MATW - Matthews International: Backlog Comes Through

2023-04-29 04:22:59 ET

Summary

• Execution on order backlog in industrial technologies rockets sales, but contribution still low due to OLBRICH.
• Higher price realisation in the memorialisation segment drives incremental EBITDA.
• SGK limits declines despite pressures thanks to cost cutting.
• New print-head is moving to production phase after third-party validation, which could be the next impulse for the industrial technologies business.
• MATW can keep growing thanks to multiple secular tailwinds and newly released products at catalysts. An obvious buy.

Matthews International ( MATW ) is one of the better ideas on the US markets due to all but guaranteed growth in its industrial technology business and resilience in the funeral based businesses. While there isn't a catalyst from any likely activist realisations in the near future, earnings growth is coming as they scale their new offerings in industrial technology, including an EV offering but also a new product in the printing markets. The orders they got for EV are being realised and real profit growth is coming soon, and the new print-head will be the next tailwind. MATW stock is a clear buy given the low multiple and clear avenues for earnings growth.

Q2 Key Points

Let's blast through the key points from the quarterly earnings.

• Industrial technologies is going to be about 50% from the energy business in the coming fiscal year as the $200 million in order backlog gets worked through. So industrial technologies is now being dominated by a business with a very clear EV thesis.

Now, I was saying, okay, half of the orders were recognized Dan. So out of the 200 million, about half, if we hit that, if we hit that to 150% of those orders this fiscal year, we should have somewhere around $140 million to $150 million of energy orders for the fiscal year. Timing of that is dependent on revenue recognition, which is not necessarily in our control

Joe Bartolacci, CEO of MATW

• Likely going to be new orders coming in from APAC in the industrial technology segment again from energy solutions as Japan and other geographies start going hard in order to build up battery production facilities.
• Note that the industrial technologies segment is not seeing too much EBITDA growth. This is because the OLBRICH and R+S acquisitions aren't fully integrated yet, and there's things to do like figure out pricing in order to start getting these segments into profit-contributing order. Nonetheless, these acquisitions certainly are the difference maker when it came to securing those recent large orders. As this segment continues to grow and with more time to optimise, we should see more commensurate EBITDA growth together with sales in the Q2 comparisons, which should have had the highest delta due to the additional sales coming in from energy solutions.

• Memorialisation is seeing EBITDA growth against sales declines, where price realisation is helping margins as well as commodity price deflation of things like copper and steel. Lower casket volumes came in consistent with secularly higher cremation rates, but revenues are still about 40% ahead of pre-COVID levels, where the last years were anomalously good for memorialisation due to high COVID-19 deaths. The Eagle Granite acquisition closed in February 2023, and its confounding effects would be minimal this quarter, where next quarter they will have been consolidated for a whole quarter, so the current quarter is still an easy look into the trends of this business.

• SGK did badly as a Europe-centric business due to weaker economic conditions, but cost cutting limited the pass through to the bottom line and mitigated the double-edge of operating leverage.

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