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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings, and welcome to the Hillenbrand Third Quarter Fiscal Year 2021 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Joe Raver, President and CEO. Please proceed.
Thank you, operator, and good morning, everyone. Thank you for joining us for our fiscal third quarter earnings call, and we hope you and your families are safe and well. I'm joined by our Executive Vice President and recently announced CEO successor, Kim Ryan; and our Senior Vice President and Chief Financial Officer, Kristina Cerniglia.
I want to direct your attention to the supplemental slides posted on our Investor Relations website that will be referenced on today's call.
So turning to Slide 3. Just a reminder that our comments may contain certain forward-looking statements that are subject to the safe harbor provisions of the securities laws. These statements are not guarantees of future performance, and our actual results could differ materially.
Also during the course of the call, we will be discussing certain non-GAAP operating performance measures, including pro forma comparisons for our segments. I encourage you to review the appendix and Slide 3 of the presentation as well as our 10-Q and 10-K, which can be found on our website, for a deeper discussion of non-GAAP information, forward-looking statements and the risk factors that could impact our actual results.
With that, I'll now turn to the quarter. We had a solid third quarter, with strong revenue growth, record orders and backlog and excellent free cash flow. We saw continued momentum in our industrial segments, with solid demand for capital equipment across most of our key end markets, including polyolefins and engineering plastics, automotive, construction and electronics. All of our industrial brands saw year-over-year increases in both orders and backlog. We're encouraged by our fourth sequential quarterly increase in aftermarket orders and expect this to be an area of strong profitable growth as we head into the fourth quarter and next fiscal year.
Before I move on, I want to acknowledge our associates for their dedication and resiliency in the face of continued uncertainty from COVID-19, which now includes global supply chain disruptions, rising inflation and labor shortages. Our employees have gone above and beyond to safely meet the needs of our customers and execute our strategy.
Now I'd like to take a moment to talk about the leadership transition we announced on June 2. After 27 years with Hillenbrand and the last 8 as CEO, I've decided to retire at the end of this calendar year. Our Board of Directors elected Kim Ryan, formerly the President of Coperion, as Hillenbrand's new CEO effective January 1, 2022. Kim and I have worked closely throughout our careers at Hillenbrand. She's been an integral member of the Hillenbrand senior executive team for over a decade and was instrumental in developing our current strategy.
Kim has extensive knowledge of our company and culture, with deep operational expertise and a strong track record of global leadership and execution. Since the announcement, Kim and I have been executing our transition plan, and Kim has been actively engaged with the operating company presidents, learning more about their businesses, developing plans for fiscal year 2022 and beyond, and driving a strong close to this fiscal year.
My decision to retire was not easy. But after much reflection, it's clear to me that right -- that now is the right time. We have an experienced leadership team, a strong and flexible balance sheet, a more focused portfolio, and the integration of Milacron is proceeding well. We're in a very strong position to continue to drive profitable growth, and I know Kim will do a great job leading Hillenbrand into the future. The entire team is focused on ensuring a smooth transition through the remainder of the calendar year.
With that, I'd like to invite Kim to make a few comments.
Thanks, Joe, and a good morning to everyone. It's truly an honor to have been selected to lead Hillenbrand into its next chapter of growth. We're well positioned to build upon our successful track record of execution, which is guided by the Hillenbrand operating model we've developed over the last decade. I'm excited to have the opportunity to work with our talented leadership team and our 11,000 associates around the world to advance Hillenbrand's profitable growth strategy. And I want to thank the Board of Directors for their confidence in me as I step into this role. I look forward to continuing to communicate with you as I work with the leadership team on a smooth transition.
And I'll now turn it back to Joe.
Thanks, Kim, and congratulations once again on this exciting opportunity.
Now let me touch on our strategy and some highlights for the quarter. We've consistently communicated 4 key strategic pillars that we believe will build Hillenbrand into a world-class global industrial company. And during challenging times such as these, it's critical that we remain focused on executing our strategy in order to drive long-term shareholder value.
The first pillar is to strengthen and build business platforms, both organically and through M&A. Over the past several years, we've invested to develop innovative products and solutions that improve the quality of our customers' products and lower their total costs. This has enabled us to build strong positions across our core end markets as evidenced by our record quarter of order intake, leading to a fourth consecutive quarter of record total backlog, which stands at $1.8 billion. This provides a strong foundation for continued growth in our industrial segments as we head into the next fiscal year and beyond.
Given our tremendous cash flow over the last several quarters, we've been focused on accelerating growth in our large product platforms in APS and MTS through strategic investments and development of our M&A pipeline. We're targeting key strategic end markets, such as food and recycling, which tend to be less cyclical than our other industrial end markets and have good long-term growth prospects. We're investing in the development of innovative solutions to meet our customers' needs in these markets that continue to trend towards larger scale, more technically demanding applications. And as many of you know, this is an area in which we excel. We believe these investments will position us well to capture demand as these markets continue to grow.
Our second strategic pillar is to manage Batesville for cash. As we continue to drive growth in our industrial product platforms, Batesville is becoming a smaller part of the portfolio, comprising about 20% of total company revenue. While this quarter, we saw Batesville decline on a year-over-year basis due to lower death associated with COVID-19, the business performed better than expected and generated solid free cash flow. Batesville's outstanding cash flow over the last several quarters played a key role in reducing our debt and allowing us to accelerate our focus on growth investments, which underscores the important role Batesville plays in our portfolio.
The third pillar of our strategy is to build a scalable foundation for growth using the Hillenbrand operating model. The acquisition of Milacron has provided a unique opportunity for us to transform our functional processes in the areas of IT, HR and finance as well as our operational capabilities through the global supply management team and our operation's center of excellence. The integration continues to go well, and we are encouraged by the continued opportunities to improve the business by applying the Hillenbrand operating model across the enterprise.
Our global supply management team continues to develop from both a talent and a process perspective, improving our ability to leverage our combined spend to achieve procurement synergy targets and mitigate rising costs in the current inflationary environment. In addition, the group is actively implementing supply management strategies to reduce the impact of global supply chain challenges across the organization.
The operation's center of excellence has improved our flexibility to manage through economic cycles through targeted footprint consolidations, capacity management and strategic outsourcing agreements and the expansion of our global engineering center in India to drive engineering efficiencies across the enterprise. We believe the processes that we've established and the capabilities that we're building will enable us to accelerate the integration and synergy realization of future acquisitions.
Our fourth and final pillar is to effectively deploy strong free cash flow. We have a proven track record of quickly deleveraging following the acquisitions, allowing us to maintain a flexible balance sheet so we can continue to invest through economic cycles. We've generated over $600 million of free cash flow over the last 12 months. And our net debt-to-EBITDA of 1.4x has improved nearly 2.5x since the Milacron acquisition less than 2 years ago. In the quarter and through the month of July, we repurchased approximately $100 million of shares. We'll continue to consider opportunistic share repurchases going forward while remaining focused on accelerating growth through strategic investments in our large product platforms and evaluating inorganic opportunities in APS and MTS that maximize long-term shareholder value. As always, we will remain disciplined in our approach to deploying cash.
Before I turn the call over to Kristina, I want to give a brief update on our efforts around sustainability and ESG. At the end of August, we plan to issue our second sustainability report to share the progress we've made on our sustainability journey in the past calendar year. We remain committed to working with internal and external stakeholders in the implementation of our sustainability strategy, grounded in our materiality assessment. We're currently focused on better understanding our overall impact on the environment, particularly in the areas of energy usage and emissions. We're driving transparency and accountability by building processes to capture and measure progress, aging with our stakeholders and building on our public disclosure practices.
On the governance side, we added 2 new directors to the Board: Dennis Pullin, President and CEO of Virtua Health, a $2 billion nonprofit integrated health system; and Inderpreet Sawhney, Group General Counsel and Chief Compliance Officer of Infosys Limited, a global leader in next-generation digital services. Dennis and Inderpreet have impressive backgrounds and complement our Board's skill set, expertise and diversity in support of Hillenbrand's strategy.
So in summary, as we enter our final quarter of fiscal 2021 and prepare for next year, our priorities are focused on remaining vigilant in ensuring the health and safety of our employees, navigating the current macro environment to offset inflation and maintain the integrity of our supply chain, capturing the full benefits of the Milacron acquisition and strategically deploying cash to drive long-term shareholder value.
With that, I'll turn the call over to Kristina to provide more specific details on our overall financial performance, segment performance and the outlook.
Thanks, Joe, and good morning, everyone. Throughout my section, I will be referencing year-over-year comparisons on a pro forma basis, which exclude Red Valve and ABEL from the prior year results of the APS segment. We believe these pro forma comparisons provide a better assessment of our ongoing operations, and you will find a comparison of as reported and pro forma results on Slide 22 of the earnings slide deck.
Turning to the quarter, our teams delivered a strong performance. Record orders of $787 million double the volume from the prior year, drove total company backlog to a new record of $1.8 billion, a 62% increase year-over-year on a pro forma basis and a 16% increase sequentially, a sign of continued strong demand for our highly engineered solutions and products in both APS and MTS.
We delivered total revenue of $695 million, an increase of 14% on an as-reported basis. On a pro forma basis, revenue increased 18% driven by strong volume growth within MTS and APS. Excluding the impact of foreign exchange, total revenue increased 10% on an as-reported basis or 13% on a pro forma basis.
Adjusted EBITDA of $126 million increased 4%. On a pro forma basis, adjusted EBITDA increased 7% primarily driven by increased volume. Adjusted EBITDA margin of 18.2% decreased 170 basis points on a pro forma basis due to cost inflation, unfavorable mix and an increase in strategic investments, which more than offset operating leverage from our higher volume, productivity and favorable pricing.
We have been actively taking pricing actions to help mitigate the impact of rising inflation. We experienced approximately $17 million of inflation in the quarter, and we were able to offset approximately 60% through price with 80% price/cost coverage in our industrial segment and 30% coverage within Batesville. We continue to evaluate our pricing structures and will take further action as appropriate.
Additionally, as mentioned in our guidance last quarter, we are seeing a return of normal operating costs across each of our segments, following the stringent cost containment actions we took in the prior year. We expect to see this impact continue through the fourth quarter and into the beginning of the next fiscal year.
We reported GAAP net income of $40 million or $0.53 per share, an increase of $0.21 or 66% compared to the prior year. Adjusted net income of $65 million or $0.85 per share increased $0.04 or 5%. The adjusted effective tax rate for the quarter was 30.4%, an increase of 370 basis points from the prior year due to an increase in the recognition of deferred taxes on unremitted foreign earnings as well as the unfavorable impact of recent German tax legislation.
We had another great quarter of cash generation, with cash flow from operations of $184 million, an increase of $109 million compared to the prior year. This increase was primarily driven by favorable timing of working capital requirements particularly due to strong customer advances in both the APS and MTS segments and higher earnings.
During the quarter, we reached an agreement with a local German works council regarding restructuring plan within our facilities in Stuttgart and Weingarten in Germany. We expect to incur severance and other related costs of approximately $17 million to $20 million over the next 12 to 15 months. The majority of these costs will result in future cash expenditures and are expected to be substantially paid by the end of the calendar year 2022.
During the quarter, we recognized approximately $5 million of expense. We are confident these actions will support continued synergy realization towards our 3-year $75 million run rate target and drive further efficiencies within our operations, providing us greater flexibility to respond to customer demand over the long term.
Capital expenditures were approximately $10 million in the quarter, lower than anticipated due to project timing. In the quarter, we also repurchased approximately 993,000 shares for $43 million and returned $16 million to shareholders in the form of quarterly dividends. Subsequent to the quarter, we repurchased an additional 1.3 million shares through the end of July for $57 million, and we have $100 million remaining under our share repurchase authorization.
We realized approximately $8 million of incremental synergies in the quarter and approximately $22 million year-to-date, positioning us well to meet or exceed our target of $20 million to $25 million of synergies this year. We remain on track to achieve the 3-year $75 million total run rate synergies related to the Milacron acquisition.
Moving to segment performance. APS revenue of $313 million increased 11% or 5%, excluding the impact of foreign exchange. On a pro forma basis, revenue increased 18% compared to prior year or 11% excluding the impact of foreign exchange. The increase was primarily driven by large plastics projects, particularly in engineering plastics applications and favorable pricing.
Turning to aftermarket parts and service for APS. Revenue has stabilized, and we saw strong demand as orders increased sequentially for the fourth consecutive quarter. We expect to see these orders begin to translate to higher revenue growth in the fourth quarter. Longer term, we continue to see opportunity for profitable growth in this area as the installed base of our large systems continues to grow.
Adjusted EBITDA of $61 million increased 13% on a pro forma basis, while adjusted EBITDA margin of 19.5% was down 100 basis points compared to prior year on a pro forma basis but higher than expected coming into the quarter. Cost inflation, strategic investments for growth and an increase in variable compensation more than offset productivity, including synergies, favorable pricing and operating leverage from higher volume. Order backlog reached a new record high of $1.4 billion, an increase of 52% year-over-year on a pro forma basis and 19% sequentially primarily driven by large polyolefin systems.
We continue to see solid demand for both polyolefin and engineered plastics projects with record order volume in the quarter. The pipeline for new large plastics projects remained solid, particularly in Asia. These projects are expected to contribute to revenue over the next several quarters. We have not received any cancellations from our large project customers nor do we expect to.
Finally, although not significant portions of our revenue today, we continue to see strong opportunities for future growth within recycling and processed foods.
Turning to Molding Technology Solutions. We saw strong year-over-year growth in all product lines, and both revenue and margins exceeded our expectations coming into the quarter. Revenue of $244 million increased 31%. Excluding the impact of foreign exchange, revenue increased 26%.
Sales remained strong for hot runner systems across nearly all end markets and regions, with solid order volume in automotive, consumer goods and electronics. Order volume and revenue for injection molding capital equipment increased significantly year-over-year in nearly all end markets, in part due to the prior year impact of the government-mandated shutdowns in India and general market softness due to COVID-19.
Supplier disruptions due to the ongoing chip shortage have begun to impact our ability to ship machines in both North America and India, and we anticipate this to have an impact on our fourth fiscal quarter, which I will talk about later when I introduce our fourth quarter guidance.
Demand for aftermarket parts and service within the MTS segment remains solid with strong year-over-year growth. Adjusted EBITDA of $49 million increased 29%, largely driven by volume and productivity, including synergies. Adjusted EBITDA margin of 20.2% decreased 30 basis points primarily as a result of unfavorable mix due to an increased proportion of injection molding equipment, which comes at a lower margin compared to hot runners, cost inflation and a return of normal operating costs, including variable compensation.
We remain focused on leveraging the Hillenbrand operating model to drive sustainable operational improvements in this segment, and we see significant opportunity to expand margins and improve working capital over the long term, particularly within the injection molding product line. Record order backlog of $388 million increased 110% compared to the prior year driven by an increase in orders for injection molding, extrusion and hot runner equipment. Sequentially, backlog increased 7%.
Turning to Batesville. Batesville's performance well down year-over-year, exceeded our expectations for both revenue and margin. Revenue of $138 million decreased 1% as the estimated decrease in debts associated with the COVID-19 pandemic was partially offset by higher average selling price. While we are closely monitoring the continued impact of COVID-19, including the rise of new variants, we do anticipate debts due to COVID-19 to continue to decrease during our fiscal fourth quarter compared to the prior year.
Adjusted EBITDA margin of 21.6% declined 440 basis points compared to the prior year primarily due to inflation in commodities and wages and the impact of lower volume.
Turning to the balance sheet. Net debt at the end of the quarter was $736 million, and the net debt to adjusted EBITDA ratio fell by over 0.25 turn sequentially to 1.4x. As of quarter end, we had liquidity of approximately $1.4 billion, including $476 million in cash on hand and the remainder available under our revolving credit facility. As of June 30, we had no borrowing on our revolver and no near-term debt maturities due.
Turning to capital deployment. We are now below our targeted leverage guardrails of 1.7 to 2.7. As we've said, our main focus will be making strategic investments, both organically and inorganically, to accelerate profitable growth in our large product platforms in APS and MTS.
We have been actively developing our M&A pipeline and evaluating targets that are a good strategic fit and that we expect will provide a high return to shareholders over the long term. We continue to evaluate opportunistic share repurchases, along with other strategic investment opportunities.
Now let me conclude my prepared remarks with our fourth quarter guidance. Similar to the review of quarterly results, I will be referencing pro forma comparisons in this section.
We expect Hillenbrand's total fourth quarter revenue to increase year-over-year in a range of 6% to 9% driven by solid growth in our industrial segments, partially offset by a year-over-year decline in Batesville. We expect adjusted EBITDA in the range of $121 million to $132 million and adjusted earnings per share in the range of $0.82 to $0.92.
On a full year basis, our fourth quarter outlook implies total Hillenbrand pro forma revenue growth of approximately 11% to 12%, with pro forma adjusted EBITDA in the range of $515 million to $526 million, representing an increase of 16% to 18%. Full year adjusted EPS is anticipated to be in the range of $3.61 to $3.71, reflecting growth of 13% to 16%.
Starting with Advanced Process Solutions, we expect fourth quarter revenue to grow year-over-year in the range of 9% to 12% primarily due to strength in revenue from large plastics projects as well as aftermarket parts and services revenue. Though delays still persist with some of our large polyolefin projects in the backlog, we see strength in other end markets, like engineering plastics, food and recycling. We expect adjusted EBITDA margin of 19.5% to 20% to be lower from a year-over-year perspective, down 60 to 110 basis points, as the impact of higher volume, price and productivity improvements are more than offset by the headwinds from inflation, project mix due to a higher proportion of large plastics projects, which come at a lower relative margin, and a return to normal spending patterns following the cost containment actions put in place in the prior year.
As a reminder, while the large plastics projects have a lower margin, we expect them to generate highly profitable aftermarket parts and service revenue in the future.
Turning to Molding Technology Solutions. We expect solid fourth quarter revenue growth in a range of 10% to 15% over prior year, led by growth within our injection molding product lines and continued strength in our hot runner systems.
In our guidance for the fourth quarter, we have accounted for disruption due to the ongoing chip shortage impacting our ability to ship injection molding machines. We expect adjusted EBITDA margin of 19.5% to 20%, down 330 to 380 basis points year-over-year, as the benefit of higher volume and continued productivity improvements is expected to be offset by higher injection molding sales, which carry lower margins than hot runner systems, inflation and a return to more normal spending patterns with respect to investments and other costs. We expect there will be a lag in the price/cost offset within this segment as we work through the high backlog of injection molding equipment that is built up since the fourth quarter of fiscal 2020 prior to the significant increase in inflation.
Finally, with Batesville. In the fourth quarter, we expect revenue to decrease 6% to 8% year-over-year as we expect a continued year-over-year decline in burial demand due to a decrease in COVID-related deaths in North America. We expect adjusted EBITDA margin of 18% to 19%, down 530 to 630 basis points versus prior year primarily due to the adverse impact of lower volume, rising inflation and a return of normal spending patterns, partially offset by productivity.
As a reminder, a price increase will go into effect at the beginning of the next fiscal year. Additionally, given the significant volume earlier in the year, we are slightly behind on our execution of productivity initiatives as the business prioritized its resources to meet the unprecedented customer demand.
Overall, our team has demonstrated the ability to execute through challenging circumstances, and I am confident that we can continue the momentum through the last quarter of the year.
And now I'll turn the call back over to Joe.
Thanks, Kristina. Let me leave you with a few final takeaways before we take your questions.
We ended the quarter with record backlog, positioning us well to drive growth in our large platform businesses. The Milacron integration continues to proceed well, and we remain on track to achieve 3-year run-rate synergies of $75 million. We've generated over $600 million of free cash over the last 12 months, and we remain disciplined in redeploying that cash to create long-term shareholder value with a focus on investing both organically and inorganically to drive profitable growth.
Applying the Hillenbrand operating model will be critical as we work to protect our margins and ensure the continuity of our global supply chain in this challenging inflationary and macro environment. And finally, I'm confident in Kim's ability to lead Hillenbrand into the future, and the management team is committed to a seamless CEO transition.
With that, we'll open your line for questions.
[Operator Instructions] Our first question is from Matt Summerville with D.A. Davidson.
A couple of questions. If you just do the math in fiscal Q3, it sounds like your unabsorbed inflationary cost was about $7 million. What would the number look like? Or what is incorporated in your guidance in that regard for Q4? And then also, what is the chip shortage impact in either revenue or profitability in Q4 as well?
Matt, so as it relates to inflation for Q4, I think the way to think about it is it's going to be an increase from Q3. So we have roughly -- we're forecasting roughly 25% -- I mean -- I'm sorry, $25 million of inflation in the fourth quarter, and we're really only going to be able to cover half of that with price. So we'll have about a $12.5 million unabsorbed hit to the P&L for the fourth quarter for inflation. As it relates to the chip shortage, we anticipate that roughly about $10 million impact to the fourth quarter.
Is that -- just to be clear, is that $10 million in terms of revenue or profit?
Yes. Sorry. That is -- yes, that's revenue. Sorry, that's revenue.
Okay. And then with respect to the restructuring you're doing in Germany, is that a subset, just to be clear, of the $75 million in total savings contemplated with Milacron? And then if you could also comment on your M&A outlook in terms of the funnel as well as actionability.
Sure. I'll take the restructuring point, and then I'll flip the other question over to Joe. So as it relates to restructuring in Coperion or in Germany, it's really related to achieving our $75 million of synergies. As we were anticipating and setting the initial target for synergies, as you know, synergies are coming not just both from Milacron, but also from our legacy Hillenbrand businesses. And this was in the plan all along. So it will be -- this will help us achieve that $75 million savings.
Yes. I'll take the M&A question. So Matt, we've been probably more active over the past couple of quarters than we've been in a few years since prior to the Milacron acquisition. And the funnel is good. So there's lots of businesses out there that are available. I would say that multiples are pretty high right now, but we're looking -- as I've mentioned earlier, mainly our focus is really around strategic bolt-on kind of acquisitions, particularly in the areas of processed food where we have a good product line and offering, but it's relatively small part of our overall revenue. We expect we can grow that, and that's a good, solid -- stable market that's expected to grow, and then recycling and bioplastics. And so there's sort of a lot of activity around both recycling and alternative materials to make plastics from. Both of those are relatively small markets today, but they're -- when we look at our quote volume and the activity, those are both a couple of places where we're investing, and we expect those to be fast-growing markets for a long time.
And so as these markets -- these particular markets continue to unfold, they play to our strengths over time given that we're pretty good technically in all of our product lines. And so the more challenging the material to work with, the better off we are because we're good at that. And then I think the other part of it is, particularly in the engineering plastic, our compounding business, we tend to do very well with higher volumes and higher output. And so as things like meet analogs or bioplastics, as they look to scale those things, our equipment becomes more and more suited as they -- companies move to larger production capacities to bring costs down. So those are a couple of places. So M&A, we're very active. And again, it's -- a lot of it is sort of bolt-on activity in terms of places that we're targeting from an end market perspective.
Our next question is from Daniel Moore with CJS Securities.
Operator, it sounds like maybe we lost Dan.
Sorry about that. My apologies. Joe, Kim, Kristina, can you hear me?
Yes.
Yes. Dan, you're better now.
Start with Batesville. It sounds like volumes are normalizing maybe not quite as quickly as you would have expected. Do we expect to stay a little bit above prepandemic levels here in the short term?
Yes. It's a really good question, Dan. So I think a few things on the Batesville side. You're right, I think deaths were down a little bit less than we had expected. I think our revenues were a little bit higher in terms of the burial market. So the cremation rate was spiked last year. So on a year-over-year basis, there was not a huge increase in the cremation rate. So the burial market did better than we expected, and we saw that volume flow through.
Now if you look at what's happening on mortality and deaths in North America -- really the U.S. and Canada is our main market. The rates are pretty low right now. So we haven't seen -- they've been low for a while, but we've seen just recently the uptick in the Delta variant. So it's not clear how that's going to play out. Clearly, a lower mortality rate associated with the number of infections compared to what we saw last year, but -- so there's still some uncertainty as we head into the fourth quarter or through our fourth quarter and into the new year around what's going to happen with mortality. But if anything, there may be a little bit of upside as opposed to downside to the -- to what we expect on a normal -- kind of normalized basis.
All right. That's helpful. And then of the $12 million kind of expected unabsorbed inflation hit in the fiscal Q4 guide, how much of that is Batesville? And talk about your ability to close that gap once pricing -- the annual round of price increases goes into effect in September.
Yes. So roughly half of that $12 million is going to be Batesville, Dan. And obviously, we -- we'll do our best to cover the inflation. But at this point in time, as you can understand, we will be announcing that price increase October 1.
I think the other thing that you should just be aware of is the team is really working hard to -- on their productivity initiatives. And so we will try and continue to offset that inflation, not just with price, but with also productivity actions.
Got it. And one more, if I might, on the MTS side. You mentioned, obviously, it seems like it's across the board, but highlight any of those areas that are driving continued growth in the backlog and injection molding as well as kind of seems like a bit of a resurgence or pickup in hot runners as well. So whether it's end markets, geographies, where you're seeing the most uptick in the last few months?
Yes. Thanks, Dan. So in the MTS segment, just overall, I would say, we've seen really good orders really across the board, including automotive, electronics, consumer goods, construction. So solid orders. I think the hot runner business continues its strength and is doing quite well, and we had a really good quarter, and we're continuing to see good momentum in that business.
The injection molding business, as you know, we -- the backlog is very high. We had some orders -- some quarters of really high orders. I think we're sort of at a normalized order run rate. We're settling into a good normalized order run rate that is very positive.
And again, in that business, we've seen good results across multiple end markets, and both of the businesses have done well. I mean all geographies are doing pretty well -- all of our major geographies in both of those businesses, which are -- make up the lion's share of the MTS segment. So again, good order pattern, good backlog, and we expect continued momentum on -- in the MTS segment.
Our next question is from John Franzreb with Sidoti & Company.
Congratulations, both Joe and Kim.
Thanks, John.
I'd like to start with the backlog. And maybe, Joe, your thoughts about pent-up demand. How much has been addressed that was kind of deferred from kind of 2020? How much do you think is still out there? And maybe you could talk a little bit about lead times now versus historical lead times?
Yes. So let me try to unpack that question a little bit, and then I'll ask Kim to maybe weigh in as well. So I think if you think about the segments that drive the backlog, I think, on the APS side, I don't believe that, that's pent-up demand from the downturn. Maybe a little bit in service, but really, we're seeing solid service orders back and good momentum on service. And so these are the kind of projects that typically are longer-term projects in that part of the business. And so I don't really think that's pent-up demand that's come back, number one.
I think it's a little bit different story on the MTS side. The hot runner business, which is a good chunk of the MTS business, that's a quick turn business. And so that's seen momentum now for a number of quarters coming out of the downturn. So I don't think there's really any pent-up demand there.
We did see a big slug of orders related to injection molding in some previous quarters. And so that -- there isn't a backlog, some pent-up demand that will continue to work down. But I'd say the consensus view here is that we're sort of settled into more normal -- sort of normal kind of run rate order patterns on the injection molding business. And so we're seeing sort of more normal order rates and growth rates there.
So let me just turn it to Kim real quick and maybe she can talk a little bit how -- what she sees in the -- particularly with maybe the larger projects that are in the backlog and also how that market looks.
John, thanks for your question. I agree with everything that Joe said. And in addition, as we think about these APS, especially the large projects, remember that these are projects that are years in the planning cycle. And that oftentimes, you can't stop and start these things without huge increases to the cost of the projects overall. So they tend to invest through the cycles because they -- the planning phase and the execution phase are literally years in terms of the planning. So that creates at least some stability on those projects for us, which is good. So we have seen those projects continue through -- even through the last year. We've continued to have a number of quotes and projects. And although we've quoted them differently, we've quoted them virtually versus being no snows like we normally are. We have continued to see those projects in the pipeline.
In terms of what we're seeing in terms of lead times, obviously, lead times for all of the businesses are elongating somewhat, and that has been going on, frankly, for quite some time, which I think is -- has been -- has resulted in people really moving their projects they had because they want to make sure that they get their projects in the queue so that they can execute them in line with their plans for growth out in the marketplace. So hopefully, that adds a little bit of color -- commentary to what we're seeing in the order backlog.
And just in regards to the longer lead times, what are you seeing on the labor front? And how is that impacting the P&L?
Well, fortunately, as we started to see these volumes increasing over the last couple of years, we have started developing partners who help us to deal with this incremental volume so that we have an ability to control those lead times a bit more. And we've worked over time to develop that.
Yes. And I think that's especially true of the APS business. John, we have seen some challenges on labor in the MTS business, particularly the injection molding business. So if you remember, we had some pretty low orders in revenue if you go back about a year, and we furloughed quite a number of people. So we're building back up that labor force, but that's a challenge for us, especially domestically, and we continue to work through that.
I will also tell you that I think on the hot runner side, during the second -- I'm sorry, during the third quarter, we did have some labor challenges, but we were able to solve those pretty quickly and don't feel like we missed much revenue at all in the hot runner business in the third quarter. But we are continuing to see wage pressure, I think, around the world when it comes to labor.
So just to summarize, I mean, APS, I think, has done a really good job in most of that business, and we haven't felt much other than wage pressure. In the MTS segment, we have seen some lead times expand because of labor shortages, but we're working that to get those positions filled and get back to a more normal kind of run rate with the business.
Okay. And if I could just sneak one more in. You said that there's a price/cost lag in the injection molding business. I know last quarter, we discussed what's going on in Batesville. You talked about what's going on in APS a lot. What's -- why is there a price/cost less in injection molding?
Yes. So good question. So if you'll remember, we took a bunch of orders in the injection molding business. So there was -- as I mentioned earlier, there was some pent-up demand. So we had a few quarters of very high orders due to that pent-up demand. And that was pre the inflationary environment. And so we have some backlog where we have set prices to the customer -- what the customer is paying, and then the inflationary costs are going to pressure margins as that backlog works off. Now, of course, subsequent to that, we've taken a series of actions around price to ensure that we're covering inflation, but we do have some backlog where we have some margin compression due to inflation. And again, it's mainly injection molding equipment.
Our next question is from Chris Howe with Barrington Research.
Most of my questions have been taken here, but one -- a couple still remain. The fourth sequential increase of aftermarket orders, 29% of the mix in APS, 33% in MTS. Talk about this sequential growth and kind of put it into context as to what it may indicate moving forward for this piece of your business. It seems with the aftermarket sequential growth and other reoccurring parts of the business, there seems to be an increasing level of predictability for some of these parts.
Yes. So I think if you look back historically this last few quarters, I mean, I think we were probably at a low point on aftermarket around the first -- our first fiscal quarter of '21, and then we've had steadily rising backlog and orders in the parts and service business. And so we expect that to continue as we go into the fourth quarter and into fiscal '22. And so you're right, this is a profitable and stable part of the business.
I think just the other thing to point out is while a chunk of the aftermarket parts and service is pretty quick turn, we also do a lot of aftermarket parts and service for these large polyolefin customers, and they tend to be scheduled out, in some cases, up to a year, but they're scheduled out a few quarters. And so we've continued to see good orders, and then we'll -- that will be followed with continued revenue momentum from parts and services as we go through fiscal -- the end of this fiscal year and into next fiscal year. I hope that answered your question.
That's good. I'll just ask one more here on the Batesville segment, continues to do well relative to our expectations. You mentioned the death rates related to the number of cases for this Delta variant is lower than what it was for COVID-19. But perhaps outside of COVID-19 or the Delta variant or variant of next week, can you talk about what impact if this like stay-at-home environment lingers for longer, a lack of visiting doctors, how that may impact the death rate?
Yes. So I think that was -- so these would be sort of the indirect mortality associated with COVID. And we saw that spike, I believe, early in the pandemic where people stayed away from the doctors, and we're really shutting down. And if you'll recall, we were -- people were advised don't go to the hospital unless you have an emergency. And so we saw that spike early. I think that's moderated somewhat. It's hard to see that data. And in fact, it takes years ultimately to figure out what the impact is. And so I think we'll return -- I think once the -- if and when COVID-19 and the variants kind of go away, I think we'll return to more normal patterns.
What we've seen thus far is we've seen -- I don't think we've seen a lot of hospitals stop kind of normal either doctors' visits or procedures even with this rise of the Delta variant. And so it's a different -- it's a little bit different situation than it was early in the pandemic where you're still seeing hospitals operate their normal business. People come -- getting back to the physicians and going ahead and having the procedures that are required. So again, I think this, as we look forward, much more of a normal kind of mortality pattern is our expectation going forward.
So with that, I want to thank everyone for joining us on the call today. We really do appreciate your ownership and your interest in Hillenbrand. And as a reminder -- just one last reminder, we are publishing our second sustainability report at the end of August, and we're excited to share some of the progress we've made on this important part of our business over the last year. And so then, with that, we'll talk to you again in November when we report our fourth quarter and full year results. So thanks, everyone, and have a great day.
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