Q3 2020 John Bean Technologies Corp Earnings Call
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[music].
Good morning, and welcome to JBT Corporation's third quarter 2020 earnings Conference call. My name is Laura.
Conference operator today at this.
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After the speakers remarks, there will be a question and answer session to ask.
A question you will need to press star one on your telephone at that time.
I would now like to turn the call over to JP cheese, Vice President of Investor Relations Meghan Radigan to begin today's conference named please go ahead.
Thank you Laura good morning, everyone and welcome to our third quarter 2020 conference call with.
With me on the call is Brian deck interim Chief Executive Officer, and Matt Meister interim Chief Financial Officer.
Also joining us this morning, as JB cheese, chairman of the board Alan Feldman.
In today's call. We will use forward looking statements that are subject to the safe Harbor language in yesterday's press release and 8-K filing.
Maybe Pete 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 references to certain non-GAAP measures a reconciliation of these measures to the most comparable GAAP measure can be found in the press release on our website.
Now I'd like to turn the call over to Brian.
Thanks, Megan and good morning, everyone.
I cannot start without saying a few words about our former CEO Tom Giacomini.
He was our friend mentor and inspirational leader he transformed JBT and established a culture strategy.
And operational fitness that accelerated growth and profitability.
He fostered deep customer and employee employee relationships.
An elevated JBT is reputation within the industry.
No. There is up the rest of us across JBT honor Toms legacy continue the strategy that has enhanced GB cheese competitive position.
Customer orientation and performance.
I bet, Alan I, Best our chairman Alan Feldman to share a few words Allan.
Thanks, Brian and good morning to all of you on school.
Let me start with Brian's heartfelt comments locked on truck and me.
Over the past seven years, the board had great respect for Don.
We are all deeply said please.
That's right.
It's important for you to know that.
Board, that's complete confidence in Bryant Park.
Tiger leadership team to keep JBT moving forward.
Having said that our search process to select a permanent CEO is well underway and we quickly.
Our hope is to name a CEO are you ready.
Oh close by thanking you for your continued support and say at JBT for.
Through these challenging times, no bright and Matt will cover our third quarter report right.
Thank you Alan.
JBT third quarter exceeded our expectations from a piano a cash flow standpoint.
Moreover, we captured double digit sequential order pick up the food food Tech outpacing expectations.
A key factor in our performance in the quarter was improved access to customers.
Both at the plant and in terms of mindshare.
Well, we were pleased with the quarter. It was too early to put out a restated recovery given the continued risk of pandemic effects on the economy.
But the improving translation of our active pipeline into solid orders is very encouraging.
Of note the timing of the Q3 orders received in the state of the backlog coming into the period will affect the traditional fourth quarter seasonality.
Let me turn the call over to Matt Meister to provide analysis right third quarter performance.
That previous previously served as CFO of our protein Division brings brings extensive experience in global manufacturing and operational financial leadership, the interim CFO role Matt.
Thanks, Brian.
Before I provide detailed on JBT third quarter.
Let me mention that the period reflects all organic performance as we had no significant acquisitions completed over the past 12 months.
Hi Tech revenue declined less than 1% sequentially outpacing our forecasted 10% to 12% contraction.
Recurring revenue continued to perform well we exceeded guidance predominantly on the equipment side.
I think demand from our customers, especially as it relates to equipment for the production of retail center of the store products.
We also completed installation and service projects at a faster pace than expected due to improved access to our customer's facilities.
Who tech operating margins of 12.6% and adjusted EBITDA margins of 18.1%.
And with the guidance, we provided on last quarter's call.
As mentioned, we realized higher than expected equipment and service revenue, which generally contributes lower margins than our recurring streams.
Additionally, actually expense was up sequentially as our cost reduction efforts moderated in response to improving customer engagement.
Aerotech revenue increased 9% sequentially.
Just above our guidance of 6% to 8%.
Operating margins of 9.6% were impacted by 1.9 million inventory write off associated with the rationalization of the Spain manufacturing operations.
Aerotech adjusted EBITDA margins expanded sequentially 150 basis points.
It's exceeded expectations, primarily due to the team's continued focus on cost controls.
We are pleased with aerotech the ability to maintain double digit EBITDA margins, considering the sharp decline in aero airline customer activity.
Corporate expense of 13.9 million came in a little better than expected.
After adjusting for 3.5 million of management succession costs.
Now regarding the previously announced manufacturing capacity rationalizations.
During the third quarter manufacturing operation at the aerotech sodium spin or significantly downsized.
Also in the quarter, we began the process of rationalizing capacity that you could take place.
In total we recorded exit costs of 9 million in the third quarter anticipate additional charges of one to 2 million in the fourth quarter.
In the fourth quarter, we expect to realize 500000 in cost savings and expect incremental savings of approximately 5 million and 2021 associated with these restructuring efforts.
All told JBT posted net income of 15 point 17.2 million and diluted earnings per share from continuing operations of 54 cents.
Adjusted EPS was 83 cents and adjusted EBITDA was 59.7 million in the third quarter.
Adjusted earnings and EBITDA declined sequentially some of our short term cost actions moderate as expected.
As Bryan stated, we're trends were encouraging in the quarter.
Sequentially, Foodtech, and aerotech orders expanded 18% and 35% respectively.
We remain disciplined on the cash flow from third quarter free cash flow of 53 million, resulting from continued proactive efforts on collecting outstanding receivables and customer deposits as well as improved inventory performance.
With our strong cash flow, we've been able to de leverage our balance sheet.
At 548 million net debt declined $42 million in the third quarter and 112 million through the first three quarters of 20 point.
Total liquidity stood at 448 million.
End of the third quarter.
Our bank leverage ratio stood at 2.2 times, which is at the low end of our target range of two to three times.
Looking ahead to the fourth quarter.
At Foodtech, we anticipate the 3% to 5% increase in fourth quarter revenue on a sequential basis.
With better than anticipated shipments and timing of orders in the third quarter, we do not expect the typical seasonal improvement.
Margins within good checks are expected to improve sequentially operating margins of 13% to 14% and adjusted EBITDA margins in the 18% to 19% range.
On the Aerotech side, we expect 7% to 8% decline in sequential revenue.
Due to a shorter de icer season shipments will not flow into the fourth quarter.
Additionally, despite extraordinary end market shipping demand.
Cargo customers have largely delayed air freight capital investments into 2021.
Operating profit margins to be approximately 10%.
Adjusted EBITDA margins are expected to be in the 11% to 12% range.
For the fourth quarter, we anticipate corporate expense of 11 to 12 million, which includes approximately 1 million and depreciation.
Separately, we expect two to 3 million in restructuring manner.
Management succession and M&A costs.
Interest and pension expense should be about 4.5 million.
Tax rate approximately 25%.
That puts our earnings per share guidance for the fourth quarter at 75 to 85 cents and adjusted EPS guidance at 89 cents.
With that let me turn the call back to Mike.
Thanks, Matt let me elaborate on trends, we saw in the third quarter and opportunities we plan to capture going forward.
Over the course of the third quarter Foodtech order patterns improve.
An active pipeline of customer activity, we talked about last quarter has continued to improve.
To improve.
Geographically Asia strengthened as expected.
In Europe, while customer activity has improved its not quite at the pace we anticipate.
Latin America remained soft.
Well, what propelled our third quarter order gains was North America spin.
Specifically JBT is benefiting from a rebound in quick service restaurants try to group business.
And the sustained eat at home Trent.
Consumer caution jurisdiction restrictions on full service restaurants.
Especially with recent cobot outbreaks suggest this will last well into 2021.
Our customers are now investing to support this trend and.
In the dressing immediate capacity in product needs.
This creates a worn <unk> runway of opportunity for JBT is broad product offering.
As an example, our proshield business, which provides environmentally friendly trees ceiling equipment.
Benefiting from high consumer retail demand for safe and convenient individually packaged produce sandwiches and ready meals.
We're also well prepared and able to mobilize on the service and installation fronts.
As we said.
Access to customer facilities east in the quarter.
Equally important we took advantage of alternate access solutions.
We saw multiple examples of successful installations in surface work, where we where we combined local company capabilities with remote technical support using JBT procyte augmented remote assistance.
These and other creative solutions deepen our partnerships with customers and demonstrate the JV tea brand at its best.
I'm, particularly proud of the organization in this regard, especially the service installation in frontline teams.
Acknowledgements Weve received from customers on our dedication resourcefulness has been gratifying.
Further to the customer interaction front, we're emphasizing the continued development of the digital experience and the way our customers interact with our company and brand throughout the relationship lifecycle.
And as we discuss the Iops were building intelligence and nearly every product and service across JBT.
Including tools that enable enhanced monitoring.
Intelligent controls.
And integration of our equipment in support of our automation strategy to serve customer priorities.
In support of this today JBT announced the promotion of Christian Kristina Pascoe, the JBT executive team.
Cheap information and digital officer.
With this move Weve strengthened our leadership and further elevated this critical priority.
Younger customer interaction efforts and to eat at home trend.
Food Tech is investing in and focused on our customer priorities.
Improving sea food safety, increasing yield and efficiency.
Reducing environmental impact and lowering labor costs.
As we discussed last quarter, we are particularly optimistic about the need for automation into production.
The reduction of labor density remains an imperative.
The discussions we're having with customers around these intermediates strategic priorities are beginning to translate to orders.
With more expected to come over the next several quarters.
Regarding aerotech.
Hey, you know direct sales to passenger airlines and ground handlers.
Which accounted for roughly 40% of aerotech pre covert.
Collapse suddenly with the pandemic.
With minimal orders from this customer segment at this time, we don't see this getting worse.
At the same time, the roughly 45% of sales airport authorities for infrastructure work remains very strong 2020 and is expected to remain solid 2021.
On the air cargo side based on conversations with customer customers, we expect that business to accelerate a 2021.
And we're very enthusiastic about the opportunities on the military side.
Well, we have invested heavily in new product development that positions us for notable growth in that market and 2021 and beyond.
And we will continue to manage the cost structure within aerotech commensurate with the level of business activity.
Broadly speaking well access to customers has improved the worst thing of coven trends throughout the globe goal remains to risk the JBT and the world economy in general.
Operationally, we continue to manage the impact of the pandemic include.
Including within our workforce and we remain diligent on our safety protocols and actively trees.
Communicate any open cases.
Currently all JBT plants remain open and are able to serve our customers.
But we remain cautious of potential applications for customers suppliers and our own operations.
Finally regarding GBT, M&A strategy with appropriate leverage and strong liquidity and cash flow.
We do have the financial flexibility to continue to pursue targets that meet our financial and strategic criteria.
And advanced ABTS competitive position.
We continue to cultivate cultivate proprietary relationships that we anticipate will lead to future transactions.
We are focused on opportunities that support our customers' priorities.
Notably whether through acquisition or organic innovation, we're looking beyond the metal box.
His JBT continues its evolution from an equipment supplier to a solutions partner.
And in doing so make better use of the world's precious resources.
Before I open the call to questions I'd like to thank all JBT team members.
Dedication to maintaining safe operations ex <unk> exceptional customer service in the face of many challenges has.
It has been remarkable.
Operator.
As a reminder to ask a question you will need to press star one on your telephone.
A question press the pound or hash key please.
Please standby, we compiles acuity roster.
And our first question comes from Lawrence de Maria of William Blair.
Fair.
Good morning, everybody and good morning, Larry.
Of course, our deepest control.
[noise] passing thank you.
It's one of the.
Eric You mentioned Eric.
Aerotech not getting worse.
All the signals and positive signals out there and cargo infrastructure et cetera.
The passenger still challenged.
Is it safe to say that the outlook into 21 that the messaging isn't it.
We've hit bottom and flat to organic growth.
And EBITDA growth next year, all things being equal obviously, not a major negative change.
The macro environment et cetera.
That's the pathway for this and so we hit bottom and at least some degree of positive.
Growth in top and bottom line for Aerotech next year.
Right. Thanks for the question, yes, it with Aerotech. So I think we've definitely seen the bottom in terms of the customer.
Customer activity and engagement and started to see some improvement there.
Keep in mind is relates to the financials that that Q1 of 2020 was was very strong for aerotech.
And to Q1 is typically our seasonal worst quarter. So there is a seasonal effect, there and kind of I'll call. It a bit of a carryover effect from that strong first quarter. So it's a little bit early to know precisely how 2020 in its entirety will well compared to 2020, but considering that oh.
I'll call it the little bit of that drag on the first quarter of 2021 versus first quarter 2020.
But but longer term it started looking at the things that are going to happen for us as I mentioned the infrastructure side.
It's pretty solid there isn't a lot of projects out there the replacement, we're still not even keeping pace with the replacement cycle in the bridges.
And we do see lots of good projects going into 20, Twond. That's 2020, Onest, we mentioned it's still solid.
Beyond that we'll need to see where it was but there is a lot of airports that still need to improve it and.
And on the services side, we're still doing really well actually better than expected in the quarter that was actually the servicing side. It was actually the primary source of the better.
Better than expected performance in the third quarter, which services the infrastructure airports.
On the military side as I mentioned things are generally looking pretty good there is a lot of programs out there that we are going to be participating in.
As you know we've been investing in R&D for the last several years.
And some of those things are going to start to come to fruition for the next couple of years, So I'm not going be totaling over focused on 2021, I think we're going to continue to manage the things that that we can manage.
And over the longer term in the intermediate term we.
We do think we're really well positioned for when the airlines do start spending and in the meantime, we really have this nice diversified.
Revenue stream from the other the other customer segments.
Okay. Thanks to Frank.
And I want to ask a little bit more about food Tech historically, we've thought of your business is fairly agnostic to where people eat right as long as people are eating and change in guidance.
It's positive so first part as Im curious why QSR is doing well I get probably feel.
Since I've been curious why the QSR changes are occurring in that direct impact to you guys and then the second part is you know.
Hearing about GBS, Tyson et cetera, investing quite a bit more money around automation.
Yeah, I'm curious if that's flowing directly to you guys or if that's more on the primary side, which is.
Don't play as much on the primary side processing side. So I'm just curious if you're able to capture the next wave of automation in those factories are focused on safety or if that somebody else. Thank you sure.
Thanks, as you have the QSR trend is really starting to heat up and we do participate that in that in a couple different areas and that was actually a nice.
Order strength in the third quarter.
Specifically, what we do on the Qs for the QSR as.
We do a portioning and we are which is an auction off on automation play.
As well as we do a battered Brad bake freeze all the things that ultimately go into the QSR is because they're not battering breading into store, they're doing all that and the food factories and then.
Heating them up or try never heard their cooking then.
Frozen foods et cetera from from our equipment. So that's really been the strong pushes all those so called treat what we call a.
A further processing.
Type activity, so that's been the strength there.
As a an automation play a certainly the the primary side is going is I'll call. It see some of the the first benefits.
From the automation play and we and we marginally playing on the primary side, we play in it we have our cat business as well as our prime equipment business. So we will see some of that but we we play in the secondary processing, which is all the things once after that.
After the primal cuts, which is a lot of portioning its automation X ray scanning.
And then ultimately down the line on packaging and then some of the further processing that I already mentioned, so we will participate in the primary side might be a little bit early but frankly, we are starting to already see orders and we would expect that to continue to improve through the fourth quarter into ended to 2021.
Okay. So it's not a function of.
Primary capital directly going to only the primary guidance.
You got it sounds like no, especially on this the secondary operations, which I mentioned, which is that kind of that bridge between primary and further we were really strong player in the secondary processing.
Great. Thanks, I'll leave it there good luck.
Thanks, Larry.
Our next question is Mig Dobre of Robert W. Baird and company.
Hey, good morning, everyone is joke about grabowski on for Mig This morning.
Hey, Joe Hey, and we were also very sorry to hear of outcomes passing on to make sure you guys need to [laughter], Yeah, I guess I you know maybe kind of building on a on larrys questions starting with maybe the Q4 guidance in Foodtech implies a decline of UBS.
12% at the midpoint, a little worse than the prior two quarters, even though the orders were pretty solid in Threeq. You. So maybe kind of talk about how that how the pre orders that you saw in Threeq, you are going to flow through and how that impacted your guidance for fourq here.
Yeah, there's there's a couple of things affecting the fourth quarter typical seasonality normally we would see see kind of a 10 ish, maybe 11, 12% sequential pickup.
Instead, we are seeing 3% to 5% and there's two things that happened one.
And with that I would say pent up demand. It really we really got some imperatives from our customers in the third quarter to deliver some systems earlier than we had expected and we had them scheduled for the fourth quarter and some stuff got pushed in about $15 million or so so that's about I'll call. It about five points of what we would otherwise would have been.
Expected, because obviously weeks, we exceeded our revenue guidance significantly in the third quarter. So the bat, it's really a function of the backlog the backlog and the backlog right. There's some gets pushed it a little bit earlier.
The third quarter it doesn't hit in the fourth quarter. So that's the first part of it the second part is.
The corner actually started off relatively weak on the order front in in the month of July and then it accelerated it into August and September and.
Given our lead times et cetera.
Takes a solid three four months typically for foodtech equipment orders to translate into shipments and installations. So that means we're missing a little bit of a window and something that's pushing into 2021 compared to what I would say is a normal seasonal pattern and all in all told that's kind of how the.
The quarter's going to shake out, but what's what's more important and what I'm.
Really enthused about is the development of the pipeline.
That did improve in the third quarter.
And we did see some and treat improving conversions of that pipeline, we'd like it's still below kind of where we need to ultimately be to get back to full recovery. We're still kind of below that mid mid level of what what I would expect as this is a strong quarter.
But that said the pace of improvement was nice when the second quarter to the third quarter hopefully, we'll see that continue I haven't seen my concerns with cooled in it and.
That remains an issue, but but that said what we do know is that the demand is out there at the consumer level at our customer level or the trends on QSR eat at home thing is a really strong play right. It's just going to continue this center of the store activity.
And our customers are finally getting some.
Dedication around making some investments in those areas. We think are going to continue to play out so.
So I'm not overly focused on the impact in the fourth quarter, but I'm really focused on is how we are setting ourselves up for it for 2021 in.
Beyond along without automation play that we talked about.
Got it okay, great. Thanks for the color on that and I guess my follow up question would be on the Foodtech decremental margins.
I know you touched upon this briefly in the prepared remarks, I'd been kind of bouncing around a little bit.
Below 20% in the second quarter, and then the midpoint I'm.
I'm, sorry for 20% of the second quarter and 35% in the third quarter and then the midpoint of the guidance implies 25% in the fourth quarter. So maybe just talk little bit about what what's been driving the decrementals [laughter].
Yeah ill quote from one quarter to another quarter is a little bit tricky because you've got some of that short term cost actions, making noise in the third quarter. Some of the return of those short term costs and so.
So you have the Decrementals in Q2 were really low which is good given that decline in the <unk> the volume.
But that's a lot of it was some of that short term cost savings, which are starting to creep back in as we see increased customer engagement et cetera.
So I think the better way to look at it is instead of one quarter after quarter looking at it kind of a year to date basis or a full year basis.
As we've talked about in the past Foodtech generally you should be thinking about kind.
Kind of high high Twentys contribution margins kind of absent any specific investments or specific cost savings and then on the aerotech and the more in the low twentys contribution margins.
Got it okay. Thank you good luck in the fourth quarter.
Thank you.
Our next question is from Todd Brooks of CL, King and associates.
Good morning, everybody and I would like that my condolences as well for Tom's passing so I'm thinking of something like that now you're welcome is is there any detail that you can give us on the the mix of recurring to nonrecurring revenues in both Foodtech and aerotech in the quarter and maybe talk about.
The nature of each of the streams.
Yeah. This is Matt Todd for recurring revenue in Q3 for all JBG was 45%, which.
Which is up from about 42% in Q3 of last year and about and up about a one percentage point from Q.
Thank you too for Foodtech, specifically recurring revenues about 50%.
Which is up about 45% from Q3 last year and again up about a point sequentially.
Sequentially from Q2 and for Aerotech recurring revenue was approximately 31%.
In this past quarter, which is down slightly from 34% last year, but flat sequentially from Q2.
Okay, great. Thanks, and then and prepare it a little bit more color on that one of the things that you.
No I wouldn't say, we you know we had 18 18.1 or 2% EBITDA margins in Foodtech and in the third quarter and indeed, given the revenue contribution in excess of expectations.
We might have otherwise expected.
That 18% that exceeded our guidance on that but basically what we saw was the mix within the the the aftermarket was actually more much more skewed towards service.
And installation and on the product side on installations.
Which is tends to carry a little bit lower margins and then as you know equipment in general provides lower contribution margin and then the recurring revenue side. So all those things combined kind of held this isn't that low 18% a country.
EBITDA range for the September quarter.
That's great and then just in this more qualitative question, but you talked about.
What your thoughts were sequentially coming into the quarter and that.
North America, obviously stronger than expected in <unk> in Foodtech and Europe initial signs of maybe some some life put then.
But more for Jody maybe as the quarter goes on I guess.
Qualitatively if you look at July entry versus September exit is is the pandemic is flaring a bit again.
Thoughts on access customer focus on.
On actually.
Placing orders getting orders through the pipeline versus I'm, just wondering how fragile you feel just when you're talking to your customers as far as things that did open up in the third quarter for you yeah.
It does seem so North America definitely was the driver of the order strength in the quarter and and as a as I mentioned orders started off weak in the quarter.
In July and then kind of mid August it seems like people really got conviction about okay. This isn't going away QSR demand is strong retail demand is strong we were drilling in this get this stuff going here and these projects going.
So I would say it was a notable kind of shifting patterns midway through the quarter.
And hopefully that will continue into the third into the fourth quarter.
Specifically I'm talking about North America are.
Europe on the other hand, I would say it was a little bit ahead of the pace in North America, where we are as we entered the quarter and we and we actually are from a revenue perspective, we did pretty good in Europe in the third quarter and actually.
It was one of the main drivers of the outperformance on the revenue side, but that depleted backlog a little bit and then I would say some of that.
Conversions to orders that we expected in Europe.
Werent quite at the pace it did improve from third quarter to second quarter, but not quite at the pace we had anticipated.
So we're hoping to see that improve a little bit. We think some of that is this quarter related Europe was a little bit ahead of the curve in terms of some of these I'll call. It new new flare ups in certain economies in Europe, and and and so were just little bit cautious there, but it is improving just not quite at the pace.
And then Asia basically is essentially is approved as expected its sub.
15% of our revenue is a little bit smaller, but they seem to be recovering, particularly in China specific a little bit faster with their corporate environment is pretty good.
So that's oh, it looks like it's in decent shape in and out in Latin America, just seems to really I still be struggling in terms of their recovery on the economic so I kinda besides.
Great. That's very helpful. Thanks, guys.
Sure.
Okay.
Mr. Bowman Your line is open. Please proceed.
[noise] you hear me.
Yes, now we can.
I'm sorry go ahead.
That all being done over IP, and sometimes little choppy so.
Hi, good morning, Thanks for taking my questions and shut off we'd Mark do you want to get our condolences.
Conduct testing just tell them is when a wish him and his family his family the best.
Thank you.
[music].
Yes, no problem.
<unk>.
[laughter] this year about the mix of business and kind of pressure and.
Air pasture, HM Yeah Arena air handlers et cetera.
Think you said, it's 40% of the meeting with them.
You've got four cents, that's simply related to.
15% cargo if you were to kind of you know look at this year and kind of reset that mix what does it look like heading into 2021 in terms of percentage of the business exposed to each of those areas.
Sure I can tell you, it's it's kind of in that a passenger air travel it's more like 20, 25% based on the declines in that market increased.
Infrastructure is more like 60% and and military cargo 15, maybe even approaching 20%.
Got it that's super helpful and then in terms of the orders.
For that piece that seeing the pressure are you getting any orders right now or are they like close to zero.
[noise] domestically for Airlines I.
I think we might have gotten an order for one piece of equipment in the third quarter.
However, we did get some orders for equipment out of Asia, specifically, China.
On some key issues and some loaders.
So so the airlines that were obviously, they're just not spending any money at this point, we aren't getting would you do business with them on the services side Airport services side. So most of our airport services. This with the airport authorities et cetera, So, but we do work with them on sometimes with airlines, specifically, but those are coming through.
Yeah, I would say at a normal pace.
I was just slightly below normal pace.
Because that's where we keep the lights on it said or maintenance for.
Sort for the airports themselves or the parts business.
Is still weak.
That's started to improve I would say just slightly as we exited the quarter.
But no not so much that we're pleased that still very disappointing.
And I don't see much.
Much in the way of orders in the fourth quarter as well hopefully start to see some improvement in 2021.
But as you know this is going to be really dependent upon the profitability. The airlines to return of air travel ideally, we'd get some kind of a vaccine. So yeah. We just don't know the pace of improvement on airlines and their profitability.
What that means for their investments, so but that remains to be seen but that's kind of what the landscape looks like as you sit here today.
Yes makes sense and then just to clarify that that 2020, 20% or 25% of sales. This year, that's the Pea area with the pressure of the her air travel you know the passenger business.
Yes. So you you just mentioning Youve service and parts in there I mean, that's not going to zero. There's some part of that that's sustainable right. So that's yeah. That's why it's good yeah exact because otherwise it would have gone down to like 15% do you know if it's just a quick.
Right, Okay sounds like there's some equipment in there I guess from the first part of the year, maybe and so there could be a little pressure. There next year, just because of the comp you're seeing in the first quarter.
That's right now that's correct, okay. That's okay.
Cool just wanted to make sure I got the numbers right how much I appreciate that then a food tech.
You mentioned, you've mentioned a couple of times, a strengthening in North America order drinks QSR and labor automation.
What what do you hear from customers on those trends outside the U.S. I'd imagine you're seeing some demand for that as well, but it sounds like you're you're mentioning more North America, just curious outside the U.S. yeah. It it is similar outside.
It is similar to the QSR trend is not as strong as in Europe. It's just it's not as prevalent of a a food sources in Europe as it is in the U.S. So.
So it's a little bit more about the center of the store freezing is pretty strong screening stores Canning.
And other sterilization type equipments, so QSR not quite as strong outside the U.S.
But Asia is doing is we're getting some good.
Activity out of Asia, and some good activity out of Europe, but the QSR trends is particularly strong in North America.
Got it and that's and and when you're talking about demand for those areas. That's that's within like your that's more in the protein business kind of liquid food side.
On the QSR side, it's more on the protein business on the center of the store side, it's a little bit more skewed towards the liquid foods business through sterilization the Kenny business.
Any notable differences in trends you're seeing in those two sides of your business within food Tech.
In the third quarter specific.
So if you recall from the last call second quarter protein orders.
We're really pretty low they disappointed where liquid foods is a little bit more stable.
And and then going into the third quarter protein accelerated faster.
Then you.
You know, it's kind of a more of a at least once a V shape, but it's certainly a quicker they went down faster and they came up faster a call from Q2 to Q3 and liquid foods has just been a little bit more stable with slight improvement from Q2 to Q3.
Okay makes sense. Thanks, a helpful color I appreciate the time best of luck.
Thank you.
Once again, if you would like to ask a question. Please press Star then one on your telephone keypad.
Our next question is from Andrew Obin of Bank of America.
Hey, good morning, I hate Emily on for Andrew Hi, Yeah.
Yeah, and it's my deepest condolences to Tom.
Picky question odd to.
Free cash flow so free cash flow. This quarter was very strong and I think a lot of inventory, which will be sequentially.
Was that a function of just demand improving or or good inventory management and then as a follow up any puts and takes on fourth quarter free cash flow. Thanks.
Yeah, I think the inventory improvement we saw in actually since Q1 has been predominantly the businesses.
Being hyper focused on cash flow and being very cognizant of the investments that they are making in inventory given the lower volume that we're seeing coming out of Q1. So I think the businesses have gotten a lot tighter on their purchases and we've put a lot more effort around reviewing.
Open Peos and safety stocks in order to improve our overall inventory management, which has been a great progress for the business and I would expect to see that to continue into Q4, and even going forward because I think the teams have gotten a lot smarter about inventory management side.
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Obviously as orders.
Improve and demand improves as we're seeing it there will be investment inventory, but we think it'll be moderated somewhat than maybe what we've seen in the past because of just the our focus on on free cash flow.
I would say in Q4, our expectations for free cash flow is that it will be positive slightly positive not to the extent that we have seen it in Q2 and Q3, because as I mentioned with the improved orders and improved demand.
Our balance sheet will not contract like it has in the past and so we expect to be positive slightly positive and we're pretty confident that we should.
At the end of year of free cash flow conversion of about 150%.
Great. Thanks, very helpful. And then I just had a question on food automation equipment. How large is that business for you today and is there any way to size.
The market opportunity or potential.
Revenue Tailwinds that some pack some automation in 2021 thanks.
Sure that's a that's a particularly tricky question because.
The definition of a bifurcation is quite broad it's in many regards kind of a you know a solid a half two thirds of what we do is arguably could be considered automation that we continue to invest in some of those those areas.
The market potential is pretty significant when you think about it.
Going from.
Anywhere, where there's was labor within a food factory and and the pace of that change is really will dictate the size of the market. So I'm not frankly, I'm not able to sit here and identified the size of the market, but it is quite large and it's one of the large enough for us to participate.
And have good growth in that area.
For several years, but.
But it's it's not one of these things that we sell it to you know its a.
A 3 billion dollar market and we're going to participate X percent because.
Definition converting from a labor intensive business.
Two and automate the business that will take.
Many years and I, specifically identifying weren't starts and where it stops is particularly difficult and frankly I don't even think about those things, but I think I heard that.
Mark I think the lesser bigger customers I think about you know many of their needs and showing them the product offering the JBT has.
Across our product offering and then let them and then helping them device.
Design.
[noise] lines et cetera that that are in support of that so we're as I mentioned, we're particularly bullish on that and.
I think we're just well positioned.
Okay got it thanks for taking my question.
Your next question.
Lawrence de Maria of William Blair.
Thanks, I just had a couple of follow ups for the free cash flow.
Conversion number.
<unk> net income or adjusted net income.
We usually do it off from net income.
Okay.
Secondly, two questions can you talk about the pricing environment.
Yeah, I assume it's been fairly stable, but just.
Thinking about.
Inflationary pricing going into next year, and secondly, the M&A outlook sounds like you're active is there an urgency or.
I never bid ask spreads.
At a reasonable level or is it still kind of work in progress.
I see okay.
So when you say pricing do you mean on our raw material inputs or do you mean on our actual pricing I mean on your your actual pricing in that pricing achieved.
Yes, it's.
Actually there's good pricing pressure this year as you might expect with that with everybody, yes fighting for orders et cetera. So there has been pricing pressure.
Certainly and.
And you can argue that's taken a little bit off of our margins, it's hard to specifically.
Pinpoint there.
But without question before we used to we see that.
In terms of.
Second question was on the M&A side right.
Good ask friends and sounds like you guys are active is there kind of an urgency you haven't done a deal in a while I'm just kind of curious how the overall environment is and actually concluded deal it for stuff to be done out there.
Yeah, but we're certainly not in any urgency, but you know it's part of our strategy and a well we'll be disciplined and you know obviously, we're going to consider all the things that are important to us, particularly ROI see which is our primary metric when we look at the acquisitions.
There are there are there, but the market is improving in terms of people starting to.
I have a little bit better view of where their earnings and EBITDA are kind of starting to settle in.
The first half of the year that was really difficult. Because that's included wasn't really hard to know kind of where were your earnings were going to end up Oh.
For the year, so as that starts to get some visibility.
When we're starting to get a little bit more price discovery or because.
I think expectations had been moderated from the seller side, because a year ago things pretty frothy. So I think there's been some moderation and I think on the buyers side I think theres some recognition that we're getting into more.
I'll call it a predictable some predictability.
Where the economy sits here today in.
In terms of JBT, specifically, we do continue to.
Cultivate somebody's propriety <unk> proprietary relationships, we are starting to see some more books from investment bankers as well but.
But we've got a a again a very oh.
A very specific strategic plan as it relates to acquisitions investing in technologies that suit our customers and help us provide useful line solutions and then beyond that into a I'll call. It.
Non equipment type businesses to provide better service software support which is where we're going to continue to focus so no urgency, but certainly a willingness to do acquisitions.
Okay. Thank you.
And we have no further questions I would like to turn the call back to Mr., Brian deck for closing remarks.
Thank you all for joining us this morning, and as always make and will be available. If you have any follow up questions. Good day everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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