Q3 2021 John Bean Technologies Corp Earnings Call
Last year with adjusted EPS up, 23% and adjusted EBITDA up 9% to $65 million.
Third quarter free cash flow, which excludes pension contributions of $12 million remained strong at $32 million representing.
Representing a conversion rate of 108%.
With healthy orders on the food Tech side customer deposits continue to benefit our cash flow performance.
Year to date through September cash flow free cash flow conversion was 166% and for the full year, we expect to be above 125%.
Given the earnings results in the third quarter and expectations of continued labor and supply chain challenges, we have revised full year 2021 guidance.
At <unk>, we have lowered our expectations slightly.
As we are now forecasting year over year revenue growth of 13, 5% to 14, 5% that.
That breaks down into approximately 10% to 11% organic growth.
1% to 2% from foreign exchange and 1% to 2% from acquisitions.
We are projecting full year food Tech segment operating margins of 13% and three quarters to 14% and adjusted EBITDA margins of 18% and three quarters to 19%.
At Aerotech, we have more significantly revised our expectations were.
We are now projecting aerotech full year revenue to be down approximately 3% for $2000 from 'twenty.
And with operating margins of seven and three quarters to 8.25%.
Adjusted EBITDA margins of 83 quarters to 940%.
Corporate costs for the full year are expected to be about two 6% of sales.
Interest expense of about $9 million.
Our estimate for the full year tax rate of 24, 5%.
That brings full year 2021 earnings per share guidance to $3 70 to $3 80 on a GAAP basis.
$4 15 to four.
$4 25 as adjusted.
Now, let me turn the call back to Brian.
Thanks, Matt.
As I stated at the top of the call JBT is enjoying a robust commercial environment across most of our businesses.
Food Tech orders for the third quarter of $382 million nearly rivaled the record second quarter and beat our expectations.
On a year over year basis food Tech orders were up 23% with robust demand from customers, serving retail markets and continued recovery on the foodservice side.
Year to date food Tech orders are up almost 30% organically.
Geographically commercial activity in North America remains robust across food Tech.
In Europe orders continued to improve while some easing of travel and Covid restrictions are making it easier to do service work.
We also experienced improved order activity in Asia, although COVID-19 related travel restrictions there remain a challenge.
In terms of food Tech end markets, we are enjoying particular strength in poultry premium dairy plant based foods and pet food applications as well as center of the store at our products.
At Aerotech orders for the quarter of $139 million.
Up 25% year over year.
While debt while down sequentially from the second quarter, which included a few very large orders it met our expectations and reflected healthy conditions for our business, serving the infrastructure cargo and defense markets and incremental improvement from commercial airlines.
Within these favorable order trends, we are particularly excited about customer interest in automation solutions that increased output with less labor.
At food Tech anything that automates material handling and processing such.
Such as our robotic harvester and produce <unk>.
Automated packaging systems.
Sigh waterjet portioner in automated guided vehicles are all enjoying tremendous demand.
On the aerotech side automated docking for fixed and mobile equipment has become a competitive differentiator and is generating strong interest.
Across both businesses, we continue to develop and market products that address our customers' critical needs for environmentally friendly solutions.
At food Tech, we're working hand in hand with customers to reduce food waste energy and water consumption to support a more sustainable food industry.
As an example pro <unk> one of our fastest growing businesses provides an environmentally friendly packaging solution that reduces plastic usage.
30% to 40%, while cutting food waste.
Earlier this month Aerotech introduced three new solutions that advance our customer sustainability goals.
Including new electrified cargo loaders, and aircraft pushback tractors, which reduced diesel usage at airports.
We've also introduced power share, which allows better deployment of electrified airport vehicles by utilizing jbt's passenger boarding bridges as a readily accessible source of power.
These solutions generated a lot of excitement at a recent GSE industry show as our customers are under intense pressure to reduce emissions.
Of course, we understand that you wanted to know how all of this might translate to performance in 2022.
While we do not provide guidance for the following year until the fourth quarter call I'll comment on a few key drivers.
On the demand side, who take orders were well above or well above pre COVID-19 level.
On a trailing four quarter basis food Tech orders are ahead of 2019 by 20% with a record backlog.
And we continue to see all the benefits of strong secular growth in demand for our food systems. All in all 2022 as an attractive revenue set up for food Tech.
Aerotech backlog is at near record levels in part due to delivery challenges in the current year, but also reflecting the improving commercial environment.
Based on that order and backlog expansion in 2021.
Expect to recovery of shipments schedules, we anticipate aerotech revenue growth in the low double digit to mid teen range in 2022.
The 2022 progresses aerotech margins should reflect our ability to realize higher prices and capture operating leverage.
Albeit with tough comps in the first half.
The primary risk at this point revolves around supply chain and labor constraints.
At present, it looks like the supply chain equation will remain difficult at least through the first half of 2022.
On the labor side, it's likely to get even tighter in the fourth quarter and not expected to ease next year.
JBT continues to focus on cultivating an inclusive work environment and position ourselves as an employer of choice.
While we are certain about regarding 2022 is our plan to accelerate investment in our digital strategy and <unk> platform.
With it we believe JBT can reinforce and further its competitive advantage as the preferred uptime solutions partner.
But further intelligence into our equipment and systems and connecting machine digitally we can provide better real time machine monitoring to enable preventative maintenance enable more efficient efficient use of water energy resources and improve food yield safety and quality.
We also aim to support our customers' system uptime by providing frictionless order and delivery of parts and service.
To do so we are building a fully digitally enabled customer interface experience.
We plan to host the JBT Investor day in the first half of 2022 at which point, we will provide more detail about our enhanced digital strategy.
Finally, I'd like to thank all our employees have taken extraordinary steps satisfy customers in this challenging environment.
With that let's turn the call to your questions operator.
Yes, Sir.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Okay.
Okay.
And your first question comes from the line of Walt Liptak with Seaport research.
Hi, Thanks, Hi, good morning, guys.
Yes, congratulations on getting through the quarter as well as you did and I guess my first question is.
There.
There seems to be more problems with supply chain in the aerotech versus food Tech and I Wonder if you could talk a little bit more about that.
The things that are the problems.
No youre, having in aerotech versus food tagging wireless grew tech supply chain labor.
You know inflation issues.
A little bit better than them, how things are going with aerotech.
Sure. Thanks Walt.
Yes, certainly both food tech in Aerotech are experiencing challenges on the supply chain side and labor side. However that there are differences between the businesses.
First probably worth mentioning is that aerotech production is less diversified as you may know we operate out of a really two major factories in North America, whereas food Tech is more diversified across about 25 factories across the world.
As a result of that the labor challenges, particularly in one of the facilities is more constrained we do see a higher absenteeism and constraints because of COVID-19 restrictions et cetera, as well as just a tight labor market.
And having to use that more over time, but there is an upper limit to how much overtime. You can use so there was a real labor constraint in aerotech.
In the in the quarter.
Similarly, aerotech product lines are more concentrated as well.
And where food Tech as you know is really really diverse product line.
And because of that lack of diverted certification relative to attack you do see more concentration of things like.
Metal fabrications, which is particularly tight right now electronics plc's the things at Aerotech really relies on for production or more are more constrained than some of the other things and then also when you consider that the metal costs as a percentage of cost of goods sold as a total are higher for aerotech and as you know we've.
Seen steel costs go from about $700, a ton 910 months ago to nearly $2000 of time so that.
That creates an inflation impact as well so we did kind of get hit with all three supply chain labor and.
And inflation at Air Canada.
So that's the main reason.
If that helps.
Okay, Yeah that does thank you for that.
So do we think that those you know this it sounds like got labor issues inflation supply chain are going to be with us for a while.
Do you think the trend continues that food tech.
Has and I can say easier, but less impact.
And then aerotech.
You get into 2022, and you ship the backlog.
Yes, certainly easy is not the right word because nothing is easy in this environment that said food Tech does have more capability on the pricing side given the.
Configure it forget configure to order engineered to order a way it works with our customers. So we can.
Do a little bit more real time matching of cost to price.
So we should be able to see that continue we did pull down margins a little bit in the back in the fourth quarter to food Tech and the and the revenue a little bit for food Tech just given the environment because they are still constrained. So we did make some adjustments there, but pretty minimal in the Grand scheme of things as you saw from the guidance, we did pull down aerotech more significantly.
Given we do think that there are challenges will continue certainly in the fourth quarter and into the first quarter.
Unlikely ended the second quarter, and then as they reprice their contracts and they get through some of the constrained backlog, we should see start to see some improvements not only on the operating leverage but also on the whole price cost.
And versus Asia.
Okay, Alright, thanks, good luck with the rest of the year.
The next question comes from the line of Andrew Alban with Bank of America.
Good morning. This is David Ridley Lane on for Andrew Open.
Good morning.
Tone of the conversations youre, having with customers around 2022 budget.
Clearly a good environment here in 'twenty one.
But how do you see that sort of developing and what are some of the early.
Conversations youre, having there.
Yes. The pipeline is solid so we do have visibility into the pipeline beyond what's in our backlog and I can tell you that as we sit here today, it's pretty solid our customers are facing.
Challenges on the retail side meeting demand if you've been to the retail store lately you see a lot of empty shelves frankly, so there's still a fair amount of demand to keep up and then as the foodservice side picks up and we can.
As it has been.
Would you see generally a good demand environment, it's hard to say precisely what's going to be the full demand environment for the for next year, but as we sit here, Dave today and the nature of the conversations where we do seem to be a good and a good point in the cycle.
And then not hurt the positive commentary around the automatic guided vehicles and other.
Automatic automated systems do you have just for background, how large is that business today and sites to attack and then when you say youre seeing very strong demand.
The overall average for <unk>.
Strong orders growth are we talking like 50% plus orders growth for.
Some of these.
Automated solution.
Right. So when you think about automated solutions, it's pretty broad within JBT north of 50% of our portfolio has some type of automation.
We obviously sell beyond pure automation, we sell on yield we sell on all those other things that I mentioned in terms of cost savings and productivity for our customers, but our portfolio as a whole is.
50%, plus so of our portfolio. So no it wouldn't be 50% kind of growth rates, but it would be north of kind of the I'll call. It the baseline average if you will for the whole business.
And then the HEV or automated guided vehicle business.
It's a relatively small percentage of the overall food tech business.
And the 5% range of revenue of JBT.
Right.
Thank you very much sure.
As a reminder to ask a question you will need you will need to press star one on your telephone.
Again that is star one on your telephone if you want to ask a question.
Yeah, I'll just throw in some incremental comments here, while we wait for any other questions I know, it's been a difficult quarter for aerotech.
And certainly we see the challenges of the supply chain and labor and then the installation and we'll get through that it's a tough time, but.
Stepping back Aerotech is a very good business for us and we take a step back and look at the quality of the investments we've made in new product development on the electrification, which helps our customers on the sustainability side.
On the automation side.
And really on the productivity that we provide and the quality of our name within the marketplace and frankly over the last few years. So we really helps our customers.
Our work and work through these challenges that we've seen so we feel really good about the prospects of aerotech. It is a tough time right now, but we do look forward to seeing them improve over the next the next year or so.
And we do have a question lined up Walt Liptak with Seaport research.
Hi, Thanks, a lot I'll try to ask in a couple of others.
I mean, the backlog is very high.
It looks like you've got a lot of next year plugged are what's the sequence.
Installations on the food Tech side.
Is it a is it front end loaded to.
Through the first half of the year or is it spread throughout the year and you mentioned the funnel was with solid.
Point, you start booking into 2023.
Yeah, well on the on the food Tech.
Backlogs are lead times for equipment right now are in that.
Three to six months, maybe pushing out a little bit further given some of the supply chain constraints that we're seeing.
I'm sorry.
I would say for the right now the backlog is sort of on the front end loaded we will get more book to bill throughout Q4 and into 2022.
But to your point, we do have a decent amount of the first half of the year in food Tech business.
Booked into our backlog right now that said, we also do typically experienced normal seasonality with the back half stronger given kind of just a normal seasonal patterns.
It does require some obviously continued building of the backlog and the other thing I would mention is.
Kind of an underlying all of this is really that strength of that recurring revenue model that we have there's very little in the backlog of sort of recurring revenue as you know Walt and that's been a real strength that a source of strength for us over the throughout Covid and post COVID-19.
We actually.
Dig down into our margins you guys can't see if our margins on arrow on aftermarket held up in the quarter and have been quite strong throughout this entire process and what really excites me about the deployment of this equipment in the marketplace over the last few months last few quarters and into next year.
Is it creates this great installed base for continuing to grow.
And and capture that that recurring revenue base that we are so proud.
And and support in support of our customers.
Okay great.
Comment to that there were some revenue in the third quarter that slipped.
<unk>.
Because of labor issues with your customers I Wonder if you can help us kind of quantify that and does it does that revenue ship in the fourth quarter versus some of the push into 2022.
Right on the Aerotech side, it was fairly pronounced somewhere in that range of $15 million to $20 million of revenue that otherwise what should have been in the quarter that is shifting then and then you've got to have a fourth quarter revenue, that's now going to shift into.
The first quarter. So we understand the constraints that we're under and Thats why we did pull down in the fourth quarter guidance as well kind of knowing that some of this is going to move into the first quarter of next year and as I said, we're sitting on near record backlog for Aerotech. Some of it is because of the shipment delays.
Partially on our customers and their delays, partially on us and our labor constraints in supply chain constraints, but it does set up while as I mentioned in the prepared remarks.
You know that.
Double digit to mid mid teens kind of growth for Aerotech next year, So we're pretty well positioned and I think the thing that makes me feel test as I mentioned, we had a GSE show just recently I had the opportunity to meet.
With some of our larger customers and they're really pleased of the work that we've been doing for them, they're really pleased on the investment and the quality of our products.
Aerotech is really well positioned from here, we just need to get through some of these these price cost issues in our backlog.
And then and then make sure we effectuate some price increases on the annual contracts.
Okay, alright, so it sounds like a shipment delays largely on the aerotech side, yes.
I think we I think we were positioned to outperform in the third quarter on food Tech that we did not.
I think we're appropriately conservative as it turns out.
Food Tech.
Frankly, I was hoping for some upside, but given the constraints, we kind of came right in.
Aftermarket parts actually came in a little bit lower than expected.
And equipment kind of hit his expectations.
Okay, Okay, and maybe a last one for me.
Just on the M&A question.
You know how how is the final looking.
Or are valuations looking okay, you know what.
Are you thinking about for future M&A.
Yes.
It is a robust environment in general and our pipeline is pretty full.
Pricing is.
He is pretty high but as you know, we really work hard to have a good amount of our pipeline on these proprietary deals.
And we do have some in the pipeline hopefully will be in a position to get more done here by the end of the year.
<unk>.
And.
Otherwise if some were active.
There is a lot of competition on these deals food tech.
<unk> is an attractive space for private equity.
Given all the things that we.
All like about the JBT investment thesis in terms of recurring revenue model, where we sit from it.
Nickel perspective in a secular perspective, so there's lots of like about the ability to continue to provide automation to our customers.
And so it is an attractive space and but I do think we have a really great value proposition for these businesses to fold in into.
Into the JBT network and really globalize some good technology that we see that's out there. So there's there's.
Lots of opportunity to add on the.
Some of the holes within our product offering and then as I've mentioned in the past go down the path of.
Investing in what we would call.
Opex type investments, meaning it seems like preventing a where we're not just investing in areas, where our customers are spending capex, but also opex in order to get closer to them on their day to day operation. So that is a big part of the strategy from an M&A perspective.
Okay. Okay. Good luck with that thank you. Thank you.
Your next question comes from the line of Mike <unk> with Robert W. Baird.
Hey man.
This is Andrew on for.
For me this morning.
A question on <unk>.
In aerotech, the infrastructure Bill coming down the pipeline and spending a lot more uncertainty about how that final.
With that final Bill is going to look like are you seeing that play out at all in your conversations with customers on how orders are coming in and you expect a final passage of that dog.
Asian waters.
Well I would tell you that no conversations yet are coming out of that infrastructure Bill given where it stands wherever obviously very hopeful that it gets passed there is several billion dollars of.
Earmarks for the.
Airport infrastructure that would be a nice tailwind for us at this point, we haven't considered that.
In our in our forecast it would be certainly some <unk>.
Tailwind from here, but at this point.
And it will take time to work out right because.
Our our our infrastructure business is a little bit longer cycle business. So if the D. C passage we were down.
I'll need to conversations in 2022 and more likely revenue in 2023.
Alright, thank you.
Your next question comes from the line of Patrick Baumann with Jpmorgan.
Hi, good morning.
Okay.
Thanks for taking my question.
Just I know you made some comments on you know the first half of next year and being.
Being a challenge sell for them.
Some of these issues that plagued third quarter and into fourth quarter.
As you as you sit here today and Aerotech you have visibility at least to kind of the revenue growth.
You know assuming you deliver on that revenue growth based on what you see now like.
What type of.
You know margin performance should we expect for the full year do you think you can get back to.
Where you were in 2020 or do you think you'll be challenge to kind of.
Get back to that kind of level, but.
Maybe you could expand margin a little bit just kind of curious any color directionally on that front will be helpful.
Sure.
Matt I would say given kind of what we see as we exited the third quarter into the fourth quarter, we see some of that continuing into the first quarter and possibly the second quarter, and then margin expansion and better comps in.
In the fourth quarter, it's a little bit too early to tell whether or not for the full year will be at 2020.
<unk> 2020 levels, which was about 12% or so.
It could approach that levels, we'll certainly know a lot more over the next three months or so as we prefer.
Regarding guidance for next year I do think however, as we exit 2022, and 2023 should be a much improved year.
Both.
Both on the volume side, which does contribute to the margins right, we do need that.
Well under the five hundreds in order to get that operating leverage and we should be at more of that pace.
As we go through the course of the year. So it's a combination of operating leverage supply chain price cost improvement. So I think it's that.
The real question to me is what is the pace as the second half of 2022, and how does that set us up for.
A really nice year in 2023.
Got it okay. So we should expect some extend that don't want to put words in your mouth, but it sounds like we should expect some improvement in margin on an annual basis that'll be driven in the second half of the year.
But you know maybe not back to 2020 levels, but maybe that's just too early to tell.
Currently the other night certainly some improvement as the year goes on and improvement kind of where we are this year. The question is kind of where we end up and what's the pace of improvement.
Alright, and then that's helpful color. Thank you and then on the <unk> side.
You know the orders have continued to be pretty strong I guess, how does that translate.
Made some comments on our strong top line environment for them next year can we put some parameters I don't know maybe you already mentioned this I might have missed it some parameters around that is that so does that kind of a single digit increase high single digit is it.
Could it be double digit just kind of curious any parameters around that would be helpful.
Yes, we don't have specific expectations around where revenue growth will be for 2022, yet, but I think kind of given where our backlog is as we exit this quarter and sort of where the pipeline is of customer projects.
We do expect.
To see revenue growth probably in the high single digit maybe low double digits for ramp food Tech in 2022.
Once again, great color really appreciate the time guys and best of luck.
Great. Thank you.
If you'd like to ask a question press star one on your telephone.
And there are no questions at this time.
Mr. Jack.
Great. Thank you for all.
All for joining us this morning catch up will be available if you have any follow up questions.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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