Q4 2022 John Bean Technologies Corp Earnings Call

Good morning, and welcome to JBT Corporation's fourth quarter and full year 2022 earnings conference call My.

My name is Chris and I'll be your conference operator today.

As a reminder, today's call is being recorded.

At this time all lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

You'd like to ask a question. During this time simply press Star then the number one on your telephone keypad.

I'll now turn the call over to Jbt's, Vice President of corporate development and Investor Relations Patrick Meredith to begin today's conference.

Thank you Chris Good morning, everyone and welcome to our fourth quarter and year end 2022 conference call.

With me on the call is our Chief Executive Officer, Brian deck, and Chief Financial Officer, Matt moisture.

In today's call. We will use forward looking statements that are subject to the safe Harbor language in today's press release and 8-K filing.

<unk> 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 includes references to certain non-GAAP measures a reconciliation of these measures to the most comparable GAAP measure can be found in the Investor Relations section of our website now I'll turn the call over to Brian .

Thanks, Good morning, everyone.

<unk> captured double digit growth on the top and bottom lines for 2022.

Notwithstanding the much discussed the challenges associated with rapid inflation and supply chain disruptions.

And each quarter, we realized sequential margin improvement at both <unk> and aerotech.

And we ended the year on a strong note.

Especially as it relates to profitability and orders as food Tech.

While there remains a level of caution among our food customers. It is clear they need to invest in capacity automation and optimization of yield and uptime.

And sustainability.

During 2022, we completed two strategic acquisitions.

As I'll talk about later, they're highly complementary to our food Tech solutions and are quickly adding value.

At Aerotech margin improvement continued to progress.

At a slower pace than originally planned.

At the same time, the demand side remains robust positioning the business for a great 2023.

As demonstrated by our 2022 performance JBT enjoyed a highly resilient model.

Nearly half of food Tech represents recurring revenue from parts and aftermarket services.

The food and beverage end markets enjoy higher level stability throughout the business cycle.

Moreover, jbt's highly diverse product line and broad participation across end markets enhances the stability of our business.

With that I'll turn the call over to Matt to provide details about the year.

Also present, our initial guidance for 2023, another year in which we expect further growth and margin expansion.

Sure.

Thanks, Brian JBT delivered solid double digit revenue and earnings growth in 2022.

Total revenue increased 16% and adjusted EBITDA grew 11% year over year.

Earnings per share and adjusted earnings per share increased 10% and 18% respectively.

In food Tech 2022 revenue increased 14% with growth of 12% organic and 7% from acquisitions.

Partially offset by a 5% negative foreign exchange impact.

For the year food Tech generated adjusted EBITDA of $290 million with margins of 18, 2%.

Food Tech margins improved each quarter sequentially adjusted EBITDA margins of 19, 7% in the fourth quarter.

As we continue to close the gap on price cost and benefit from higher volume.

In Aerotech 2022 revenues increased 23%.

Full year adjusted EBITDA margins were eight 4% and 10, 3% in Q4.

Continuing their sequential margin recovery.

And as I'll discuss in our guidance, we expect that momentum to continue into 2023.

With that we posted earnings per share of $4 seven.

Compared with $3 69 2021.

2022 results included a 25 cent per share negative impact from foreign exchange translation.

Set by <unk> 26 per share of discrete tax benefits.

Adjusted EPS, which excludes LIFO expense M&A and restructuring costs was $4 77.

Compared with $4 four in the prior year.

During the year, we took restructuring charges of $7 million include.

Including $4 2 million in the fourth quarter as we implemented additional actions to reduce our cost structure in Europe .

In 2023, we expect to incur another $3 million to $4 million of charges and anticipate the total impact of these actions to generate run rate cost savings of approximately $9 million to $12 million in 2024.

Free cash flow of $59 million for the year represented a conversion rate of 45%.

As we've discussed in 2020 to be invested in our digital strategy.

Leasing capital expenditure investment by approximately $40 million.

Additionally, the change in the U S tax law that requires the capitalization of R&D costs resulted in an acceleration of cash tax payments of approximately $25 million.

Finally, we are carrying a higher than normal level of inventory.

And as the supply chain situation improves and vendors catch up with demand, we expect better inventory turns in 2023.

As we are pleased we are pleased however, with the progress we made a net debt leverage.

Giving our target of three times by year end 2022.

Down from three four times at the end of the third quarter.

This demonstrates our ability to deploy capital and Delever quickly to our target leverage ratio of two to three times adjusted EBITDA.

Moving to slide 23, we anticipate full year total JBT revenue growth of 6% to 10%.

That is comprised of 5% to 9% growth in food tech, including 1% to 4% organic.

And 10% to 13% growth in aerotech.

We expect <unk> adjusted EBITDA margins to be within the range of 18 five to 19, 5%.

Which includes omni blue expense associated with the launch and ongoing customer support efforts.

These expenses should be largely offset by anticipated omni blue revenue.

All of this considered that represents an adjusted EBITDA range of $310 million to $335 million from food Tech in 2023, a year over year increase of 11% at the midpoint.

In Aerotech, we expect significant improvement in profitability with adjusted EBITDA margins of 12 to 12, 5%.

We are forecasting corporate expense of roughly two 7% of revenue excluding.

Excluding any LIFO M&A and restructuring expense.

<unk> and corporate expense, although at a much lower amount than last year will be ongoing development costs related to omni blue as we expand to additional product lines.

Interest expense is forecasted to be between 26 $27 million.

And we are projecting an annual tax rate of 22% to 23%.

That gets us projected 2023 earnings per share of $4 50 to $5 and adjusted EPS of $5 to $5 50.

We are forecasting adjusted EBITDA of $330 million to $350 million, which represents a year over year gain of 21% at the midpoint.

We expect free cash flow to return to more historical performance levels with the conversion rate of greater than 100% for the full year.

Regarding the first quarter, which is typically our slowest we anticipate year over year revenue growth of 7% to 10%.

This is comprised of 4% to 7% growth at food Tech and 15% to 20% at Aerotech.

We anticipate food Tech adjusted EBITDA margins of 16, 5% to 17%.

In aerotech margins of 10% to 11%.

Corporate expense of three 2% of sales, excluding any LIFO M&A and restructuring charges.

As well as interest expense of 7 million to $7 5 million.

We are projecting GAAP earnings per share of <unk> 50 to 60.

And adjusted EPS of <unk> 65 to 75.

With that let me turn the call back to Brian .

Thanks, Matt as I stated at the top of the call. We were encouraged by the pace of fourth quarter orders.

Food Tech orders of $432 million were up 24% sequentially exceeding our expectations with improvements in Europe and Asia.

Yeah.

And despite weakness in pressure affecting our customers in the poultry industry also experienced some order improvement in North America as a result of jbt's highly diverse product portfolio.

That is TBD GBT had some nice wins in the period and the pet food food and vegetable infant formula and pharmaceutical end markets.

While the backdrop of economic uncertainty, including higher interest rates and operating costs.

May impact the pace of customers' investment decision, making we remain pleased with our robust pipeline and high level of customer engagement.

We recently attended the international production and processing Expo, otherwise known as IPP.

Largest event for the poultry and meat industry in the U S.

It was good to see so many of you there.

We introduced several new products at the show, including a lower cost more compact tsi Portioner this product, which leverages jbt's strong DSI franchise addresses the needs of smaller food processors with a highly effective compact plug and play water jet cutting system.

We also introduced the chicken breast the boenning solution that specifically targets what is known as the large bird market.

This is a gap in the market today, where existing automation solutions underperform in yield relative to manual labor.

Our solution known as yield King addresses this challenge and as a result is generating a lot of interest in the market.

We also featured our digital solution Ami blow.

Since our last call we have signed many additional contracts on our first wave of product introductions.

Omni blue represents a new way of doing business for our customers with a digitally enabled solution that optimizes machine performance and maintenance management provides frictionless parts and service.

And enhances uptime capacity utilization yield and quality.

We are encouraged by our customers' response to omni growth as they realize it's tangible and measurable benefits.

We expect our investment in omni blue to generate long term advantages for JBT as we continue to commercialize over the next few years.

Its revenue stream from subscription fees and incremental aftermarket revenue will expand our growing.

Revenue recurring revenue base more importantly, our digital connection further solidifies our partnership with customers.

Regarding the deployment of capital we are pleased with the value we have already captured from the acquisitions of Alco and Bev Corp.

Specifically, we are generating supply chain synergies with the core of JBT.

We are enjoying commercial synergies such as a new full line vegetable processing solution, which combines capabilities from our Alco <unk> and frigo Skandia brands.

At Aerotech fourth quarter orders picked up as expected with a 42% sequential gain and continued strong demand for the infrastructure and commercial airline markets.

Aerotech record year end backlog and the expectations of further further order strength in the first quarter positioned.

The business for a great 2023.

Regarding our intent to become a pure play food and beverage solutions company.

As you know we've been exploring a range of options for aerotech with the goal of identifying the best value creation for shareholders.

While we are keeping a range of options on the table and an eye in the debt markets. Our current view is that a separation is more likely to be realized through a sale of aerotech.

We will remain on track to announce a defined path in the first half of 2023 with transaction execution targeted for the back half.

Before I open the call to questions I would like to talk about Jbt's corporate responsibility and sustainability initiatives.

Issues that are at the core of our cultural DNA.

We view Jbt's responsibility and sustainability framework through the lens of customer solutions responsible operations and people and communities.

Last quarter, we outlined the many ways, we a customers on their sustainability journey.

From an environmentally friendly packaging solutions and low emission technologies for systems that combat food waste and lower energy and water consumption.

And helping our customers reduce waste and more efficiently use precious resources.

We're also enhancing our value proposition and competitive strength.

At the same time, we are taking steps to reduce the environmental impact impact of our plant and office operations around the world.

We're embedding these efforts into our continuous improvement program.

For example, we're collecting analyzing and auditing global utility usage to track cost and consumption for the entire enterprise gives us a platform for developing and reporting against emission reduction targets.

In terms of people and communities, we promoted employee volunteerism charitable contribution.

An enhanced matching programs and engagement initiatives around the world.

Most importantly, we have maintained an unwavering commitment to all employees to create a safe engaging and inclusive workplace.

On that note I'd like to thank everyone at JBT.

The reason for our growth and success.

With that let's take your questions operator.

Thank you and as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad and we will pause for a few moments to compile the Q&A roster.

Our first question is from Walter Liptak with Seaport Research Your line is open.

<unk>.

Hi, Thanks, Good morning, guys good morning, Tim.

Thanks for the clarification about aerotech and the timing I just wanted to make sure I understood that.

It sounds like it's a sale.

It is more likely is at an all in one transaction and.

And I think you said that the timing might be in the second half just so does that mean.

So in the first half and closing the deal in the second half or something different.

Essentially yes.

More likely its going to be a sale.

Of course, ideally it would be in.

<unk> four right that would be we think that the platform value of aerotech is more than the sum of its parts.

Therefore, we do feel that thats.

Certainly the better path in terms of timing you essentially have it.

We will provide more detail here in the second quarter.

Second quarter.

And then thereafter look to execute and transact in the back half.

Okay, alright, great. Thanks for that clarification and I Wonder if you could just.

To provide a little bit more detail about.

What youre seeing from the poultry market.

And.

Primarily it looks like the.

Capex plans are still on track.

But just what Youre seeing is there a delay that's happening.

Or.

Or is it just a timing issue.

Yes.

<unk> seen probably from the poultry industry, it's a bit of a challenging time right now in terms of profitability.

Are heavily engaged with them so orders were a little bit lower in the fourth quarter from them, but we were able to offset that with our diverse product offering.

So that was good news, but what we do hear from them is that the need for automation sustainability productivity and even volume.

It remains high on their list.

And the pipeline remains quite strong with them so and as you stated there are overall intentions on Capex remains solid so we do expect that to start converting here as we entered the spring.

Okay, great. Thank you.

Thank you.

The next question is from John Joyner with BMO capital markets. Your line is open.

Hi, there guys. Thank you for taking my Johnson.

Hi, there.

Jason on for John Joyner. Thank you for taking my question.

So my question, primarily relates to the food Tech and doesn't line solutions, which kind of seems like a large market opportunity for growth for JBT can you talk about some of the white space here and maybe areas that Jamie JBT can tailor to its capabilities.

Thank you.

Yeah, absolutely. The interline is indeed, a very large opportunity as you know we invested in 2019 in our pro <unk> acquisition as well as our our Acs Arctic coding solutions on that side as well.

Do you think about packaging in general everything ends up being packaged.

In one way shape or form whether that's going to retail or if it's going to foodservice.

So it is a very large market, we do it as a meaningful part of our M&A strategy as we go forward from here. So we do look forward as we continued to deploy capital as part of our strategic plan that we introduced in 2022.

As we look to meet our 2025 targets that is a nice nice space to be in.

That's great. Thank you for that color.

The next question is from Lawrence de Maria with William Blair. Your line is open.

Hi, Thanks.

Good morning.

Two questions first question.

Obviously, <unk> silicon a little later than expected, which implies another big ramp throughout the year can you maybe just help us understand first half second half split.

Well, maybe a little bit more around some of the modeling to help us understand how big of a ramp we should expect into Q3.

Throughout the year stocking stick.

Thanks.

Sure Larry.

I think the first quarter as you noted is certainly a little bit.

Bit lighter.

Primarily because.

Sort of seasonality that typically happens at JBT.

As well as we had as you can recall a little lighter order volume in Q3 that impacted backlog for the first quarter.

But certainly I think our backlog as we enter into the year is actually pretty healthy for the remainder of the year and we have visibility between <unk>.

Backlog for the year as well as our Berry.

<unk> recurring revenue streams to between $70 to 75% of the revenue for 2023, So I think we feel pretty confident in.

In the back half of it in the middle part in the back half of the year.

Certainly there is some book to Bill we have to get.

But the margins will continue to improve sequentially as we go through the year and benefit not only from.

The higher volume, but also.

Continued productivity and the food Tech business.

Okay. Thanks, and then moving over the Aerotech.

I mean can you give us any kind of color on.

Initial thoughts on multiples price talk and post sale corporate look like.

Sure in terms of multiples, Larry we're going to let the market speak as to what the value is of that.

Certainly again as I mentioned it is an attractive asset as a whole it's a platform business. So I think in terms of both is going to generate interest from both strategic.

Strategic interest as well as the financial buyer space. So again, we're going to let the market speak for that in terms of the corporate overhang there is essentially.

Okay quite a bit of our corporate expenses as is today the percentage of sales will go up a little bit when it comes to food tech, but because aerotech is lower margins as a whole ex aerotech the margins actually increased.

Okay. Thank you.

Again that is star one if you'd like to ask a question.

Yes.

And it appears that we have no further questions. So I'll turn it over to Brian <unk> for any closing remarks.

Thank you, yes, we understand it's a busy period for earnings announcements, so Kendrick and Marley are available for the rest of the day or for the week to take questions. Thanks, very much everybody I appreciate it.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.