-date, sales for this segment were $44 million this year compared to $40 million for the same period last year. This increase resulted from a combination of higher sales volume and the benefit of the December 2012 acquisition of Pyramid Controls. .

Operating profit for the Marking and Fulfillment Systems segment was $1.8 million for the current quarter compared to $2.4 million for the fiscal 2013 second quarter, reflecting an unfavorable change in product mix.

On a year-to-date basis, the segment's operating profit was approximately $3 million compared to $2.8 million last year, reflecting this increase in sales. .

Fiscal 2014 second quarter sales for the Merchandising Solutions segment were $18 million compared to $19.5 million a year ago. Year-to-date, Merchandising Solutions sales were $36.5 million, this year, compared to $40 million a year ago. The decrease was primarily due to lower sales to several national accounts. .

The Merchandising Solutions segment reported a slight operating loss for the current quarter compared to operating profit of $554,000 a year ago. Year-to-date, the segment's operating profit was $254,000 compared to $1.8 million last year. The declines reflected lower sales and the impact of cost related to the segment's lean initiatives.

Non-GAAP adjustments for the current quarter and year-to-date periods were $415,000 and $807,000, respectively. .

Based on their current backlog for the third and fourth fiscal quarters, Merchandising Solutions is expecting to fully recover the current decline and is projecting overall sales growth for fiscal 2014. .

Sales and operating profit by segment, including non-GAAP adjustments for the quarter and fiscal year-to-date periods are posted on our website for your reference. Our fiscal 2014 second quarter consolidated operating margin was 8.5% of sales compared to 9.8% a year ago.

On a non-GAAP adjusted basis, our operating margin was 10.8% for the current quarter compared to 10.7% last year. .

Year-to-date, our consolidated operating margin, on a non-GAAP adjusted basis, was 9.3% for the current year compared to 9.8% last year. .

Gross margin for the quarter ended March 31, 2014 was 36.5% of sales compared to 37% a year ago, primarily reflecting lower Memorialization sales for the current quarter. Year-to-date gross margin was 36% this year compared to 36.3% last year. .

Selling and administration expense for the current quarter was 28% of sales compared to 27.2% for the same quarter last year. Year-to-date, selling and administrative expense for the current year was 28.5% of sales compared to 27.7% for the same quarter last year.

The increased percentages mainly reflect the impact of acquisition expenses and cost related to the company's strategic initiatives. .

Investment income for the fiscal 2014 second quarter was $353,000 compared to $607,000 a year ago. Year-to-date, investment income was $1.2 million compared to $840,000 a year ago. The year-over-year changes reflected investment performance on assets held in trust for certain of the company's benefit plans. .

Interest expense for the current year was $2.6 million compared to $3.1 million for the same period last year. Interest expense for the first 6 months, this fiscal year, was $5.5 million compared to $6.3 million for the same period last year. Lower interest cost for the current periods resulted primarily from lower interest rates. .

Other income deductions net for the fiscal 2014 second quarter represented a deduction of $790,000 compared to $1.1 million a year ago. Year-to-date, other income deductions for fiscal 2014 represented a deduction of $1.8 million compared to $2.2 million a year ago. .

Other income and deductions generally include, among other items, banking-related fees and the impact of currency gains or losses on certain intercompany debt. .

Net income from non-controlling interest for the current quarter resulted an additional income of $82,000 compared to $137,000 a year ago. Year-to-date, net income from non-controlling interest for the current year resulted an additional income of $90,000 compared to $389,000 a year ago.

One of the principal factors in the year-over-year change included the purchase of the remaining ownership interest in our Turkish subsidiary last year. .

The company's effective income tax rate for the 6 months ended March 31, 2014 was 35.9% of pretax income. The effective tax rate was 32.7% for the fiscal year ended September 30, 2013. The effective rate for the current period was impacted by the nondeductible portion of acquisition cost.

Excluding the impact of these nondeductible costs, our effective rate was 34.1% for the current period. The effective rate for fiscal 2013 included the benefit of a European tax loss carryback. .

At March 31, 2014, the company's consolidated cash was $62 million compared to $58 million at September 30, 2013. Our current ratio was 2.5 at the end of the current quarter compared to 2.2 at September 30, 2013. .

Accounts receivable at the end of the current quarter totaled $185 million compared to $188 million at the end of fiscal 2013. .

Consolidated inventories at March 31, 2014 were $143 million compared to $131 million at September 30, 2013. Long-term debt at the end of the current quarter, including both current and long-term portions, approximated $378 million, compared to $374 million at September 30, 2013. .

At March 31, 2014, $310 million of the outstanding debt balance represented borrowings under our domestic revolving credit facility at an average interest rate of around 2.5%. The borrowing capacity of this facility is $500 million with a maturity date of July 2018. .

The company had approximately 27.3 million shares outstanding at March 31, 2014. Since September 2013, the company has only purchased approximately 109,000 shares under its share repurchase program at a cost of $4.3 million. As you would expect, our repurchase program was curtailed as a result of the pending acquisition. .

At the end of the current quarter, approximately 1.1 million shares remained under the current share repurchase authorization. .

Depreciation and amortization expense for the quarter and 6 months ended March 31, 2014 was $9.7 million and $18.9 million, respectively. Capital expenditures for the current quarter and year-to-date periods were $5.3 million and $9.9 million, respectively. .

We will continue to incur cost in connection with the pending acquisition of Schawk. These costs are expected to be significant, and we will identify and disclose these costs as they are incurred. .

Our strategic cost structure initiatives, particularly with respect to lean and sourcing, will continue. .

As we've seen in our current year results, the company is realizing some of the benefits of these initiatives, which are expected to be ongoing. As these projects progress, the 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 casketed, in-ground burial deaths in the United States in the most recent quarter and 6 months period decreased from a year ago. This indicates that the death rate trends have moderated from fiscal 2013 to a more normal trend.

As such, this may project to a decline in casketed, in-ground burial deaths for the remainder of fiscal 2014. .

The European economic climate remains soft, but appears to have been stabilizing recently. While we are forecasting some growth, the region is still expected to be uncertain in the near-term, and remains a risk to our European businesses. .

And as I indicated earlier, despite the declines in sales in our Cremation and Merchandising Solutions businesses for the first half of this fiscal year, both segments are still projecting sales growth for the full fiscal year based on their respective backlog of orders. .

Based on our year-to-date results and current forecast, we are maintaining our guidance at this time. Accordingly, we project our non-GAAP adjusted earnings per share to be in the range of $2.62 to $2.70 for fiscal 2014. This projection excludes any impact from the pending acquisition of Schawk, since the closing date has not yet been determined.

The transaction is still expected to close in our fiscal 2014 fourth quarter. .

Lastly, the Board, on Thursday, declared a dividend of $0.11 per share on the company's common stock. The dividend is payable May 12, 2014, to stockholders of record, April 28, 2014. .

This concludes the financial review, and Joe will now comment on our operations. .

Thank you, Steve. Good morning. Our second quarter results were in line with our expectations. Revenue challenges in our Cemetery Products and our Funeral Home Products division from a slower casketed death rate were offset by good margin expansion from our recent strategic initiatives.

We are pleased with how these initiatives have taken hold and expect to see continued margin improvement over the coming quarters. .

Our Cremation Division continue to struggle with getting orders released to production, while our backlog in this division continued to be strong.

Our recent investments in new incineration technology has opened the door to new possibilities, and has resulted in a $15 million incineration product in Saudi Arabia, which is scheduled to be delivered in the fourth quarter.

We have several other projects in the works in this new area of our business, which we hope to also have some benefit from over the coming quarters. .

Our Packaging Graphics business saw increased reaping activity in our European businesses, which is expected to have a strong second half of the year, particularly from our tobacco customers. .

Similarly, our Marking and Fulfillment business saw very strong equipment orders and improving both quarters, which has historically indicated an uptick in an overall economic activity. .

Our Fulfillment businesses, which are project-based, had a slow quarter as a result of old projects coming to completion and new projects waiting to be begun. Recent wins in the Fulfillment business and expected continued strong equipment and ink sales gives us comfort for a very successful year in this division, as well. .

Our Merchandising business had a slow quarter, but we expect to have a very significant second half of the year with very large projects expected to be delivered before September 30. .

All in all, we are confident with our full year forecast, but we are cautious as usual. We have become more dependent on large projects, the timing of which, are not always in our control.

Our near-term vision is good, and our ability to deliver on-time and profitably is also good, but shifts in the project delivery dates could impact the timing of our results. .

With regard to our recently announced acquisition of Schawk, our timing is progressing as planned. We recently received all the necessary antitrust approvals, and we expect the Schawk team to soon file their proxy with the SEC for their review.

We are beginning in-depth integration planning today, and we are currently expecting to close on the transaction in the fourth quarter. .

With that, I'd like to open it up to questions. .

[Operator Instructions] Allan?.

[Operator Instructions] Our first question comes from the line of Daniel Moore with CJS Securities. .

Can you elaborate a little bit on the strength you're seeing in order activity and backlog in Brand Solutions? You mentioned some pickup at equipment sales and Marking and improved ink sales.

Are you seeing better capital spends? And outside of tobacco, what verticals are you seeing strength in that gives you confidence about the second half of the year?.

That's a pretty complex question, but let me give you bits and pieces of that. The reality is, we've always said, we've said this to the market in the past. We saw the coming recession of both in '08 and the early 2000s from our Marking and Fulfillment business. And we're seeing the uptick coming out of it, as well.

We think we're going to have pretty strong equipment sales for the full year. We had a very strong equipment sale for the first 6 months. And I would tell you that order activity on the Fulfillment side is also pretty good.

So what we're seeing there and we expect to continue, based on the backlogs we have, is a strong -- I would call small capital market continuation of economy, as we expect. So that's good. On the European brand side, we did talk about our Graphics business, there's a couple of things that are going on over there.

We mentioned in the past that there was a new regulations coming out in Europe that has some -- they are giving some of the players some time to get up to speed with the new labeling requirements. Very similar to our FDA requirements here. That, in of itself, it was picking up some activity.

And we think that we're getting the briefings now that give us comfort at that looks like it's starting to turn. Tobacco is as expected.

I think, Tobacco -- or the timing of some of the tobacco projects we had really is what did not give us a strong quarter in Graphics that we wanted, but I think that, based on what we see right now, tobacco will be very strong for the second half.

But that is the result largely of some efforts -- we mentioned before that the acquisitions of Wetzel and in Turkey have kind of given us the opportunity to solidify our relationships with some of the tobacco market. So we are, by far, the dominant player, and in some cases, the exclusive player in the tobacco markets in Europe.

So to the extent they have projects coming through, we expect to get it, and we're starting to see that. The last piece of it is what I would call marketing pickup. Our IDL business, our Merchandising Solutions business, for public reporting purposes. We have very strong backlogs. And they are very, very large projects.

We're doing a large project right now, which we expect to deliver in the late part of the third quarter for Samsung, which is basically a store in-store concept. We're seeing more of that type of activity as brands started to get more comfortable with an expanding consumer base, we think that it's going to be favorable for us for the second half.

So based on our backlogs, right now where we stand particularly with backlogs in the Brand Solutions side of the business, and not the least of which is our Cremations business, new portion of that in the incineration side, pretty comfortable with the year. .

I appreciate it. And a follow-up, shifting over to the Memorialization side of business, how far down do -- did you see casketed deaths in the quarter.

What are you seeing so far in April? And in memorials, do you expect cost of year-over-year growth, going forward, after you've -- given some potential pent-up demand after a really brutal winter?.

Go ahead Steve. .

Well, yes, just, I'll take the first part of that, Dan. We actually don't have an aggregate number that we're comfortable with because we're in various regions of the country, and it did vary by region. But needless to say, overall, I'm sure you folks see the same CDC data. It was down year-over-year. .

Yes, and with regard to the backlog, it was a difficult winter. You don't place a lot of our Cemetery products during the winter months, especially when you have long cold one. But, I mean, the backlogs we're seeing are not tremendously, significantly higher than we would thought they would be. That could be timing.

So at this point in time, we don't have that kind of visibility to tell you what the full year would look like, but we're not expecting any surprises. .

We'll next go to the line of Liam Burke with Janney Capital Markets. .

Joe, you talked about visibility in backlog in the second half on the Cremation side, and then you highlighted the Saudi Arabian order.

In terms of the rest of the market, Europe and North America, how does the backlog look there on the Cremation?.

We're starting to see more activity, but again, when I said we released to production, that's what I was referring to. Our U.S. business generally runs about a year's worth of backlog, and we're probably a little higher on that right now, just a little bit. And getting those orders released to production is not in our control.

I mean, the operators need to have that ready, the facility ready, and all the regulatory permits available for them to do that. In Europe, I can tell you that it is still slow. We're not seeing a major pickup. Having said that, we don't expect Europe to be a drag on us, which it has been over the last couple of years. .

Okay, great. And then on the Marking and Fulfillment, you talked about ERP orders being well, completing some and then pent-up for the second half of the year.

How do they look on a year-over-year basis? I mean, are you seeing some new introduction as you have the combined warehouse management solution?.

Yes. When you're saying ERP, you're referring to our warehouse control systems and the fulfillment side of the Marking and Fulfillment business. Our -- we expect our full -- sales rate to be in excess of that. Now the timing of -- [indiscernible] started the war in the end, some of that timing is not in our control.

We have commitments in orders in-house, but whether folks are willing to take that is not necessarily in our control.

The one thing that is different about that side of the business and this is -- as we approach the Christmas season, we expect that to slowdown, so that if we can't get orders installed, systems installed before the fourth quarter, we won't get it installed till the beginning of the year.

So that's just the nature that, I mean, retailers do not -- or companies do not want us in their warehouses around Christmas time. .

We have a question queued from the line of Clint Fendley with Newbridge Group. .

Question on the new incinerator technology that you guys were talking about. You seem pretty bullish on this segment, going forward.

I'm just wondering, will that materially change the investment that would be required for most of the funeral homes that don't currently own the equipment that might be considering an investment?.

Clint, this is -- when we call it incineration, this is more industrial.

So these are -- what we're talking about is anything from very small, portable incinerators for campsites for oil well drilling and shale gas drilling where you can't take -- it's too expensive to take the waste out and you burn it on site to huge $15 million projects like we're doing in Saudi Arabia today, the municipal waste disposal for a limited use.

So no, this does not impact that side of the business from the funeral homes side, it just gives us a new avenue of revenue with similar technology, which is combustion. .

Yes. And Clint, just to add to that, a little over year ago, maybe 2 years ago now, we purchased a small company in the U.K.

In addition to the existing small company that we had, maybe 3 or 4 years ago, that not only did they have the technology for cremation equipment, but also waste incineration equipment, and this is where we've gotten the order in Saudi Arabia for the second half of the year. .

And we're -- and as I said in my comments, they're still -- there's a lot of bids out there that could be significant impact. We're just not ready to call them wins yet. .

Got it. That's an exciting development.

So do we -- do you guys anticipate that the Saudi Arabia project will be completed by the end of the year, then?.

Money is in hand, and it's our job to get it there. So we've got a pretty substantial deposit already, and the commitment is to get it there by September 30. So yes, we do. .

One last question. I just wondered, you mentioned that the stock repurchases were curtailed and that did impact the quarter some.

I'm wondering how active you guys are planning on being with your repurchases between now and the closing on Schawk?.

It will still be limited between now and the closing but post-closing, we'll resume normal activity. .

Yes, most of that has been through the advice of counsel that has limited us. .

And we have a question from the line of Jamie Clement with Sidoti. .

Joe, if you look at what was the Marking products business and is now the Marking and Fulfillment Systems business, particularly in light of the acquisition of Pyramid.

What do you think, longer-term, the operating profit margin of that business should be? When you factor in the warehouse systems and those kinds of things and obviously, there's going to be some lumpiness to those order deliveries over time.

But how do you think about profitability in that segment? And obviously, we know the ink and the consumables were high-margin pieces of business, but obviously, not necessarily high revenue dollar pieces of business, as for example, the warehouse business would be. .

Yes, I mean, Jamie, our expectations and what we've seen out of those businesses early is consistent with our traditional margins in that business. We've always operated somewhere in the 15% to 17% range, and, we think, that is where our target is. Frankly, one of the areas, when we take a look at some of the pension cost, is being allocated there.

We see that as a nice adjustment to getting there. Some of the strategic initiatives are just starting to take hold there. So, I think, 15% to 17% is a good number to count on long-term. But you are right, it is going to be lumpy though. .

Yes. Okay. And then just a follow-up on the Cemetery Products side. With respect to winter weather, obviously, it's all -- I mean, it's a pain in the neck to be putting memorials into frozen ground.

So how much business do you think may have been deferred into the June quarter from the March quarter, I mean, historically, the June quarter in the Bronze business before some of the acquisitions, it was obviously weighted towards the June quarter. So there was a natural delay in the business.

But in this particular year, with the weather, I mean, should we -- I couldn't quite reconcile your comments.

But should we see a little bit -- should we see less of a decrease than we saw in the second quarter here when we look at the third quarter?.

We're actually projecting pretty good stability in that business, going forward, Jamie. Your comments are right. We would expect to see more coming out of the second half, and we'll see. We don't have that kind of visibility right now to be able to commit it, but you're right. We know that the weather has deferred that.

I just came back from a trade show where I spoke with a lot of customers, small and large, who are feeling the same impact. So I would not be surprised to see a more normalized rate going for the next couple of quarters. .

Okay. And last question, Steve. Just sort of a follow-up to Clint's question.

On the share repurchase, what was the weighted average diluted share count for the quarters? Do you by any chance have that off the top of your head or in front of you?.

Hold on just a second, but I believe, it was -- when you think about the effective weighted average, because we've got -- because of the way the earnings per share is calculated under the accounting rules, it gets a little bit complicated. But I would tell you the effective weighted average is about 27.5 million shares outstanding.

Is the number that we used [indiscernible] 27.5. .

We have a question in queue from the line of Scott Blumenthal with Emerald Advisors. .

Joe, with regard to the industrial incineration opportunity, could you maybe characterize the overall opportunity, and give us an idea as to what you're currently looking at? I would imagine that if you're in the Cremation business and you're only dealing with funerals, that's a much, much, much smaller overall opportunity than if you're getting into industrial and municipal waste incineration.

.

We think there's good leg room in there Scott, to be honest, and we're just getting started. One of the reasons that we are having this success, I mean, the investment we made was around $1 million.

So it was a not a significant investment, but the technology was good, and the business was challenged by not having the capital resources to take on a project of the size that we're looking at. So the market has been there, it's just not -- this particular company has not had the scale to participate in that.

But the projects we're seeing are in the million of dollars per, and we're just starting to get some notoriety in this industry. The Middle East is a strong market for this because of the waste that's going on in campsites for drilling and so forth. And we think there's an uptick opportunity there.

We've got a wonderful project we've been bidding on for a while in China and we think that, that could be significant, as well. So I would tell you it is more in the, for lack of a better term, underdeveloped markets and we're just getting started. .

Does this double, triple, quadruple the overall opportunity for this segment?.

If I had that kind of vision, I'd be great. Let’s put it this way, it gives us a lot more opportunity than we had. And what I would tell you in the Cremation business, which is a relatively stable business, this is a little extra cream on the top that we're really counting on. .

And would you expect the margins for such a thing to be similar to the -- to selling Cremation equipment?.

Right in line. .

Okay. And If I might ask one more of Steve. In the press release, you talked about reaffirming the guidance, a strong order backlog. And then some of your comments and Joe's comments talked about backlog in Cremation, backlog in fulfillment being subjected to backlog and then also Merchandising.

At some point, you think that you might be able to give us a -- some backlog numbers because if you add Cremation, fulfillment, Merchandising, then you're almost getting to the scale of the amount of business that you do in Cemetery Products becomes a meaningful number to kind of get our arms around and understand.

So do you think you might be able in some -- at some point in the future to talk about backlog or at least backlog currently relative to last year?.

Yes, Scott, I think that gets a little bit difficult because of the lumpiness of this business and what Joe said before, the timing of these projects. Because we know orders that we have in house, and we know the contemplated timing. But sometimes, and I would say not infrequently, that timing can be challenged, can be pushed out.

So that's -- that would make us hesitate in providing any type of backlog and trying to identify and quantify backlog for future quarters. .

We'll move now to the line of Jason Rodgers with Great Lakes Review. .

Do you have the FX impact on sales and operating income for the quarter?.

I believe, for the year -- year-to-date, the impact on sales was $4 million. For the quarter, I don't have that number handy. But I believe it was relatively small. .

We have a question in queue from the line of Adam Hamill with Gates Capital Management. .

I'm just kind of bridge the gap between year-to-date EPS down about 6%. You said third quarter, you expect to be flat, and then for the year, the midpoint in your guidance is up about 7%.

I mean, is that all Cremation and Marking and Fulfillment or are there some other benefits in the fourth quarter?.

Yes, Adam, we didn't -- I don't think, we said that the third quarter was going to be flat. In fact, we expect our third and fourth quarters to be up over last year. .

Okay, and I guess... .

And again, maybe what you're referring to is when we came out of our conference call in January, we had expected this quarter, that we just finished, to be relatively flat, which it turns out, we were relatively flat with a year ago. But we do expect our third and fourth quarters to be better than a year ago, on an adjusted basis. .

Yes. In the press release, it says, you anticipate relatively flat operating performance for the current quarter.

Is that just for the Cemetery business?.

Adam, we -- let's take this -- how about if we take this online because I'm not seeing where you're referring to. .

Okay.

And have you -- where are you in discussions on upsizing your revolver for the acquisition? Is there any terms for what that interest expense might be at?.

Yes. We actually have a commitment letter from our lead bank to upsize the revolver to approximately $850 million in order to facilitate financing the Schawk acquisition. .

And would the interest expense be similar or is it... .

Well, the interest cost will increase as our leverage ratio increases. Typical with these revolvers, there's a grid in which the interest rate spread is based on leverage rate, the company's leverage ratio.

The base rate will still be based on LIBOR, which wouldn't change based on the amount of borrowings, but the spread between -- or the spread that we have to pay based on leverage ratio will certainly increase a little bit. .

[Operator Instructions] We have a follow-up question from the line of Daniel Moore with CJS Securities. .

Obviously, you're starting to see some nice benefit from cost savings and reduction initiatives.

Can you give us a little bit of an update how much incremental benefit is still possible beyond what we saw in the numbers for fiscal Q2?.

I can't give you a quantified number, but let's put it this way. Some of our strategic sourcing initiatives are only starting today as contracts, have just come to fruition. Other ones that we sourced them last year, contracts are being completed and signed. Old ones rolled off and now we're on to new ones.

So if we think there's still more runway to go. I can't give you a number, especially when you start speaking about lean. Lean is a culture. We just -- we've set some targets for ourselves. We are not at those targets. So we think every year, we're going to see modest, but continued improvement. .

Okay. So no big step function beyond this, but continued steady improvement from here. .

Right, right. .

And then, Steve, CapEx is about $10 million for the first half.

Do you still expect $10 million, $30 million this year given the pending Schawk acquisition?.

Actually, at this point, I would expect that to be lower than the $30 million, Dan. So I would -- I'd be in the $25 million range for your modeling. .

Perfect. And then not to beat a dead horse, but lastly, as I think about Q3 and Q4, obviously, with regard to the backlog in some of the segments and big orders coming through in Q4.

Expect to see some growth, but it's fair to say, we'd see faster year-over-year growth in Q4?.

No. .

Not necessarily. .

No, we mean, some of the projects are pent-up for the last couple of quarters, frankly, and we've got a very, very significant project that's going to be delivered by March -- by June 30. .

June 30. .

And we have no further questions in queue at this time. .

All right, thank you, Allan. Well, we'd like to thank everyone for participating in our conference 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. .

Ladies and gentlemen, your conference will be available for replay beginning at 11:00 a.m. today, April 22, 2014, and running until May 6, 2014 at 11:59 p.m. To access the AT&T Executive Playback Service during that time, please dial area code (320) 365-3844 and enter the access code 324027. .

That does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect..