Joe Raver - President and CEO Kristina Cerniglia - SVP and CFO.

Daniel Moore - CJS Securities John Franzreb - Sidoti & Company.

Good morning, everyone. And Welcome to Hillenbrand’s Earnings Teleconference for the Fourth Quarter of Fiscal 2017. A replay of this call will be available until midnight Eastern Time, November 30, 2017 by dialing, 1800-585-8367 toll free in the United States and Canada or 1-416-621-4642 internationally and using the conference ID number 99430170.

This webcast will be archived on the Company’s website at http://ir.hillenbrand.com through December 15, 2017. 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’s my pleasure to turn the conference over to Joe Raver, President and Chief Executive Officer of Hillenbrand. Mr. Raver, please go ahead..

Thank you, operator. Good morning, everyone. And thanks for joining us on the call this morning to discuss our fourth quarter fiscal year 2017 results. With me today is s Kristina Cerniglia, our Chief Financial Officer. I’ll begin with some highlights from the quarter and the full year and briefly discuss what we’re currently seeing in our markets.

Kristina will go through our results and 2018 guidance in more detail later in the call. Prior to getting into our prepared remarks about the business, I’d like to 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.

These statements are not guarantees of future performance and our actual results could differ materially. Also during the course of this call, we will be discussing certain non-GAAP operating performance measures.

I encourage you to take a look at our 10-K, which can be found at our website, for a deeper discussion of forward-looking statements and the risk factors that could impact our actual results.

For more information on the use of non-GAAP operating measures and their reconciliation to GAAP financial measures, please refer to our 10-K and the slides presented with this call. With that, let’s turn to the business.

You may have seen in our press release, we reported strong results for our fiscal fourth quarter to finish a very good year for Hillenbrand. I’ll give more details on the quarter in a moment, but first, I’d like to look back on 2017.

We’re working to develop Hillenbrand into a world-class, diversified industrial company, and the strides that we’re making in that transformation are evident in our results. The team executed throughout the year and capitalized on an improving, global macroeconomic environment and strengthening demand in several end-markets.

We delivered strong results in most of our key metrics, highlighted by solid organic revenue growth, continued margin expansion, and our highest level of order backlog in more than three years. We also delivered record cash flow and record earnings per share that exceeded our guidance for the year.

That performance continues to fuel our ability to reinvest both organically and in strategic acquisitions to build leadership positions in our core markets and near adjacencies. We use the Hillenbrand Operating Model as a competitive differentiator and a framework to drive our strategy and it’s gained traction in a number of areas in our business.

We expanded EBITDA margins another 60 basis points in the Process Equipment Group, driven by continued productivity improvements and 80-20 thinking. And we continued to grow aftermarket parts and service as we have segmented our businesses to bring added focus to recurring revenue growth.

Looking specifically at the fourth quarter, we had revenue growth of 3% year-over-year, including 7% growth in the Process Equipment Group. We also grew the bottom line with GAAP earnings per share of $0.60 and adjusted earnings per share of $0.62, up 7% from the prior year.

Additionally, the strength in our backlog gives us positive momentum going into fiscal 2018. Let me now give a little color on our two operating segments, beginning with the Process Equipment Group.

Process Equipment Group businesses are characterized by highly engineered products, combined with applications expertise, that improve mission critical processes for our customers. Businesses that make up our Process Equipment Group account for about two thirds of Hillenbrand’s total revenue.

Positive trends that emerged earlier in the year continued through our fiscal year-end. Two areas that drove most of our growth in this segment this quarter were first, separation equipment; second, process equipment including precision feeders and small extruders.

In terms of the separation business, after strong orders over the past few quarters for frac sand screeners, we’ve seen those orders taper off. We are building the machines for the projects and backlog, and we’ll continue to see them contribute to revenue growth through the first half of fiscal 2018.

Team has done a great job managing the supply chain to handle this really large volume of orders. We structured the business to be highly flexible for times of peak demand through improved internal processes and a strong network of manufacturing partners to manage high volumes and meet our high-quality standards.

That approach also helps us to protect margins when proppants are at the lower end of the cycle. It’s important to remember that demand for machines to process proppants has been highly cyclical, and we think we are approaching the end of the current investment cycle.

We think there will be limited additional capital investment in this area in fiscal 2018, after we work through the current wave of orders.

On the other hand, the machines we are delivering today and higher utilization of the installed base of equipment provide a good opportunity for us to continue to grow our aftermarket business by supplying replacement screens and other wear parts.

Growth in feeders and extruders was driven by engineered plastics as well as food and pharmaceutical applications.

Today, food and pharma applications represent a relatively small part of our business, but we’re focused on growing in this market by leveraging our technical capabilities and applications expertise, in addition to introducing innovative, new products.

We recently introduced the line of highly accurate feeders, specifically designed for continuous processing in the pharmaceutical industry. The feeders incorporate our patented weighing technology and the new design includes several innovative modifications engineered for the specific needs of the industry.

As part of the Hillenbrand Operating Model, we use voice-of-customer to direct innovation at new technologies and solutions that improve critical processes for our customers, enhancing Hillenbrand’s value as a partner.

We believe that through a combination of organic growth initiatives like this and strategic M&A, we have potential for significant growth in food and pharma. Let me make a few comments on the markets as we begin this new fiscal year.

Not only was our PEG revenue strong in the quarter, perhaps even more encouraging is the fact that both order intake and backlog numbers were up year-over-year in every business. This reinforces our confidence in delivering another year of solid growth in 2018.

As it relates to large plastics projects, our outlook remains positive for polyolefin systems with the solid pipeline of projects anticipated in Asia and the potential for another wave of projects in North America.

Over the past several years, we’ve been delivering innovative, high-quality solutions to our customers as they undertake increasingly large and complex projects around the world. And we believe we will continue to win our fair share of these projects. We had another good quarter of order intake in our flow control businesses as well.

Each business reached a new high for backlog and we expect them to generate solid growth in 2018. Municipal and industrial wastewater markets in the U.S.

remain stable, and we are seeing progress in other parts of the world including Europe, South America as the benefits of integrating ABEL and Red Valve including leveraging the sales channel is having a positive impact.

Now, all the markets we serve are performing well, however, we still face weak demand for capital equipment using the production of fertilizers. There continues to be excess capacity in the industry and crop prices remain relatively low. We believe demand will improve eventually but cannot predict when that will happen.

Demand for capital equipment in coal power and mining also remains weak. We think it’s likely that there will be a meaningful recovery in the near future. It’s worth noting that together, coal power and mining and fertilizers represent approximately 5% of Process Equipment Group revenue. Now, let me comment on Batesville.

Strategy for the Batesville business is to build on its industry leadership position and leverage elements of the Hillenbrand Operating Model to provide the earnings, cash flow and talent to fuel our overall corporate growth and continued transformation.

Burial caskets demand was down in the quarter, primarily due to an increase in the estimated rate at which families opted for cremation. As a result, revenue was down 4% compared to the prior year.

Despite the challenge of lower volume, Batesville delivered solid margin performance in the quarter as the team executed on a number of productivity improvements across the supply chain. Batesville continued to drive value for our customers through product and service innovation.

Our goal is to help funeral homes serve the needs of their customers and fulfill our mission to help family honor the lives of those they love. That commitment has helped Batesville strengthen its market leadership and earn the trust of our customers.

We continue to employ the Hillenbrand Operating Model to run the business as effectively as possible while providing the highest levels of product quality and service to our customers. Batesville continues to earn top rankings for quality, service and innovation from funeral professionals.

In terms of M&A, strategic acquisitions remain a key element of our profitable growth strategy. Our focus is adding to our large Coperion business, specifically in engineered plastics and food and pharma, and building our separation and flow control platforms, build strong market leadership positions and achieve the benefits of scale.

We have the robust and very-focused fuel pipeline and are actively working it. The M&A environment is challenging for strategic buyers as valuations remain high.

We have a strong balance sheet and cash generation that supports our strategy to invest the new growth initiatives and we will remain disciplined as we seek to drive long-term value for our shareholders. At this time, I’ll turn the call over to Kristina for more detail on our results and guidance..

Thanks, Joe, and good morning, everyone. We reported consolidated revenue of $443 million for the fourth quarter, an increase of 3% year-over-year. Process Equipment Group was up 7%, which was partially offset by a 4% decline in Batesville’s revenue. Adjusted EBITDA of $82 million increased 10% and EBITDA margin of 18.5% was up 110 basis points.

I will talk more about our margin performance when I review segment results. GAAP net income of $38 million was 6% higher than the prior year, resulting in earnings per share of $0.60. Adjusted net income of $40 million was approximately 7% higher than prior year and resulted in adjusted earnings per share of $0.62.

We delivered another outstanding quarter in terms of cash generation with $143 million of operating cash flow, $94 million higher than last year’s fourth quarter.

A large portion of that is attributable to the timing of large capital projects, but we believe the Hillenbrand Operating Model is driving sustainable improvements in our management of working capital as we focus on improving our balance sheet and driving free cash flow.

Turning to the next slide, I will discuss segment performance beginning with the Process Equipment Group. The Process Equipment Group delivered revenue of $304 million in the fourth quarter, an increase of 7% over the prior year.

As Joe mentioned earlier, the year-over-year growth was driven by demand for screening and separating equipment used to process proppants for hydraulic fracturing as well as equipment and systems used for engineered plastics and food and pharma applications.

In contrast, revenue was down for industrial equipment in the areas of fertilizer production and power and mining. Exiting the quarter, we have positive momentum across the Process Equipment Group. Every business showed year-over-year growth in order volume and backlog in the fourth quarter.

In total, backlog strengthened for the fourth consecutive quarter, reaching $632 million, a 26% increase over prior year. The two areas of the business contributing the most to the backlog growth are separation equipment for proppants and large plastics projects.

We expect the separation equipment will contribute to a strong first half in fiscal 2018 while the large plastics projects will convert to revenue throughout the year and into fiscal 2019. I will come back to timing when I discuss the guidance.

Process Equipment Group adjusted EBITDA margin of 18.9%, increased 90 basis points in the fourth quarter, driven by volume, pricing and productivity initiatives, which were partially offset by unfavorable mix. We finished 60 basis points higher for the full year, consistent with our guidance.

That marks the fourth consecutive year of margin expansion in PEG. Over that time, we have improved the EBITDA margin for the segment by a total of 480 basis points. We attribute much of that success to the consistent application of the Hillenbrand Operating Model across our businesses. Let me now turn to the Batesville business.

Batesville revenue for the quarter was $139 million, down 4% from the prior year, as a result of lower demand for burial caskets, primarily due to the estimated increase in the rate at which families opted for cremation.

As we discussed on our last call, the revenue decline in the fourth quarter was impacted by less commercial activity and one less billing day compared to last year.

Adjusted EBITDA margin of 24.9% was up 130 basis points, driven by productivity improvements across the business, which were partially offset by lower volume and higher commodity and fuel costs.

Batesville continues to leverage the Hillenbrand Operating Model to identify opportunities to improve productivity and drive cost out of the business as it addresses steadily declining burial volume.

In the fourth quarter, productivity included a one-time benefit from projects within the supply chain connected with our footprint reduction, which helped deliver the solid bottom-line results, despite the lower volume. Moving on to full year results, we are pleased with the way our company performed throughout the year.

Consolidated revenue of $1.59 billion grew 3%. Process Equipment Group revenue increased 7% to $1.03 billion as demand for plastics projects and screening and separating equipment remained strong throughout the year. Organic growth in PEG was 5%. Batesville revenue of $562 million was down 2%, matching our expectations for the full year.

GAAP net income increased 12% to a $226 million or $1.97 per share. On an adjusted basis, net income of $135 million resulted in earnings growth of 5%, $2.11 per share. Our adjusted effective tax rate for the year was 32.1%, 260 basis points higher than the prior year due to discrete tax items and the mix of income from higher tax jurisdictions.

We anticipate our tax rate to return to approximately 31% for 2018. I mentioned our strong cash flow in the fourth quarter and that performance contributed to a record operating cash flow of $246 million for the year.

That is an outstanding result, especially considering the $80 million contribution we made to the pension plan at the beginning of the fiscal year. We easily exceeded our target for free cash flow conversion with a result of 175% of GAAP net income for the year.

During the year we’ve repurchased 778,000 shares of our common stock for total cost of $28 million to offset dilution. And we returned $52 million to our shareholders in the form of quarterly dividends. We also paid down a $147 million of debt. As Joe said, we have a strong balance sheet and that gives us a lot of flexibility to execute our strategy.

Our top priority is to take advantage of opportunities to continue to invest for growth and better profitability. Given that we are approaching the lower end of our leverage targets, we would also consider repurchasing additional shares in the absence of a more strategic investment opportunity.

In summary, we are pleased with results in the fourth quarter that helped us finish a good year for Hillenbrand with record earnings and cash flow and strong backlog position, providing continued momentum heading into fiscal 2018. I will now turn to our outlook for fiscal year 2018.

As we look forward, we expect consolidated revenue growth of 2% to 4%. Revenue from the Process Equipment Group is projected to grow 5% to 7%. We anticipate growth in all of our industrial businesses as we work through the current backlog with continued strength in plastics and separation equipment.

Batesville is expected to deliver revenue that is down 1% to 3%, which is consistent with the typical decline in annual burial volume. As you know, we are constantly applying the Hillenbrand Operating Model to improve margins.

We are targeting 30 to 80 basis points of EBITDA margin expansion in the Process Equipment Group this year supported by productivity and pricing initiatives. On the Batesville side, we are forecasting margins to be lower by about 100 basis points in fiscal 2018, primarily as a result of lower volume and higher commodity and fuel cost inflation.

GAAP EPS for 2018 is projected to be $2.11 to $2.23 and adjusted EPS for 2018 is projected to be $2.16 to $2.28, reflecting earnings growth of 5% at the midpoint. Our adjusted effective tax rate is forecasted to be approximately 31%. Cash generation is a top priority, and our goal remains to deliver free cash flow greater than our net income.

We anticipate cash required for working capital to be higher in the first half of the year, to deliver the projects in our current backlog. Some of our large projects are subject to working capital fluctuations, based on factors like project timing and advanced payment schedules. Finally, I want to comment on timing.

We expect that growth in the Process Equipment Group will be more heavily weighted to the first half of the fiscal year. A significant portion of the separation equipment in backlog is for proppants projects scheduled for delivery in the first two quarters.

We had minimal revenue from those projects in the first half of 2017 followed by a strong second half for comparisons. Additionally, the large plastics project in our backlog can have a sizable impact on revenue during the quarters when a large portion of the work is completed.

The work on these projects can stand 12 to 18 months, and the revenue is not recognized evenly. Based on our current view of the backlog, revenue growth from those projects will also be higher in the first half of 2018.

In summary, we anticipate a strong first half with double-digit revenue growth in PEG followed by a second half that is relatively flat year-over-year. Batesville’s revenue is affected by the seasonality of deaths. The largest quarter is generally the second quarter, driven in part by the severity of the flu season.

As you can see, we expect to build on our strong results in 2017 and continue to drive profitable growth. We are well-positioned going into the New Year and we feel good about our ability to deliver on our guidance again in 2018. At this time, I will turn the call back to Joe for his concluding remarks..

Thanks, Kristina. In summary, we had a strong finish to a good year for Hillenbrand and we are excited about the opportunities we have in front of us. We are focused on carrying our momentum into fiscal 2018 and driving profitable growth.

We have a passionate management team that’s committed to the long-term strategy that is transforming Hillenbrand into a global, diversified industrial company and providing meaningful value to our shareholders. Finally, I want to comment on our upcoming Investor Day scheduled for Tuesday December 12, in New York City.

Our goal is to provide investors and analysts with deeper insights into our businesses, markets and growth strategy. Additionally, you will have the opportunity to hear from more members of our talented and experienced executive management team.

We believe we have a compelling strategy to continue to drive shareholders value, and we look forward to sharing that strategy in more depth in December. That concludes our prepared remarks. We are ready to take your questions.

Operator, would you please open the lines?.

First, a very quick comment to start. Just a quick thank you for your color and transparency regarding both, the state and the health of your end markets, as well as the cadence of guidance. It’s extremely helpful. I am sure shareholders appreciate it. I wanted to talk about memorialization first.

And the guidance for next year, obviously you’ve done a tremendous job, holding the line on margins, probably getting more difficult as we -- as volumes continue to tick down.

Is fiscal 2018 sort of a -- if we tick down a 100 basis points roughly, can we hold the line from there going forward? Should we think about it being more difficult, as we continue -- if volumes continue to decline beyond that maybe just your thoughts there?.

Good question, Dan. I think if you look at the business over the last, probably four years or so, we’ve done a pretty nice job holding margins in a declining industry. I think next year -- we do have the impact of volume, which is always, as you know it’s the high fixed cost business, both on the manufacturing and the distribution side.

So, it’s very challenging to hold margins. I think next year, we have the additional challenge of commodities inflation, particularly on the primary things that we purchase which are steel and fuel and wood.

So, that’s really sort of the challenge that we face next year in addition to the sort of ongoing challenges of declining demand and declining mix in long-term trends that have happened in this industry over the last 10 or 15 years. So, we do expect to have a little bit more difficult year from a margin perspective next year.

Now, as we look forward, commodities go up and down, there is not much that we can do about that. As you know, we work to lock in contracts and prices, so that we can price accordingly for the fiscal year.

But, as we look forward, we’re constantly looking for ways and leverage the full to improve our servicing costs, improve our service position and our cost position and to continue to remain efficient. So, that will never stop. And so, we’ll continue to pursue trying to main flat IBT and cash flow in this business as we go forward.

But it does get increasingly challenging as the market gets smaller and smaller..

Very helpful. And just on memorialization, Kristina, what was the benefit that you mentioned in Q4 just -- and size of that? And then, I have a quick follow-up on M&A..

Yes. That was a couple of million dollars, and it was associated with some of our footprint reduction that we’ve been working on in the supply chain..

Got it. You mentioned in the remarks a little bit more food and pharma that we’ve heard in recent quarters.

Talk about what percentage of revenue that is, fiscal 2017, where you see that maybe going over time, and is that sort of at the top of your list for M&A, as we go forward?.

Yes, sure. So, we don’t break out specifically what end markets are, but food and phamra is relatively small part of our overall business. So, in terms of our total PEG business, it’s in that just a 5% range of our business right now. This is a part of the business that Kim and her team have really been focused on growing over the last couple of years.

I think we saw more traction in our fiscal 2017 than we’ve seen in any other year, and really across the product lines that we offer into food, it’s processed food and pharmaceuticals. We had a particularly strong year in the pharmaceutical part of this business. So, we like this part of the business, the equipment is similar.

Obviously, it’s got to be more cleanable and meet higher standards for code as it relates to food and pharmaceuticals. But it’s very similar equipment. We have relationships with some large customers that we have for number of years, particularly on the feeding side.

And so, we’re continuing to build this business out around the globe with stronger sales presence, also product innovation. And so, we’re excited about it. And as you mentioned, this is a great place for us to be focusing on M&A. These are markets where you can’t fail.

So, the cost of the equipment is relatively small in grand scheme of things; brand name and reliability and safety are huge issues in this market. And those are the kinds of things that we excel in, and the kind of environments and markets where M&A can help you accelerate your growth in those end markets.

So, we’ve been pretty focused here for the last few years and continue to expect this to grow quickly over the next few years..

Helpful. I’ll jump back in queue with follow-up. Thanks..

Thanks, Dan..

[Operator Instructions] Your next question comes from John Franzreb of Sidoti Company. Your line is open..

Hey, guys. Back to the Batesville, 100 basis-point margins degradation.

How much of that you attribute to volume versus commodity costs?.

John, I would say, it’s primarily commodities that are the challenge. We’ve worked hard to offset the volume part of this over the last few years. Again, it’s difficult.

But, I think with the added headwind this year of the commodity inflation that we are going to face, again, particularly around steel and fuel, that’s the big challenge that we have on a year-over-year basis..

Okay. Could you just, for my benefit, maybe discuss the pricing environment? I mean, your shipping times are relatively short. I am kind of -- I don’t understand why you can’t have better success recapturing commodity costs, given you lead times..

Yes. That’s a good question. It’s an interesting industry. Just as a reminder, our customers tend to be funeral homes that operate -- I think probably the median number of rooftops for our customers is 2 or 1.5. So, it’s a relatively small operations for our customer base. There’s been a history in the industry of setting prices once a year.

It allows our customers to sort of put their price list in place, plan their pricing for the year, maintain their pricing for the year. So, what we’ve tried to do is we set price once a year. We typically are the first company that goes out with price. And we try to of course price in any cost changes that happen and we expect during the year.

So, some times that benefits us a little bit, sometimes that hurts us a little bit, depending on where commodities move during the course of the year.

But thus far, we really have held with that kind of industry standard of setting prices once a year, so our customers prefer and sort of the rub of the green, whether it goes up a little bit or down a little bit in terms of commodity prices against that price. And so, we don’t anticipate changing that pricing sort of cadence for the entire industry.

And we lock in steel with some rolling contracts. So that helps us hedge a little bit against major fluctuations in the price of commodities..

And on the process side, it almost sounds like the second quarter is going to be more typical of what the -- fourth quarter volume would be in process.

Is that how I am hearing you?.

Yes. That’s a really good way to think about it. When we do the analysis, right, we look at year-over-year, we look at quarter-by-quarter and sort of lay it out.

And you can see years follow certain patterns, and this is one of those years where you are going to see the pattern of a stronger first half and a more difficult comparables in the second half.

We expected a solid second half but the comparables get a little bit more difficult because we typically have a very strong fourth quarter, actually third and fourth quarter, and we had strong third and fourth quarter this year. So stronger first half, as Kristina said, more flattish second half on the process equipment side..

Okay.

So, would you expect backlog to continue to build throughout the year, based on what your clients are telling you or would you expect it to like tick back down as you work through some of the larger jobs in early half of the year?.

Yes. So, we have -- so if I think about the business into a couple of segments, as you know, we are entering -- we typically see the backlog draw down a little bit in the fourth quarter, given higher revenues. Obviously, we didn’t see that this year. We had really good order intake in our fourth quarter.

So, what we will see next year is we will see the proppants equipment, so the separation equipment draw down. We’ve sort of seen an end to that capital cycle in the market. We’re not seeing nearly the level of orders that we saw earlier in the fiscal 2017. So, we will see a decline in backlog related to separation equipment.

And then, we have as the large projects flow through at Coperion. So, that timing is kind of difficult to predict in terms of order entry. So, it’s hard to tell exactly when the projects are going to get signed. But, we would expect sort of relatively, I think, flat backlog or slightly declining as we move through the year.

But that will be based on timing of some of these large projects that of course we may or may not win -- or first of all, they may or may not be awarded on a timely basis; and then, secondly, we have to win those projects.

But, we expect to win our fair share of those projects, but -- so, generally, I think you will expect to see backlog draw down in the first half of the year as we move through that big proppant slug of business..

Got it. One last question and I’ll get back into queue. I’m hearing from people that the spring season is going to be a rather active maintenance spending season. And I’ve really heard companies talk about crushers and separators and conveyers. I know your aftermarket business doesn’t have a lot of lead time.

But, if that plays out at some people are expecting, when would you see that in your order book?.

Yes. That’s a great insight. In fact, we’ve already seen it in our order book on the Coperion side of the business. So, we have pretty strong order intake and we saw backlog build in our service business, parts and service business related to basically the plastics business.

And so, that can be a quick book and turn business but there are also larger projects where they’ll upgrade the whole system or modernize the whole system. And so, last year, we didn’t see as many of those big projects in revenue.

But, we did have a nice fourth quarter in bookings in those kinds of -- third and fourth quarter in bookings in those kinds of projects. So, we will see some of that flow through in revenue next year. And again, those are well-planned out projects.

On the other parts of the business, we tend to not have really big projects typically that we see coming quarters in advance. But, we did see -- service has been strong, parts and service has been strong for us really across the all the product lines in the Process Equipment Group. And we’re expecting to have solid parts and service growth in 2018..

Okay, great. I will get back into queue. Thanks, Joe..

Our next question comes from Daniel Moore of CJS Securities. Your line is open..

Thanks again. So, one of the things you’ve talked about, Joe, also is on top of some good strength in Asia in polyolefin, potential for another wave in North America.

And maybe provide a little bit more color, is that more on the plastics side versus the poly -- the petrochem side, and what are you seeing there?.

Yes. So, the next wave that I was talking about is really more on the polyolefin side, the larger projects that are really based on inexpensive feedstock in the natural gas from all the shale gas that’s being produced. And so, we saw a wave of that. We expected that to sort of wind down.

We see continued projects hitting the boards and being announced and considered. So, we do expect that there is the potential for another solid year of order intake related to polyolefin projects in North America. Now with that said, some of the smaller projects around engineered plastics also remained robust in North America.

And as you mentioned earlier, we’ve seen strength in Asia in both of those areas as well..

Got it. And lastly, a little change in tone as it relates to capital allocation and buybacks. You have been opportunistic with leverage continuing to tick down.

Would you even lever back a little bit, does it move up the list in terms of your priorities, just any more color there?.

Yes. So, I think we’ve been pretty consistent around our communication on our capital allocation strategy. And Dan, as you mentioned, we are getting towards the lower end of our debt-to-EBITDA ratio where we would consider doing share buybacks. And so, we will absolutely entertain that as we move through 2018.

Just two things to keep in mind is the first quarter is typically we use quite a bit of a working capital in the first quarter and we expect that again this year, based on our normal first quarter kind of activities.

But also, the way some of the larger projects are moving through the pipeline, we will see use of working capital as those projects move through. So that’s one point. And then, secondly, I would just reiterate, our primary focus is to invest for growth, right, and that’s for profitable growth.

And so, as we see opportunities and gauge what the opportunity pipeline looks like, we also will take that into consideration. And then, as we stated over the years, we do believe that we have the acquisition capacity to continue to execute our strategy.

So, if we do get below that debt-to-EBITDA guardrail and we think it’s prudent to buy shares back, we will be very open to doing that..

Your next question comes from John Franzreb with Sidoti Company. Your line is open..

Yes, just -- I think I’ve heard it correctly, the 20 to 80 basis-point improvement in process.

Is that all leverage based or are there any further restructuring actions you need to take in order to hit those targets? Can you just talk about that a little bit?.

Yes. So, John, it’s 30 to 80 basis points of improvement. Obviously, we will get some leverage from our volumes. But, we are still focused and we believe that there is still some productivity improvements that we can realize. We -- at this point in time, we don’t see any large restructuring in the future.

I think, the operations and the growth that we have, really supports our cost structure at the moment. So, no big restructuring that we can see right now, planned..

And could you just update us a little bit on Red Valve and ABEL, really more ABEL, because I’ve seen some good numbers coming out of some of the pump companies lately.

Can you talk a little bit about how that’s performing relative to your expectations and order trends; any kind of update would be worthwhile there?.

Yes, sure. So, ABEL plays -- they pump sort of high concentrated slurry is really what they are experts in. And we saw a real slowdown in large projects in India where we had won a number of projects earlier last year. And then, if you’ll recall, in the third quarter of last year, a number of those projects were closed.

And we had another solid fourth quarter. So, we are entering 2018 with the significant increase in our backlog in the ABEL business. It remains a -- it has a great value proposition, a very profitable business, good recurring revenue stream in terms of parts and service. So, we expect very solid 2018 with ABEL.

We also won some mining orders a couple of years ago, the business started to focus on Latin America and mining. And so we won some of those orders as well. So, we feel good about ABEL, heading in 2018, have very strong backlog there. Now, there will be an execution issue for us to get those products shipped as quickly as we can.

On the Red Valve side, the municipal, primarily municipal markets in North America, municipals are relatively healthy. We’ve had some good order intake on some larger projects. So, we expect solid growth on the Red Valve side as well. We’ve seen some benefits of consolidating some of the operations that are flowing through.

And we’ve also been able to cross sell some products between -- across the two companies, particularly in North America, and that’s been effective as well. So, we’re bullish on flow control and expect a pretty solid year in terms of revenue and profitability and flow control..

Great, perfect. Thank you, Joe..

Thanks, John..

There are no further questions at this time. I now return the call to Mr. Raver..

Thank you, operator. And once again, I just want to say, thank you to everyone for joining us today on the call. And we look forward to seeing many of you in New York on December 12th at our Investor Day. So, again, thank you very much and enjoy the rest of the day..

This concludes today’s conference call. You may now disconnect..