Hillenbrand Inc. (NYSE: HI) leaders recently reported results for fiscal 2019's third quarter, which ended June 30, 2019.

Revenue of $447 million was flat compared to the prior year. Excluding the impact of foreign currency exchange, revenue increased 3 percent. Batesville was up approximately 2 percent, which was partially offset by a decrease of 0.4 percent in the Process Equipment Group.

Net income of $30 million, or $0.48 per share, decreased $0.08 per share over the prior year, primarily as a result of business acquisition costs and restructuring charges. The effective tax rate for the quarter was 26.8 percent compared to 29.6 percent in the prior year, primarily attributable to the full implementation of the Tax Cuts and Jobs Act.

Adjusted net income of $36 million resulted in adjusted earnings per share of $0.57, in line with the prior year. Adjusted earnings before interest, taxes, depreciation and amortization of $70 million decreased 3 percent from the prior year, and adjusted EBITDA margin of 15.6 percent decreased 40 basis points, primarily driven by cost inflation and product mix, which were partially offset by strategic pricing and productivity improvements.

Hillenbrand generated cash flow from operations of $110 million year to date.

Joe Raver, Hillenbrand president and CEO, said, "Plastics remained a bright spot in the third quarter with continued revenue growth. We continue to see a solid pipeline of large polyolefin systems projects, and our backlog remains strong. Countering that, we experienced softer demand in a number of industrial end markets compared to the relative strength in recent quarters. In the face of shifting demand trends, we'll continue to utilize the Hillenbrand Operating Model across the business to protect profitability while ensuring we are able to respond to our customers' needs. We have initiatives in progress to manage costs and position the business to successfully navigate any economic environment."

Process Equipment Group

Process Equipment Group revenue of $315 million decreased 0.4 percent compared to the same period in the prior year. Excluding the impact of foreign currency exchange, revenue increased 3 percent. Revenue from large plastics projects remained higher than the prior year, and the BM&M acquisition contributed approximately 1 percent to revenue growth, which was partially offset by reduced demand in other industrial end markets, including screening and separating equipment for proppants.

Adjusted EBITDA margin of 17.4 percent decreased 100 basis points, primarily driven by the increased proportion of large systems projects, which carry a lower margin, and cost inflation. Order backlog of $940 million increased 20 percent over the prior year, or 22 percent excluding the impact of foreign currency. On a sequential basis, order backlog decreased 2 percent compared to the second quarter.

Batesville

Batesville revenue of $131 million increased 2 percent year over year, primarily due to the impact of an upfront incentive linked to a customer contract renewal in the prior year. Excluding that, revenue was flat, despite lower demand. Adjusted EBITDA margin of 19.3 percent decreased 50 basis points compared to the prior year, mainly driven by cost inflation, partially offset by an easier comparison due to the impact of the customer contract renewal in the prior year and productivity gains.

Acquisition Update

On July 12, Hillenbrand announced it had entered into a definitive agreement to acquire Milacron Holdings Corp. (NYSE: MCRN) in a cash and stock transaction valued at approximately $2 billion, including debt, net of cash on hand, of $686 million as of March 31. The transaction adds new strategic businesses to Hillenbrand's portfolio, including hot runner systems and injection molding through Milacron's leading Mold-Masters and Milacron brands. Together, the combined company is expected to have increased scale and meaningful product diversification, enhancing its ability to serve customers through complementary technologies across the plastics value chain, including polyolefin production, compounding, processing both extruded and injection molded products and recycling.

"We're excited about the Milacron acquisition, which we see as the next step in Hillenbrand's vision to become a world-class global diversified industrial company," said Raver. "Milacron has good businesses with great technology and a sizable customer base. As a combined company, we believe we'll have differentiated capabilities to serve customers across the plastics value chain, and we see meaningful opportunities to drive efficiencies across the business through the application of the Hillenbrand Operating Model. We expect to generate $50 million in run-rate cost savings within three years, and we believe that this deal will create solid financial benefits for both sets of shareholders."

The transaction, which is expected to close in 2020's first calendar quarter, is subject to customary closing conditions and regulatory approvals, including the approval of Milacron stockholders.

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