How Hillenbrand Could Grow Past Service Corp. and StoneMor Partners

In the highly fragmented funeral-services industry, Hillenbrand has competed hard against rivals Service Corp. International and StoneMor Partners , but a strategic shift could provide a better long-term growth trajectory for Hillenbrand in the long run.

Hillenbrand manufactures and sells various items related to funeral services, including caskets and monuments. But the company has also moved into making equipment for industrial processes, offering machines such as bulk-handling systems, separators, and screening equipment to ensure quality control. With the process side of the business growing at a high pace, will Hillenbrand reinvent itself in the long run? Let’s take an early look at what’s been happening with Hillenbrand over the past quarter and what we’re likely to see in its report.

Stats on Hillenbrand

Analyst EPS Estimate	$0.52
Change From Year-Ago EPS	4%
Revenue Estimate	$463 million
Change From Year-Ago Revenue	83%
Earnings Beats in Past 4 Quarters	3

Source: Yahoo! Finance.

How will Hillenbrand fare this quarter?

In recent months, analysts have gotten a bit more enthusiastic about Hillenbrand’s earnings prospects, boosting their full-year fiscal 2014 estimates by $0.03 per share. The stock has done very well, climbing 17% since late August.

Hillenbrand’s performance lately has hinged on its acquisition of Coperion last December, which helped send its process equipment group’s revenue up 181% year over year for the quarter ended in June. The move helped Hillenbrand bolster the overall scope of the segment, with Coperion’s expertise in compounding, extrusion, and materials-handling helping the company diversify beyond its former concentration on funeral services. That has helped Hillenbrand overall produce encouraging growth gains in order pipelines and backlogs, even in an uncertain industrial environment that would normally hinder growth.

Hillenbrand’s move looks prescient given the challenge that Service Corp. has put on the death-services industry. With its recent acquisition of Stewart Enterprises, Service Corp. will have a huge presence within the fragmented industry, making it difficult for smaller companies like Hillenbrand and StoneMor to compete. StoneMor has the investment gimmick of being structured as a master limited partnership, paying out much larger dividends than Service Corp. and Hillenbrand. For Hillenbrand, though, diversification seems to have come at exactly the right time.

But the strategic move toward a greater industrial focus gives Hillenbrand more of a cyclical focus that investors need to get used to. Death-care needs are constant and steady, which is the primary attraction for many investors seeking stocks of companies in the industry. By contrast, process equipment demand rises and falls with the state of the overall global economy. Picking up Coperion at a cyclical bottom in the European economy was probably a smart move, but it will introduce perturbations in earnings that shouldn’t surprise shareholders in the years to come.

In the Hillenbrand earnings report, watch to see how the company handles the growing importance of its process equipment business. Eventually, Hillenbrand could find itself doing more business with companies than with death-services customers, completing a transformation that could push it well beyond peers like Service Corp. and StoneMor Partners.

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The article How Hillenbrand Could Grow Past Service Corp. and StoneMor Partners originally appeared on Fool.com.