Q2 2020 John Bean Technologies Corp Earnings Call
Good morning, and welcome to JBT Corporation's second quarter Twentytwenty earnings Conference call.
My name is Amy and I'll be your conference operator today.
At this time all lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
At this time, if he would like to ask a question you May go ahead and press Star then one on your telephone keypad.
If you but would like to withdraw your question you May press the pound key.
I will now turn the call over to JB teeth, Vice President Investor Relations Megan Radigan to begin today's conference. Please go ahead.
Thank you Amy good morning, everyone and welcome to our second quarter 2020 conference call.
With me on the call is Brian deck interim Chief Executive Officer and CFO.
We're also joined today by poster and lead executive Vice President and President of two tech protein.
In today's call will use forward looking statements that are subject to the safe Harbor language in yesterday's press release, an 8-K filing.
JBT periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available in the Investor Relations section of our website.
Also our discussion today include references to non-GAAP measures.
Please be sure to reference our press release from yesterday, where we provide reconciliations of these measures to comparable GAAP measure.
Now I'd like to turn the call over to Brian.
Thanks, making good morning, everyone.
As you know arguments serving as interim CEO since the end of June when we know that Tom Giacomini would be taking a medical leave of absence.
I'm grateful to my colleague colleagues and the management team and the board of directors.
For the commitment and assistance because we've worked hard to make this a smooth transition.
Well continue to execute on our priorities.
Tom and I remain a communication you wanted to beat it conveys appreciation for all the well wishes. He has received from many of you did he focuses on its helping recovery.
And he expressed as gratitude and confidence in the broader GBT management team during this interim period.
Now turning to JV keys performance.
In the face of what has been a sudden and massive disruption in the global marketplace.
JBT has been in a word resilient.
Despite lower revenue cross Foodtech and aerotech.
Segment margins expanded due to effective cost management.
Our league or laser focus on managing liquidity is reflected in outstanding free cash flow generation.
Well the service side of our business is nothing without its challenges.
Given difficulties in accessing customer sites are recurring revenue stream remains a strong source of stability and profitability.
Well JBT is taking swift and meaningful actions to learn or cost structure, which is with this demand environment.
We have maintained unrelenting commitment to the customer care about customers.
As was the health and safety ever employees.
Moreover, we have sustained our investment in a public development.
Particularly as it relates to accelerated demand for labor savings automation.
Paul will talk more about that shortly.
Let me switch gears and break down or second quarter performance a bit further.
Who took outperformed our most recent expectations on volume margin and cost control.
On a sequential basis Foodtech revenue was down 2% versus an expected decline of about 5%.
Gross margins from recurring revenue outperformed due to outsize performance from our juice extractor business.
Strong parts margins.
And better than expected mix of refurbishment projects.
On the cost side.
Hi Tech as Genie was about 3 million better than expected.
Driven by management of controllable costs, and lower than expected health care and travel expenses in the period.
As a result.
Hi Tech adjusted EBITDA exceeded expectations by approximately 9 million.
Margins by more than 250 basis points.
Segment operating margins of 16.2%.
Adjusted EBITDA margins of 24.4%.
Okay.
Turning to Aerotech revenue declined 27% sequentially.
However, we are able to limit the segment's adjusted EBITDA margin contraction to 250 basis points.
Well, a little by little better than the color. We provided last quarter again on the street the cost controls as well as to benefit from slightly better than expected revenue.
Corporate expenses came in 2 million lower than expected.
Mainly as a result of an accrual adjustment on long term incentive compensation due to the pandemic impact on earnings.
All told GBT posted diluted earnings per share from continuing operations of a dollar one.
Our adjusted EPS of dollar nine.
Sequential order is contracted across the board she was a pandemic impact.
With a decline of 17% at food Tech and 47% in Aerotech.
Who techs performance was somewhat weaker than expected its customers focused on keeping daily operations running.
At the same time, we generated free cash flow 81 million in the quarter.
As their businesses did an outstanding job managing accounts receivable well customer deposits did not deplete meaningful.
Despite lower orders.
With that net debt declined from 659 million to 590 million.
Well, our total liquidity stood at 414 billion ended the second quarter.
Our bank leverage ratio was 2.2 times.
Which keeps us in a healthy position relative to our debt covenants.
Hi, best Paul to join US today, given the significant disruptions in the protein market in Q2.
Then I'll speak to liquid foods in aerotech.
If I add some color around the next quarter.
Paul.
Thanks, Brian and good morning.
And the second quarter, we experienced challenging market conditions on the protein inside the business.
As has been widely covered in the press the meat processing industry has been particularly hard hit like cobot 19, causing plant slowdowns and shutdowns.
It's never been harder to access our customers both in terms of physical visits and mindshare. They were overwhelmingly consumed with new safety protocols and trying to maintain production.
As it relates to JBT use ability to access customers.
Travel has obviously been limited for most of the population and our team was no exception.
Having said that protein along with the liquid foods and aerotech businesses have made extensive use of technology to keep in contact with our customers regarding new projects aftermarket service and training, where we utilized virtual support and augmented reality technologies.
We are encouraged by the fact that in June U.S. meet plants were operating at 95% of last year's production levels. According to the department of Agriculture.
Although JBG his ability to access customer plans for installations and service is starting to improve it will continue to affect JBT in the third quarter.
One of the reasons protein production has been so hard hit is a relatively low level of automation in the plans as compared to many other types of food production.
Not that creates a timely and significant opportunity for JBT automation solutions.
Such as our deify automated waterjet protein trimming enforcing systems prime poultry automation equipment, our ex vision flex scan X ray sorting and inspection systems DS high protein harvesting robots automated loading and unloading equipment and end of life packaging solutions with tipper tie and proceeds.
Our agb robotic vehicles, and our IHOP system that increase equipment efficiency and reduce reliance on onsite labor are also key elements of JBT is automation solutions for customers.
In an industry characterized by tightly packed labor conditions and severe vulnerability to a cobot outbreak.
Automation has suddenly gone from being a means to reducing labor cost to a business imperative.
And just the past few weeks two states have issued workplace rules mandating social distancing measures that all facilities with other states considering similar actions.
Given the labor density of meat processing facilities, it will be extremely difficult to maintain production levels without greater automation.
Over the past couple of months JBT is enterprise level discussions with major protein customers about automation solutions have accelerated.
The quality and scope of the conversations are encouraging and lead us to expect this engagement to translate into orders in the coming quarters.
Our recently completed voice of the customer research with protein customers across the globe reinforces our view that customers plan to invest in automation solutions.
And confirms the JBT is well positioned to help.
Finally during the quarter JBG or the assets of Mars food processing solutions, all small Mars proprietary solutions for monitoring and managing the efficiency of poultry processing plants complements our existing equipment and IHOP solutions and advances.
As JB cheese participation in primary poultry processing with that let me turn the call back to Brian.
Thanks, Paul.
The liquid foods side of our business also saw a weaker activity order activity in the quarter, albeit better than the protein side.
Generally the customers served by our liquid foods equipment employee at a higher level of automation, making them somewhat less vulnerable to covert disruptions.
And as you know.
And in markets, such as juice, canned foods and ready meals have experienced extremely high retail demand.
Customers producing these retail staples are running very hard and engaging GBT regarding capacity upgrades.
Other via Refurbishments or new equipment.
This was a strong need for parts and maintenance.
However, reduced access to customers facilities and my answer distractions.
Have extended timeline is good for converting the pipeline to orders.
On the Aerotech side, our prospects vary widely by end market.
As we outlined last quarter direct sales to airlines in ground Chandler's represent about 40% of aerotech sales.
At that time, we said, we do not expect many equipment orders from airlines through the remainder of the year.
That held true with virtually none in the second quarter.
But we continue to engage in dialogue to maintain our strong relationships.
Provide whatever support and service they need.
The market dynamics for the remainder of the aerotech.
For the remainder of aerotech or more favorable.
The 15% of Aerotechs business represented by defense and cargo markets have held up well.
Represent long term growth opportunities for JBT.
The R&D investments JBT has made into electrification and military products are generating strong customer interest that are starting to convert the orders.
In fact military orders are forecasted due to expanded double digit rates in 2020.
You mentioned 2021.
That's for the roughly 45% of sales to airport authorities and related contractors for infrastructure.
The business remains strong.
Based on our backlog and a robust pipeline of infrastructure projects with associated funding.
We expect the fixed equipment side of our business to remain solid through 2021.
Across all JBT businesses, our supply chain has performed well.
We did not experience any notable shortages in the quarter.
<unk> due to our historical reliance on a regional and local procurement strategy.
Overtime, we expect to utilize more low cost country and consolidated sourcing to improve margins.
But not at the risk of flexibility for surety of supply.
Operationally, we have taken meaningful steps to to support a safe working environment.
Well, we have had some employees impacted by Corbett.
Our facilities have yet to experience a breakout but in stopped production.
Enabling JV cheap to provide continue service to our employees so our customers.
That said, we are aware of the pandemic risks within and outside of our work environment, particularly as it relates to our operations in Florida in Brazil.
We continue to communicate frequently with their employees on internal protocols and external risks.
As you know over the past few years JBT is engaged in restructuring initiatives focused on operational efficiencies.
Process improvements.
As well as the utilization of the JBT operating system and enhances our ability to monitor and manage the business.
We've also evaluated opportunities as it relates to our manufacturing footprint.
In the third quarter of 2020.
We plan to significantly downsize manufacturing operations at our Aerotechs facility in Spain.
And we're looking to consolidate manufacturing to modest sized foodtech plants into our existing operations with planning underway.
These represent moves we're already considering but the current crisis made those decisions even more compelling.
Looking to the third quarter, we anticipate a sequential pickup in orders this demand for replacement equipment and maintenance increases and customers become more engaged.
However from a piano perspective, the third quarter will be dampened.
Given the challenging order environment in second quarter.
Hi are expected to expense levels.
We expect Foodtech revenue in the third quarter to be down approximately 10% to 12% sequentially.
Operating margins are expected to contract sequentially in connection with the lost contribution margin I don't know the ourselves.
So.
Finally cost reductions are expected to moderate in part in connection with the increased customer engagement expected in the third quarter.
In total we anticipate higher food tech spending of three to 4 million.
Sequentially or maintaining or increasing investments in items, such as R&D cheats strategic sourcing and value engineering.
All told we expect Foodtech adjusted EBITDA margins to return to first quarter 2020 levels at around 18%.
Operating margins of about 12% given the fixed impact of depreciation and amortization expense of margins.
In Aerotech, we expect a sequential increase in revenue of about 6% to 8%.
Based on existing backlog seasonality is we entered the de Icer season.
Adjusted EBITDA margins are expected to improve sequentially 75 to 100 basis points.
The result of the contribution margin from increased sales, while maintaining cost controls.
Corporate expenses also expected decrease sequentially approximately 2.5 million in the third quarter due to the absence of the onetime adjustment related to the long term incentive compensation accrual in the second quarter.
In the third quarter 2020, we expect to take restructuring and other charges totaling eight to 9 million, what's a manufacturing rationalizations previously mentioned.
These actions are expected to generate runrate benefits of six to 7 million annually as we exit 2021.
The tax line, we expect to incur a 1.5 million or five cents per share.
Discreet tax charge during the third quarter in connection with few key new UK tax laws.
This is incremental to the in the quarter short base rate estimate of 24% to 25%.
Before we open the call it the questions.
I'd like to extend my heartfelt thanks to JBT employees across the world.
I'm grateful for the outstanding work they've done in a very challenging environment and a commitment they have made to demonstrated to our customers and to JBT.
I'd also like to recognize or customers that have weathered extraordinary conditions continued to deliver to deliver their critical products and services.
With that we'll open the call to questions operator.
[noise] as a reminder, ladies and gentlemen, if he would like to ask a question. Please go ahead Im Press Star then the number one on your telephone keypad.
To withdraw your question you May press the pound key.
Your first question today comes from the line of Allison Poliniak with Wells Fargo. Please proceed with your question Hi, Good morning.
Good morning, first when I talk to you see attacking some of the inquiries you're seeing is there any noticeable difference in terms of regional demand or product verticals or types of products people are looking at that I guess, one could drive it an odd mix as we go forward or or just any noticed like differences I I would say.
Yeah, I'll speak to the geography, and Paul can give a little bit color on some of the though the products, especially for Soufun protein.
Geographically speaking I can tell you that it seems.
Europe and Asia are little bit ahead of North America in Latin America.
Frankly, we thought Asia was going to be a little bit further along in the second quarter, but that does seem to starting to materialize here in the third quarter.
And Latin Americas, certainly probably the farthest behind given in particular, our presence in Brazil in North America as you know with the second outbreak is little bit slower.
That said Paul did mention.
Some of the enterprise level discussions, we're having in North America with her that some are bigger customers.
So that's a promising.
The promising thing that we're seeing them over the last several weeks.
Yeah, and and good morning, Allison, Brian Yeah, I would add in terms of the kind of.
Mix on product I mean, obviously it varies depending on the quarter I would say the discussions remain focused on the key things our customers are continuing to look for which are of course yield and operational efficiencies.
Also food safety, which is.
Increasingly more important everyday for our customers.
But I would point you to the comments that we made in the in the remarks at the beginning of the conference session here about automation and those conversations are increasing with many of our customers around the globe, they're very seriously.
Intent at looking at implementing those sort of technologies and by the way I would also point you to our AGV or automated guided vehicle business. We have many enterprise customers, who are really looking at making the decision to essentially exit manual work truck operations and move to fully automated solution.
So those three technologies are continuing to gain traction with our customers around the globe.
Great. Thanks, and then just turning to air attack I know you noticed orders on the defense side and some of the fixed equipment is there any mix issues treatment mindful up here going forward you know in terms. It there are different verticals versus say the commercial piece of stone, obviously very weak here.
[noise] right the margins on military a little bit better, but the infrastructure versus the versus the chronic sorry, the infrastructure versus the airports and the other ground support equipment are fairly similar I, just a little bit more beneficial in the military.
Three side.
Great. Thanks for the color I'll pass it off.
[noise]. Your next question comes from the line of Laurence de Maria with William Blair. Please proceed with your question.
Thanks.
Good morning, everybody.
Hey, good morning.
Fruitful obviously, that's the Tom glad to hear is recovering do you guys have any comments on their preliminary timing or possibility of his return and obviously you know we still expect.
Return at this point.
Yeah, not a whole lot of additional color and Larry or obviously.
Given the.
It's a health issue, we're going to be pretty quiet on that.
That said you know the board was very clear that this was an interim assignment and it and so that's where we're sitting at this point I mean communication with time.
So we do talk as necessary, but he is disengaged from that business appropriately. So.
So as we know more will.
Pass along at the appropriate time.
Okay and is that an impediment to conduct the M&A, let's say in the second half or are we also thinking that it gets pushed out.
At this point.
No I don't think it's an impediment to M&A I could tell you that we have a well develop strategy on M&A.
Oh.
The board is aligned with with US a we've got a.
The continued engagement with a good the potential targets.
And just to give a little bit more color more broadly on M&A.
No as we sat here a quarter ago.
Ah things were quite different in terms of first of all the.
Some of the uncertainty regarding.
That leverage forward EBITDA cash flow as was the banking markets and the capital markets were really.
Not in particular, the great spot.
Over the last quarter, we've significantly improved at the Jeebies T. side on our cash flows our leverage sitting at about two times or liquidity at the over 400 million.
The capital markets have returned the banking markets one not totally back our are in pretty good shape.
Yeah, So I would say, we're really well positioned if we see opportunities.
That may be otherwise wouldn't have in terms of customers sorry acquisition targets succession planning.
Or frankly valuations.
So I think we're I think we're well positioned I would like to see some improved 40, EBITDA and some clarity on our orders.
It all that said, if you look our liquidity and our leverage.
I could see potentially doing acquisitions over the next.
Two years, so given if we keep it within our two to three times leverage ratio within our within our current capital structure.
I would tell you that strategy of a two to three times leverage ratio has served us well.
Particularly given the experience and our demonstrated ability over the last quarter or two to manage our costs to manage our liquidity and the demonstrated resiliency of our recurring revenue.
So I think that two to three times leverage ratio is a good overall a target in strategy and it doesn't allow some flexibility from here.
Great enough I could just speaking two quick ones here.
First.
<unk> business you mentioned a couple of times I think it used to be around 100 million can you just size that force and secondly.
Pick your comments trajectory.
And aerotech with some of the business, obviously wanted to wrap ready but.
A lot of this is actually pretty good shape.
And you talk about even orders through 2021.
I don't have guidance, but is it reasonable to assume that there'll be some organic growth from where you stand now in 2021 that you'd be preparing for.
Based on the order.
And expectations.
Or is it more likely to be.
Negative from here.
Anyone.
Right. Larry This is Paul I can address your first question on Agb.
So I think we said that it's roughly about 5% of the total company and that remains consistent today, but it's a business. We continue to be very excited about it in the business we invest.
Particularly heavily in R&D, so because of all the.
Customer trends in the the needs in that space. So we remain very excited about that.
Thank you.
Right and as it relates to Aerotech <unk>, it's a little bit too early to giving.
Of particular position on 2021, but just to break it down a little bit.
Restructure side.
2020 is good it looks like it's going to be a record year for that business and so 2021, we were suggesting based on the pipeline of activity, it's going to be another solid year.
But I.
I would say more flattish as opposed to is growing.
In light of work the strength of this year's market.
And in terms of.
Ground support and to the airline industry.
We don't expect growth in 2021, but we do expect some military growth.
In 2021.
As well as on the cargo side.
But how that all shakes out in the aggregate, it's still it's really too early to tell.
Okay. Thanks for the color.
Nice job.
Thank you.
[music].
Your next question today comes in that line of Walter Liptak with Seaport. Please proceed with your question.
Hi, Thanks, Good morning, guys.
Good morning morning.
I Wonder if you could walk us through maybe a little bit more detail some of the monthly trends that you saw.
In terms of ordering and I'm wondering if in July.
There was any incremental ordering especially on the food tech side that man given you some of the confidence to talk about.
You know a better second half for orders.
Right.
So Walt I I would tell you that we haven't seen particularly.
Consistent pattern with regard to orders, it's been up a week down a week generally.
A fairly lumpy, especially considering we have you know lumpy orders in general so our confidence does not come from trends. It comes from the the pipeline.
And the amount of engagement to customers and how we see that unfolding over the rest of the for the quarter and into the back half that here.
Okay, great and with the.
The discussions you're having with your customers on the some tech side.
Do you think that these this trend towards automation and safety.
They are talking about do they have the the balance sheet do they have to capital ready for this year do you think it becomes more of a 2021 of them if they do start investing in automation.
Yeah, I'll give some color gonna Les Paul to give some color it's always good to protein.
I would tell you it's a wide range of.
Capital structures and balance sheet strength within our customer base certainly the big guys have more than enough bandwidth and capital available as you get into the more local or regional guys, that's going to be little bit more of a challenge and perhaps they're looking for some we have seen some requests for a more extended terms again amongst the smaller.
Hi, guys. The big guys I'm confident that you've got the balance sheet.
Yeah.
Right, Yeah, I would just maybe make a few points I referenced in there the comments about our voice of customer research and I can share a few interesting points from that you know nearly two thirds of the responded to our research indicated that labor availability and this is proteins specific that labor.
He is challenging and they're going to need to automate more and by the way. We did the same research about a year ago and that a response rate has significantly increased over last year and more than half of our customers that respond to the survey indicated they see that their go forward plans for new equipment and processing equipment are going to.
He changed to reduce their reliance on labor I.
I would also add by the way that we have seen a higher percentage of customers that are looking for cost savings through more energy and water efficiency than in previous years, and we are particularly well positioned in that space with our prime water reuse systems and our other energy efficient equipment.
I guess the last point I'd make is that overall based on the research we've done.
It certainly seems clear that customers are becoming more bullish as they look over the next 18 months of investment levels and over two thirds of them.
Responding to our survey indicated a desire to increase production capacity as well through new equipment purchases. So I'm encouraged by the research findings.
I'm also encouraged by the percentage of customers that rank JBT is better positioned than our competitors to meet their needs that significantly increased year over year. So overall the research is telling US you know relatively promising pieces of news here.
Okay, all right good Smith.
You mentioned, some great automation equipment.
Do you ever give a rule of thumb arms or whether you could talk about what are your customers would get.
In terms of the payback period, all along we see on me to get to customer putting Deconsolidate machine you know how long is a payback.
Yes. It does why vary widely but generally speaking. It's this quick is 18 months and.
As long as I'd say four years.
With kind of the generally general rule of thumb is kind of in that two year timeframe.
Okay, great. Thank you.
Your next question comes from the line of Red Dupre with Baird.
Please proceed with your question.
Hey, Nick.
Thank you good morning, everyone and Tom has if you're listening to this we wish we wish you well I guess my my first question on on food Tac.
Based on your prepared remarks, the way I'm interpreting kind of what you were saying is that the liquid side of the business has remained strong you're expecting better order is in Q3 versus Q2.
Is it fair to infer that it's really liquids, that's that's driving that sequential bound.
ER or are you starting to see the protein business get better as well and I'm wondering if that incremental improvement is sort of driven by you know maintenance catch up and such versus just pure OE purchases at this point.
Right, what I would tell you on liquid foods is while it was stronger than Foodtech. It was still.
Got it met our expectations, but it was still weaker than a year ago. So it's hard for us to say it was strong right, but it was just stronger than than protein.
As we convert from Q2 Q3, I would expect more of the increase to come from the protein a division given the weakness they saw a into second quarter. So I do expect that and it's good and liquid foods that it is a different environment liquid foods versus protein because as I mentioned.
[music].
That concludes is already a little bit more automated than protein.
So really what we're seeing a little bit the food side is a more some capacity increases refurbishments.
And then just jumped more general care and maintenance of the existing and then in certain spots.
Capacity increases for areas that they see.
Expanding and have confidence to now invested particularly in packaged goods spread to packaged areas are extraordinarily strong right now that was our pro seal acquisition performed well in the quarter.
As well some of the other a staple items that were seeing increases in.
Demand on the protein side as Paul said, it's a little bit more focused on automation.
And in certain spots capacity increases.
Including on the freezing side, what we're seeing a lot of frozen food activity given the retail strength in that area.
Yeah, I I see I guess.
What I'm, what I'm really trying to get out here and this is this is maybe a tough question for you to answer at this point.
What I'm trying to think through the progression of Threed Q and pork you in the segment and the setup that we're gonna have into 2021 from a backlog standpoint.
Because.
Obviously, the the comparison from an order perspective in the fourth quarter gets considerably tougher and once again, you know I'm sort of wondering here if at this point, you're sort of seen enough momentum in the end markets to do kind of generate that normal sequential uptick in orders into.
Sure and ER and if that's not the case then how do you think about the set up into 2021, yeah should we expect additional cost action to sort of rightsize the footprint.
Our economy contemplate that fiscal year.
Right. So we do expect better orders in the back half for the year than the front half here.
And we do see the underlying retail consumer and even increase demand at the QSR. Some the food service customers all that ultimately drive demand.
The question every means the opened answer which is it is difficult to answer your question, specifically, because what we really need to see the conversion rates.
Of those opportunities into orders right and that's been certainly that was a challenge in the second quarter.
But again based on that increased.
Engagement or would you see that improvement in the back half, which would really more benefit that the.
2021, or perhaps the fourth quarter, depending on when those orders come in.
I would say some of the typical seasonal patterns on orders is a little but little bit Isle window in this environment right. Because it's just it's just a different environment that we're operating in India. So it's again, it's more about that customer engagement.
We do have the underlying consumer demand supported.
But.
Really what we're trying to focus on is getting that backlog developed and wholesome as we enter into 2021, knowing that there's just a significant amount of noise here in 2020.
I appreciate that and if I may one last point here you know if your orders improved sequentially in food pack you know again based on the guidance toward the direction that you provided on food Txcell seems like you're gonna be pretty pretty close or close enough to.
To be in book to Bill of about one is that a fair way to think about how you're managing production in your business, you're you're kind of trying to stabilize backlog and target close.
One book to Bill is we think about the fourth quarter and into early 2021, and that's it for me yeah.
That's a decent way of thinking about it Mig we do need to build our backlog, which would suggest that we're going to we would like to see a book to bill greater than one one to one though.
And.
I would say on the expense side, because I know you asked that a little bit as well.
But given that increased engagement and the customers and kind of where we see things were spending a little bit more as we go in from Q2 to Q3.
And at this point based on that forecast that level of activity.
We don't see incremental need at this point that said, obviously if conditions changed we're positioned to do additional.
Actions on the footprint side, we mentioned.
The two foodtech and one aerotech locations.
We continue to.
Evaluate our entire footprint I think thats appropriate that we should always be doing and we'll consider that go forward from here.
But it would not be kind of in a short term reactionary.
Way, just because if we did.
Orders for the quarter would be more how we're thinking about the business.
More longer term basis, and what's the right set up for JBT over the next couple of years.
Great Thanks sort of call it good luck.
Sure. Thank you.
Your next question comes from the line Patrick Feldman with JP Morgan. Please proceed with your question.
Hi, Good morning, guys. Thanks for taking my questions.
In one of them.
Yes. Good morning, you mentioned shrinks early in the call you mentioned strengthen in the Juicy Schachter business is supporting margins in two tuck in first quarter and versus your expectations.
I assume this means lease revenue finished with stronger sequentially year over year or what have you is that right and just curious we true then he also remind us profitability for that you see track of business versus the overall segment.
Right, you said first quarter SBQ Mint second quarter right. So there was strength, yes, there was an absolute strength in the juice extractor business better than expected.
Basically because of the increase consumer demand an orange juice it really what happened was.
It was a.
All the all basically all the Orange is in the country got squeezed during the course of the quarter, sometimes it rolls and little bit into the third quarter. So it was.
It was not really packed into the second quarter, which makes the decline decline from Q2 to Q3, a little bit more.
Pronounced than otherwise would have been because of the strength in the second quarter and the lease business is a fairly lucrative given that its.
Fixed cost base and then as the volume increase that we do have some variable cost variable revenue component to that model in certain.
Contracts and when the volume goes up would you get a little bit of benefit and that's what we saw in the second quarter.
Understood Okay.
The aftermarket revenue for the total segment, how much I assume that's that lease businesses, including aftermarket revenue just curious what did in recurring my calc recurring revenue, yes, so the aftermarket and leases makes up recurring revenue yes.
Yeah, I know you can ask what is the recurring what are the recurring revenue grow in the corner did you did you say that earlier and made a mistake.
Yes in the core I don't think we mentioned in the quarter a year over year.
Declined about a 3% which is pretty good consider offerings considering the.
The access issues that we saw.
And as a percent of the total revenue in the quarter. It came in at 49% versus an expectation of 48% and booked at 2% in the first quarter.
Im sorry to go back to that but within that was the juice extractor business actually outdoor or was.
It was up okay. Yeah that was part of the reason why we went with were little bit higher on the mix going from 48% expectation to 49% was part of that and then a couple of other items here and there.
Got it.
And then maybe on on cash flow I would've expected advances to be a drag given the decline in orders you saw both year over year in sequentially can you just discussion discuss kind of.
Why that wouldn't be the case or whether it wasn't the case in the quarter.
It was a pleasant surprise that the customer deposit balance on the declined 5 million given the decline in orders overall.
What I could tell you we were really focused on cash and deposits and and we did some of the bigger orders that we had has got some really large deposits on them. It's not it's not linear for every it's not like can get every for every dollar of order, we get an X percent. It very much does vary widely and in many cases, we get letters of credit.
Support for the orders as well and in this particular quarter given our focus on cash a folks just did a really good job of a focusing on that and that's just how it turned out there was really no magic to it other than to focus on getting better deposits in the quarter.
Gotcha and then just sticking on you were just one last one from you can.
I think you said, you're seeing increasing interest in automation, mainly in protein in U.S. and just want to be clear is that what you said.
And then if you could remind us how big is kind of the nonrecurring piece of U.S. protein as a percentage of the Foodtech segment.
Right so.
We do see more automation opportunities in the protein world than liquid foods World that said there are areas within liquid foods at all so are ripe for automation in particular, a fresh food processing vegetable processing, we have been fairly decent business in that area. So there are definitely opportunities on automation.
Side, there it just happens to be a little bit bigger in a in the protein world from from here and in terms of their mix of recurring revenue versus a liquid foods, it's slightly less because liquid foods has the lease business.
But.
Not materially it's still in that 40% to 45% type range versus liquid foods is closer to 50%.
And Pat it's Paul I could add just you know some color on the.
The geography, I mean, the conversations that we're having with customers and automation are across the globe.
I would say, they're probably more pronounced in the U.S. I'm just given some of the different market condition. Then obviously given the them the severity of co bid here, but we've also had very meaningful conversations with customers in Europe, and and to an extent in Asia, and Latin America as well about automation.
Got it okay. That's helpful color.
I'll, let someone else next question. Thank you.
Thank you.
And again, ladies and gentlemen, if he would like to ask a question. Please go ahead and press Star then one to join the queue.
Your next question comes from the line of it Andrew Obin with Bank of America.
Please proceed with your question.
So David Ridley Lane on for outdoor Andrew could you give us some idea of the timing of the benefits around your planned restructuring actions.
Sounds like there's not going to be a lot of benefit in 2020, but just wanted to to check.
Right, there will be little bit starting in the fourth quarter and I would tell you up to 7 million I would expect about half of that in year 2021, and then the full run rate of six to 7 million in 2022.
Great and then what was the benefit of the mix shifts so services versus equipment.
And second quarter into tech margins.
The benefit relative to expectations.
Oh relative to a year ago, I guess with the question.
A year over year, if you have it.
Yes, it's going to be about a 100 basis points.
Benefit due to that but then obviously get that gets offset on the equipment side by the loss of the contribution margin.
Got it and then maybe last one for me.
What was the a benefit from temporary cost savings and second quarter.
I know some of that is slowing back on it but.
If you give some some commentary on how much is kind of coming back here in there.
Sure. So we had expected year over year savings of about 15 million [noise].
It ended up at about 20 million or because of a couple of things one where I mentioned the.
Accrual adjustment on that on the long term incentive compensation. So that'll go away as we go to the SEC third quarter also tech.
Particular over achieved a couple areas, one or healthcare expenses.
Were about 700000 better than expected, mainly because we're seeing let we saw in the second quarter less activity.
People visiting doctors for non covered reasons and as it is we ended the quarter. We saw that trend started to reverse. So we think that overall for JBT about a million dollars and about 700000 for food Tech that comes back.
Additionally, we are going to start spending some more money on on travel during the quarter.
As we engage in their customers.
And then also Oh, we actually saw relatively low level of commission expense accrual in the second quarter, given the lower level of orders because we accrue.
As we book quarters.
So all told we.
We had 20 million the savings versus our expectations at 15 and.
Based on some of that get you did give backs or the the.
The intentional spending on travel et cetera, and customer engagement to a return of furloughs.
But expect that to be about $14 million into third quarter.
Perfect. Thank you very much.
Okay. Thank you. Thank you.
And there are no further questions in queue at this time I turn call back to Mr. deck for any closing remarks.
Thank you. Thank you all for joining us today as always Megan will be available if you follow up questions. Thank you.
This concludes today's conference call. Thank you for your participation.
You may now disconnect.
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Yeah.
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