Q2 2023 John Bean Technologies Corporation Earnings Call
Okay.
Please standby were about to begin.
Good morning, and welcome to JBT Corporation's second quarter 2023 earnings Conference call. My name is Don and I will 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.
If you would like to ask a question. During this time simply press star one on your telephone keypad and if you would like to withdraw your question simply press Star One again I will now turn the call over to Jbt's, Vice President corporate development and Investor Relations Kendrick Mary. Please go ahead Sir.
Thank you Paul Good morning, everyone and welcome to our second quarter 2023 Conference call with me on the call is our Chief Executive Officer, Brian deck, and Chief Financial Officer, Matt Meister in today's call. We will use forward looking statements that are subject to the safe Harbor language in yesterday's press release, and 8-K filing jbt's 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, Kelly and good morning, everyone with.
With the closing of the sale of Aerotech, which we announced yesterday JBT has delivered on its commitment to become a pure play food and beverage technology business.
We treat we achieved an attractive valuation for aerotech positioning JBT with a strong balance sheet to support strategic M&A.
Which we believe will make JBT and even more valuable partner to our food and beverage customers.
Yeah.
We are pleased with JBT is continuing operations performance in the second quarter with margins earnings and orders exceeding our expectations.
Once again, the solid performance of our food and beverage business demonstrated the benefit of Jbt's resilient business model, a diverse product and end market mix and our value added acquisitions.
With that I'll turn the call over to Matt who will walk you through our second quarter performance and revised full year guidance.
Thanks, Brian as you saw in the earnings release, we have now classified aerotech as a discontinued operation as of the second quarter and recast our prior period financial results Accordingly.
Jbt's revenue from continuing operations increased eight 6% year over year in the second quarter.
At the high end of our previous guidance for food Tech business.
Adjusted EBITDA margins at 16, 7% increased 320 basis points on the benefit of volume leverage.
The improvement in price cost and initial savings from the restructuring program.
With that adjusted EBITDA from continuing operations grew 34% to $71 million.
Included in adjusted EBITDA from continuing operations was approximately $13 million of corporate related costs.
Excluding those costs adjusted EBITDA margins from our food Tech operations was 19, 7%.
Which exceeds our previous guidance of 18% to 18 and three quarters percent.
Diluted earnings per share from continuing operations was <unk> 87 in the second quarter of 2023, compared with 80 in the prior year.
Adjusted EPS from continuing operations increased 11% to 97.
Versus 87 sets and exceeded our previously provided implied guidance of 70 to 85.
As the improved performance from the operations was partially offset by higher interest expense and a higher effective tax rate in the current quarter.
In the second quarter, we made progress on our inventory actions and delivered free positive free cash flow from continuing operations of $34 million.
Representing a conversion rate of 122%, we expect free cash flow conversion for continuing operations to be slightly above 100% the full year.
Sale of Aerotech will have significant impact on jbt's balance sheet now that we have closed the transaction.
The net cash proceeds of approximately $650 million after estimated taxes and transaction costs will be used to pay down approximately $300 million.
A higher cost variable rate debt.
The remaining portion of the proceeds will be held in short term securities until it redeploy to strategic M&A.
On a pro forma basis, we considered which considers the impact from the aerotech sale, our net debt to adjusted EBITDA ratio from continuing operations would have been below one times as of the end of June .
Yes.
Regarding our restructuring actions as we continue to streamline our cost structure and transition to a pure play food and beverage technology company, we are increasing the scope of our program.
We now anticipate full year 2023 restructuring charges of 11% to $13 million.
Paired with the previous guidance of approximately $4 million.
That brings a total expense of our restructuring program, including those costs incurred in 2022 to $16 million to $18 million.
With that we expect to generate annualized run rate savings of approximately $18 million to $20 million by mid 2024.
Looking at full year 2023 performance, we are essentially holding our implied guidance for continuing operations revenue growth at 5% to 8%.
Additionally, we are forecasting improved profitability adjusted EBITDA margins of 15, and three quarters to 16.25%.
That includes adjusted EBITDA margins from our food Tech operations of 19 at quarter to 19 and three quarters percent.
Compared with previous guidance of 18, five to 19, 5%.
Considering their improved margins and lower interest expense, resulting from the sale of the Aerotech business, we are raising our earnings guidance for 2023.
Adjusted earnings per share is now forecasted at $3 $84 five.
An increase over our previously implied guidance for continuing operations of $3 25 to $3 65.
For the third quarter, we expect a slight sequential decline in revenue and adjusted EBITDA due to a seasonal decline in recurring revenue and the impact of a softer backlog in the meat and poultry markets.
With the benefit of lower interest expense, we are projecting adjusted EPS of <unk> 90 to $1 $5 in the third quarter.
With that let me turn the call back to Brian .
Thanks, Matt Jbt's order strength in the second quarter highlights the benefit of our diversified product and end market mix.
Demand for meat and poultry end markets remains under pressure similar to the first quarter, given the weak price cost and demand environment in that space.
However, we booked significant orders from the pharmaceutical and nutraceutical industry and for our automated guided vehicle business.
Our pipeline remains stable on the strength of our diversification.
We do note that the higher cost or.
Higher costs and tighter availability of capital is continuing to impact the appetite and timeline to invest.
Looking forward Jbt's priority is optimizing our opportunities and managing a smooth transition to a pure play food and beverage technology company.
A critical part of that will be deploying capital to acquire businesses that complement <unk>.
<unk> operations and expand our end markets to build an even more compelling portfolio of solutions for our customers.
As we've always said, we will maintain a highly disciplined M&A process with firm criteria for strategic fit and financial hurdle rates.
As for potential acquisition candidates, we will focus on our customers' needs for automation sustainability and efficiency.
We plan to build on Jbt's strengths in secondary and further processing with the opportunities to continue to expand our presence in end of line, including packaging or in the other end primary processing.
There are also a bolt on technologies and solutions compliment Terry to our existing offering that would expand our customer value proposition.
And there are some end markets, such as snack foods bakery, confectionery and sustainable food and beverage alternatives, where we could grow our presence.
In terms of size, we will consider highly synergistic bolt ons as well as medium and larger transactions that could bring scale and enhance our recurring revenue base.
As always we look to create value from any acquisition by leveraging Jbt's operational excellence strategic sourcing deep customer relationships and our global sales and service network.
Okay.
As for the M&A environment valuations are starting to come into alignment with the realities of the capital markets.
Of course, JBT has maintained its active corporate development posture, cultivating long term relationships and proprietary opportunities.
Regarding our digital solution omni blue, we continue to gain traction in signing additional customer contracts, our customers see omni blewits as a differentiated service.
That optimizes system yield and uptime, while providing frictionless parts and service.
Ill, which improves their profitability and makes it easier to partner with JBT.
As part of our ongoing process of soliciting soliciting customer feedback we have developed the case study of a large freezer installation.
In this case omni blue has produced meaningful efficiency gains in the daily sanitation process and improve monitoring of quality compliance.
And oversight of third party support providers.
Omni Blue has also enhanced asset life, too prescriptive maintenance and identification of sub optimal operating conditions, including the avoidance of downtime events.
The result in this case has been 350 hours of incremental annual uptime, representing an 8% to 10% gains all while operating more efficiently.
Let me conclude by extending my sincere thanks to our employees across the globe.
And to everyone. In Aerotech, we are confident that being part of Oshkosh, a leading innovator of purpose built vehicles and equipment provides the best means to capitalize on aerotech market leadership and strong demand environment.
With that let's take your questions operator.
Thank you Mr. Dirk ladies and gentlemen, if you do have a question at this time.
Star one and just to remind if you find your question has been addressed you can remove yourself from the queue by pressing star one again, and we will pause for just a moment to assemble the roster.
And we'll take our first question. This morning from mid del at R. W. Baird.
Thank you and good morning, everyone.
Good morning.
Okay.
My first question is really around from your orders and backlog.
Nice growth in orders and frankly that surprised me a little bit given everything that we know is going on in protein. So.
Yes.
I'm curious as to how you see demand progressing going forward I know one of your peers.
Is actually provided some commentary pointing to.
Maybe better days ahead, even even on the poultry side.
That market is starting to bottom but.
Again, I don't know if thats, what youre seeing or if there some other elements at play here.
We need to think about it would be aware of.
Sure Mig it's Brian .
Yes, I would say from the poultry side in particular Q2 was probably the bottom in terms of the microeconomics associated with it in terms of.
Theyre closed sale prices to their customers.
As well as start we are starting to see some improvement in the retail prices coming down which.
Which supports the demand environment, so that said it didn't.
It didn't result in any increased orders in the second quarter.
So we're hopeful that the slightly improved economics will will lead to incremental orders in the third and fourth quarter.
Frankly, more likely fourth quarter than the third quarter as it will take some time, because we're still not back from a poultry perspective, where it needs to be for them to make real money and certainly we do.
Sure.
Concerned are cognizant of the.
Until they make money theyre not going to invest a ton of money. So we do see some projects more one offs, then I'll call it more fundamental growth.
But in the meantime, we're staying close to our customers, obviously and monitoring that and supporting them in their performance.
But more likely than not third quarter is going to be similar to the second quarter, but again, we're starting to see some signs of life hopefully supportive to the fourth quarter.
So.
The mix that's in your orders and backlog.
It is obviously different based on the.
The comment that you provided with poultry maybe not be next.
As big of a part.
Does that have implications for how the revenue gets recognized.
That has implications in terms of the mix on our margin side can you talk about that a bit.
Yes.
Sure I mean, obviously, our backlog is fairly diverse.
And supportive of the model that we've put forth with the growth.
And the ramp up in the fourth quarter in particular as Matt said in the prepared comments.
Some of the sequential slightly declined from Q2 to Q3 is reflective of.
The weakness in the order book for our poultry and pork by the way purpose and a similar.
General situation as is poultry.
And then some seasonal.
Impact from the aftermarket so we do expect some.
The sequential decline in the aftermarket business and that's all reflected in our Q3 guidance.
But if you look at our broader backlog inclusive of some of the things that we mentioned on the nutraceutical and pharma side.
Thats quite supportive us as we go into the fourth quarter and are reflected in our guidance. So we're pleased that.
Some of the orders that we've been working on and some of the efforts that we are making in some of these diverse markets is paying off.
I will generally say the environment out there.
Is fairly mixed right, there's generally tepid demand as I mentioned because of the higher cost and lower availability of capital but for certain industries.
Those are less of a concern, especially where they've got durable end markets. Good margins on their product and have a little bit longer timeframe and thats where were seeing the strength on the order side.
Okay.
Nick I wanted to ask a margin question.
The incremental margin in Q2 was quite good.
I'd love to hear more about what sort of drove that.
Maybe price cost or any idiosyncratic elements.
This quarter had played out.
And maybe longer term here.
Yes.
Change the reporting structure.
So on how should we be thinking about incremental normalized incremental EBITDA margins.
Yes, I'll take the first part for sure Meg and then we can go to the second question.
The margins in the quarter were definitely were pleased with the performance of.
The food operations during the quarter.
Certainly we continue to benefit from some of the price pricing actions that the business.
Implemented in the back half of last year flowing through into the results. This year that definitely was a benefit.
And we continue to benefit on the margin side from the mix of higher recurring revenue.
That continues to be a strong point in our business.
And that definitely has a favorable impact on margins I would say the other two things that really helped.
Drive margin improvement in the quarter.
Our businesses are very conscious of sort of where the market conditions are and they've been very proactive in managing discretionary costs I think they did a great job in a quarter of doing that and obviously, we're starting to see some of the benefits from the restructuring activity that that we started to take actions on at the end of last year and that are currently being.
Taken here in 2023 in terms of.
Ongoing.
<unk> incremental margins.
I think.
As we've talked in the past for the food operations, we really expect.
That to be in the high 20 to low 30% range, certainly there'll be a little bit of a drag into consolidated level from the corporate costs and the lower revenue.
But I would say, it's still probably incremental margins are going to be maybe mid <unk> to high <unk> going forward for the total consolidated continuing operations.
Im sorry, mid mid mid to high <unk>.
Consolidated including the unallocated corporate costs that's.
That's right.
Okay. That's alright, thank you.
Thank you the next now to Walter Liptak at Seaport Research.
Hey, Thanks, guys and congratulations on the work on the Aerotech divestiture and sale.
So I wanted to just ask a follow on.
The farmer and HGV.
Orders.
No.
<unk>.
I don't think you said, but what does the funnel looking like.
As you kind of pivot.
And try and find more orders in that product category.
Yes, generally speaking I will start with HGV theyre, obviously enjoying quite.
Quite a resurgence or search surge and the need for warehouse automation it really is.
Our longer cycle trend in.
The pipeline in the backlog are quite robust and frankly.
It's really about managing lead times at this point and making sure we have adequate capacity in order to meet the needs of the marketplace. So we could not be better positioned on the ATV side from here.
And so it's really about making sure we're making those vehicles timely.
Timely and good cost basis, there are still some challenges on the little bit on supply chain from an electronic side in that product line.
But but otherwise things are looking quite good there.
On the on the pharmaceutical and nutraceutical side, which they have some common characteristics just to speak quickly about the nutraceutical side I'll really what we've seen recently and you're probably reading it in the news.
As the need for baby Formula production right given some of the challenges that industry faced.
A year or two ago and now you're starting to see those investments flow and we've been as you may know, we've got a lot of experience and skills in.
On the dairy side, but also on aseptic filling and preservation as well as powder.
Filling and all of those across nicely with where investments are going.
On that nutraceutical baby Formula side, So we do feel that's going to.
Generally be a good trend now those projects tend to be large in nature.
Quite a bit of capacity comes in at once but as a whole.
That generally looks good and then similarly on the pharma side, we've been investing quite a bit of our resources on process flow technology or engineering resources.
And when you think about the onshoring of where that's going and we focused on our product lines are on the liquid side.
Media of pharma, so in particular things like for the orders that we took in the second quarter.
<unk> bio resins, and plasma reserve, where we're seeing some success, but generally speaking we do see.
The pharma is pretty supportive, but again similarly to the nutraceutical side, it's going to be Chunkier orders. So I think youre seeing the environment that there could be.
More chunky type orders that come less frequently but as a whole.
Those markets are.
Our nice to be a part of right now.
Okay, great thanks for that detail.
I heard your comments about the omni blue and.
It sounds like Youre your uptake of new contracts is going well.
That's great, but I wonder.
Wondering if maybe you can just quantify.
Or even qualify how you're feeling about the <unk>.
Harmony blue and the customer acceptance of that product into.
That feedback on the freezer project, a freezer install I wonder if you could talk about what that equates to in terms of an ROI how quickly can.
And something like this payback from your customer.
Sure. So more broadly speaking in terms of the customer feedback and acceptance and where we see that going.
Pretty exciting in the sense that when you think about kind of what we're trying to accomplish with our digital offering is get closer to our customer has.
Deep engagement with them being truly invested in and provide visibility for them. So that they can be more profitable.
And we feel that the digital investments, we're making really will support.
A durable competitive advantage over time as we develop those relationships.
We continue to support their profitability.
More specifically as it relates to what we've seen.
From our customers as I mentioned, it's Ed.
On this particular case study, which was one of the early installations that we saw.
And eight to 10.
Percent.
Increase in capacity.
<unk>.
It does translate to a very attractive ROI.
Certainly less than a year because.
The.
No.
I'll call it the product flow immediately.
Is incremental to them and.
And relative to the cost.
Software.
It's it's a quite quite a nice value add and then I'll add what really importantly, when you think about getting those digital tools and it's again very supportive of us getting that aftermarket parts and service uplift as they start to use the tools.
On our frictionless parts of service or ecommerce.
Portal, so as they get more confident more used to using the tool. We will see continued uplift and I think over time, that's going to be quite a value driver on omni blue aside from the customer stickiness.
And that we'll see there.
Okay great.
Starting to see some of that aftermarket come through yet or what do you think the timing is.
And when we are starting to see it it's a little bit.
Turning to see it as a little bit tricky and how to measure it relative to a baseline.
I'll call it on a on a <unk>.
Line basis, so, but we are certainly for the installations occur.
Occurred we are starting to see it as just a little bit tricky in terms of the precise.
Is this a part that they wouldn't have otherwise not bought in or not so we're working on the analytics with our our data scientists are data analyst team right now.
Okay. Okay, great. Thank you.
Thank you.
And ladies and gentlemen, just a quick reminder, Scotland. Please for any questions. This morning.
And we'll go next now to Lawrence de Maria at William Blair.
Hi, Thanks, good morning.
Congrats on the sales and everything.
And the closure.
Thank you.
I don't have much but just kind of curious you did talk about.
Moving more into primary end of line just sort of curious of what's.
Behind that.
Is it just as simple as opening up Tam or is it.
More necessary as the.
Digital takes over and you wont have more solutions across the board so kind of curious if this is strategic.
Strategically imperative, because the market's changing or simply opening up more tam anymore, even perhaps maybe the pipeline in secondary and further processing.
More mature.
In terms of consolidation.
Sure.
I would say the primary reason is in order to provide those full line solutions across an entire lines for our customers. So again, the more roll that JBT can play and taken the headaches away from our customers.
And being at the ready because for our secondary and further processing because typically investments on when you think about it.
Food plants, they're often making their first decisions on the primary type activities and then.
Later on they make the decisions on some of the secondary and further processing.
And the better that we're positioned on the front end.
Help us so.
Now frankly, the primary side is actually more consolidated than than the secondary and further which more likely wouldn't mean that some of the acquisitions in that space would be a little bit larger because it is consolidated.
That said, it's not an imperative we do have multiple levers that we could pull within M&A market again as I mentioned the end of line is attractive to US we have made some investments there.
With Bev corporate pro seal over the years.
And thats still an attractive and largely unconsolidated space and generally speaking would flow nicely with our our further processing side. So.
We've got multiple levers, we can pull and then obviously there's other levers in terms of end markets that we don't have huge participation in today.
Again as I mentioned in the prepared remarks confectionery.
<unk> snacks and some others that.
That is another lever so I think.
The good thing is that JBT is extraordinary well positioned with our balance sheet.
The market is looking to be supportive as we go forward here as they've kind of absorbed the impact of the capital markets and the reality is associated with that and the valuation gap SAR it seem to be.
Hosing and.
And the conversations are constructive.
The good news is GBT has.
The discipline and tour in terms of when we pull the trigger but but yet.
Our very capable of pulling the trigger quickly and actively.
And decisively when opportunities do arise without having to worry about raising capital in a tricky that market.
Okay. Thanks for that color, Brian and then just quickly.
I apologize if you mentioned this already is omni blue is still about a $15 million profit headwind and breakeven next year does that change with the aerotech divestiture.
Yes in terms of the expenses about $10 million a year about half embedded into corporate and have embedded into the business units. It is still a drag this year, our intent would be.
Kind of some time during the course of 2024, we would cross over into profitability is.
As we expand that.
Okay perfect. Thank you very much and good luck.
Okay. Thank you.
Thank you and it appears we have no further questions. This morning, Mr deck I'd like to turn things back to you for any closing comments.
Great. Thank you all for joining us this morning as always Marley, we'll be available if you have any follow up questions.
Yeah.
Thank you Mr. Ladies and gentlemen that will conclude JBT Corporation's second quarter 2023 earnings call, we'd like to thank you also much for joining us and wish you all a great day Goodbye.
Please wait the conference will begin shortly.
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