Joe Raver – President and Chief Executive Officer Kristina Cerniglia – Chief Financial Officer.

Daniel Moore – CJS Securities John Franzeb – Sidoti & Company Liam Burke – Wunderlich Securities.

Good morning, everyone and welcome to Hillenbrand's Earnings Teleconference for the Third Quarter of Fiscal 2015. A replay of this call will be available until midnight Thursday, August 20, by dealing 1-855-859-2056 toll free in the United States and Canada or 1-404-537-3406 internationally, and using the conference ID number 74166697.

This webcast will be archived on the Company's website at www.hillenbrands.com through September 6, 2015. If you ask a question during today's call, it will be included in any future use of this recording. Also note that any recording, transcript or other transmission of the text or audio is not permitted without Hillenbrand's written consent.

At this time, it is my pleasure to turn the conference over to Joe Raver, President and Chief Executive Officer of Hillenbrand. Mr. Raver, please go ahead..

Thanks John, and good morning, everyone. We're pleased to have you join us this morning as we discuss Hillenbrand's results for the third quarter of fiscal 2015, which ended June 30. Joining me this morning is Kristina Cerniglia, our Chief Financial Officer.

Prior to getting into the prepared remarks about the business, I'd 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 the Securities Laws. Statements are not guarantees of future performance and our actual results could differ materially.

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

I encourage you to take a look at our 10-Q, 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.

Let me begin by reminding you of Hillenbrand's strategy. It's the same strategy we followed consistently from the beginning of our journey as a public company, to leverage our strong financial foundation and the Hillenbrand business systems to deliver sustainable profit growth, revenue expansion, free cash flow.

We look for opportunities to invest our cash organically as well as in new growth initiatives through acquisition to create shareholder value. We continually seek to make our businesses better by expanding globally, penetrating growing end markets and improving margins through the application of our operating model.

Ultimately, our goal is to transform Hillenbrand into a world-class global diversified industrial company. As you know, over the past five years or so, we've completed a number of significant acquisitions that now make up our Process Equipment Group.

Process Equipment Group businesses are leaders in their respective market segments, they're highly valued by customers for their ability to solve difficult problems through strong technical and applications expertise. Our products in this segment range from highly engineered capital equipment and systems to aftermarket parts and service.

Optimistic about our long term growth prospects in a number of large and growing end markets as we respond to the needs of an increasing world population and the demands of an expanding middle class. Now, let me turn to our results for the third quarter.

We're pleased to report solid third quarter results with adjusted earnings in line with our expectations, constant currency revenue growth in both the Process Equipment Group and Batesville. Operating cash flow was strong as well, building on our second quarter performance.

Obviously, substantial currency headwinds continue to be a factor for us, especially for the process equipment group, see that reflected in our reported results. However, we evaluate the health of our business, we're encouraged to see higher volumes [indiscernible] both segments contributing to the constant currency revenue growth.

[indiscernible] Batesville side, our volume growth was achieved despite an estimated decline in the overall burial market. Looking at the Process Equipment Group, not only with equipment sales volume up, we also had a pickup in order volumes in comparison to the second quarter and backlog grew sequentially.

In terms of profitability, our results were a bit mixed. We're pleased with another quarter of EBITDA, margin improvement in the process equipment group. We were able to more than offset the negative effects of unfavourable equipment mix on gross margins with improved operating leverage.

Batesville's gross margin was lower than expected this quarter, particularly given the higher volumes in the period. As you know Batesville team is constantly pursuing lean projects to eliminate waste and keep costs as low as possible. This quarter, we had a couple of those projects get off-tracked at one of our high-volume plants.

We have since identified the issues with the project, and implemented corrective action. We'll continue to feel some residual effects in the fourth quarter but expect to be back on track, as we head into the new fiscal year in October. The long run, of course, we believe these projects will make us more efficient.

We look forward to the remainder of the year in the fiscal 2016, we remain cautiously optimistic. Previously, we discussed the project pipeline and the potential for a few significant projects to progress in the back half of the year. We shared, on the last call, booked in order related to one of those projects early in the third quarter.

We believe, we will be in position to compete for additional projects of a similar scale into the next two or three quarters. Timings is still very difficult to predict in the current market environment. As you know, most of these large projects and the majority of the process equipment group revenue comes from our customers in the plastic end.

Very recent volatility in oil price may cause some short-term uncertainty for some of our customers, but in the medium to long run, we remain bullish on the prospects of the plastics, and lower feedstock, technical innovation and engineered plastics and a growing middle class will continue to drive demand for years to come.

Before I turn the call over to Kristina, I also want to briefly comment on our acquisition efforts.

We continue to be very active on the M&A front as we pursue acquisitions that are strategically relevant and that will help accelerate our growth, and as always maintaining a disciplined approach in this area to ensure that we deploy capital in a manner that will drive shareholder value.

With that, let me turn the call over to Kristina for a bit more detail on the quarter.

Kristina?.

Thank you, Joe and good morning, everyone. Third quarter reported revenue was $399 million, down 4% from last year as we continue to face substantial currency headwinds. Excluding the negative effects of currency translation, revenue increased 3% with volume growth in both segments.

In the Process Equipment Group, revenue declined 7%, but increased 4% on a constant currency basis on the strength of the equipment business. Batesville contributed 2% growth, driven by increased volume in certain product lines, and a higher average selling price per burial caskets. Adjusted EBITDA of $66 million, decreased 6%.

EBITDA margin declined 40 basis points, driven by Batesville. Adjusted EBITDA margin for the Process Equipment Group, improved this quarter by more than 100 basis points compared to the prior year, although that improvement was not enough to offset the margin decline in Batesville.

Adjusted net income of $33 million resulted in earnings per share of $0.52, approximately 10% below last year, but in line with our internal expectations for the third quarter. Our adjusted effective tax rate for the quarter was 30.4%. That was 280 basis points higher than the prior year, primarily due to discrete tax benefits recognized in 2014.

We expect our tax rate will be approximately 30% for the [indiscernible]. We had a good quarter in terms of cash, generating $65 million in operating cash flow and building on our second quarter performance.

The last two quarters combined have provided $117 million of operating cash flow, driven by improvements to our working capital position and the strength of our net income. Operating cash flow of $76 million to the third quarter was down $61 million compared to the prior year.

You'll recall that we consumed a significant amount of cash in the first quarter to fund the working capital requirements for some large projects in the Process Equipment Group and also to make payments related to a litigation settlement. During the quarter, we returned over $12 million to shareholders in the form of cash dividends.

Turning to the next slide, I'll discuss segment performance beginning with the Process Equipment Group. Process Equipment Group delivered $254 million of revenue in the third quarter growing 4% on a constant currency basis. We continue to see the negative impact of a strong dollar on our reported results.

Similar to last quarter, growth was offset by an 11% negative currency impact, still, we are pleased with the underlying growth particularly in the areas of equipment and service sales volume. As Joe mentioned, order backlog of $540 million grew 4% from the second quarter and is 26% below the prior year record high.

On a constant currency basis backlog is down $123 million or 17% below prior year. We had expected to see the product pipeline translate into increasing order volume and growing backlog in the back half of the year, and we are pleased to see some evidence of that coming to fruition in our third quarter result.

Clearly, we will continue to face fluctuations in order volume and revenue due to the general cyclicality of the market, especially as it relates to large systems and equipment, but we also maintain a positive outlook for the long term demand in the markets we serve.

Process Equipment Group, adjusted gross margin was down 60 basis points to 33.8%, primarily as a result of equipment sales mix. However, adjusted EBITDA margin of 17.2% was a 110 basis points improvement over the last year due to lower operating expenses.

We continually strive to run a lean business model which includes taking a disciplined approach to expense [indiscernible] ongoing efforts, lower expenses this quarter were supported by a decrease in indirect taxes.

Annually, our target is to deliver EBITDA margin improvement of 100 basis points, and through the application of our operating model, we continue to pursue more efficient operations and lower cost.

Something to keep in mind is that we have delivered strong consistent profitability improvements in the Process Equipment Group over the last four or five quarters. So, the comp will be more challenging going forward.

Nonetheless, we are proud of our track record in this area and we continue to identify opportunities to further expand margins in the quarters ahead. Moving to the Batesville business, revenue for the quarter was $145 million, up about 2% from the prior year. The increase was a result of higher volume and a higher average selling price.

Batesville delivered an adjusted growth margin of 37.2%, which was down 120 basis points from last year. The lower margin was primarily due to the operational inefficiencies we described earlier and we expect it to return to normal levels over the next few quarters. Now, let me now turn to our outlook for the balance of the fiscal year.

Our guidance for constant currency sales growth remains at 2% to 4%. Revenue from the Process Equipment Group is expected to grow 4% to 6% constant currency, Batesville is expected to deliver revenue slightly above the 2014 levels.

When we set guidance, our expectation was for FX to lower earnings per share by approximately $0.07 compared to 2014 rate. Given the exchange rates we have experienced this year, the effect on our bottom line has obviously been more significant than we had anticipated, and that effect will continue as we finish our year.

For that reason, we anticipate earnings per share for the year to come in at the low end of our original guidance range of $2.05 to $2.50. In summary, the third quarter, was highlighted by constant currency revenue growth across the business, drawing order intake and backlog in the Process Equipment Group and robust operating cash flow.

We are encouraged by these positive signs in the business, at the same time, we recognize there are areas where we can get better. We are focussed on execution in the fourth quarter to meet our target for the year and establish and good position as we head into fiscal 2016. Now, I'll turn the call back to Joe for some closing remarks.

Joe?.

Thanks Kristina. As Kristina indicated, we believe we had a pretty solid third quarter. However, we recognized that we're in a challenging market environment, and more than ever, it's important for us to execute on our initiatives to improve operational efficiency and reduce cost.

We remain committed to our growth strategy and to the principles that have made Hillenbrand successful and we believe will bring continued success in the future. That concludes our prepared remarks. At this time, we're ready to take your questions. Don, please open the lines..

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

Good morning. Thanks for taking the questions. Joe and Kristina, wanted to start in the Process Equipment Group, you know, you've had a strong constant currency growth certainly in H1 and positive into Q3 and were sort of cycling through a soft patch in the backlog.

Given those factors, when should we start to think about expecting positive revenue growth on an organic basis? Once again given the kind of tough comps you'll be facing over the next couple of quarters..

Dan, as you've said we've had pretty strong -- given the market environment, we've had pretty good growth, constant currency growth through the first three quarters.

We have a very tough comp in the fourth quarter and so I think as we said on the last call, we expect to be relatively flat year-over-year in the second half and so we're slightly ahead as you know into the third quarter, and so we'll see a tough comp in the fourth quarter and we'll be down a bit in the fourth quarter.

In terms of going forward, you know our backlog as you know is down compared to the prior year and really most of that is large projects and so the timing of those large projects are hard to predict and we use percentage of completion accounting, so we'll have a tough comp in the fourth quarter at the top line and that will probably flow into the first quarter as well, but again, that'll be pretty dependent on the timing of some of those large projects..

Very helpful, and staying on the Process Equipment side, particularly Coperion, which generates historically a lot of revenue in China, we've heard a lot of years about slowdown, just talk about the environment and what you're seeing.

Is there a sharp deceleration? Are you seeing that in China or is business generally more status quo?.

So, let me answer that question maybe in two parts. The first part is the larger projects for us are really -- it's a polyolefin project and that's a global market and so we're very bullish on the polyolefin market. I mean, we are probably more bullish today than we were a year ago in terms of significant projects.

Now, most of those are North America, not so many in China, but in Asia, we're also seeing some projects talked about. So, we feel pretty good about the pipeline for large projects for the next couple of years and that's not just North America. There's also some of those projects in Asia.

Related to China specifically, we're feeling I think, what everyone else is feeling around China, which is a general slowdown in China particularly for local businesses, it's a very competitive market. We've seen some increased activity but we've re-launched some projects there and put forth some pretty significant marketing efforts.

So, I think that's more due to us than it is the market. So, I think, to answer your question, China is obviously down for us. It's become a bit more competitive. We're taking action to try to drive growth there, but again, that tends to be -- I'm talking now about the smaller projects and individual pieces of equipment.

The larger projects continue to be pretty strong around the world including in Asia.

Does that answer your question?.

It does. It helps. Appreciate it. I'll ask one more and jump back in queue. Just shifting over to Batesville, maybe just provide a little bit more color on the project, the impact of margins, can you quantify the impact on the quarter, in rough ballpark and I think you said, you expect maybe a little bit of a lag there in Q4.

When do we expect to get back to full normalized margins?.

Yeah, so we had a couple of projects that got off-track and we're always working to make changes to become more efficient and occasionally those work out better than expected and sometimes not as well as expected. It just turns out that this quarter we sort of got caught with a couple of projects that went the wrong way on us.

We've taken some significant action there to get those projects back on track. We believe those projects are on track and we're seeing progress.

Just in very general terms, that probably was a penny or so this quarter, in terms of impact, we expect maybe half of that in the fourth quarter, our fiscal fourth quarter and then we should be back on track as we head into fiscal 2016..

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

Good morning, everybody. Joe, I'm glad to hear that you have a positive outlook about a rebound in the large project business.

Could you just give us a sense of what you think would be a successful win rate of those large projects in the coming years?.

Sure. It varies by the type of product, the end product that's being made and which part of our business, generally we win 25% to a third of that business. I think we've won our fair share or maybe more over the last few years. I think we've been pretty successful here in the North American market.

We do have a strong presence in Asia with a significant office, engineering office in Singapore. So, I would expect that to continue. There are only a few players that can do these large projects and it's a pretty competitive environment, but I think the win rate is that sort of 25% quarter to a third of the projects..

So, in your view, would you look at the current backlog level as a kind of a trough kind of a backlog?.

You know, we look at the backlog in a few different buckets. I think that the ongoing base business is pretty solid and reasonably solid sort of in the smaller systems and bigger pieces of equipment.

Again, I think the variability in the backlog, there's some puts and takes based on product lines and end markets, but the big variability in the backlog is closing these large projects. So we had pretty solid the underlying backlog and order intake. It's just lumpy based on the timing of the larger projects. That's kind of how we think of it..

Okay. Fair enough, and you've made some efforts to increase your aftermarket and services sales.

Can you bring us up to speed on how you stand on that program?.

Sure. In different parts of our businesses, we're in kind of different phases of that, but generally, this past year we've segmented every single one of our businesses on the process equipment side. So, we have a dedicated leader for the aftermarket service and parts business, certainly provides lots of focus on that part of the business.

We've been very focused on making sure we're capturing the value that we create with our customers and so we've gone through, product line by product line and we're seeing where we have pricing opportunities either to take price up or price down and drive volume, and I think now, we're really starting to move more into driving operational effectiveness in that part of the business and we'll see that with improved delivery times and service levels around the world, and again the effort there is to grow share in that space, particularly outside of the home market of the company.

So for example, Coperion's based in Germany. We have really great service and parts share in the European market, not so strong in North America. We're looking to grow them in North America. If you look at, Rotex or TerraSource we have really strong share in North America.

We're looking to grow that in China and Russia and some of the emerging economies. So, we're kind of, I think, moving through into an operational phase. We have good structure in place. I think we feel, we understand our product lines and our customer base and now, we're looking to drive improvements from an operational perspective..

Perfect, and regarding the Batesville process improvement rollout, will there be any other future type of activities and in either Batesville or maybe in process that we should be cognizant of in the coming year?.

Well, we are always doing these. So, a couple of years ago, we took a shift out of the Batesville plant and we had some inefficiencies for a little while that followed that, but then we got back on track and so we're are constantly doing these projects, but as I said earlier, they typically are very positive for us.

Over the long run, they're always positive, but occasionally, this quarter for example, a couple went the wrong way on us.

We need to do a better job managing those, but we have these kind of projects going on all the time, sometimes they're more significant like taking a shift out, sometimes they're less significant, but you should expect these kinds of projects, but I'll tell you, you should not expect that we have operational issues, right? I mean, that's our job, is to run those businesses well and manage those businesses well.

We've taken some pretty swift action and significant action including management changes et cetera to make sure we're getting back on track in Batesville..

Okay and one last question, regarding M&A, what does the opportunity pipeline look like out there?.

We've been really active. We've seen a lot of really good companies come up for sale. I think, we've probably -- I think, I said this last quarter. We've probably looked at more businesses in the last couple of quarters than we have in a long time and that continues.

There's still lots of good companies out there and we're working that and we still have a strong acquisition strategy and just haven't gotten one done yet, but we're focused on M&A -- remain focused on M&A..

Any thoughts to closing one between now and year end?.

Well, that's a great question. You know, I can only say when we're ready to announce something we'll announce something. So, as we've always said, so when we have something to announce, we'll certainly announce it..

Your next question comes from the line of Liam Burke from Wunderlich Securities. Your line is open..

Thank you. Good morning, Joe. Good morning, Kristina.

Joe, could you give us a sense how the business outside of Coperion on Process Equipment Group did this quarter and where you see it going to the end of the year?.

Sure. We don't breakout all those segments piece by piece, but generally from a revenue perspective, and a margin perspective, those businesses did reasonably well. We had a little bit of a mixed bag. One of our product lines was pretty strong for the quarter. We had a product line related to mining that was down in the quarter.

It's a difficult market right now, and it impacted our gross margins in the Process Equipment Group this quarter and we were able to take some cost actions to keep EBITDA margins in pretty good shape, but you saw that the impact of our mining business on the gross margin line this quarter in the Process Equipment Group..

Okay, and on Rotex on the screening side of the business?.

We had a solid quarter for Rotex on the screening side of the business. I think, as we've discussed in a couple of calls, the last couple of calls, we're still seeing the benefits of the frac sand equipment boom, the orders for that has really -- for that line -- market, they've really dried up.

We kind of had this little boom bust cycle in that part of the business as we've talked about in the past. So, this is the quarter that we've continued to see some but year-over-year comparables for the Rotex business will be difficult because of that cycle. Other than that though their underlying business is pretty good.

It's very solid other than that one market..

Great. Thank you, and on Batesville, you saw volume growth on lower traditional burials.

Did you see increases through the national chains or the independents or did you see growth across the board?.

We saw growth across the board, and as well as across the majority of our product line, so it wasn't just the burial casket line that we saw growth in. we saw growth in our cremation product lines, our technology product lines.

So, we saw pretty good growth across all the product lines and really across all the segments, the customer segments this last, this last quarter..

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

Thanks again.

Any update with regard to the longer-term plans regarding segment leadership?.

Oh sure. As I talked about in the last call, we have by Kim Ryan, who's running the Coperion business. She has moved with her husband to Germany and is living there.

We look to make an announcement in terms of the permanent president of Coperion here shortly, but I will tell you that she's doing an outstanding job, fully engaged and has really done a great job, and I can same the same is true of Chris Trainor on the Batesville side of the business.

Chris is well known within the industry, formerly the CFO, knows the business very well and he and his team are doing a great job as well.

So feel really good about both Kim and Chris in their respective roles and we've had a little bit of difficulty scheduling some discussions based on vacations in Europe and a little bit of my schedule trying to get to Europe, but we expect to have an announcement here shortly..

Okay. Then I'll ask you one more time, being a bit of a nudge, but balance sheet continues to improve.

You're under 2 times leverage and obviously the M&A pipeline is active but ask multiples are pretty high, the stock at 11 times forward cash EPS, would you consider buying back stock as well as pursuing acquisitions or are you still sort of in delivering mode at the moment?.

So, at the moment, we continue to look for acquisitions and that would be our preferred use of cash. We will still pay down debt for at least the next couple of quarters. We did make significant progress this quarter, but we take a long term view to capital allocation.

We have a very structured approach to capital allocation and so we're constantly evaluating the best use of cash. So, I say that our focus is with acquisitions. Absent acquisitions we're in pay down debt mode, but we are open to returning cash to the shareholders. We're always looking at that.

So, over the next couple of quarters, I think you'll -- you should expect to see us continue to look for acquisitions and to pay down debt..

Okay, and then lastly, regarding the pipeline. It's been about -- coming up in the third anniversary of Coperion, and balance sheet is improving as we've talked about.

Are larger deals sort of back on the table or are you still looking at more $100 million, $200 million type or extension opportunities if you will?.

We really think about M&A in three categories, Dan. The first is add-on acquisitions, and these would be smaller deals, that would fit into one of our current businesses.

The second would be in adjacencies, so something that's closely related to our current businesses, but would not be fully integrated but would probably get some synergies -- back office synergies or manufacturing synergies or something like that. Then third, it would be new platform deals. Those would be larger deals.

I will tell you, we're active in all three of those deals. I think, but if you ask Kristina and I, I mean, I think what we would say is a deal, the sweet spot for us is in that kind of $200 million to $300 million range. We're obviously looking at deals smaller than that all the time, but we're also looking at deals larger than that as well.

So we remain pretty open. If you said we're at the sweet spot for Hillenbrand right now, I would say it's in that $200 million to $300 million range..

That helps. Thank you again..

We have no more questions at this time. Now, I'd like to turn the call back over to Joe Raver for final comments..

Thank you and I'd just like to thank everyone who joined the call today. We appreciate the time that you took. We look forward to talking with you again, when we release full year results and talk about guidance for 2016. Thanks everyone and have a great day..

That concludes today's conference call. You may now disconnect..