Ladies and gentlemen, thank you for standing by. Welcome to the Matthews International Second Quarter Financial Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. Replay information will be given out at the conclusion. Your host and speaker today, Steve Nicola. Please go ahead, sir.

Thank you, Kevin. Good morning. I'm Steve Nicola. On the call with me today is Joe Bartolacci, President and CEO of Matthews. Today's conference call has been scheduled for 1 hour and will be available for replay at approximately noon today. To access the replay, dial 1 (320) 365-3844 and enter the access code 243771. The replay will be available until 11:59 p.m., May 3, 2012. We have posted on our website, which is www.matw.com, the second quarter earnings release and financial information we will discuss this morning. On the top of our Homepage, under the Investor tab, click on Investor News to access the earnings release. For the quarterly financial data, click on Financial Reports to access the information under the section, Matthews International Quarterly Reports. The documents are presented in a PDF file format. Before beginning the discussion, at the advice of legal counsel, I have been advised to read the following disclaimer as it pertains to forward-looking statements. Any forward-looking statements in connection with this discussion are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the company's actual results in future periods to be materially different from management's expectations. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the company's results to differ from those discussed today are set forth in the company's annual report on Form 10-K and other periodic filings with the SEC. In addition, please note that the balance sheet income statement and cash flow information provided today are preliminary data since our quarterly report on Form 10-Q for the period ended…

Thank you, Steve. Good morning. In general, the results of the second quarter of fiscal 2012 had many of the same challenges we saw during the first quarter. Good performance out of our Cremation division, our Merchandising Solutions business and our Marking Products division, were offset by challenges in several of our other business units. Some of those challenges were anticipated when we started the year, but others were not. Looking at our individual businesses, our Cemetery Products business showed a good recovery in sales relative to the first quarter as we worked through our backlog created with the ERP implementation. We are continuing to work through these issues with the implementation. Those issues have caused us to incur significant customer-related costs, which are expected to continue for a little while longer. Although we are making strides to improve performance in this business unit, we believe that in the long run, we are best served by satisfying our customers to the extent possible during the challenging time. Therefore, given our long-term view, we have intentionally chosen to defer a price increase that would have helped to offset the high cost of metal we are feeling this period relative to prior years. You may recall my comments at the beginning of the year where I stated that we expect our metal cost this year to be the highest average cost in the history of the company. Another challenge that we faced during the quarter in both our Cemetery Products business and our Funeral Products business is the significant decline in casketed deaths this year, which we believe is attributed to the mild weather and mild flu season. This has impacted our volumes during -- much more significantly than anticipated, but we think this will normalize over time. The decline in casketed…

Yes. For those of you who will be asking questions, we request that you limit them to 1 question and a follow-up question until all those who wish to participate in the Q&A session have had an opportunity to do so.

[Operator Instructions] First question is from the line of Daniel Moore, CJS Securities.

You mentioned that you've decided to forgo price increases for the year. Talk a little bit about -- a little bit more about the thought process around that, and will that -- is that for the full year? So will the next likely price increase not come until the fiscal '13?

Now, well, to answer the question for you, let's look back at the year. As I said earlier, we're experiencing our highest cost of bronze we've ever experienced here. The reality is, the price increase that we anticipated would have taken effect about January 1 for shipments towards the end of the month. That increase we have not anticipated would have covered our entire cost increase, frankly. We're taking a little longer view and would have expected to recover that over time. We don't think these prices are normal, that they would be held at these levels. So the reality is, is that we will probably take some form of a price increase before the end of the year, most likely toward the end of this third quarter. And the reason is, we have caused a little bit of angst with a lot of our customers as we've delayed shipments and maybe have made some troubles trying to get some product out that we're rectifying in moving forward. We just didn't think it was the right time to go out with a price increase.

Helpful. And the -- you mentioned some customer-related costs will linger beyond Q3 at this point?

Difficult to foresee but we expected to see it in Q3, hopefully diminishing as the quarter goes on.

Okay. And Steve, you mentioned there was an $800,000 gain in the segment, I believe, in the Cemetery Products segment. Can you elaborate on that?

I can't elaborate too much on that, but it really related to a settlement of a claim and it actually goes back to our granite acquisition.

Got it. I thought we should -- okay. But that was a onetime gain in fiscal Q2?

Onetime item.

Okay, perfect. Two more and I'll jump back in queue. Graphics Imaging, can you give us a sense for if you back out the Turkish acquisition and the impact of FX, what kind of a core organic growth would have looked like in the quarter?

All right. Excluding that Turkish acquisition, the sales in the Graphics segment declined quarter-over-quarter, and that obviously had a lot to do with some of the softening in the German graphics market. On a year-to-date basis, even excluding the acquisition, sales were up because of the strong first quarter.

We expect that some of our second quarter sales were pulled into the first quarter, Dan.

Got it. And lastly, can you just elaborate on the charge? I missed -- I know you touched on it, Steve, but I kind of missed it, the $1 million charge in that segment.

On the Graphics segment, some of it related to acquisition-related costs for acquisitions that -- or 1 acquisition that didn't come to fruition, some related to post-acquisition integration-related costs and then we had some severance during the quarter.

[Operator Instructions] Next question is from the line of Clint Fendley, Davenport.

Wondered on the softening that you've seen in the German graphics market. What are your expectations there for the second half of the year? Are you expecting continued flat revenue performance? Or do you think it might decrease further from here?

Well, Clint, we have twofold on there. One is going to be the currency impact. We're going to feel it -- at these rates, unless things change, we're going to feel the impact on the top line and bottom line. As it relates to the business itself, we're expecting third quarter to continue to be slow. We have some things coming online in the fourth quarter we expect that will pick this up. We've had some success with some customers over there. The ramp-up was a little slow, but we expect to see it in the fourth quarter.

Okay. And I guess just similarly, along those lines, you've mentioned in the press release that one of the critical elements to your performance for the second half will be the casketed death rate. I just wondered what's implicit from a volume assumption for your updated guidance. I mean, are you expecting it to remain negative or what are you thinking on...

We're trying to be prudent, Clint. Frankly, when we ended the year, we didn't anticipate what we saw today as one of those items we didn't think. But for our forecast purposes, we're not expecting to come back. Hopefully, it will and we'll have some benefit from that. But right now, we're expecting the same old for the second -- for the third and fourth quarter.

Next question is from the line of Jamie Clement, Sidoti.

Your people on the ground in Germany, as they talk to customers in the graphics market there, in terms of how the softness is manifesting itself, are -- is this just fewer packaging changes, fewer new product launches? What exactly is going on as a practical matter?

That's exactly what's going on. I mean, for the most part, we're seeing a slowdown in our packaging launches. I mean, we -- our business is either maintenance mode or new packaging launches. We've seen a pullback on the launch of new packages. Maintenance is always there. But we also have a, what I would call, a cyclical business in some of the engineering products we do over there, that frankly did not see a good market this second quarter.

Is your sense that -- I mean, and your sense of history, that these are projects that are sort of -- that are getting shelved for a little bit and will hopefully kind of reemerge in a couple of quarters? I mean, is that the way you all like to think about it or at least hope to think about it?

No, I mean, honestly, Consumer Products, where we do most of our work, live by new packaging innovation, so we expect them to be shelved for a while and then come off at some point. I think it's when they feel that the effectiveness of that packaging will be most important. I mean, maybe in the recessionary period, most of our customers just don't think they're going to get the bang for the buck by spending it right now.

Okay. And just a last follow-up there is, in terms of just getting the graphics segment back to a 10% plus margin, obviously, currency in the short term is an issue, I get that. But I mean, other than that, I mean, is it simply just a question about volume?

Well, that and frankly -- I mean, one of the items that is impacting the graphics performance is our pension costs. I would think that would change the results today.

Next question is from the line of Liam Burke, Janney Capital.

Steve, on the casket inventory, I know you were shifting. You had to increase inventories when you shifted more to a direct model in distribution. Have those inventories been worked through or do you still have some higher inventory levels on the casket side?

We still have higher inventory levels on the casket side, Liam. We've started to take some of that out of -- this year. We've seen a little bit of a decline there. But the short answer is we have more work to do.

Okay. And on copper prices, I know it's -- they're easing a bit now. Are you opportunistically buying or are you just going to continue to manage it the way you have been in the past?

Frankly, we're buying a little bit. We said earlier, we're bought out probably until the end of July, which is this third quarter. I think that hopefully we'll get some opportunity to buy some more for the fourth quarter at lower prices than we've been incurring, but we're not counting that right now.

Next question is from the line of Greg Halter, Great Lakes Review.

Wondering if you could comment on the granite business and the performance you're seeing out of that entity, I guess you'd want to call it.

It's relatively breakeven at this point in time. The reality of our granite business is, what we're looking for is going to come out of the backside of this ERP implementation. We see some pretty big opportunities in that business in what I would call formalizing processes and ordering capabilities across the United States through the benefits of what we're doing on our ERP. So we won't have big impact yet, but we expect to see it coming as we move forward.

And when you say backside, is that a quarter or a year away?

I would tell you, it's year plus. I mean, this is a longer-term strategy for us.

Okay. And then secondarily, Steve, regarding the unusual items that you broke out in Note 2 in the supplemental figures, are those included or excluded in the operating profit numbers that are shown above in that table?

Those costs are part of the determination of operating profit shown in the above table. The above table reflects the GAAP operating profit, if you will, as reported.

Next question is from the line of Scott Blumenthal, Emerald.

Joe, we seem to be doing a little bit better in the U.S. now than the folks in Europe are, and I was wondering if you might be able to address how your, I guess, Funeral Home Products mix is year-over-year. When we were still in recessionary or coming out of recession, people were a little bit more cost-conscious. Are you seeing that ease up at all now or is the mix still kind of...

We're seeing stability, we're not seeing degradation like we were for the last several years, Scott. But what we're seeing in our products, our Memorialization side of our business has returned to normalcy in our cremation units, for example, as you see the results that are coming out of that. So we think that both in terms of some marketing strategies that we have coming up, we'll be able to start to move that number forward again.

Since you mentioned cremation, Joe, could you maybe compare what the total revenue opportunity would be to Matthews for a cremation funeral compared to a casketed funeral and what the, I guess, what the current realized revenue is in a cremation funeral and what you could do to kind of, I guess, increase the overall, I guess, out-of-pocket share of your customer?

If I gave you an average, I mean, that would -- if I looked at it from what I would call a casketed death, it would end up with a casket and a marker in some form or fashion. I would expect that to be somewhere in the $1,500 to $1,600 range, more or less. A cremation that utilizes a cremation casket, as well as an urn and some form of memorialization, even, albeit a smaller, could be close to maybe $700. So the issue is not necessarily what our revenue opportunities are, it's getting that realization to occur. The U.S. today is probably somewhere around 10% to 15% when all of those facets are being utilized, but there is an effort by just about every one of us, including our customers, to move in that direction. So we think longer term, there's some upside opportunity just from that.

[Operator Instructions] And there are no questions in queue at this time.

All right. Well, thank you. We would like to thank all for participating in our call this morning, and we look forward to our call in July regarding the third quarter results. Thank you, and have a good day and a good weekend.

Ladies and gentlemen, thank you for joining our conference call today. This call will be available for replay, and that's starting today at approximately 12 p.m. Eastern Time and will run through May 3, midnight. You may dial the AT&T Executive Playback Service by dialing (320) 365-3844, with the access code 243771. Now that does conclude your conference. We do thank you for joining. You may now disconnect. Have a good day.