Joe Raver - President & CEO Kristina Cerniglia - SVP & CFO Chris Trainor - President, Batesville.

Daniel Moore - CJS Securities John Franzreb - Sidoti & Company Liam Burke - B. Riley FBR.

Good morning, everyone and Welcome to Hillenbrand's Earnings Teleconference for the Second Quarter of Fiscal 2018.

A replay of this call will be available until midnight Eastern Standard Time, May 17, 2018 by dialing, 1800-585-8367 toll free in the United States and Canada or plus 1-416-621-4642 internationally and using the conference ID number 1197739. This webcast will be archived on the company's website at http://ir.hillenbrand.com through May 31, 2018.

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..

Thank you, operator. Good morning, everyone and thanks for joining us. I am joined by Kristina Cerniglia, our Chief Financial Officer. On the Q&A portion of the call we'll also be joined by Chris Trainor, President of Batesville. On today's call, I'll review highlights from the quarter and discuss the outlook for our businesses.

I'll then turn the call over to Kristina for additional details on our results and guidance. After that, we'll open up the call for Q&A. As a reminder, our comments may contain 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 and 10-Q, 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 our use of non-GAAP operating measures and their reconciliation to GAAP financial measures, please refer to our most recent 10-Q and the slides presented with this call. As you saw in our press release yesterday afternoon, we reported strong operating results in the second quarter to finish a solid first half of fiscal 2018.

We grew revenue 14% making it five consecutive quarters with consolidated year-over-year organic revenue growth. The Process Equipment Group led the way as our teams continued focus on leveraging the Hillenbrand operating model contributed to impressive topline -- topline growth and continued – segment.

In addition, we are building momentum heading into fiscal 2019, with order backlog growing sequentially for the sixth consecutive quarter to a new record level of $753 million. On the Batesville side of the business, results were mixed.

We experienced the surge in demand for burial caskets early in the quarter as a result of the flu, but margins were challenged by higher supply chain and commodity costs.

Looking at Hillenbrand as a whole, given the results we achieved during the first half of the fiscal year, we are raising our outlook for revenue growth and adjusted earnings per share for fiscal year 2018. In total for the second quarter, we recorded a net loss of $22 million or $0.34 per share on a GAAP basis.

These results included a non-cash impairment charge of $63 million or $0.98 per share. The reporting unit that incurred this charge has exposure to domestic coal mining and coal power and demand for the products we provide to those markets remains challenged.

We made the decision to ship strategic investments for growth to other targeted markets and as a result of that shift, we reassessed the units value resulting in the impairment. On an adjusted basis, we continue to see positive earnings growth with earnings per share of $0.65 for the quarter up 23% over the prior year.

Let me turn to segment performance beginning with the Process Equipment Group. Process Equipment Group is the growth engine for our business.

Our primary areas of focus and investment include strengthening our existing platform in plastics and growing our food and pharmaceuticals separation and flow control businesses to achieve market-leading positions.

Each of these businesses delivery continued growth in the second quarter, both in capital equipment and in parts and service, with the separation equipment and plastics businesses leading the way. Let me take a minute to discuss our outlook for these markets as we move into the second half of the year.

Revenue from separation equipment for processing proppants has remained exceptionally strong over the last few quarters and that was still the case in the second quarter as we continue to deliver orders out of backlog.

We expect to work through the remainder of that backlog during the third quarter as demand for new capital equipment for separating proppants has moderated. That said, we are seeing continued strength in the demand for aftermarket parts and consumable screen and believe it will remain strong as more capacity is in place to process proppants.

Investment cycle for plastics projects and petrochemical infrastructure remains strong and new plastics projects have been added to the pipeline. We're seeing especially strong activity in North America and we believe we are well-positioned to benefit from this continued growth.

We have several competitive advantages that position us as a partner of choice, including our deep applications expertise, track record of innovative, comprehensive end-to-end solutions. These solutions include material handling system, feeders, pneumatic conveying and best-in-class extrusion systems.

Our ability to deliver both flexible, customized solutions to our customers globally provides a unique value proposition and is a driver of our growth and margin expansion. Processed food and pharmaceuticals, we continue to -- we continue to grow in the second quarter carrying momentum following a few sizable project wins last year.

We're building the business through product innovation and a stronger sales presence as well as enhancing our reputation for reliability and safety, which are critical in this space. The demand for safe, convenient, processed food is growing and is less cyclical compared to some other parts of our business.

As companies invest in continuous flow production processes to become more efficient and cost-effective, our core technologies feeders, extruders and pneumatic conveying offers solutions to meet the growing demand. We see significant opportunity for long-term growth in these markets.

Finally in flow control, we continue to see stability in municipal and industrial water and wastewater with opportunity for modest growth in these markets. We have initiatives in place to capture share by expanding our presence in targeted geographies with meaningful growth potential.

One example of that is in South America, where mining and industrial applications present good expansion opportunities for our flow control businesses. We've invested in the local team there and they're starting to have success as evidenced by our recent project wins in the region.

In summary, we're seeing positive signs to give us confidence in sustaining momentum in the process equipment group.

We delivered profitable topline growth in the first half of the year and as a result of overall solid demand trends, record level backlog, strong execution, we are raising the revenue growth forecast for the segment to a range of 7% to 9% for the year, excluding foreign exchange.

If we look to the future, we will continue to execute the profitable growth strategy we shared at our Investor Day. We're focused on building platforms with market-leading positions. We're growing organically by leveraging core technologies and applications expertise to further penetrate targeted markets like food and pharmaceuticals.

We're expanding our customer base geographically as demonstrated by the flow control initiatives in South America and we're growing the profitable parts and service business.

In addition, we continue to drive value by applying the Hillenbrand operating model to initiatives like global procurement where we are building the infrastructure and processes to achieve significant annual savings by optimizing procurement at a global level. Let me move on the Batesville.

Over the years, we've established a good track record with Batesville of running lean, efficient operations that enable us to get the most out of the business and protect margins against the effect of declining volume and product mix. That was not the case this quarter, as our supply chain performed poorly and margins suffered.

We incurred cost well above internal forecast, largely due to poor operational performance in a few key areas. These issues were exacerbated by a surge in burial demand linked to this winter's flu spike that further stressed our supply chain. In addition, cost inflation continued trending higher than we had forecasted.

Obviously we're disappointed with Batesville's results. We're actively addressing the issues in our supply chain with a number of initiatives. We expect continuing cost pressure in the third quarter while we work to execute these solutions.

We believe the majority of the issues will be resolved in the fourth quarter enabling the business to return to more typical operating performance with a high standard of efficiency.

Despite these operational challenges and cost pressures, Batesville produced strong free cash flow in the quarter due in part to improvement in the cash conversion cycle. Now let me address the topic of tariffs. We're actively monitoring the situation and evaluating any potential financial impact.

Based on what we understand at this point, we believe our direct tariff exposure will be modest as we move through the second half of the year, although we've previously indicated we are already seeing the indirect effects of the tariffs and seeing inflationary pressure on domestic commodity prices that could intensify.

Our current contracts have some level of protections in place; however, we are not fully insulated from rising prices. We will implement savings initiatives where possible to offset these costs. We hope these things can change quickly. We're staying close to this situation, so that we can respond appropriately.

Before I turn the call over to Kristina, I also want to comment on our acquisition efforts. Acquisitions remain an important element of our strategy and our pipeline is focused on the four end market that represent our priorities for growth; plastics, processed food and pharmaceuticals, separation, flow control.

We target companies with leadership positions and traits like value-added applications engineering and significant recurring revenue.

We're focused on finding strategic targets to accelerate profitable growth, but will remain disciplined in our approach to ensure that when we do execute a transaction, it will advance our strategy and create value for shareholders. With that, let me turn the call over to Kristina for more detail on the financial results for the quarter..

Thanks Joe and good morning, everyone. Before I discuss our financial results, I'd like to provide some detail on the non-cash impairment charge that we incurred. As Joe indicated, we recorded a charge of approximately $63 million, which is reflected in our Q2 results.

The impairment was associated with a process equipment group reporting unit, most directly impacted by domestic coal mining and power. These assets were included as part of the K-Tron acquisition in 2010.

As you may recall, we integrated the feeders and process equipment part of that business within Coperion in 2014 which expanded global sales and service capabilities and improved our ability to provide complete solutions to our customers and plastics, chemicals, food and pharmaceuticals.

We are pleased with the performance of that part of the business. On the other hand, the operating performance of the unit receiving the impairment charge has been adversely affected by sustained levels of lower demand for equipment and parts used in domestic coal mining and power.

We believe we have a greater opportunity for profitable growth closer to the core areas of our business. So we made the decision to reallocate investments from the reporting unit to these areas.

As a result of this change, we performed an impairment assessment on the asset, which resulted in a non-cash charge to goodwill of $58.8 million and related trade names of $4.6 million. Let me turn to our financial results. We have another solid quarter to report. Revenue of $452 million in the second quarter grew 14% over last year.

Excluding favorable foreign currency translation, revenue was up 9%. Growth was driven by the process equipment group, which was up 23% or 14% excluding foreign currency. Batesville's revenue was up 1% over the prior year.

Adjusted EBITDA increased 9% year-over-year to $76 million, while adjusted EBITDA margin decreased 90 basis points to 16.9% as higher cost in the Batesville's business was only partially offset by strong operating leverage in the process equipment group. On a GAAP basis, we reported a net loss of $22 million or $0.34 per share.

This reflects the impact of $0.98 per share from the impairment charge. Adjusted net income of $42 million resulted in adjusted earnings per share of $0.65, an increase of 23% over the prior year.

We generated operating cash flow of $35 million in the second quarter bringing the total to $62 million year-to-date, that is $42 million higher than last year primarily due to the $80 million pension contribution we made in the first half of fiscal 2017.

Our free cash conversion rate is 85% year-to-date excluding the non-cash impairment charge from net income and we expect to achieve our target of 100% for the year. We continue to invest cash and working capital to fund progress on large projects in the backlog and we anticipate that, that will continue into the second half of the year.

The timing of large capital projects can have a significant effect on cash but we continue to make improvements in our cash conversion metrics through working capital initiatives. During the quarter, we returned $13 million to our shareholders in the form of cash dividends and we repurchased $24 million of common stock to help offset dilution.

Turning to the next slide, I will cover segment performance beginning with the Process Equipment Group. Revenue of $300 million grew 23% or 14% excluding favorable currency translation. We expected to see solid revenue growth in PEG in the second quarter and the business is executed well.

Sales of separation equipment and parts remained strong as we delivered high-volume of proppants orders out of the backlog. Plastics revenue grew on a continued strength in large polyolefin projects in addition to modernization projects and parts and services.

We also delivered modest growth in products serving the food and pharma and flow control market. We are encouraged by a robust pipeline of projects, particularly in the plastics business.

Order volume remained strong and as Joe said, we reached a new record level for backlog with the year-over-year growth in every business, resulting in total backlog of $753 million, that's an increase of 35% or 23% excluding the impact of foreign currency. Sequentially, backlog grew $42 million or 6%.

I want to point out that cycle times have lengthened as customers have been submitting orders earlier in the process relative to planned project delivery dates and a significant portion of the backlog growth reflects projects scheduled beyond the current fiscal year.

Process Equipment Group adjusted EBITDA margin of 16.6% increased 130 basis points over the prior year. In addition to solid operating leverage, we continue to leverage the Hillenbrand operating model to drive strategic pricing and productivity initiatives to further expand our margin profile.

Moving to the Batesville business, revenue of $152 million increased 1% compared to the prior year. The increase was driven by higher burial volume, which was partially offset by lower sales of non-burial products. Adjusted EBITDA margin of 25.3% was 290 basis points lower than the prior year.

As Joe discussed, we did not achieve the performance we expect for manufacturing operations and the distribution network. The Batesville team is addressing these challenges head-on by leveraging the Hillenbrand operating model to accelerate productivity projects with a goal of quickly returning operations to expected performance.

In addition, Batesville margins were adversely affected by higher than expected inflationary pressure on raw material and fuel costs, we believe some of that cost pressure will continue in the second half of the year. With that, let me turn to our outlook for the second half of fiscal 2018.

We are updating guidance based on our strong first half performance and healthy order backlog. We are raising revenue growth projections for the Process Equipment Group from 5% to 7% and 7% to 9% with an incremental 4% expected from favorable currency translation, based on our current rates.

We continue to forecast Batesville revenue down 1% to 3% for the year. On a total company basis, we're now forecasting organic growth revenue of 3% to 5% for the year with an additional 3% anticipated from foreign currency. Our previous estimate for total company growth was 2% to 4%.

Our new projection for GAAP EPS of $1.06 to $1.16 is down from the previous range of $1.98 to $2.10 to account for the impairment charge. On an adjusted basis, we are raising EPS guidance as well as narrowing the range.

We now expect adjusted EPS to be in the range of $2.34 to $2.44 up from our previous estimate of $2.28 to $2.40 resulting in an 11% to 16% increase year-over-year. We anticipate our full year fiscal 2018 adjusted effective tax rate will be approximately 26% to 28%.

We forecast Process Equipment Group EBITDA margins in the second half of our fiscal year to be relatively flat compared to prior year based on the mix of large lower margin projects flowing through the backlog and strong prior year comps.

We are constantly applying the Hillenbrand operating model to improve margins and we still expect to achieve our target of 30 to 80 basis points of EBITDA margin expansion for the full year. On the Batesville side of the business, our results for the first half of the year reflect more intense margin pressure than our prior outlook.

That pressure is coming from the operational challenges Joe reported as well as higher costs. Looking ahead, the team is actively addressing these challenges with an expectation of returning to a more typical level of efficiency in the fourth quarter.

With that said, we anticipate continued margin headwinds in the business during the second half, particularly in the third quarter stemming from the residual effects of operational efficiencies as well as ongoing cost inflation, mix pressure and customer contract renewals.

Taking all of these factors into account, we now expect Batesville margins for the year to be comparable to our first half performance. Batesville has had success in managing costs and driving productivity improvements to mitigate the impact of challenging industry dynamics on the bottom line.

Over the long-term we believe the business will continue to find ways to protect profitability and generate strong free cash flow. Finally, I'll note that we are at the low end of our preferred leverage range and we expect to continue to repurchase shares opportunistically.

Based on the current perspective on investment prospects, we plan to spend up to an additional $50 million on share repurchases over the second half of the fiscal year. At this time, I will turn the call back to Joe for his concluding remarks..

Thanks Christina. In summary, during the second quarter, we continue to build on the strong start to fiscal 2018. We grew revenue 23% in the Process Equipment Group and 14% for the total company. We expanded backlog to a record level of $753 million and we continue to leverage the Hillenbrand operating model to improve our business going forward.

We are focused on returning Batesville to expected operating efficiency and on meeting our expectations for the balance of the year. I have confidence in the Batesville team and expect them to succeed in these objectives.

As we move into the second half of fiscal 2018, we're in a great position to continue to drive towards our vision of becoming a world-class global diversified industrial company.

We're focused on executing our strategic initiatives and delivering on our financial commitments to achieve our 2020 targets, with above market revenue growth and double-digit earnings growth. That concludes our prepared remarks. Thank you for your continued interest in Hillenbrand. We're ready to take your questions.

Operator, would you please open the lines?.

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

Good morning. Thanks for taking the questions..

Good morning, Daniel..

Joe, wanted to start with the backlog. Obviously another quarter of a nice uptick there.

Maybe a little bit more color on what you're seeing on the plastics side, what's driving that uptick in CapEx and similar question for processed food? Is it mainly North America are there other areas, are more color there and a quick follow-up?.

Yes, thanks for the question Dan. In terms of backlog, we continue to see strength in the plastics business, particularly for large projects and that is primarily in North America. So we continue to see investment in North America, given the low natural gas prices and global demand for plastics and then also in Asia.

So the number of project in Asia continues to be solid and continues to grow. So demand there is strong. I think on the compounding side of the business, we're also seeing really stable and strong markets in North America, particularly, but even Europe is doing -- is doing pretty well.

So very solid plastics markets both in the upstream, base residence polyethylene and polypropylene as well as the more highly engineered plastics that our equipment is used to produce. On the food and Pharma side, we had -- from a revenue perspective, we have really strong quarter in food and Pharma.

We closed a number of very large projects last year. We continue to see the base markets being strong in food and Pharma and most of our food and Pharma business is in the US and Western Europe and so we're seeing pretty solid base demand, not seeing quite as many large projects, but they are a little bit lumpier for us.

But overall the market we expect is strong and we expect to remain strong as we go forward through the rest of 2018..

Helpful and on that subject I think I heard excluding FX, the backlog was up 23%, is that right? And is there can you give us a sense of how much of that 23% relates to price and pass through of raw materials versus volumes. I know that's a tricky question..

I don't think I can answer that question really specifically, but I think at a high level, I would tell you so if you think about the backlog and how things move through the backlog, so a pretty good chunk of the backlog is in there for three or four quarters and so we haven't seen, there is probably not a big inflation impact in that part of the backlog.

So it's really driving I think our backlog, it's large projects. It's large projects, it's a big driver. You mentioned on a constant currency basis, as you can see, there is also an FX impact, but it's still very strong on a constant currency basis. But I would say that's by far the largest driver of the backlog is the large projects..

Perfect. And then shifting gears to Batesville, margins down, can you break out the decline if possible, input costs versus some of these operational challenges, just to give us a better sense for how quickly you might be able to recover.

I know that you are going into the quarter thinking 100 basis points of pressure was reasonable and that we expect to get back to that type of level. And I know you don't want to get into fiscal '19 guide, but given the challenges this year, is it safe to say, we could see some, some recovery next year if all goes to plan, thanks again.

I'll jump back in queue..

Yes.

Okay let me and I have Chris here, so we he can add a little color as well, but I think you make -- it's a good question and in the front end, we did expect some margin pressure this year as we guided 2018 and that was -- we expected to be about 100 basis points down in the Batesville side, really largely due to some inflationary pressure and product mix, the industry mix down that has been occurring for you know actually decades.

And so that was the sort of basis of the 100 basis points down and as we move into the second quarter what the big driver was in the second quarter were really inefficiencies in our really across the supply chain and so that happened in a couple of places.

We consolidated our wood operations and we had some operational challenges there and then -- and then we had some -- we had a couple presses go down for very short period of time, but we run lean and that caused some interruptions to our supply chain.

And then you throw on top of that, the flu season, which spiked, which then it flows out into our distribution system and our delivery system and so we end up with more expedited deliveries. So it's a little bit of a combined affect and so we had a very tough quarter from an operational standpoint. We are working on those issues.

We expect to get those issues resolved throughout the third quarter. We'll see some impact during the third quarter quite frankly, but we expect this will be back to more normal operations in the fourth quarter.

And then we did see a little bit of material cost inflation in the quarter a little bit higher than expected and we did expect that, but a little bit higher than expected and we think we have a little bit of risk as we go into the third and fourth quarter on cost inflation.

As we know, some of our big inputs like steel were somewhat protected based on our contracts and so I don't think we're seeing the kind of inflation that other companies are facing right now because of the way we do our contracts on steel, but we are seeing some pressure that we expect to have in the second half of the year.

And then just the last thing I would say in terms of the quarter, we think about we're lean, we're lean philosophy here in terms of our operations and we always think in order of most important things are safety first for our employees and then as quality, delivery and cost in that order.

And so we want to make sure that we have the highest quality product to deliver to our customers who serve their families and so we look to contain quality issues, but some of these got outside the plant and then they're more expensive to deal with because you have to either repair in the field or return to the plant.

And then second is delivery and so we have some product production issues combined with the flu spike. We're hot-shotting and expediting products to get to our customers because we want to make sure can deliver on time because this is a product that is needed very quickly at the time of death.

And then last is cost, and so as we work on our quality issues, we will get our delivery issues improved and we will certainly then get our cost issues improved. So that was quite a long answer, but again we think we can get through these issues in the third quarter.

We'll feel some of the effects but we will be back more than normal in the fourth quarter. So as we look into '19, we look into '19 we don’t really guide into '19, but we would expect to get back to a more normal kind of margin run rate as we go into '19 and get these operational issues resolved.

It's hard to tell what's going to happen with commodities in the meantime, but from an operational standpoint, we expect to be back on track as we head into the fourth quarter and into '19..

Hey Dan, it's Chris. I think Joe hit on all the major points there. I think we got a great track record of holding margins in the last few years in a challenging market mix environment. We're disappointed in the quarter in terms of our margin and how we manage the flu season.

I think to Joe's point where we focus there was really delivering a great quality product to our customers and at the right time and so we took the -- we made the decision to make sure that we looked after our customers, we expedited caskets across the country. We didn't want to let them down.

We added some cost internally, but I think it's the right decision. We created some goodwill with our customers and so I think that was the right thing to do for the organization.

We just have to do a better job moving forward of using the Hillenbrand brand operating model to make sure that our productivity ongoing, offsets those inflationary challenges..

And Dan, I just want to clarify on the guidance for '19 that Joe mentioned. So when he said, we're going to get back to normal rates. So I just want to make sure that we understand what normal means. So this year we guided down 100 basis points. We expect that 100 basis points carry through to next year.

So essentially that 100 basis points is a permanent reduction from margin rates that we've seen in the past..

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

Yeah.

Just help me out a little bit more here on Batesville, I'm little shocked I guess at the performance given historical performance of the unit, if the flu spike was part of the reason and I think really suppresses were down, I mean the flu spike is over and I assume the presses are fixed, why is the issue -- is the issue continue to linger?.

So I think there are a couple of things. Certain parts of the issues that we faced in the quarter certainly will be resolved -- are resolved and will improve in the third quarter and of course the fourth quarter.

There are other parts that we continue to improve, processes, increase training and longer-term kind of projects that we'll need to execute particularly on the wood manufacturing side and some of that impact will linger in through the third quarter and then again we expect it to be resolved in the fourth quarter.

So I didn't mean to suggest that those issues -- a number of those issues have been resolved and we've already seen improved fill rates and reduced costs, but some of those are a little bit longer term, a little bit more difficult to fix and again we expect to have some financial impact as we move through the third quarter as well..

Okay. And on the process of the business, with the backlog so relatively strong you’ve kind of been signaling that the second half of the year is going to be significantly weaker than the first half.

Now it sounds like there's going to certainly be some business that unfolds in the fiscal 2019, but how much should we be thinking about the progression in fiscal 2018 is it more fourth quarter weighted, how is it -- what's the revenue distribution like with the project side and maybe a little bit more aggressively than you thought three months ago?.

Yeah. So John, this is Kristina, if we think the revenue for the Process Equipment Group, I think as we look at the year, we were indicating that from a revenue perspective, the back half of the year essentially was flat.

So what we're saying now is in the purpose for the revised guidance is the fact that proppants has a longer cycle than we initially anticipated, and so we're going to see, we were seeing those orders coming in and we're delivering on those orders for Rotex.

So that's the reason we're increasing the back half of the year for revenue guidance on the Process Equipment side of the business. As we think about the quarter I think fourth quarter is going to be heavier than third quarter.

We're expecting to see more revenue come in the fourth quarter as we think about margins for third quarter and fourth quarter, if you recall last third quarter we had very high margins and we do not expect to have that same leverage this third quarter as we did last third quarter. So last year, we are up over 19.5% EBITDA margin.

We don't expect that this quarter primarily because of the large jobs that we're seeing kind of flow into the back half of the year and so even though we are up about 190 basis point here today on the Process Equipment Group, we expect EBITDA margin be between that 30% to 80% of improved margin and at the higher end of that range..

Okay. That's helpful Kristina and on the impairments of the coal business, I guess two questions, one, is that business profitable and two, are your thoughts more towards divestiture or more towards streamlining and making it smaller.

What are you thinking there on that business?.

So John, that business is profitable. We've taken a number of actions over the last couple of years to try to right side that business and make it profitable and so that is profitable business for us and we're seeing some increased profitability in that business compared to for example, prior year.

In terms of what we're focused on with the business, I think we've talked about the a little bit in the past. We're really focused on getting that business running more efficiently. We did consolidate a number of operations there and we continue to make sure that we're running the business well.

We're certainly not looking to put a lot of capital into that business, but we are working on getting that business running as well as possible given the circumstances. Of course we're not going to comment on any acquisitions or divestitures until we have something to say.

So we just as I would no matter what reserve comment on that or any other question about acquisitions until or something to announce..

Fair enough Joe.

One last question, Kristina I think you mentioned share repurchases in the coming quarters, is that built into your guidance?.

Yes it is?.

Okay. Thanks guys. I'll get back..

Thanks John..

[Operator Instructions] Your next question comes from Liam Burke from B. Riley FBR. Your line is open..

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

Good morning, Liam..

Good morning, Liam..

Joe, you talked about strength in the screening side on proppants, is there any other either geography or application that's growing outside of frac sand or as it moderates, do you have anything behind it that's growing?.

Yes. So we did something about a year ago that really has helped us in that screening business. The team restructured the supply chain a bit to make it more flexible, so that it could more readily adapt to these big spikes in demand around frac sand and so, in the past, we worked very hard to get the frac sand orders out.

There is a lot of attention paid to frac sand and we had less flexibility than we have today. The result of that has been that the underlying business there sort of the base business of its other end markets and it plays in a number of other end markets including things like sugar, seeds, fertilizers etcetera.

And so we're seeing good strength solid growth in those underlying markets.

So that -- we're seeing continued strength in that business; two reasons, one is the frac sand market continues to remain pretty strong both from not nearly like it was during the peak of orders, but we're still seeing pretty decent demand on the parts and service because the machines are running and then that underlying business is actually doing pretty well given strength in North America and Western Europe for some of its end markets.

So we don't have any other really large segment like the frac sand for that business, but we do have a whole bunch of other markets which is why that base business is pretty stable and again demand and orders are pretty strong in that underlying base business..

Great.

And you mentioned aftermarket and screening, you've invested in resources to generate -- to generate aftermarket growth, could you give a sense as to how that's been going?.

Yes. So you're right. We have invested resources on aftermarket over the past two years really in all the Process Equipment Group businesses and we've seen -- we've seen really good results from that.

I think I would tell you that from a revenue perspective, parts and service is up significantly on a quarter-over-quarter basis this year versus last year and so that's really for the most part across the Board. We're seeing strength in all end market and all the businesses and parts and service.

Again I think we're seeing particular strength in the Coperion business as we're doing some larger projects in the Coperion business that has really been very helpful and we're also seeing that lots of strength in the Rotex business as the base business is very solid and growing and then put on top of that the very strong results from the proppants market..

Great. Thank you, Joe..

Thanks Liam..

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

Yeah.

Couple quick follow-ups, could you talk a little bit about how your flow business is doing the pump and valve business?.

Yes you know Kristina, slide me a note after I answer the service business. The pump side of that flow control business parts and service are very strong in the pump side. I would also say that order intake has been strong this year on the pump side of the business, really driven by a couple of things.

We have three parts of that business, the parts and service has been strong. We have day-to-day pumps, which are very solid, pumps think of smaller pumps that are little bit more off-the-shelf and then we have project pumps and these are larger, more sophisticated pumps that go into a variety of end markets.

We've seen strength in some of the larger projects and those have been really around the world in areas like mining, power and the marine business. So the pump business has done quite well. On the valves business, largely in North American business, mostly in municipal water and wastewater, we've seen pretty solid demand on the municipal side.

Increased focus on the industrial sides. We're trying to grow the industrial side of that business. We've taken some actions to do that. We're seeing good result there and then both of those businesses have done better.

We've put a team and some focus in South America and made some investments there and we're seeing good results from the investments in South America largely in the mining space and so we've seen nice order intake and growth in our efforts to grow those businesses internationally?.

Great. That's again traction there. And Joe, you mentioned in your prepared comments, how tariffs are starting to impact orders, I am not sure if I heard you correctly.

Could you just talk about what you said there and what dynamic you're seeing that's starting to happen?.

Yes so when I really think tariffs impact our orders at all, what I was trying to communicate is there is a direct impact of tariffs in just steel prices and aluminum prices for example and then there's the indirect impact, which is steel goes into other products that we buy and how that flows through our income statement.

And so we don't have a lot of direct impact of the tariffs. For example, all of our steel at Batesville Casket is purchased from -- in North America and from North American manufacturers.

So we are not really seeing the direct impact, but we have seen prices of steel go up because the knock on effect of the tariffs is that the prices of domestic steel have gone up, even though the tariff technically doesn't apply to them.

So we have some protection in the way we do a contract, but we are seeing knock on effects in terms of input cost as it relates to steel and aluminum, but nothing significant at this point, again because our largest purchaser of steel is Batesville Casket and we have contracts in place that limit the price increases that we get.

Does that make sense John..

Yeah, no I needed that little bit of education, sorry I kind of misheard you maybe before. I appreciate that Joe. Thank you..

And again, it just hasn't had a huge impact on our business at this point..

Got it..

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

All right. Thank you. Once again, I want to thank everyone for participating on the call today. Look forward to speaking with you again in August as we report our fiscal third quarter results. Have a great day..

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