Kim Ryan: Well, I think I’ll just hit some macro trends in the market that I think are noteworthy. So as it pertains to kind of that demand bouncing back, I think that China has always been a very leading indicator of that. And that has been — that market has been a bit slower and has not bounced back as quickly as we would have anticipated. Parts of that are, I think, some uncertainty in the geopolitical environment. Parts of that are some customers, some manufacturers making choices about, hey, do I want to have my entire footprint sitting in China or should I diversify my footprint into areas like India? As you know, we have locations in India, which are offering the same types of capabilities and turnaround time, lead times, engineering capabilities to the customers that we serve in China.
So we believe that we are well positioned to be able to catch that to catch that business as it moves into other geographies in Asia. So we do feel prepared for that. But I would say that there is some slowness in the final decisions being made about where that footprint will reside. And I would also say that given some of the slowness that has characterized this industry for — or this end market for the last period of time, I think there is a lot of volume that’s trying to find a home. And so I think that does create a lot of pricing pressure, margin pressure at this time, as people work to maintain coverage for their own fixed costs in an environment where the market is kind of undersized for the competitive footprint that sits there right now.
And I’ll turn it to Bob to hit some of the other points.
Bob VanHimbergen: Yes, I think you actually summarized it well, Kim. Dan, if you think about the MTS market overall and our view of the first quarter, things were actually pretty on par for the first couple of months, and then December is where we saw a bit deeper dip than what we anticipated. Now January, we actually had a little bit of upside compared to what we thought, right? Now we’ve been here before. And as Kim said, those are dots, not a line or a trend yet. So you think about past cycles, the MTS cycle has been down, call it, five, six quarters is what that cycle looks like. And if we’ve projected about eight in our guidance, and it is a short cycle business. So I think we’re doing the right thing with the restructuring. When the market does return, we feel confident that we can take advantage of our position even in light of a reduced workforce.
Daniel Moore: Helpful. Last one, and I’ll jump out. Just obviously, given what’s the kind of lingering softness in MTS and Q2 guide being a little lighter than at least we had expected, would you say the lower end of the full-year guidance range is more likely from an EBITDA and adjusted EPS perspective or the cost reduction actions you’re taking enough to kind of balance it out and make the full-year picture more balanced, relative to where you thought coming into the year? Thanks again.
Bob VanHimbergen: Yes, sure. So we feel good about where APS sits within our guidance range at that midpoint, Dan. And on the MTS side, probably on the lower end, and as you recall, when we gave guidance a couple of months ago, we did have a wider range just in case we didn’t see that snap back. We were thinking a modest recovery in MTS. We still think that’s on the table. But again, Q1 is little bit lower than what we anticipated. So we’re expecting the lower end of the guide on the MTS piece. And obviously, the average of APS and MTS would put us at the lower end of the overall guidance. And then on the restructuring, that does embed the savings from the restructuring actions. So net-net, we’re going to be at the lower end on MTS.
Daniel Moore: Understood. Thank you. Thank you again.
Kim Ryan: Great. Thanks, Dan.
Operator: Thank you. Next question is coming from John Franzreb from Sidoti & Company. Your line is now live.
John Franzreb: Good morning, everyone. Thanks for taking the question.
Kim Ryan: Good morning, John.
John Franzreb: Kim, in your response to the last question, you mentioned that the pricing environment has gotten more challenging. I’m curious if that’s limited to China, which had been the case, if I remember correctly? Or is that spread to other geographies?
Kim Ryan: No. I think the geographies are — I think we’re seeing that in a number of regions. I’ll let Bob comment a little bit further on some of the details of that.
Bob VanHimbergen: Yes, I think that’s right. Yes. So Kim and John. Yes, so we’re seeing pricing pressure really across all regions, particularly in MTS. So customers in North America are becoming certainly price sensitive, and therefore, we need to react to really maintain our share. Same thing in China, we’re seeing aggressive discounting in that region as well. So if you think about MTS, we’re likely going to be less than 100% price cost covered. However, APS, we’re going to be above 100%. And so net-net, Hillenbrand, we will be still price/cost favorable at the consolidated level.
John Franzreb: Got it. Understood. And Bob, I think you said in your prepared remarks that APS had some delayed shipments in the quarter. I’m curious, what was the magnitude of those shipment delays? And have they been shipped in the first quarter? I’m sorry, in the fourth quarter.
Bob VanHimbergen: Yes. So we have just a little bit, just timing on some parts, quite honestly, John, so we can ship those larger orders. So that was about $5 million of an impact in the quarter, and those will go up in Q2.
John Franzreb: Got it. And Kim, I’m curious about what your thoughts are on APS backlog. It’s kind of elevated still. Is it actually a hindrance at some point? Are you incurring over time, you maybe might not have needed. Just maybe some thoughts on a higher level about the APS backlog.
Kim Ryan: Yes. I would say that it’s a bit elevated for what would be most optimal. When you’ve got a lot of backlog, you’ve got to touch and retouch things a couple more times than you would like. But at this point, frankly, I’ll take the orders, and we’ll work with backlog, and we’ll continue to manage that. The team has — I would say that this is — when you look historically at the level of backlog that we would typically operate this business on, we are at an exceptionally elevated level to what we used to years ago. Sorry, I’m getting some feedback — what we used to do in terms of regular backlog level, I would say we’re in the neighborhood of 50% to 75% higher than what we would — than what we used to operate at. But lead times are longer from suppliers still.
There’s — that’s a factor. And the amount of large orders in the backlog has continued to increase over time. And I think that, that’s a direct reflection of the value proposition that we’ve been able to take into the marketplace, especially in that polyolefin arena. And I do think that the attractiveness of the portfolio and being able to be a systems provider in certain applications has a real attractiveness for customers in having one vendor that really understands how to optimize all of that and bring it together for best performance in their manufacturing locations. And so a bit of that is a reflection of the fact that we don’t just sell equipment, we do sell systems, and that has increased over the last couple of years. So a little higher than might be optimal.
But again, I’ll take it every day.
John Franzreb: Okay, manageable. Good to hear. Thank you for taking my questions.
Kim Ryan: Thanks, John.
Bob VanHimbergen: Thanks, John.
Operator: We reached the end of our question-and-answer session. I’d like to turn the floor back over to Kim for any further closing comments.
Kim Ryan: Great. Thanks again for joining us on the call today. We appreciate your ownership and interest in Hillenbrand, and look forward to talking to you all again in May when we report our fiscal second quarter results. Have a great day.
Operator: Thank you. That does conclude today’s teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
