Batesville Casket Faces Threat From Chinese imports

August 27, 2009
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image Batesville Casket already had enough to worry about, with rising cremation rates creating flat sales for its core products.But it can?t ignore another nagging trend: Imports from China make up a rapidly growing portion of the U.S. industry. In 2008, 2.4 percent of caskets sold in the U.S. were made in China, according to the Casket & Funeral Supply Association of Amer

He predicted that by 2025, at least 75 percent of the coffins used in this country will be produced in China or other countries with low labor costs. Whether the factories are run by U.S. companies or Chinese ones ?is to a large degree semantics,? Isard said.

It?s likely, he said, that the industry?s largest companies ? Batesville Casket in Batesville, Aurora Casket Co. in Aurora and Pittsburgh-based Matthews International ? will look to shed the expense of manufacturing, at least domestically, and focus on their distribution networks.

He said they could be highly profitable that way, as U.S. factories are underutilized.

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But Joe Raver, president of Batesville Casket, said his company has no plans to start manufacturing in China.

?We have looked at manufacturing caskets all over the world, including Asia, and right now we don?t think it makes sense for us,? said Raver, whose company has more than 3,000 U.S.-based employees. ?There are super-long lead times, and it?s tough to control quality on something coming on a ship for five, six, seven weeks. And ? the economics aren?t really compelling.?

Answering an analyst?s question about competitive pressures on a first-quarter earnings call, Kenneth Camp, CEO of Batesville parent Hillenbrand Inc., said: ?It is not our intention to be the lowest-price provider out there. Funeral directors make more money selling caskets than they do buying them. And when we have caskets that families can select from and see high value in, they?re better off financially.?

Manufacturing outside the U.S., however, would not be new for Batesville. The company already has a facility in Chihuahua, Mexico, in addition to its plants in Indiana, Mississippi and Tennessee.

Funeral directors can save $200 to $300 on Chinese-made models, said Mark Allen, executive director of the Casket & Funeral Supply Association of America in Lake Bluff, Ill. If they?re buying a casket selling for $800 to $1,000 wholesale, that?s 20 percent savings. Some put it at as much as 50 percent.

Based on lower-than expected second-quarter revenue of $170.8 million, Batesville recently lowered its 2009 revenue guidance by 6 percent to $650 million from $670 million. At the same time, it raised its earnings guidance by 2 percent, to $1.57 to $1.70 per share.

Its stock was trading at around $17 early this week, below its $19.39 on Jan. 28 but above the $16.68 where it started the year.

Cremation, meanwhile, has been eating into casket sales. It was used in 35 percent of deaths in 2007, and the number should be well over 50 percent by 2025, according to the Cremation Association of North America. It was only 25 percent in 1999.

Davenport & Co., a Richmond, Va.-based equity research fund, reiterated its ?buy? rating on Batesville after the company lowered its guidance, saying it?s a ?mostly defensive? stock at an attractive multiple.

Batesville has an extensive line of cremation urns. They sell at margins equal to those of caskets but are much cheaper.

Whether what?s left of the casket market will remain for U.S. companies to fight over or end up overseas is uncertain. Allen thinks the import stream will hit a wall. ?There are limitations to imports ? order quantities, inventory issues,? he said.

Article By: James Ritchie Staff Reporter, jritchie@bizjournals.com, (513) 337-9442

Photo: Kenneth Camp, CEO of Hillenbrand Inc., Batesville Casket?s parent, says of casket imports: ?It is not our intention to be the lowest-price provider out there.?

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