Joe Raver - President & CEO Kristina Cerniglia - CFO Kim Ryan - President, Batesville Thomas Kehl - President, Coperion.

Daniel Moore - CJS Securities John Franzreb - Sidoti & Company Gary Farber - CL King Matt Sherwood - Cooper Creek Partners.

Welcome to Hillenbrand's Earnings Teleconference for the Fourth Quarter of Fiscal 2014. [Operator Instructions]. At this time, it's my pleasure to turn the conference over to Joe Raver, Hillenbrand President and Chief Executive Officer. Mr. Raver, please go ahead..

Thank you, Laurie and good morning, everyone. I appreciate you joining us this morning to discuss Hillenbrand's results for the fourth quarter of fiscal 2014 which ended September 30. I'm joined in the prepared remarks portion of our call today by our CFO, Kristina Cerniglia, who had just started with us at the time of our last call.

During the Q&A portion of the call, we'll be joined by Kim Ryan, President of Batesville and Thomas Kehl, President of Coperion.

Prior to getting into our prepared remarks about the business, I would like to briefly remind you that during this call, we may use certain forward-looking statements that are subject to the Safe Harbor provisions of Securities Laws. These statements are not guarantees of future performance and our actual results could differ materially.

Also, during the course of the call, we'll be discussing certain non-GAAP operating performance measures.

I encourage you to take a look at our 10-K which can be found on our website for a deeper discussion of forward-looking statements, the risk factors that could impact our actual results and more information on our use of non-GAAP operating measures and their reconciliation to GAAP financial measures.

I would like to begin today by reflecting on the progress we've made towards the execution of our strategy. It's been about six years since we began our journey as a separate public company and Hillenbrand looks very different today than it did when we first started.

At that time our portfolio consisted solely of Batesville, a recognized leader in the death care market. Batesville is a business that delivers healthy profit margins, consistent free cash flow, year in and year out.

However, it operates in a burial casket market that is characterized by flat to slightly declining demand for caskets as consumers' preference for cremation over burial continues to rise at a slow but steady rate.

Well aware of the challenges facing this business at our inception, we set out with a strategy to diversify into new markets with stronger underlying, long term growth trends. The solid financial foundation of Batesville provides the leverage we need as we seek to acquire good businesses in growing markets and make them better.

Clearly, acquisitions have been an important part of our strategy over the past several years and helped us grow and diversify into a variety of large and growing end markets around the world.

Since 2008, we’ve transformed our company by investing in three high quality businesses that form what is now Hillenbrand's largest segment, the Process Equipment Group. Although we did not complete an acquisition this year, we remain very active in evaluating targets as we seek to continue the execution of our strategy.

The M&A environment has become somewhat challenging for strategic buyers like Hillenbrand primarily because increased competition and the availability of inexpensive financing is driving up multiples.

We’re optimistic that we'll identify additional actionable targets in the future, but we're taking a very disciplined approach to ensure that when we do execute our next opportunity, it will be right for Hillenbrand and for our shareholders.

In summary, we're pleased with the progress we've made in the transformation of Hillenbrand into a global, diversified industrial company. Since our spin in 2008, we've more than doubled our revenue with approximately 2/3rds now coming from our Process Equipment Group businesses.

In addition, more than 40% of our revenue is now generated outside the United States. We believe we're on the right path to grow profitably well into the future. At the same time, we recognize that there is a long way to go on our journey and a tremendous amount of work to do to realize the full potential of our businesses.

As you saw in the release last night, consolidated revenue for the quarter increased 6% to $469 million and adjusted EPS was $0.61 about 22% higher than the prior year.

Top-line growth was in-line with our expectations for the quarter as we began to see the effects of projects in the Process Equipment Group that had been building in backlog moving forward and converting to revenue. As expected, the fourth quarter was our largest revenue quarter of the year.

We continue to be pleased by our operational performance as both gross margins and adjusted EBITDA margins were stronger than expected with measurable improvement over the prior year. Overall, our operational results for the quarter were strong. Looking at the full year, revenue finished at the lower end of our guidance range.

This was due to a slower than expected start to the year for the Process Equipment Group, a result of customer-driven delays on several large projects as well as the lower burial casket market on a year-over-year basis for Batesville. However, we were encouraged as the second half of the year returned to levels more consistent with our expectation.

We successfully improved gross margins and adjusted EBITDA margins for the year as a positive result in the Process Equipment Group more than offset modest declines in the Batesville business. This has been a good year for Hillenbrand and Kristina will provide more detail regarding the financial results later in the call.

Now I'll focus more specifically on segment performance, beginning with the Process Equipment Group. Our Process Equipment Group brings industry-leading applications expertise and core technologies that improve mission critical processes for our customers.

Today, we serve a broad range of industries including plastics, fertilizers, processed foods and energy. We've also greatly expanded our group geographic reach, from our beginnings as a North American-centric business, to a truly global company with a strong presence in North America, Europe and Asia.

Our strategy in this segment is to expand globally, penetrate growing end markets and expand margins through the application of our Hillenbrand business system which includes management practices such as our strategy process, Lean and Talent development.

The Process Equipment Group businesses are leaders in their respective market segments and are highly valued for their ability to solve difficult customer problems through strong technical and applications expertise.

We're optimistic about our growth prospects both in the near and long term as we respond to the needs of increasing world population and the demands of an expanding middle class in a growing number of geographies. Revenue for the quarter increased $29 million or about 10% over prior year reaching a new high.

Orders in the quarter however were softer than we expected and finished below the prior year which was a difficult comparison. Unlike last year, we did not close a significant large order this quarter.

However, we still have visibility, several potential large orders that we had forecasted in the fourth quarter that customers have pushed out due to project timing. We’re optimistic about our chances for success when they begin to move forward. Order softness was also evident in Europe and China, where we saw some pull-back in small project orders.

Europe's economy continues to struggle and we felt some impact from lower than expected economic growth and restricted credit policies in China.

Nonetheless, we strongly believe in these two markets as a long term source of growth as the middle class expands and especially as companies increasingly focus on technology to improve quality and efficiency and apply automation to offset rapidly increasing labor costs.

The continued margin expansion across the Process Equipment Group is something we’re delighted to see. Strong volume during the quarter provided improved operating leverage across the entire group. In addition, we saw favorable mix compared to the prior year which included some large, lower margin projects.

There were several target operational improvements to support margin gains as well. The Process Equipment Group has implemented Lean in a number of areas to improve processes across the business, drive productivity improvement and reduce lead times.

For example, a number of Lean projects have contributed to improvement in our delivery lead times this past year, result that yields not only enhanced customer satisfaction, but also bottom-line savings and we expect further improvements in the months ahead.

We've also taken important steps this year to streamline operations including the continued integration of our Coperion and K-Tron businesses. Earlier this year, we announced that we would close one of our facilities in New Jersey and leverage operations in other locations to improve efficiency and reduce cost.

As a result of these actions, we exceeded our annual goal of year-over-year adjusted EBITDA margin improvement of a 100 basis points in the Process Equipment Group, and plans are in place to deliver 100 basis points of improvement again next year.

Despite the low order intake in the fourth quarter, we’re encouraged by our order pipeline and the outlook for new projects. The positive momentum in shale gas polyolefin projects in North America is expected to continue as we believe several companies are moving forward with new investments in polyolefin plants in the U.S.

and some existing projects have been expanded. We believe this trend will continue to provide opportunities over the next couple of years and we expect to win our fair share of these projects based on our reputation and experience in similar projects over many years.

We’re also experiencing solid growth in engineered plastics where we provide small to mid-sized compounding machines for the plastics processing industry. The growth is fueled by positive end market developments in automotive and construction and by a number of companies bringing manufacturing back to the United States.

Let me now turn to the Batesville segment. I'm sure most of you saw the 8-K we issued Monday related to the resolution of the ongoing litigation with Matthews. As you might recall this lawsuit was filed in August of 2010 in the U.S. District Court of Western Pennsylvania.

The lawsuit was against Batesville Casket Company and Scott Pontone and was subsequently amended by Matthews to include Pontone Casket Company and Harry Pontone.

The suit alleged that Scott and Harry Pontone breached contractual and business obligations with Matthews in the New York metropolitan area and that Batesville induced certain of those breaches. Additionally, Matthews claimed that it lost revenue and would lose future revenue relating to a number of customers.

Matthews sought to recover compensatory damages ranging from $26 million to $49 million, unspecified punitive damages and attorney's fees and costs from all the defendants and to enjoin certain activities by all the named defendants including Batesville and its employees in the New York metropolitan area.

On November 14, 2014, all parties entered into a global settlement agreement, a release and a covenant not to sue. Under the terms of the agreement, Batesville will pay $17 million to Matthews and up to $1.75 million in unpaid legal fees for Scott Pontone, Pontone Casket Company and Harry Pontone.

Speaking only on behalf of Batesville and Hillenbrand, I can tell you that the decision to settle was a difficult one. On the one hand, the company relished the opportunity to clear its name in a trial.

On the other hand, the uncertainty associated with a jury trial in the plaintiff's hometown of Pittsburgh, the likelihood of protracted litigation regardless of the outcome of the jury trial and the fact that the settlement in no way hinders our ability to compete freely in the funeral industry including in the New York Metro market tipped the scales in favor of settlement.

Having this case behind us, our task now is to return our focus to serving customers better than anyone else and to win in the marketplace. Moving now to results for the quarter in-line with the expectations we discussed last quarter, both burials and revenue were flat this quarter compared to the prior year.

Looking at the full year however, both the burial market and Batesville revenue were down about 4%.

Despite the challenges presented by this decline in burials this year, Batesville's profitability and cash generation remains strong due to actions they've taken to reduce costs as well as their ability to manage capital expenditures and working capital. This year, Batesville implemented significant improvements to its distribution system.

They've been able to improve efficiency and improve their ability to provide outstanding value and service to our customers. In fact, I'd like to commend Batesville for being recognized in the most recent edition of the Funeral Service Insider as number one in their industry in the categories of quality, service and innovation.

In usual fashion, I'll close my comments about the Batesville business by reminding you that the longer term trends for Batesville shows that healthcare continues to improve and people are living longer. The demographics of an aging generation of baby boomers are expected to be a positive factor in the future.

However, it continues to be impossible to predict with any measure of certainty what's in store for the North American death rate in the near to medium-term. As we’ve progressed on the path of transformation, we've been fortunate to add new, executive-level talent this year to reinforce our team in key areas.

Our new CFO, Kristina Cerniglia is with me today. She has a wealth of global industrial experience that will help us as we continue to grow and diversify and I'm pleased to turn the call over to her for a more detailed review of our financial results for the quarter and year..

Thank you, Joe. As we reported in our filings yesterday, consolidated revenue of $469 million for the fourth quarter was up 6% year-over-year. We finished the fourth quarter strong with 28% of our revenue in the quarter. The Process Equipment Group delivered 10% growth which was partially offset by a 0.5% decline in Batesville.

Changes in foreign currency did not have a significant impact on revenue in comparison to the prior year. Adjusted gross margin for the quarter was 35.5% or 250 basis points higher than prior year. This was primarily driven by higher volume, favorable mix and productivity projects generated from the PEG Group.

Adjusted EBITDA is an important measure we use to monitor our ongoing operating performance. It removes the impact of items like amortization and interest which naturally result from our acquisition strategy. Adjusted EBITDA increased 21% to $82 million over the fourth quarter of last year.

As a percentage of revenue, it increased by 210 basis points to 17.6%. We continue to target further improvement to the overall adjusted EBITDA percentage based on the ongoing integration of Coperion and the continuation of Lean efforts across the business.

Looking at our bottom-line for the quarter, adjusted net income increased 24% to $39.2 million, resulting in adjusted EPS of $0.61 per share or a 22% earnings growth. As mentioned earlier, the increase was driven by increased profitability in the Process Equipment Group which more than offset the impact of a lower average selling price at Batesville.

Turning to the next slide, I will discuss segment performance beginning with the Process Equipment Group. The Process Equipment Group delivered $319 million of revenue in the quarter representing 10% growth. As we had forecasted on our last earnings call, the fourth quarter was the highest revenue quarter for the year.

The revenue increase over prior year was supported by a strong [ph] profit market and was also partially driven by an increase in sales of replacement parts and services. Our order backlog of $580 million came off its third quarter record high by $150 million and was 4% lower than prior year.

Adjusting for the impact of FX, backlog was flat to prior year and down about $120 million sequentially. While order intake was softer than expected for the quarter, we were pleased with the volume we were able to move through the backlog and convert to revenue.

Additionally, the robust order pipeline particularly in the shale gas polyolefin projects gives us confidence that we can increase the order intake volume over the next few quarters. Remember that this business is comprised of large systems, equipment, replacement parts, components and service.

Revenue for this Group is subject to the cyclicality of the market and can be heavily influenced by the timing of order placement. The Process Equipment Group posted strong adjusted gross margins as they grew more than 400 basis points to 33.9%.

The positive margin in PEG was largely a result of higher volume and the associated benefit of favorable absorption of fixed manufacturing costs. As we’ve discussed there has also been an intense focus by this Group on profitability and a portion of this margin improvement can be attributed to those efforts.

That, plus a favorable mix of projects from a margin perspective led to an adjusted gross margin for the quarter that exceeded our expectations. Turning now to Batesville, revenue for the quarter was $149 million down about 50 basis points from the prior year. Lower average selling price was the main reason for the modest decline.

Deaths were slightly higher year-over-year, helping to offset an increase in the cremation rate of 120 basis points. Batesville delivered an adjusted gross margin of 39% which was right in-line with last year. Moving on to full year results, echoing Joe's comments this has been a good year for Hillenbrand.

Revenue increased 7% to $1.67 billion with adjusted net income of $132 million and adjusted EPS of $2.06 representing 10% earnings growth over prior year. Keep in mind that in 2013, we only had the Coperion business in our results for 10 months of the year. Adjusted EBITDA grew 11% to $276 million or 16.5% as a percentage of revenue.

This represents 60 basis points of improvement at a consolidated level and 150 basis points of improvement for the Process Equipment Group. Our adjusted effective tax rate ended the year at 31.6%, 170 basis points higher than prior year due to a couple of discrete tax items. We anticipate our tax rate to return to approximately 30% for 2015.

Operating cash flow was $180 million for the year, an increase of $52 million compared to last year. The increase was due to higher net income and significant improvement in working capital particularly at Coperion.

During the quarter, we returned over $12 million to Hillenbrand's shareholders in the form of quarterly dividends and we paid nearly $50 million in dividends for the year.

As we turn now to guidance, I would like to remind you that 2014 included approximately $13 million of gains or about $0.14 of earnings per share that we do not expect to recur in the future. These included gains on our limited partnerships and the exercise of a warrant. Partially offsetting those gains were the discrete tax items I just mentioned.

Absent these, we would have ended the year at $1.98 in adjusted EPS or a 5% earnings growth. As we look forward, we expect 2015 revenue growth of 2% to 4% on a constant currency basis. Revenue from the Process Equipment Group is projected to grow 4% to 6% and Batesville is expected to deliver revenue in-line with 2014.

Given current foreign exchange rates, management expects a 4% negative translation impact to revenue compared to 2014. Adjusted EPS for 2015 is projected to range from $2.05 to $2.15. Using a normalized adjusted EPS base for 2014 of a $1.98, this would yield approximately 3% to 9% earnings growth.

There are a couple of other changes that we expect in 2015 that I would like to highlight. Given the low interest rates available, we plan to fix out a portion of our debt in 2014. We expect $3 million of additional interest expense and that is included in our 2015 earnings guidance range.

Additionally as we stated earlier, we expect the Process Equipment Group will a deliver 100 basis points of adjusted EBITDA growth in 2015 and we expect to see this result starting slowly in the first half of the year and then finishing strong as their efforts to implement Lean into the business reap rewards over the long term.

Turning now to tax as I mentioned earlier, we had a couple of discrete items in the fourth quarter that significantly impacted our adjusted tax rate. For 2015, we expect to return to historical levels right about 30% for the year. Lastly, I would like to remind you that two of our segments have different quarterly performance profiles.

A significant portion of our Process Equipment Group revenue comes from Coperion-related large system sales which may have a sizable impact on revenue during quarters where a large portion of the work is completed. While work on these projects can span 12 to 18 months, the revenue is not recognized evenly which may cause lumpiness.

In addition, Coperion has a long history of the second half of the year being larger than the first and we believe this trend will continue in 2015. Batesville has a very different profile, one that is driven by the seasonality of death.

Their largest quarter is generally the second quarter where they typically achieve 26% to 27% of their revenue for the year. In summary, we’re pleased with our results for the fourth quarter and the year and we’re confident that we have a solid plan to build our momentum and deliver strong full year results in 2015.

Now, I'll turn the call back to Joe for his concluding remarks.

Joe?.

Thanks, Kristina. Kristina and I both said earlier, we remain encouraged by the developments in North American shale gas related projects and feel good about our order pipeline. We're forecasting modest revenue growth for the coming year and adjusted EPS in the range of $2.05 to $2.15 for the full fiscal year 2015.

Our management team is committed to the long term strategy that is transforming Hillenbrand into a global, diversified industrial company and we remain committed to providing meaningful value to our shareholders. That concludes our prepared remarks.

For today's Q&A session we're joined by Coperion President, Thomas Kehl and Batesville President, Kim Ryan. We're ready to take your questions.

Laurie, would you please open the lines?.

[Operator Instructions]. We will take our first question from the line of Daniel Moore of CJS Securities. Your line is open..

Joe and Kristina, just looking at the guidance of 4% to 6% growth on the PE side of the business, Joe, you mentioned petrochem, maybe walk us through in a little bit more detail the major end markets, energy, petrochem, food, pharma, where are you seeing areas of strength and where are you seeing more of headwinds as you think about the guidance on a combined basis..

Okay. As you know, we’ve a big presence in plastics, particularly polyolefins in terms of large projects. And so what we saw in the fourth quarter, we did not close any large projects in the fourth quarter.

We continue to remain bullish on the North American shale gas phenomenon in terms of polyolefin plants and so those projects have moved out a little bit. We still have visibility to those projects and feel very good about our ability to win those projects.

So despite a difficult order intake quarter, we still feel very good about the North American shale gas projects that we've been tracking here over the last couple of years. Then I move to a regional perspective.

North America has been good for us and North America has been good for us in the compounding business, the frac sand business has been pretty strong this year and expect it to continue. Energy is relatively flat from a perspective of coal in the United States, but we're seeing good spare parts business on the coal side in the United States.

And then really it's Europe and China and Asia, I should say. So Europe has remained sluggish over the past quarter. Germany had been an area of strength for us. They've revised down GDP growth.

We've seen some softness in Europe and Germany in particular and then Asia as well, while Asia is still growing nicely, it's not nearly at the levels it was a year or two ago and so we've seen some softness in China as well.

But we feel good, again, about North America and the polyolefin projects, plastics, our compounding business is reasonably good particularly in North America driven by the overall economy. And again, we just haven't seen the softness that's been in Europe the last couple of years.

Lift, in fact, it's probably gone a little bit the other direction this year and China is slowing..

So the growth for this year 4% to 6%, is that maybe a little bit below your longer term, I think previously you had said high single digit growth in the Process Equipment Group, is that still your goal on a longer term basis?.

It is our goal on a longer term basis. I think as we talked about mid to high single digit growth, we had an anticipation that the European economy would gain some strength over the last year or so and it hasn't and didn't anticipate the sharpness of the decline in China.

But we still feel very good about the long term prospects of the end markets that we're in and the geographies that we're in. It's just I think a difficult time from a global GDP perspective in growth, although I will tell you, North America has been very strong for us which is very good..

Okay. And with regard to mix, you mentioned better mix.

Is it more replacement parts? Is it less pass-through? What is it in Q4 that kind of drove that favorable mix and favorable margin impact?.

So we did have a strong year and a strong quarter in parts and service and that typically means that our equipment is running at high utilization rates. So particularly in North America, strong parts and service business which has been good. And then we have had some projects that have been at higher margins.

Last year we had a couple of big lower margin projects in the quarter and this year we've seen a better mix probably because we have a mix of business that has higher margins..

Okay. And lastly, just in Batesville, what are your assumptions regarding volume and price? Obviously you're looking at sort of flat revenue for the year for 2015.

But are you assuming volumes continue to come down and have you put in a price increase recently that might offset some of that lower mix?.

Yes, we've already implemented the price increase for this year and we’ve anticipated return to normal market levels in terms of just what we’ve typically seen over the last 10 years, that normal 2%.

We have accommodated that with price increase and that price increase will obviously take into consideration commodity pricing, volume changes and those types of things and that's already gone in effective October 1st..

Kim, congrats once again on keeping margins flat in a down volume environment and I'll jump back in queue. Thanks..

Your next question comes from the line of John Franzreb of Sidoti & Company. Your line is open..

Just to stick with Batesville, regarding the legal settlement, are you able to retain those customers that were in question?.

Yes, John. We were not only able to retain those customers but I think the key part of the settlement, a couple key parts is, one, it's a global settlement. It reduces the risk of ongoing litigation and then probably most importantly is we are free to compete in the marketplace as we have been.

We can get back to work trying to serve our customers; continue to work with our partner in that marketplace, Pontone Casket Company and Scott. So yes, we can continue to work with every customer in that marketplace and continue to go win business and put the lawsuit behind us. So we're looking forward to good things in the New York market..

And Joe, you mentioned that you didn't book any large orders in the fourth quarter. They were delayed.

What end markets were these delays in?.

I'm sorry. I didn't catch the end of your question, John..

You said that there were no large orders booked in the fourth quarter of the year. I was just wondering what end markets were these delays, in the large bookings you kind of suggested they were pushed out by the customers..

Yes. So this is really almost exclusively the large polyolefin and petrochemical plants in North America.

So we're tracking those projects, and as you've seen in past quarters, we can get big swings because these projects can be very sizable projects and some projects we expected that would close in the fourth quarter, be awarded in the fourth quarter have pushed out. And we don't see any long term effects.

I think it's just a matter of the customers getting their engineering work done and moving the projects ahead at a slower pace than had been originally anticipated..

Okay.

So maybe a two-part follow-up question to that, how should we think about the cadence of the backlog as it goes through the year? Will it be substantially Q2 and Q3? And what kind of normalized book-to-bill drop-off should we expect from Q3 to Q4 now that you have all these businesses under the umbrella for more than a year, you have a better look at what the order profile and the booking trends are for the customer base..

Yes, so typically -- let me just take a step back. Typically what you'll see is the order backlog build during the course of the year, particularly in the second quarter and third quarter and then it typically comes down in the fourth quarter as we work off backlog heading into the end of our fiscal year.

Quite frankly, we did not anticipate as big a drop in backlog in the fourth quarter and again that was really almost exclusively due to large orders that didn't materialize that we expected. But again, we didn't lose those large orders. They had just pushed out.

So I would anticipate that you'll see the backlog build during the first, second, third quarter and then drop again in the fourth quarter as we close out the year. John, I would expect a very similar year to last year.

Last year we had somewhat difficult order intake in the fourth quarter and got us out to a little bit slower start than we would have liked. And we're really facing kind of the same dynamics this year and it's really around the movement of those large orders..

And just to get a little bit of clarity on the revenue picture here, if you were going to take a pie chart and say how much of your sales are attributed to the oil and gas what would that look like as part of total PEG revenue and also how much did you finish the year-end replacement parts as a percent of total?.

So when we think about plastics, so we break plastics out, it's about 50% of our Process Equipment Group revenue. I think it's around 40% of our overall Hillenbrand revenue and so that includes both the big projects as well as compounding machines and smaller projects.

And then from an overall parts and service perspective, I think we ended the year right at about 32% of the overall revenue in the Process Equipment Group was parts and service. And we've been consistent around that kind of a third of our total revenue since we've had the group together..

Your next question comes from the line of Gary Farber of CL King. Your line is open..

I just had a couple of questions. One was on Russia; I think you had called that out in previous quarters.

Can you talk about what's going on in that marketplace?.

Yes. So we continue to be active in Russia. I think the dynamic there has changed a little bit in the sense that there's a bit more uncertainty there because of the sharp decline in the ruble. And so I think the currency effect, we're not quite sure how that will play out just yet. But we continue to quote jobs there and continue to book business there.

As we said, I think in the last call, we have about $10 million of revenue per quarter that's coming out of Russia. That's sort of -- we think about that as the risk and that's not really changed. It's still at about that $10 million that we expect over the next four quarters, kind of on average, that's about the revenue we would expect out of Russia.

.

Is it focused around any one particular market or is it sort of broad-based?.

Well I think it's a couple of end markets. One is -- potash is a large component of -- or Russia is a large producer of potash in the world and so we’ve a potash business there. We have some business in coal, particularly in coal mining.

And then in plastics and particularly in the compounding business there is some business in Russia related to our plastics business..

Right.

And then just on the margin improvement at the Process Group, can you talk about on your Lean initiatives, is there any one particular area that it's weighted toward? Or is it evenly spread out? Is it sourcing of goods or -- I mean how should we think about when you drill further down to what's driving that?.

It's really widespread. We have a number of projects under way related to a variety of things. I will tell you, though, that we saw significant improvement this year as I mentioned in the prepared remarks in terms of reducing lead times and that's really a benefit to us. It serves customers better.

It takes inventory levels down, improves quality and so that's been a very positive thing. We've seen lead times come down at Coperion in that line of business, particularly around the compounding machines. And also in our screening business, we've seen lead times come down. So that's been a focus and will continue to be a focus as we go forward..

Right. And then just one last one, just in the current environment you described the potential to continue to pay down debt..

Yes.

As we’ve talked pout about in the past, right now the acquisition as I mentioned the acquisition environment multiples are very high, we're staying very disciplined in terms of making sure if and when we do an acquisition it's a good acquisition for Hillenbrand but more importantly we get a good return on invested capital and it's a good acquisition for our shareholders.

And so right now if we can't find an acquisition or don't execute an acquisition that meets our criteria, we continue to pay down debt. And then we typically buyback some shares to offset dilution during the course of the year and would expect to do that unless there is anything unusual that would happen during the course of the year..

[Operator Instructions]. Your next question comes from the line of Daniel Moore of CJS Securities. Your line is open..

Joe, I think you mentioned you were seeing some strength in plastics.

Is that generally North America? And taking a step back with the polyolefin plants coming online over the next several years, do you have any better clarity or focus on when we might see a larger wave of increased North American plastics manufacturing and when you might start to see a bigger benefit?.

This is Thomas Kehl from Coperion. We are seeing in North America strengthening of the plastics industry, new capacities, new compounding line being but [indiscernible] coming on-stream.

We’re seeing a very strong service, parts and components business in that area, meaning that capacities are going on-stream, idle capacities are coming back on on-stream. The utilization rate of our customers has increased and it's very strong. So we're seeing longer strengthening period of the plastics industry in North America..

Already seeing some of that benefit?.

Yes, we do, especially in the compounding business..

Your next question comes from the line of Matt Sherwood of Cooper Creek Partners. Your line is open..

Just had a quick question on the orders, you talked a little bit about -- I was just trying to calculate the orders by taking the change in backlog and adding it to revenue. And if you do it that way, it looks like orders are down 48% from 4Q last year to this year.

Just curious what you're seeing because I don't know if the backlog has some currency in it or something like that..

From the backlog it does have a currency impact. So with a constant foreign exchange, the backlog is basically flat from the prior year. And as you mentioned, our book-to-bill ratio this quarter was low given that the order intake was low. I want to go back though and stress that -- so that's really two things.

One is we tend to have a big revenue quarter in the fourth quarter. We did not see a number of large projects close. So our base businesses are in pretty good shape. So we see nice growth and met expectations on the service business and some of our components business and machine business.

And again, it's really those large projects that didn't materialize during the quarter this year in the fourth quarter..

Right.

All I meant is that even if you make that adjustment that you talked about in terms of currency, it would look like orders are down like 40% year-on-year, which just seems surprising that much -- so it's typically 40% of your orders would be these mega projects?.

Yes, I think that number is a little bit high. I’ve a graph here in front of me. I don't have the exact numbers, but I think from an orders perspective it's a little bit high. It's probably about down about a third on a year-over-year basis from the orders perspective.

And that's around $100 million on a year-over-year basis from a quarter and that's, again, a couple of large projects significantly begin to close that gap..

Okay. Then just quickly on the casket side. You guys have been doing a phenomenal job holding margins in a difficult environment. Matthews on their call spoke to margin compression in the quarter from lumber and steel and were sort of belly aching, they would have liked to see a bigger price increase out of Hillenbrand this year.

How have you done such a better job offsetting some of these inflationary input costs than competitors?.

I think one of the main drivers for us is frankly our strategic planning process and how that works for both -- for all elements of the company.

So for both logistics and supply chain which are obviously the huge contributors on our gross margin line, those groups began their work literally in March every year with the targeted exercises that they've got to come up with in order to be able to achieve Lean savings throughout the course of the year to accommodate the price increases that we put in place.

So we’ve seen the same types of things that were mentioned, steel prices, lumber prices, those types of things. But we are very focused on only taking the price increase that we need to cover those commodity costs and working on covering other costs with the savings we generate through those groups and frankly we've just been very successful.

We have a lot of really skilled Lean resources that work in both manufacturing around capacity planning, purchase price variances and the contracts that we put in place.

The Lean manufacturing processes taking inventories down and then continuing to work on Leaning out our logistics footprint and how we deliver to our customers which as you are aware is a very demanding kind of logistical cycle but one that I think we've got some excellent talent working on in order to be able to maintain that right product to right price at right place to everyone while being able to continue to take costs out each year.

Lean is the ticket on that. The number of resources we’ve working on that, it starts early and it goes all year long and they continue to perform year after year..

Your next question comes from the line of John Franzreb of Sidoti & Company. Your line is open..

Yes. You mentioned debt refinancing in your prepared remarks.

Could you just clarify what the impact of that is projected to be as far as your fiscal 2015 guidance?.

Yes. So we are going to fix out a portion of our debt and that will be about $0.03 to our earnings per share for guidance for '15..

$0.03 benefit?.

$0.03 additional expense..

Headwind. Okay. That's what you I thought, I wanted to make sure I heard that properly. Okay. Thank you very much..

We have no more questions. So I would like to turn the call back over to Joe Raver for final comments..

Thank you, everyone for joining our call today. We look forward to talking to you again in January when we do our first quarter's earnings call. Everyone have a great day..