Q3 2022 John Bean Technologies Corp Earnings Call
Macroeconomic forces.
Regarding food Tech demand in Europe , our customers continued to grapple with high energy and input costs impacting the profitability and delaying investment decisions.
And then the third quarter, we experienced some of that same pressure in North America.
That said our customer engagement pipeline opportunities remain quite strong as our core technology and solutions provides critical support for our customers' ongoing focus on improving yield and uptime as well as advancing the automation and sustainability objectives.
Moreover, our solutions help enhance customers' margins at a time when it's most crucial as they tackle rapidly rising input costs and labor constraints.
Although we remain cautious in the face of macro driven uncertainty we are optimistic about our customer our current position at <unk> Tec.
Given given the more stable market associated with food and beverage demand along with our proven resilient recurring revenue model I believe we are well situated to weather broader economic downturn should that materialize.
Meanwhile, we are actively managing our cost structure.
In the third quarter, we took a modest restructuring charge to reduce overhead in Europe , and we are tightening our discretionary spend globally.
Additionally, we're identifying further actions, including more structural considerations.
As necessary.
Separately at Aerotech, we remain on path toward a full demand recovery.
With that I'll turn the call over to Matt to provide details about the third quarter walk you through changes to our full year guidance, which now includes the acquired <unk> core business.
Thanks, Brian JBT posted double digit year over year revenue growth of 16% in the third quarter of 2022.
At food Tech revenue increased 11% year over year comprised of 11% organic growth and 7% from acquisitions.
Offset by a negative foreign exchange impact of 7%.
Organic growth fell slightly below guidance, primarily due to a pullback and shorter cycle products in Europe .
The same time food Tech delivered adjusted EBITDA margins of 19, 3%.
We are encouraged by the progress we've made in margins as demonstrated by the improvement of 60 basis points year over year, and 210 basis points sequentially, primarily due to better price realization.
Food Tech orders of $349 million decreased 9% year over year, which included a negative $21 million impact from foreign exchange.
As Brian mentioned, we saw continued softness in European demand as customers dealt with high input costs.
And beginning in the third quarter slower conversion rates in North America materialized as our customers delayed investment decisions for equipment.
At Aerotech revenue increased 32%, which exceeded our guidance primarily due to the timing of mobile equipment shipments.
Adjusted EBITDA margins of eight 2% improved 60 basis points sequentially.
However margins fell short of our guidance due to ongoing input cost inflation as well as supply chain and labor constraints.
We do expect margin progression to continue aerotech in the fourth quarter.
Aerotech orders were $113 million and as expected declined year over year due to the timing of some large projects.
However, the pipeline of infrastructure projects and demand for mobile equipment remained strong and we expect solid orders in the fourth quarter.
Corporate costs, excluding LIFO in M&A or as expected.
<unk> a year over year increase of about $4 million and costs associated with our digital strategy.
LIFO expense was higher than expected due to persistent inflation on material.
Interest expense for the quarter increased primarily due to the higher debt balances associated with the acquisition of Bedford.
With that we posted GAAP earnings per share of $1 seven compared with 91.
In the prior year and adjusted EPS was $1 27 versus $1 two.
A discreet tax benefit added <unk> <unk> per share, while FX negatively impacted EPS by <unk> 10 per share.
Year to date operating cash flow was $75 million, while free cash flow was $13 million, which includes $30 million capex investment in our digital strategy.
Cash flow is cash flow was below our expectation due to a lower customer deposits and elevated inventory levels as a result of ongoing parts availability issues with our vendors.
As the supply chain normalizes, we expect to reduce inventory levels.
We're supporting our customers and delivering on backlog remains our priority.
For the full year, we now anticipate free cash flow conversion of about 70%.
As of the third quarter, our net leverage ratio was three four times, which is currently above our target range due to the acquisitions of <unk> and alcohol.
We anticipate that our net leverage ratio will be approximately three times by the end of the year due to a combination of improved profitability and lower debt.
As I mentioned earlier, the higher than expected negative FX impact from the strong U S. Dollar weighed heavily on our third quarter results.
And we expect that to continue through the end of the year.
The full year this equates to a negative impact of approximately $85 million on revenue $15 million in EBITDA in 2007 on EPS.
Now with regards to guidance for the fourth quarter, which includes Bev Corp. We expect food tech year over year revenue growth of 18% to 19 in three quarters percent.
That breaks down to 17% to 18% organic growth now.
9% to 10% from acquisitions.
Offset by an 8% foreign exchange impact.
At Aerotech, we expect revenue growth of $23 525, 5%.
For margins, we expect <unk> operating margin of 13, three quarters to 14, 5% adjusted.
Adjusted EBITDA margins of 1919, and three quarters percent.
For Aerotech, we anticipate operating profit margin of 11% to 12% and.
And adjusted EBITDA margin of 11, three quarters, 12, and three quarters percent.
Our fourth quarter GAAP EPS guidance is $1 15 to $1 30 to.
The adjusted EPS of $1 35 to $1 50.
Considering our third quarter results and fourth quarter estimates, we have revised and narrowed our full year guidance ranges, which have provided which were provided in yesterday's press release and earnings presentation. We now estimate full year GAAP EPS $1 <unk> to $4 20.
And adjusted EPS of $4 65 to $4 Nathan.
Now, let me turn the call back to Brian .
Thanks, Matt.
We are particularly pleased with pre tax margin progression in the quarter as we approach pre pandemic levels.
Though we have more work to do in this regard.
The supply chain side will lead times and deliveries for critical components are still long overall constraints are starting to ease.
And our pricing efforts continue to close the price cost gap.
These better dynamics, along with good revenue growth drove pretax margin gains in the third quarter.
That said, we take orders softened in the third quarter under normal circumstances, we would not put too much weight on any one quarter.
Volatility from the context of broader macroeconomic headwinds it does raise the level of cautiousness regarding our 2023 outlook.
We expect to provide full year 2023 guidance with our fourth quarter earnings call for our standard practice in the meantime here a few thoughts on how we look at things as we turned the corner into next year.
We should be entering 2023 of the backlog of almost $1 billion across <unk> and aerotech backlog that embeds, a better price cost dynamics.
Our food Tech order equipment order pipeline remains near record levels as our customers continue to be capacity in margin constrained with a fundamental need to invest.
Recurring revenue, which represents nearly half of the total for food Tech has historically held steady in downturns and as a reminder, in 2022 Tech recurring revenue was about flat year over year organically.
In Aerotech in 2023, we expect to deliver topline growth in the high single digits.
We foresee continued health in the cargo and infrastructure markets and improving dynamics for defense equipment at the same time robust growth in the commercial airline industry is translating to strong recovery and demand for our mobile ground support products.
For the fourth quarter, our primary focus is debt reduction and cost management, while we continued to deliver on our backlog and support our customers' needs.
Let me pivot to some thoughts on how JBT is enhancing our customers' sustainability journey.
As you may have seen in recent news release, we expanded our leadership to include a dedicated function.
Focused on partnering with customer support to support their sustainability goals and advance the development of products and solutions that help reduce their environmental footprint.
Through water reuse systems automated cleansing system and other technologies, we help customers conserve water and reduce waste.
Our environmentally friendly packaging solutions reduced the use of plastic and promote the use of recyclable or biodegradable materials.
We reduce food waste by improving yield and extending food shelf life.
We are committed to reducing the use of precious energy resources across our product portfolio with lower power consuming motors energy savings refrigeration and freezing designs heat recovery systems and low emission technologies.
And with omni Blue digital tools, we monitor machine health and performance in real time, enhancing our customers' ability to improve yield and manage energy and water usage.
On the M&A front on September one we completed the previously announced acquisition of <unk> Corp, which provides blending filling in closing systems for our beverage customers.
And as discussed more than 60% of <unk> revenue is recurring and is accretive to margins and it comes out of the gate as it has come out with good strong.
<unk> serves the resilient and expanding end market for soft drink alcohol beverages, and blends sensors and smart getting waters categories that have fared well in this inflationary environment.
In terms of Jbt's portfolio strategy regarding aerotech, we still expect to communicate a defined path during the front half of 2023.
As I said at the top of the call the current economic environment creates uncertainties.
However, we believe jbt's position as a global leader in sales to the less economically sensitive food and beverage industries.
Bind with the high level of.
Recurring revenue makes us a resilient organization.
As always I'd like to thank our global teams, whose dedication and commitment to serving our customers with the <unk>.
Foundation of Jbt's growth and success.
With that let's open the call to questions operator.
Yes.
Yes.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
We'll pause for just a moment to compile the Q&A roster.
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Sure.
Your first question comes from the line of Meg debris from Baird.
Your line is open.
Okay.
Okay. Good morning, guys can you hear me, Okay, yes, good morning Mick.
Excellent.
I Wonder if somebody would have free cash flow question obviously.
Obviously, you have had to deal with a lot of.
This year it sounds like things are getting better.
How do we think about this.
Working capital to cash in 2023.
Is it fair for folks to expect conversion north of 100% net income next year.
Yes, I think maybe this is Matt I think that is a fair assumption for 2023, I mean quite honestly, even in 2022 some of our cash flow conversion percentages down just because of our increased investment from a capex perspective on our digital strategy. So I think we're pretty confident that in 2023, we'll be able to convert.
Back to our normal 100% plus net income going forward.
And as far as deleveraging goes right I mean, the macro is clearly more complicated.
Interest rates are going up.
That's starting to pressure your.
The EPS as well.
Can you talk a little bit about how you kind of view the next call. It 12 months to 18 months.
Should we expect M&A to do.
To sort of take a back seat here.
And see more.
Robust debt reduction in the near term.
Yes, I'll start and then I'm sure Brian add some comments as well I mean I think.
In the short term I think we're focused on getting our leverage ratio back to the two to three times, which is our target range.
Feel pretty confident that in a pretty short order will be.
At that three times or below here, just through cash flow and improved profitability and just.
As a reminder, I mean, the majority of our current outstanding debt is at a relatively fixed rate. So we're in a pretty good spot from a debt perspective right.
And then more broadly speaking certainly we just we're very pleased that we completed the Bev Corp, and alcohol acquisitions.
We're going to take our time to absorb that both financially and operationally.
Oliver as you know M&A is still core to our strategy from a growth perspective.
As we get our leverage back where it needs to be will be will be active we continue to be active in the marketplace because.
It's an always on process as you know it sometimes takes a year or longer too.
For these opportunities to gestate, so we'll keep active on that but certainly we're going to be very cognizant of the broader macroeconomic environment our leverage.
Where we think growth is going.
Or any target opportunity so.
So here in the short term I think youre going to see us focused on that debt reduction.
Okay.
Then I guess one final question for me is on.
On the food Tech orders.
And look candidly speaking I think your commentary as far as broader backrow impacting demand is.
Maybe a little bit different than what I've been hearing on earnings calls from other companies Youre more cautious and I'm kind of.
I'm kind of curious to get your perspective, so outside of Europe you're.
North American customers, what are you seeing from from that.
And.
Is this.
A sort of a near term hesitancy or do you think that this is something that lingers into 2023, and it could actually impact the investments cycle again.
Talking about your North American customer is not about Europe , specifically thank you.
Sure not surprisingly we've seen this in the past when there's been big I'll call. It economic shocks or impacts we do often see our customers take a pause for a quarter maybe even two.
And we certainly saw that just literally decision, making delays that they tried to get final signatures on on orders and whatnot.
And but I will say this as I mentioned.
Our pipeline of opportunities is very strong.
The conversations with our customers are telling us that they want to invest they need to invest.
And we have the products and services that support that growth and opportunities for them.
Fact, I was at the <unk>.
Pack Expo show here in Chicago, just this week.
And it was a very busy show our booth was busy all the boots around we're busy so and I had conversations with customers reiterating what I just said.
That said, we're trying to not be obtuse to broader economic concerns and in that light we are going to continue to.
Be positioning our expenses just in case of things getting worse from here.
But but thinking about it macroeconomically cyclically.
Secondarily for us, we're extraordinarily well positioned.
And I can tell you, while it's too early to give.
Specific guidance on 2023, we will have some feel for that in the next couple of months, we're not capitulating and took on growth for 2023.
Okay I appreciate it.
Thank you.
Okay.
Again, if you would like to ask a question.
Press Star then the number one on your telephone keypad.
Okay.
Your next question comes from the line of Lawrence de Maria from William Blair. Your line is open.
Thanks, Good morning, everybody.
Couple of questions first off on the digital strategy and sales I guess that investments most of them that they need.
The engagement going so far and are leading to any commercial opportunities yet.
Yes, thanks for asking.
We're super excited about omni blue the engagement with customers has been very good they are recognizing the value proposition both from a uptime perspective. It does we do have great solutions out there recognizing increased uptime as well as margin enhancement capabilities.
So.
So the engagement has been great we have signed.
Contracts at this point and it will lead to revenue for next year.
It's a little bit tougher environment with the economic.
Concerns, but that said the value proposition is there. They are very engaged we are extraordinarily busy pitching that product at this point.
Thanks, and then maybe another quick one here.
The aerotech strategic actions.
It's early NSA next year event.
If it happens prudently does.
Is there a multiple range that you were thinking about I know that multiples are moving around a little bit down now.
But is there a range that we're thinking about now that is.
As acceptable at this point.
Yes, it's honestly too early to tell that Larry but what I will tell you is that aerotech is going to be in high demand is in high demand. We're getting calls obviously, it's a platform business.
The early stage recovery and so it's going to be a highly start off soft after asset in our opinion and so we're excited about that but we're going to let the markets.
Do what the markets do and let that play out here as we get to the sometime in early 2023 as we make some.
Defined path decisions.
Okay Fair enough and then I'll ask one more since I think I was vice president.
It relates to North American food and the incremental weakness delayed kind of order closure et cetera.
I also was at pack Expo this week.
A very strong and we heard about a lot of orders being closed.
It would be concerned or if there's this is partially portfolio driven.
A lack of de boning, which is a problem or is it.
Production problems, along lead times et cetera.
Forcing customers to maybe look elsewhere for products, so kind of I'm wondering how much of this is market driven and how much of this is.
Let's say more JBT, driven supply chain driven et cetera.
Sure.
No.
Our portfolio is extraordinarily broad publicly broadest in the industry no one product represents.
Any meaningful part, perhaps with the exception of freezers, which is our biggest product line.
Right.
Honestly, it's really what I talked about like we've seen in the past when theres been economic.
Concerns are shocked people tend to put orders on delay for a period of time until they kind of sort things out in our own heads.
Frankly, as I mentioned.
We're quoting we have a very very active pipeline.
I don't know if you visited our booth or not but our booth was very busy.
So again the pipeline is strong and just being I'd, just like to be recognizing that.
We're just going to be smart about it as we go from here.
Okay. Thank you.
Thank you.
So our next question comes from the line of Mig <unk> from Baird. Your line is open.
Alright.
I would comment for some follow ups I didn't want you guys to get off this call so quickly.
Yes.
Okay.
Extend the pain here.
I guess.
What I wanted to kind of ask about R&D time tenure in your food Tech business.
And obviously.
You had a protein business days illiquid.
Packaging, but I understand that you have various components to it but.
Im curious as to how those lead times have changed over the past call. It three to six months.
And where are you relative to competitors in that regard.
Sure depending on our product line, we are short cycle businesses and Moreover, most of our businesses a little bit.
Medium to longer cycle on the food Tech side, I would say historically six to nine months would be the average of the last year. That's extended to nine to 12 months everything that we hear is that were consistent with the overall.
<unk> placed in terms of.
Lead times.
So as far as now kind of looking at demand.
Curious what your reaction is to do that.
If we're looking at your order intake in 2021 that was quite strong. This is where a lot of your backlog was built.
Is it possible that what we've seen in 2021 was just customers reacting to elongated lead times and essentially maybe ordering a little earlier in the project ordering had any double ordering in some cases and now we're just starting to see that effect sort of waning or essentially.
A headwind for you.
I certainly it's certainly not double ordering I can tell you that people don't invest in $2 million systems order two of them. It's again this is a highly engaged.
The sales cycle.
We are meeting their demand.
It's truly the need for the capacity and the margin improvements that they have in the labor constraints that have those have not abated.
That's not a particular concern that the macro economics for them or the microeconomics for them are such that they do need to continue to need to invest so that's that's crystal clear.
As you know Mig.
Enjoying pretty consistent orders slow over the last call. It five six quarters prior to this.
Historically are pretty normal pattern for us to kind of go up and down.
So I'm not particularly.
Overreact to any one data point, if there is a trend we'll see next quarter.
Honestly not overreacting to the single data point.
Especially considering the nature of the conversations with our customers.
And they are expressed need for investment.
Okay Fair enough and then lastly.
On the investment that Youre, making in omni blue, which my memory.
Is that a lot of it is kind of flowing through corporate expense.
Can you remind us the size of it for this year and how we should be thinking about that into 2020.
Sure from a Capex perspective, Mig this year, it's about 40 $45 million.
Which we would expect it to not be anything close to that next year is it going to be a lot less next year almost.
But honestly probably closer to zero than closer to 40, and then from an expense perspective I think this year it's.
Close to 10% to $15 million of expense and next year.
We would expect in the corporate.
Area, that's going to be closer to a.
The range of five to 10, probably closer to five with the majority of the expense flowing through the businesses to lineup with the revenue.
Got it alright, thank you guys.
Thank you.
Again, if you would like to ask a question Press Star then the number one on your telephone keypad.
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Okay.
Okay.
There are no further questions at this time I will now turn the call back over to Mr. Brian deck for closing remarks.
Thank you all for joining us this morning as always <unk> will be available do you have any follow up questions. Thank you.
This concludes today's conference call.
May now disconnect.
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