Q2 2022 John Bean Technologies Corp Earnings Call
The discrete tax benefit of $2 2 million or approximately <unk> <unk> per share related to deferred stock awards.
Conversely, the previously mentioned foreign exchange headwind had an impact of <unk> <unk> on EPS.
Through the first half of 2022 free cash flow was $4 million, which included a meaningful investment in inventory in support of second half of 2022 revenue growth and capital expenditures of $20 million associated with our digital strategy.
The full year, we now anticipate free cash flow conversion of about 80%.
Looking to full year 2022, we have slightly lowered our expectation for food tech revenue growth to 13% to 15%.
Due to the softening economic conditions in Europe , as well as a higher FX headwind strong dollar.
That breaks down to growth of 13% to 15% organically and 4% from acquisitions offset by a 4% to 5% FX headwind.
Aerotech on the other hand, we are raising our revenue guidance to full year growth of 23% to 25%.
In terms of margins, we continue to expect sequential improvement as we progress through 2022.
<unk> full year operating margins are forecasted at 13% to 13 and three quarters percent adjusted EBITDA margins of 17, 5% 18.25%.
Our guidance for Aerotech is unchanged operating margins of eight five to nine 5% and adjusted EBITDA margins of nine five and 5%.
That brings us to GAAP earnings per share guidance of $4 40 to $4 60.
And adjusted EPS of $4 90.
$1 10.
Included in our updated full year guidance is a benefit of approximately <unk> 13 from lower taxes.
Offsetting by a foreign exchange headwind of approximately <unk> 15.
And 13th from lower food Tech results due to the continued supply chain disruptions and lower European demand.
Now regarding our recent announcements on M&A as previously stated we do not expect to outgrow to have a material impact on adjusted earnings in 2022.
But of course it is not included in the above guidance, we will provide detailed impact upon close which we anticipate in Q3 after receipt of regulatory approvals and the satisfaction of customary closing conditions.
At the time of the close of best of the Best Corp transaction, we anticipate that Jbt's pro forma debt leverage temporarily temporarily exceed our target range of three times. However, we do expect to be below three times by year end 2022 based on forecasted free cash flow and improved earnings profile.
<unk>.
Now, let me turn the call back to Brian .
Thanks, Matt.
Start with a discussion of business trends by segment and geography.
Food Tech orders for the second quarter were nearly nearly 400 million, a very solid quarter, especially considering a cool down in Europe .
While we are of course cognizant of macroeconomic pressures orders and pipeline trends in North America remained strong.
Overall, our U S customers have largely been able to pass through price increases to the retail level and continue to need to expand production capacity improved food yield and add labor saving automation.
In Asia, we saw some improvements from the first quarter and expect a more stable environment in the second half of 2022.
We've also seen a pickup in activity in the middle East as the region seeks.
Because to become more food production independent, which hopefully will make us reaching a more reliable source of growth for JBT.
We have experienced a different environment in Europe food.
<unk> producers have struggled to fully pass through higher input cost to retailers, leading to some tightening that is affecting jbt's performance in the region. It has also made the market price more the market more price sensitive for equipment.
As a result, we are assessing actions in Europe to align the cost structure of our few businesses with those regional market conditions, and we'll consider other actions more broadly if and when necessary.
In general Global food price inflation is extraordinarily high due to high input costs raw materials energy labor and logistics.
<unk> will continue to play its part in expanding food production capacity, improving food yield and reducing labor costs through automation.
Notwithstanding these economic concerns we will continue our planned investment in digital transformation and new product development.
Both of which are essential to addressing customer addressing customer needs and enhancing jbt's competitiveness.
On the new product front, we remain committing committed to helping customers on their path to automation and in their sustainability journey to make better use of the world precious resources.
As an example customers have told us the traditional preservation systems, all one of the largest users of water and energy in their factories.
Therefore, we have introduced introduced in container preservation systems with significant production and environmental benefits.
Pacifically, our new retort preservation systems reduce theme usage by about 15% and our low energy hydrostatic preservation system requires 45% less water usage.
As it relates to Jbt's digital transformation and omni Blue our suite of digital tools designed to enhance our customer success, we continue to make progress.
<unk> appreciate omni blues focus on machine performance optimization maintenance management friction was parts and service.
And the resulting improvements in uptime capacity utilization and quality.
We're also excited about the potential benefits of digitalization across multiple pieces of equipment within align or factory under under a single interface as we rollout omni blue broadly across Jbt's product lines.
As we move forward towards digital and outcome based relationships the commercialization of omni blue relies on meaningful customer engagement with multiple decision making points as we demonstrate omni blues value proposition.
We continue to invest in resources, including service technicians, and analytical and technical capabilities to support the ramp of our digital journey.
We remain confident about the value we will bring to our customers as we deploy omni blue over the next several years.
Turning to Aerotech the recovery continues to gain momentum with orders exceeding expectations in the second quarter, particularly for our ground, our mobile ground support equipment business tied to expanding demand from commercial airline customers.
Our pipeline also reflects customer demand for automation electrification and intelligent operations areas, where JBT is invested and creating and created compelling product offerings.
Our customers, including commercial airlines cargo and defense.
Our committed to reducing their environmental impact and are converting their ground support fleet to emission free operation.
This is expected to accelerate the historical replacement cycle of ground support equipment over the next five plus years with.
With aerotech, well positioned to capture meaningful share of revenue from this cycle.
While we expect a moderation in aerotech orders in the third quarter due to large project timing and seasonality the environment remains favorable as passenger travel continues to rebound and we enjoy a positive infrastructure investment cycle.
Overall, we are very enthusiastic about trends at aerotech.
Operating with a record backlog and we are on track to deliver low double digit adjusted EBITDA margins in the back half of 2022.
Finally, none of the progress would have been possible without jbt's talented and engaged workforce.
To support our employees, we want to get back to the communities, where they live and work JBT is rolling out a more robust corporate giving platform that will connect employees with charities and voluntary opportunities you.
<unk> also presented awards for JBT, both eight GBT businesses that demonstrate excellent community support as well as sustainability initiatives.
We applaud our employees commitment and service above and beyond the day to day roles at GBT.
With that let's open the call to questions operator.
At this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press star followed by the number one again.
Pause for just a moment to compile the Q&A roster.
Yes.
Okay.
Yeah.
Your first question comes from Lawrence de Maria with William Blair.
Okay.
Thanks, Hey, good morning, everybody good morning, Larry.
I guess first question.
Second half implies a big ramp.
With prior guidance as well and I think we need to do somewhere around $1 75 million for Q, which should be the biggest I think ever and obviously big improvement. So I'm kind of curious about what kind of visibility and we will kind of bridge you can provide perhaps that inventory build is part of it but can you help us get comfortable with the how.
Youre going to get to that big number given the supply chain constraints out there in cost increases.
Yes, Larry I think to your point the inventory build is certainly a part of that right. I mean, we have been trying to increase our inventory levels to support that back half revenue ramp.
It's also clear in our backlog that we have the.
The demand to be able to support that revenue ramp was part of it will be on executing on that backlog and we expect to be able to do that because of that inventory investment that we've made certainly that is not without challenges, but that's what the team has been working hard to overcome.
On the margin side.
We do see a pretty significant ramp in margins from the first half of the year to the back half of the year on food Tech I'd say half of that ramp is related to just the volume leverage with the higher revenues that we see.
In about.
25% of the improved margins as from improved productivity around certain projects that impacted us in the first half.
As well as another quarter has just continued to improve pricing as we continue to catch up especially in some of our businesses.
Food Tech in the back half of the year and we do have some encouragement we did see some really good progress in some of our businesses, especially on the protein side.
Pricing in the second quarter, and we just need to catch up and some of the other parts of our business to be able to achieve those margins and we have been putting actions in place to do so on the <unk> side, It's really a story about again both volume leverage.
Volume leverage in the back half and pricing we've kind of communicated.
A lot over the last couple of quarters that there are some projects that will be better price in the back half of this year and we are seeing that come to reality in the back half of 2022.
Great. Thanks, and then just great color and then secondly on Bev Corp noted, it's all North America, obviously taken something put it on your platform could be compelling can you talk about the international opportunity is there a line of sight on bringing that global or is that going to be more of a north American business.
Sure, Thanks, Larry where extraordinary excited about Bev Corp.
It's a great company as we mentioned in the prepared remarks. These guys are really best in class.
In the space that they play in terms of customer service and technology Knowhow.
And in that.
In the North America.
Consideration is important for a couple of reasons first of all here in the short term obviously, given some of the concerns in Europe .
The strength in North America, we do think Thats.
Our strong value proposition here in the short term, which led to our continued interest but in terms of expanding the marketplace. The first place that we think are relatively short order. We think we can move into Latin America.
Latin America is it has a good installed base of businesses that do invest in.
And carbonated beverages.
Which is obviously their expertise.
And so that will be the first phase over the next 12 to 18 24 months and there's plenty of opportunity to keep us busy. There thereafter, we would look at both Asia and Europe , but really for the first two years or so us a tremendous opportunity in the Latin America side, and just more broadly just thinking.
About <unk> corporate and how it fits and why it's such a good acquisition beyond kind of company specific attributes think about jbt's position in juices over the last.
Since I've been here, it's been all of the non carbonated side. So we were great at mixing blending juice extraction.
The copies to tease the blended juice drinks all of those things and then we've got tremendous capabilities on the backend backend with preservation.
Sterilization, we do filling in closing for non carbonated drinks.
But this was the one hole that we had in our portfolio. So.
Tremendously fits in terms of the overall capabilities in terms of what we can provide to our customers in terms of full airline solutions within the factory or within a particular line and some some really great points of connectivity between the two businesses and in fact.
In some cases, we're actually already a vendor to the corp, and some of the tanks and lending systems that they do so it's a perfect fit and really excited about it.
Okay. Thanks, very much I'll jump back queue.
Thank you.
Your next question comes from Walter Liptak with Seaport Research.
Yeah.
Hey, Thanks, good morning, guys.
I wanted to ask kind of a follow on to the last one.
Europe I Wonder if you could talk about.
Just remind us how much Europe is as a percentage of total revenue.
And.
Given the strength that youre seeing in North America, the middle East can that offset the kind of slowing that.
That you might be seeing and maybe.
Third one kind of along the same lines, where the monthly trends like in Europe .
Yeah.
And what are you seeing in July .
Sure in terms of the overall split Walt it's about Whereabout, David He is about 60% North America, 40% kind of rest of world of which call it 30% or so.
Is Europe .
At the highest level and we do see continued strength in North America.
We mentioned some improvement in trends in Asia and in Middle East.
But Europe is weakening now we did bring our overall guidance down a little bit to account for that so it doesn't fully offset and thats reflected in the guidance that we've provided.
In terms of trends for the quarter I would say as the quarter progressed.
Worse generally im not going to give any color into July .
However, you can generally see the trends that <unk> seen probably in some of the news about inability or struggles between food retailers and food producers on some of the distress that we've seen there and prices in general.
On food. So I do think generally we would really like to see food inflation start to come down to make some of the value propositions in Europe , a little bit easier for our customers to continue to invest.
But in the short term, we are trying to take that into consideration in our guidance for the rest of the year.
Okay great.
Maybe a last one.
For me is that the ramp in shipments for the second half how dependent is that on.
European shipments.
While certainly their dependence on European shipments and we try to consider where the backlog is what we've really tried to do in the back half is to not do.
Any really book and ship within the back half, meaning we are relying on existing backlog.
And our normal aftermarket presence as opposed to we do have some short cycle businesses that we often rely on kind of within the quarter and we're really trying to not rely on that with rare exception in the back half. So that's kind of how we think of it.
Okay, great. Thank you.
Thanks.
Your next question comes from Mitch <unk> with Robert Baird <unk> Company.
Alright, good morning, everyone. Thanks for taking my question.
Hi, there.
<unk>.
Want to stick with the discussion around Europe .
Yes.
The way I would ask the question is this way if im looking at your order intake in the second quarter in food Tech.
So that was call it flattish year over year.
I am sort of curious how much lift did you get from pricing.
And then if Europe is where we're seeing the drag spin.
<unk>.
Volume.
Order intake in Europe has got to be quite soft.
My own kind of back of the envelope would suggest.
Pretty solid double digit declines maybe is not as much as 20% 30%.
Is that sort of Baxter is that what youre seeing over there and.
Do you think that this is just sort of a temporary factor related to sentiment the war so on and so forth or is this something that's more prolonged in terms of a potential shift in how the market is looking to invest.
Take the first half and then Brian as a follow up on like the more the longer term question you added in there, but I think.
First of all certainly we are seeing.
FX impact our orders I would say that's a pretty significant.
<unk> impact, bringing the orders.
Making orders a little bit lower and then I think we are seeing price and.
And I think thats the.
High single to low double digit impact on on orders for price year over year year over year, and so the volume that leaves volume down at state volume down about a similar rate as we've seen in price and so you've got the FX headwind you've got some price uplift and then you do have some real volume coming down.
Great.
And most of that volume decline is.
In Europe overall, while North America remains strong I think your number of 20% to 30% is certainly high however in terms of looking at it keeping in mind that pretty.
Pretty much all of the FX impact is going to be coming from Europe .
And more generally kind of the your question about kind of short term impact long term impact we definitely saw what I would say in the quarter. Some pullback on what I would call some short cycle stuff.
As they looked as our customers look to intrinsic little bit try to take some cost out of their immediate quarter. So we saw some what we would call short cycle. Some refurbishments, even some parts and tooling here and there those trends are typically very very short lived because.
Obviously, refurbishments and tooling and parts.
Parks they have to move on with that so less concerned about that frankly and longer term, we'll have to see how deep. This recession is again going back to my point on food pricing. It would be very nice to see food pricing start to stabilize or at least some of those price increases make their way to.
From the manufacturers to the retail side to put them more on an equilibrium because we saw in the quarter.
Unequal librium at the producer level that <unk> tried to account for here, but.
So the equipment side, obviously, that's yet to be seen what happens as we move into 2023, but I do expect some improvements in the short cycle stuff as.
We get to a little bit hopefully some little more stability and the stability in the back half.
I see.
Just to kind of follow up on this when we were looking through.
Some of the reports from from your European based competitors, we certainly have seen pretty decent order intake growth and Derek case, and I understand that it might not necessarily be apples to apples or talking about the same regions, but.
Do you get the sense that it could be a bit of a market share issue for you in Europe , and I'm thinking specifically here.
The FX headwind right I don't know if you are.
Exporting product from the U S into Europe , and the dollar has done what it has done this year.
Which which clearly created an additional headwind to the price increases that youre already having to put through because of inflation. So I don't know if thats a factor or if.
It may be this is.
Simply not at all.
I don't think.
<unk> impact was it competitive pressure in the quarter, what I will say in terms of our European competitors. They obviously you have the opposite effect on FX rate all everything they reported in the U S is now on European dollars right. So they are actually getting a lift in.
I'm not sure if that called that out or not but that's certainly.
Worth noting.
So say.
We're more diverse in terms of Europe between protein.
And our diversified food and health and our protein group is.
A stronger, but we obviously have a more higher mix of diversified food and health.
Which so it's more of a mix issue because <unk> was a little bit more pressured than Europe in the quarter.
Okay, and then maybe my last question.
When I'm looking at your updated full year guidance for food Tech.
Raised organic growth a bit margins came down.
I'm wondering if maybe you can give us a little more insight into kind of how youre thinking about.
Temporary.
Headwinds here, whether it's price cost and efficiencies.
And how maybe some of these could potentially progressing into 2023.
What do you expect essentially kind of go away or normalize.
Potentially it could become a headwind as we think.
A tailwind rather as we think about 2020. Thank you and you are talking about aerotech right no I'm talking about <unk>.
Okay, because you said that where our revenue increased guidance increased a little bit actually decreased a little so you confused me there.
I think I might be the one that's confused here, but I appreciate that.
Yes, okay.
So.
Yes.
I would say this we are.
We've done a ton of pricing actions in the front half of the year, we expect that to start to seeing some of that benefit as we move into the back half of year getting through some of the higher cost of backlog that we saw and that's across both food and Europe by the way, but on food Tech specifically, while we are seeing some of the pricing actions start.
To come through we've got good visibility into that I think the challenge is always a little bit on some of the short term stuff and.
The level of productivity that you see as a result of some of the supply chain challenges. That's always kind of the kind of a question Mark in the range why we need ranges on the margins, but from a price cost perspective, we expect pretty meaningful.
Benefits in the back half and then obviously as Matt mentioned, we are getting the operating leverage right. So then as we move into 2023.
The question of operating leverage will be dependent upon volume right right now again volumes quite strong in North America less so in Europe , Asia, and Middle East pretty decent Latin America kind of somewhere in between.
So it will be I think the leverage portion will be dependent but I do think kind of absent.
Any worsening of supply chain challenges I do think we are largely getting caught up.
As we enter the fourth quarter on price cost.
Which should flow back into 2023, so to me the Big question Mark for 2023 is where the volume is going to be.
Okay. Thank you.
Sure.
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Please press Star then the number one on your telephone keypad.
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We'll pause for just a moment.
Okay.
Your next question is a follow up from Walter Liptak with Seaport to research.
Hi, Thanks.
In your prepared remarks, you guys talked about how the aerotech business is seeing.
More demand for emissions free and chemicals out.
Potential recapitalization cycle.
I Wonder, if thats, something where youre seeing a funnel of.
New orders build.
Or just or is that just something that the airports and maybe the regulators are beginning to talk about.
It is a lot of talk about it for sure but we are also seeing it in our orders.
Certainly both commercial airlines and the cargo carriers are specifically ordering electrical equipment at this point or electric conversion kits for some of the traditional diesel powered equipment. So it is starting off but we.
We do think really the next.
Really five six years, we do think.
As a matter of fact, if you look at some of the comments from the commercial airlines, they actually specifically call out how quickly they want to convert their fleets the airport equipment fleets to electricity.
And its something like 80% in the next five years and 100% in the next 10 years kind of thing and Thats fairly consistent conversations across.
Again, both the cargo side and in the commercial side I do think the defense side will probably take a little bit longer in terms of converting.
They are also have the same considerations and I will say just kind of looking back at aerotech and our history. If you recall Walt we bought a company called electro in 2018 and anticipation of what could be coming over the next several years and strategically.
It has turned out to be an excellent acquisition, just given their positioning in the marketplace and the technology and expertise they brought to JBT and now we started rolling that out across all of our ground support equipment.
So it's been a really great acquisition strategically.
And then operationally they are quite busy they're as busy as they've ever been as we speak and again the technology was office transferred to our Orlando our ground support equipment business.
It's amongst some of the other R&D investments, we've been making on our own in that space. So pretty excited about where we sit in the cycle on electrification.
Okay, Great. That's good to hear and then just one last one on.
Food Tech.
The.
You guys called out the orders looked okay. I was wondering about the European orders, specifically and if you saw any cancellations.
No cancellations again, I think for us that's extraordinarily rare just because the amount of deposits that we get in the food Tech side it would be.
Very very painful for our customers too.
To cancel orders so no we have not seen cancellations.
That sounds great. Thank you.
Again, if you wish to ask a question. Please press Star then the number one on your telephone keypad again star and the number one to ask a question.
Yeah.
There are no further questions at this time I will now turn the call over to Mr. Brian deck for closing remarks.
Thank you all for joining us this morning, as always <unk> and Marley, we'll be available. If you have any follow up questions. Thanks have a good day.
Okay.
Thank you for participating you may disconnect at this time.
Yes.
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