Q1 2025 JBT Marel Corp Earnings Call
Welcome to JBT morale, earning conference call for the first quarter of 2025 mining.
Baylee: Marel's earning conference call for the first quarter of 2020. My name is Baylee and I will be your conference operator today. As a reminder, today's call is being At this time, all lines have been placed on mute to prevent any background noise.
My name is Barry 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.
Baylee: After the speaker's remarks, there will be a question and answer. If you would like to ask a question during this time, simply press star followed by the number one on your telephone. If you would like to withdraw your question, again, press star and 1.
After the Speakers' remarks, there'll be a question and answer session.
He would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press star and one on.
Marlee Spangler: I'll now turn the call over to J. B. T.
Speaker Change: I'll now turn the call over to J P. T morale senior director of Investor Relations Marley Spangler to begin today's conference.
Marlee Spangler: Murrell, Senior Director of Investor Relations, Marlee Spangler, to begin. Thank you, Bailey. Welcome, everyone. And thank you for joining our conference call.
Marley Spangler: Thank you Bailey welcome everyone and thank you for joining our conference call with me on the call today is our Chief Executive Officer, Brian Duct, President Army Secrets fan and Chief Financial Officer, Matt Meister in today's call. We will use forward looking statements.
Marlee Spangler: With me on the call today is our Chief Executive Officer, Brian Deck, President Arni Sigurdsson, 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 today's press release and 8K filing. JBT-MAREL's periodic SEC filings also contain information regarding risk factors that may have an impact on our results.
Speaker Change: That are subject to the safe Harbor language in today's press release and 8-K filing.
Speaker Change: <unk> periodic SEC filings also contain information regarding risk factors that may have an impact on our results.
Marlee Spangler: 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 measures can be found in the Investor Relations section of our website.
Speaker Change: These documents are available in the Investor Relations section of our website.
Speaker Change: Also our discussion today includes references to certain non-GAAP measures a reconciliation of these measures to the most comparable GAAP measures can be found in the Investor Relations section of our website with that I'll turn the call over to Brian.
Brian Deck: With that, I'll turn the call over to Brian. Thanks Marlee. We are very pleased with JBT Marel's performance in the first quarter. Highlighted by Better Than Anticipated Revenue, Adjusted EBITDA, and Margins Versus Our Guidance. We also enjoyed strong year-over-year improvement in margins and orders. Our top line benefited from strength in recurring revenue as well as solid operational execution on the equipment side. In terms of our margin performance, we enjoyed the flow through from the higher volume and good expense control. We were equally pleased with the order flow with another solid quarter of demand up 12% year over year following record fourth quarter level.
Brian Duct: Thanks, Charlie.
Brian Duct: We were very pleased with JBT <unk> performance in the first quarter.
Brian Duct: Highlighted by better than anticipated revenue, adjusted EBITDA and margins versus our guidance.
Brian Duct: Yes.
Brian Duct: We also enjoyed strong year over year improvement in margins and orders are.
Brian Duct: Our top line benefited from strength in recurring revenue as well as solid operational execution on the equipment side.
Brian Duct: In terms of our margin performance, we enjoyed the flow through from the higher volume and good expense control.
Brian Duct: We were equally pleased with the order flow with another solid quarter of demand up 12% year over year following record fourth quarter levels.
Brian Deck: We experienced increased demand from the poultry industry, continuing the recovery we enjoyed over the last few quarters, as we benefit from the industry's robust fundamentals. We also benefited from our diversified and market participation with healthy orders in meat, beverage, pharma, and pet food. In terms of geography, you saw fairly broad-based strengths across global regions.
Brian Duct: We experienced increased demand from the poultry industry, continuing our recovery we enjoyed over the last few quarters as we benefit from the industry's robust fundamentals.
Brian Duct: We also benefited from our diversified end market participation with healthy orders and meet beverage pharma and pet food.
Brian Duct: In terms of geography, we saw fairly broad based strength across global regions.
Brian Deck: While we are excited about the financial performance and the continued order strength, we are even more enthused about the company we have created as JBT Morale. highlighted by our more comprehensive product offerings, enhanced service capabilities, increased scale, and even greater value proposition in our customer partnership. On the integration front, we are making excellent progress.
Brian Duct: While we are excited about the financial performance and the continued order strength, we are even more enthused about the company we have created as JBT morale.
Brian Duct: Highlighted by our more comprehensive product offerings enhanced service capabilities increased scale, and even greater value proposition and our customer partnerships.
Brian Duct: Yeah.
Brian Duct: On the integration front, we are making excellent progress.
Brian Deck: Arni will provide some color on that in a few moments. We understand that the impact of U.S. tariff policy and the macroeconomic uncertainty it has created is top of mind for investors.
Brian Duct: Andy will provide some color on that in a few moments.
Brian Duct: Yes.
Brian Duct: We understand that the impact of U S tariff policy and the macroeconomic uncertainty. It has created is top of mind for investors.
Brian Deck: While the situation is fluid, we believe in the short term J.B. Timmerow is at least as well positioned to manage the near-term impacts as our peers. On an intermediate to longer term basis, we believe that we are in a better position given our global footprint and available capacity in the U.S., Europe, 1 Brazil that provides the flexibility to reposition where we assemble equipment and source and manufacture parts.
Brian Duct: While the situation is fluid we believe in the short term JV tomorrow is at least is well positioned to manage the near term impacts as our peers.
Brian Duct: On an intermediate to longer term basis, we believe that we are in better positioned given our global footprint and available capacity in the U S.
Brian Duct: Europe, Brazil that provides.
Brian Duct: The flexibility to reposition where we assemble equipment and source and manufacture parts.
Brian Deck: However, any long-term actions involve time and resources to implement and therefore require more clarity on the trade environment.
Brian Duct: However, in the long term actions involve time and resources to implement and therefore require more clarity on the trade environment.
Brian Deck: As you read in our earnings release, we have temporarily suspended our full year financial guidance and moved to providing second quarter guidance only. While our first quarter results and second quarter guidance reflect the company's strong competitive position, healthy end markets, and good execution, we have less visibility for the back half of the year due to the difficult predicting the potential impact of slower economic growth, higher prices, and uncertainty on our customers' investment decisions. While we have not seen widespread changes in customer behavior to date, we have had a handful of lost or delayed orders. We are monitoring customer behavior closely as the spectrum of tariffs becomes real, and as uncertainty continues, including reciprocal tariffs, and how that benefits to changes in order flow.
Brian Duct: As you read in our earnings release, we have temporarily suspended our full year financial guidance and move to providing second quarter guidance only.
Brian Duct: While our first quarter results and second quarter guidance reflect the companys strong competitive position healthy end markets and good execution, we have less visibility for the back half of the year due to the due to the difficult predicting the potential impact of slower economic growth higher prices.
Brian Duct: Uncertainty on our customers' investment decisions.
Brian Duct: While we have not seen widespread changes in customer behavior to date, we have had a handful of lost or delayed orders.
Brian Duct: We are monitoring customer behavior closely as a spectrum of terrorists becomes real and as uncertainty continues including reciprocal tariffs.
Brian Duct: How that manifests to changes in order flow.
Brian Deck: As we get greater certainty on tariff rates, especially as they impact the European Union, we hope to reinstate full year guidance. On the cost side, we have done a thorough analysis of the geographic origins of equipment and components, calculating the impact of today's tariff rates on cost of goods sold. We currently estimate the annualized cost impact of approximately $50 to $60 million or $12 to $15 million per quarter before any mitigating action. This includes costs associated with buying parts as well as higher the higher cost of importing equipment manufacturing at JBT Morrell non US sites to serve our US customers.
Brian Duct: As we get greater certainty on tariff rates, especially as the impact of the European Union, We hope to reinstate full year guidance.
Brian Duct: Okay.
Brian Duct: On the cost side, we have done a thorough analysis of the geographic origins of equipment and components calculating the impact of todays tariff rates our cost of goods sold.
Brian Duct: We currently estimate the annualized cost impact of approximately $50 million to $60 million or 12% to $15 million per quarter before any mitigating actions.
Brian Duct: This includes costs associated with buying parts as well as higher the higher cost of importing equipment manufacturing at JBT morale non U S sites to serve our U S customers.
Brian Deck: Of course, we are taking actions to mitigate the impact of tariffs as we look to secure concessions from suppliers and implement select pricing actions.
Brian Duct: Of course, we are taking actions to mitigate the impact of tariffs as we look to secure concessions from suppliers and implement selective pricing actions.
Brian Deck: Given the timing of tariff enactment, our inventory on hand and our mitigating actions for the remainder of 2025, we believe the negative cost impact of 12 to 15 per quarter could be reduced by more than half. While we look for greater clarity in the macroeconomic environment, the fact that roughly half of JBT Morrell's top line comes from resilient recurring revenue is a particular asset to our business in uncertain times.
Brian Duct: Given the timing of tariff enactment, our inventory on hand, and our mitigating actions for the remainder of 2025.
Brian Duct: We believe the negative cost impact of $12 15 per mortar per quarter could be reduced by more than half.
Brian Duct: While we look for greater clarity in the macroeconomic environment. The fact that roughly half of JBT morale topline comes from resilient recurring revenue is it particular asset to our business in uncertain times.
Brian Deck: Looking past tariffs, we are more confident than ever in the benefits of the JBT-Marel combination and our ability to better collaborate with our customers on the commercial side, capture cost synergies, and bring even greater value to our customers as we transform the future of food.
Brian Duct: Looking past tariffs, we are more confident than ever in the benefits of the JBT Moreau combination and our ability to better collaborate with our customers on the commercial side captured cost synergies and bring even greater value to our customers as we transform the future of food.
Arni Sigurdsson: Now, let me turn the call to Arni to discuss our integration progress. Thanks, Brian. As Brian said, we are excited about the progress we are making uniting our two organizations. First and foremost, our team has delivered continuity for customers as demonstrated by our first quarter results. As of early April, we reached a major milestone in the implementation of JBT Mada's new organization. The new organizational structure includes a go-to-market strategy that adopts an end-market focus. We believe this customer-centric approach enables our commercial organization to bring deeper process and industry-specific knowledge to our customers, and enhances JPT Models' ability to sell the full breadth of our product offering.
Speaker Change: Now, let me turn the call to earning to discuss our integration progress.
Speaker Change: Thanks, Brian.
As Brian said, we are excited about the progress we are making uniting our two organizations.
Speaker Change: First and foremost our team has delivered continuity for our customers as demonstrated by our first quarter results.
Speaker Change: As of early April we reached a major milestone in the implementation of JBT models New organization.
Speaker Change: The new organizational structure includes a go to market strategy that adopt and end market focus.
Speaker Change: We believe this customer centric approach enables our commercial organization to bring deeper process and industry specific knowledge to our customers and enhances JBT model's ability to sell the full breadth of our product offerings.
Arni Sigurdsson: To that end, we have continued to secure orders that combine our complementary capabilities serving the poultry industry as well as other end markets. Speaking of the poultry industry, one of JBT models largest and most attractive end market Not only are we benefiting from the current ongoing recovery in the poultry industry, but we believe it is the protein with the strongest long-term growth outlook. As for JBT Model, we are excited about the advantages created by the combination, as we now bring the most comprehensive portfolio of solutions, services, and software, covering primary, secondary, and further processes. uniquely positioning us to support customers across the entire production value.
Speaker Change: Does that and we have continued to secure orders that combine our complementary capabilities, serving the poultry industry as well as other end markets.
Speaker Change: Okay.
Speaker Change: Speaking of the poultry industry, one of JBT models largest and most attractive end markets.
Speaker Change: Not only are we benefiting from the current ongoing recovery in the poultry industry, but we believe it is the protein with the strongest long term growth outlook.
Speaker Change: As for JBT modest we are excited about the advantages created by the combination as we now bring the most comprehensive portfolio of solutions services and sulfur covering primary secondary and further processing uniquely.
Speaker Change: Uniquely positioning us to support customers across the entire production value chain.
Arni Sigurdsson: Beyond our ability to cross sell our existing products, we are integrating full line solutions that address address critical customer needs.
Speaker Change: Beyond our ability to cross sell our existing products.
Speaker Change: Integrating full line solutions that address address critical customer needs.
Arni Sigurdsson: For example. We can enable seamless traceability across the poultry value chain from primary and secondary processing steps, such as evisceration, chilling, cut up into boning, bone detection, and intelligent portioning, continuing to subsequent value added further processing. All of this is supported by real-time analytics and actionable software insights that enhance food safety and production efficiency. This is an example of what makes JPT Marle the leading partner in solutions for a sustainable food industry. As I said, our combined organization is working together, leveraging our combined strengths to deliver value for customers. That can be seen in the continued strength of our first quarter orders, with combined orders of $916 million, reflecting healthy year-over-year growth for the JBT segment and record orders for the Model .
Speaker Change: For example.
Speaker Change: We can enable seamless traceability across the poultry value chain from primary and secondary processing steps such as integration chilling cut up into Boenning bone detection and intelligent portion of <unk>.
Speaker Change: Continuing to sequence value added further processing.
Speaker Change: Yeah.
Speaker Change: All of this is supported by real time analytics, and actionable soffer insights that enhanced food safety and production efficiency.
Speaker Change: This is an example of what makes JBT model, the leading partner in solutions for a sustainable food industry.
Speaker Change: Yeah.
Speaker Change: As I said, our combined organization is working together leveraging our combined strengths to deliver value for customers.
Speaker Change: That that can be seen in the continued strength of our first quarter orders with combined orders of $960 million.
Speaker Change: <unk> healthy year over year growth for the JBT segment and record orders for the module segment.
Arni Sigurdsson: While it's been just four months since completing our business combination, we are very pleased with the progress we've made already.
Speaker Change: While it's been just four months since completing our business combination we are very pleased with the progress we've made already.
Matt Meister: As Matt will elaborate on, we are on track to achieve our stated cost synergies and the commercial benefits of the merger.
Speaker Change: As Matt will elaborate on we are on track to achieve our stated cost synergies and the commercial benefits of the merger.
Matt Meister: With that, let me turn the call over to Matt. Thanks, Arni. I will begin with a quick recap of our first quarterly report for the combined company. Consolidated JBT-MARL revenue exceeded the midpoint of our guidance by $19 million. which is primarily driven by better-than-expected equipment shipments and strong recurring revenue. Additionally, the negative effect from foreign exchange translation was about $6 million less than our expectations. Our consolidated adjusted EBITDA margin of 13.1% outperformed the midpoint of our guidance by 60 basis points. Driven by volume flow-through, favorable mix, and good expense control.
Speaker Change: With that let me turn the call over to Matt.
Matt Meister: Thanks, Ernie I'll begin with a quick recap of our first quarterly report for the combined company.
Matt Meister: Consolidated GBT Morel revenue exceeded the midpoint of our guidance by $19 million.
Matt Meister: Primarily driven by better than expected equipment shipments and strong recurring revenue.
Matt Meister: Additionally, the negative effect from foreign exchange translation was about $6 million less than our expectation.
Matt Meister: Our consolidated adjusted EBITDA margin of 13, 1% outperformed the midpoint of our guidance by 60 basis points.
Matt Meister: Driven by volume flow through favorable mix and good expense control.
Matt Meister: Since we accounted for Marel as an acquisition, prior year period reflects only the JBT legacy results. We provided supplemental disclosures in the press release and earnings presentation. to show comparisons for the combined company as well as the individual segment. JVT segment revenue increased 4% year over year or 5.6% growth on a cost and currency basis. JBT segment adjusted EBITDA of $61 million, increased 6%. Segment adjusted EBITDA margin, improved 30 basis points to 14.9. Marl segment revenue was flat versus prior year, but on a constant currency basis grew 2%. Segment adjusted EBITDA of $51 million, increased 19% year-over-year.
Since we accounted for morale as an acquisition prior year period reflects only the JBT legacy results.
Matt Meister: We provided supplemental disclosures in our press release and earnings presentation to show comparisons for the combined company as well as the individual segments.
Matt Meister: JBT segment revenue increased 4% year over year or five 6% growth on a constant currency basis.
Matt Meister: JBT segment, adjusted EBITDA of $61 million increased 6%.
Matt Meister: Adjusted EBITDA margin improved 30 basis points to 14, 9%.
Matt Meister: <unk> segment revenue was flat versus prior year, but on a constant currency basis grew 2%.
Matt Meister: Segment, adjusted EBITDA of $51 million increased 19% year over year.
Matt Meister: Segment margin improved 190 basis points to 11.5%. Benefiting from favorable mix with higher aftermarket and pet food revenue, along with savings from the restructuring actions the company implemented in 2024 and initial benefits from Synergy Action Subs by www.zeoranger.co.uk Our first quarter free cash flow was $18 million, which included approximately $42 million in one-time M&A related payments. In the quarter, we incurred $11 million in restructuring costs and anticipate full year restructuring costs of about $25 to $30 million. We expect our restructuring actions to generate savings of approximately $20 to $25 million in the year and annual run rate savings of $50 to $60 million as we expedite.
Matt Meister: Segment margin improved 190 basis points to 11, 5%.
Matt Meister: Benefiting from favorable mix with higher aftermarket and pet food revenue along with savings from our restructuring actions the company implemented in 2024 and initial benefits from synergy actions.
Matt Meister: Our first quarter free cash flow was $18 million, which included approximately $42 million in one time M&A related payments.
Matt Meister: In the quarter, we incurred $11 million in restructuring costs, and anticipate full year restructuring costs of about $25 million to $30 million.
Matt Meister: We expect our restructuring actions to generate savings of approximately 20% to $25 million in the year.
Matt Meister: Annual run rate savings of $50 million to $60 million as we exit the year.
Matt Meister: Regarding our other synergies from cost of goods sold, we expect to realize meaningful savings during the year from categories such as supplier rationalization, logistics efficiencies, and make versus buy decisions. This is expected to deliver approximately $15 million in year savings and run rate savings of approximately $30 million exiting 2025.
Matt Meister: Regarding our other synergies from cost of goods sold we expect to realize meaningful savings during the year from categories.
Matt Meister: Such as fire rationalization logistics efficiencies and make versus buy decisions.
Matt Meister: This is expected to deliver approximately $15 million in year savings and run rate savings of approximately $30 million exiting 2025.
Matt Meister: all prior to any tariff. All together, that puts us on track to achieve total in-year cost synergies of $35 to $40 million in 2025 and annual run rate savings of $80 to $90 million as we exit the year. With this, remain confident in our ability to achieve our targeted run rate synergy savings of $150 million as we exit 2026. In terms of debt leverage, we are extremely pleased with the progress we have made in a short period of time. As of the end of the first quarter, leverage was 3.8x, which is an improvement from just below 4x at the close of the transaction in January.
Matt Meister: All prior to any tariff impact.
Matt Meister: Altogether that puts us on track to achieve total in your cost synergies of $35 million to $40 million in 2025.
Matt Meister: An annual run rate savings of $80 million to $90 million as we exit the year.
Matt Meister: With this we remain confident in our ability to achieve our targeted run rate synergy savings of $150 million as we exit 2027.
Matt Meister: Okay.
In terms of debt leverage we are extremely pleased with the progress we have made in a short period of time.
Matt Meister: As of the end of the first quarter leverage was three eight times, which is an improvement from just below four times at the close of the transaction in January.
Matt Meister: It has measured under our banking agreement, which includes the benefit of certain run rate synergy savings. We ended the first quarter at 3.2 times. Approximately $1.3 billion in liquidity, we have significant financial flexibility to continue to fund our operations and provide stability, and we remain confident that we can reduce our bank leverage to less than three times by year-end 2025, even with the increased macroeconomic uncertainty.
Matt Meister: And as measured under our banking agreement, which includes the benefit of certain run rate synergy savings. We ended the first quarter at three two times.
Matt Meister: It's approximately $1 3 billion in liquidity, we have significant financial flexibility to continue to fund our operations provides stability and we remain confident that we can reduce our bank leverage to less than three times by year end 'twenty 'twenty five even with the increased macroeconomic uncertainty.
Matt Meister: Finally, as Brian mentioned, we have suspended full year guidance for 2025. Due to the uncertainty from the impact of tariff decisions, especially on the second half.
Matt Meister: Finally, as Brian mentioned, we have suspended full year guidance for 'twenty 'twenty five.
Matt Meister: Due to the uncertainty from the impact of tariff decisions, especially in the second half of the year.
Matt Meister: That said, with better near-term visibility, we are providing guidance for the second quarter of the year. For the quarter, we expect to generate revenue of $885 to $915 million, which includes a favorable FX impact of $10 to $15 million. Adjusted EBITDA margin of 14.5% to 15.25% and adjusted EPS of $1.20 to $1.50.
Matt Meister: That said better near term visibility, we are providing guidance for the second quarter of the year.
Matt Meister: For the quarter, we expect to generate revenue of $885 million to $915 million, which includes a favorable FX impact of 10% to $15 million.
Matt Meister: Adjusted EBITDA margin of 14, 5% to 50% in a quarter percent.
Matt Meister: The EBIT EPS of $1 20 to $1 40.
Brian Deck: With that, let me turn the call back to Brian. Thanks, Matt. Given our high level of recurring revenue, along with the global footprint and diversified supply chain enjoyed by JVT Morrell, we believe we are well positioned to withstand the pressures of the current economic environment. Beyond the short-term impacts of tariffs, we believe we are in an enviable position of serving attractive markets with the most comprehensive and compelling portfolio of solutions.
Brian Duct: With that let me turn the call back to Brian.
Brian Duct: Thanks, Matt.
Given our high level of recurring revenue along with our global footprint and diversified supply chain enjoined by JBT morale. We believe we are well positioned to withstand the pressures of the current economic environment.
Speaker Change: Yeah on the short term impacts of tariffs. We believe we are in an enviable position of serving attractive markets with the most comprehensive and compelling portfolio of solutions.
Brian Deck: Let me close by extending my sincere thanks to the entire JBT Marel team for their commitment and customer focus as we work to deliver the benefits of our business combination. I'm proud of what we've accomplished so far and even more excited about what's to come.
Speaker Change: Let me close by extending my sincere thanks to the entire GBT morale team for their commitment and customer focus.
Speaker Change: We work to deliver the benefits of our business combination.
I'm proud of what we've accomplished so far and even more excited about what's to come.
Baylee: Now, let's open the call to questions. Operator? At this time, I would like to remind everyone in order to ask a question, press star followed by the number one on your telephone keypad.
Speaker Change: Now, let's open the call to questions operator.
Speaker Change: At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
Meg Dobre: Your first question comes from the line of Meg Dobre with R. W. Baird, your line Thank you for taking the questions.
Speaker Change: Your first question comes from the line of Matt O'brien with R. W. Baird. Your line is open.
Matt O'brien: Thank you for taking my questions good morning, everyone.
Brian Deck: Good morning, everyone. Brian Good morning. Brian, maybe we can start with with just some updated thoughts around how you thought about the guidance. You've obviously pulled it for the full year. But I'm curious if this is just a function of sort of being being conservative relative to what clearly is an uncertain environment. Or if you've actually seen customer behaviors change through the month of April, maybe you can comment on that specifically. And I'm also curious as to what you're seeing globally, right? US customers versus folks in Europe or other parts of the world. Sure, thanks for the question.
Speaker Change: Ryan.
Speaker Change: Good morning.
Speaker Change: Brian maybe we can start with with just some updated thoughts around how you thought about the guidance, you've obviously pulled it for the full year, but.
Speaker Change: I'm curious if this is just a function of.
Speaker Change: Soybean being conservative relative to what clearly is an uncertain environment or if you've actually seen customer.
Customer behaviors change through the month of April maybe you can comment on that specifically and I'm also curious as to what are you seeing globally right U S customers versus folks in Europe or other parts of the world.
Speaker Change: Sure. Thanks for the question so.
Brian Deck: So it's more the former. We feel with a lack of clarity, we'd like to see how this environment shakes out a little bit. Obviously, there's more shoes to drop with the Trump administration. And we just don't know precisely how that's going to unfold. And frankly, you know, we debated whether or not to pull guidance or not, and we've seen what other companies have done, and you've seen a mix where people don't change guidance, but they say it doesn't include tariffs. You've seen people put very wide ranges, which is not particularly helpful either. So to me, it's kind of half dozen here, six of the other.
Speaker Change: It's more the former we felt fueled the lack of clarity we'd like to see how this environment shakes out a little bit obviously theres more shoes to drop with the Trump administration, and we just don't know precisely how thats going to unfold.
Speaker Change: And frankly, we debated whether or not to pull guidance or non we've seen what other companies have done and you've seen a mix where people don't change guidance, but they say it doesn't include tariffs you've seen people.
Speaker Change: A very very wide ranges, which is not particularly helpful. Either so to me it's kind of.
Speaker Change: Half dozen here six or the other so.
Brian Deck: So At the end of the day, that's the choice we made. We have not seen any meaningful change in customer behavior. We have seen a handful of lost orders, or deferred orders, or delayed orders. I can count them on one hand, frankly, and frankly, the poultry industry in particular, I would describe as robust, but that said, we wanted to be a little bit conservative, making sure we understand how things play out from here.
Speaker Change: At the end of the day.
Speaker Change: At choice we made.
We have not seen.
Speaker Change: Any meaningful change in customer behavior, we have seen a handful of lost orders or deferred orders with delayed orders I can count them on one hand frankly.
Speaker Change: And frankly, the poultry industry in particular.
Speaker Change: Described as robust.
Speaker Change: And but that said, we're just we wanted to be a little bit conservative, making sure we understand how things play out from here.
Brian Deck: But in the meantime, we're very proud of the performance in the first quarter. We're pleased at how the second quarter is looking as well, and we'll see how it plays out from here. I see.
Speaker Change: But in the meantime, we're very proud of that.
Speaker Change: The performance in the first quarter, we're pleased at how the second quarter is looking as well.
Speaker Change: And we'll see how it plays plays out from here.
Speaker Change: I see and is there is there any color on behavior say U S customers versus international anything to sort of parse out there.
Brian Deck: And is there is there any color on behavior, say US customers versus international anything to sort of parse out there? There's a little bit. So you've got kind of two situations. You have, obviously, globally, you do have some concerns as to the price of the equipment, right? And what either the U.S. tariffs or any reciprocal tariffs have on that. So I just think there's a general more conversations on cost, etc. There's obviously, given the U.S. tariffs, there's more conversations there. But there's also on the non-U.S. customers, some of our non-U.S. customers import food into the U.S.
Speaker Change: There is a little bit so you've got kind of two situations you have obviously.
Speaker Change: Globally, you do have.
Speaker Change: Some concerns as to the price of the equipment and what either the U S tariffs or any reciprocal tariffs have on that so I just think there's a general more more conversations on cost et cetera.
Speaker Change: There is obviously given the U S tariffs, there's more conversations there, but there is also on the on the non U S customers.
Speaker Change: Some of our non U S customers import food into the U S. So then the question is should they build that equipment should they build that factory or add equipment in the U S or should they added let's say, Mexico, right, if theres going to be food tariffs.
Brian Deck: So then the question is, should they build that equipment? Should they build that factory or add that equipment in the U.S.? Or should they add it, let's say, Mexico, right? If there's going to be food tariffs, are they better off just building it in the U.S.? So there's just a lot of back and forth on those conversations. I think the good news, generally, is all these conversations are continuing. The demand profile is there.
Speaker Change: Are they better off.
Speaker Change: Just building it in the U S. So there's just a lot of back and forth on those conversations I think the good news generally is all of these conversations are continuing the demand profile is there we just don't know.
Brian Deck: We just don't know exactly how this will all play and is it the first and decisions for a month or two as the smoke clears a little bit. We really just need some clarity on tariffs, both on the particular U.S. side, but also any reciprocal tariffs. Understood.
Speaker Change: Exactly how this will all play is it defer some decisions for a month or two as the smoke clears a little bit.
Speaker Change: We really just need some clarity on <unk>.
Speaker Change: Tariffs.
Speaker Change: Both on the <unk>.
Speaker Change: On the U S side, but also.
Speaker Change: Any reciprocal tariffs.
Brian Deck: On your recurring revenue, I mean, it's pretty clear that the CapEx component of your business or new equipment is where you would see some kind of an impact, if there would be one. But I'm curious, when you look at the recurring component of your business, is there a potential headwind there as well from these tariffs? How do you think about that?
Speaker Change: Understood.
Speaker Change: On your recurring revenue I mean, it's pretty clear that the capex component of your business or new equipment.
Speaker Change: Is where you would see some kind of an impact if there would be one but I'm curious when you look at the recurring component of your business is there.
Speaker Change: A potential headwind there as well from these tariffs how do you think about that.
Brian Deck: Transcription by ESO. Translation by — I think that's less likely. I think first of all, we enjoyed very good strength in orders on parts in the first quarter. And that was before there was any visibility in tariffs, which came out in early April. So there's really, we didn't see any pull through and no meaningful change in February versus March. So that so that was good. It's just a good strong quarter. We would expect that to continue here. Obviously, there will be some conversations about parts pricing and, and, and how we think about that in terms of selectively trying to capture any of our increased costs for any of the parts that we import, which is about a third to half of the parts.
Speaker Change: I think that's less likely I think first of all.
Speaker Change: We enjoyed very good strength in orders.
Speaker Change: <unk> in the first quarter.
Speaker Change: And now as before there was any visibility in.
Speaker Change: Tariffs, which came out in early April so it was really we didn't see any pull through.
Speaker Change: A meaningful change in February versus March.
Speaker Change: That was good a good strong quarter.
Speaker Change: We would expect that to continue here, obviously there'll be some conversations about parts pricing and.
Speaker Change: And how we think about that in terms to selectively.
Speaker Change: Turning to capture any of our increased costs.
Speaker Change: For any of the parks that we import.
Speaker Change: Which is about.
Speaker Change: Third to half of the parts. So most of our parts are more than half are manufactured in the U S from U S suppliers, but we do have some stuff that's outside the U S. So there are some cost impacts that we are considering but those are <unk>.
Brian Deck: So most of our parts are more than half are manufactured in the US from US suppliers. But we do have some stuff that's outside the US. So there are some cost impacts that we're considering. But those are moderate in the grand scheme of things. And, and given the high level of food production that we're seeing right now, we still feel good about about that entire environment on our part.
Speaker Change: A moderate in the Grand scheme of things in and given the high level through production that we're seeing right now.
Speaker Change: We still feel good about.
Speaker Change: That entire environment on our parts.
Brian Deck: Okay, lastly for me, and I'll let somebody else ask the cost mitigation question. I want to ask you on your comments about repricing backlog, maybe talk us through the mechanism of that of how that would work and of the existing backlog, the 1.3 billion of backlog, how much of that is related to U.S. orders or U.S.
Speaker Change: Okay, and lastly for me and I'll, let somebody else ask the cost mitigation question I.
Speaker Change: I wanted to ask you.
Speaker Change: Your comments about repricing.
Speaker Change: Backlog.
Speaker Change: Maybe talk us through the mechanism of that.
Speaker Change: How that would work and of the existing backlog of $1 3 billion of backlog how much of that is related to U S orders are U S customers.
Brian Deck: I'll leave it there. Right. So, for JBT Morrell, about 40% of our revenue is U.S. based. And, and now obviously quite a bit of that is manufactured in the US. And then about 15% or so of our backlog is would be parts and refurbishments, which would be less, less applicable. So it is a portion of a portion, so to speak. And then specific to how you go about repricing backlog, that is, that's a customer by customer, and frankly, a contract by contract negotiation, depending on what the kind of how the contract was originally negotiated, whether or not we have the ability to pass through or not.
Speaker Change: I'll leave it there thank you.
Speaker Change: Right so.
Speaker Change: For JBT morale about 40% of our revenue is U S based.
Speaker Change: And.
Speaker Change: Obviously quite a bit of that is manufactured in the U S and then.
Speaker Change: About 15% or so of our backlog is would be in parts and refurbishments, which would be.
Speaker Change: Less less applicable.
Speaker Change: So it is a portion of a portion so to speak.
Speaker Change: Specific to <unk>.
Speaker Change: You go about repricing backlog that is.
Speaker Change: As a customer by customer and frankly, a contract by contract negotiation, depending on what the current how the contract was originally negotiated whether or not we have the ability to pass through or not.
Brian Deck: So it is a mix, we're going through that as we speak. So we will have some ability, but not on every order. More importantly, we have the ability on existing quotes on our pipeline, to certainly reaffect what those what those prices look like for, for orders that go out from here. Thank you.
So it is a mix were going through that as we speak. So we will have some ability banana and every order.
Speaker Change: More importantly.
Speaker Change: We have the ability on existing quotes on our pipeline to certainly.
Speaker Change: <unk>, what those what those prices look like for for orders that go up from here.
Speaker Change: Yeah.
Speaker Change: Thank you.
Ross Sparenblek: Okay, thank Your next question comes from the line of Ross Sparenblek with William Blair, your line is open. Hey, good morning, gentlemen. Good morning. Hey, maybe just starting with the backlog, I know you guys called out, you know, some order delays. But was there a definitional change to that? Because based on our estimates, I think we're around 1.45 billion for the backlog, which is a little bit higher than What you guys reported. I know FX was a bit of a headwind moving to a tailwind. Anything else to think through there on why there could be 140 million kind of differential?
Speaker Change: Okay. Thanks.
Speaker Change: Your next question comes from the line of Ross <unk> with William Blair. Your line is open.
Speaker Change: Hey, good morning, gentlemen.
Speaker Change: Good morning.
Speaker Change: Hey, maybe just starting with the backlog I know you guys called out.
Speaker Change: Some order delays.
Speaker Change: But was there a definitional change that because based on our estimates I think we're around 145 billion for the backlog, which is a little bit higher than what.
Speaker Change: So you guys reported I know FX.
Speaker Change: FX was a bit of a headwind moving to a tailwind.
Speaker Change: Anything else to think through there.
Speaker Change: And while there could be $140 million kind of differential.
Matt Meister: Not really, Ross. I think there was certainly some effects in there. I think also, just as we try to align the two businesses together, there may be some adjustments that are made to the closing backlog and opening backlog for the acquisition. So I think it's probably just a little bit of noise in how we characterize some of the backlog as we try to align the policies.
Speaker Change: Not really Ross I think there was certainly some FX in there I think also just as we try to align.
Speaker Change: The two businesses together there may be some some adjustments that are made to the closing backlog in opening backlog for the acquisition. So I think it's probably just a little bit of noise in how we characterize some of the backlog as we tried to align the policies of the two companies.
Matt Meister: Okay, that's reassuring. So no cancellations. Don't really get the sense based off customer conversations that they didn't option out.
Speaker Change: Okay, that's reassuring so no cancellations.
Speaker Change: Don't really get the same based on customer conversations that they've been launching now perfect.
Matt Meister: And then just maybe take it through kind of some of the strength there. Can you give us a sense of like the lead times in the first quarter? Knowing that Morello is a little bit longer cycle, last quarter seemed to be more of kind of midstream, implying delivery in 2025. or anything that's, you know, large won't be to call out. Sure. So yeah, so you're right. It is all over the board. And it is product by product line. And just to give you a feel for it, it's anywhere as short as 45 days and as long as 12-15 months.
Speaker Change: And then just maybe take us through kind of some of the strength. There can you just essentially like our lead times in the first quarter, knowing that <unk> is a little bit longer cycle last quarter.
Speaker Change: Be more of kind of midstream employing delivery in 2025.
Speaker Change: Or anything that's large lumpy to call out.
Speaker Change: Sure so.
Speaker Change: Yes, so youre right. It is all over the board it is product by product line and just to give you a feel for its anywhere as short as <unk>.
Speaker Change: 45 days and as long as 12 to 15 months.
Matt Meister: It is quite a broad range. You are correct in that the Marel, on their large projects, particularly in poultry and meat, those do tend to be in that ballpark, in that longer ballpark of the 12-15 month range. We did see some nice order strength in that in the first quarter. So, I'd say slight elongation and we are clearly already quoting into 2026. That said, still the vast majority of our backlog will be shipped in the current year, as we sit here. So I can't give you like a great answer, because it's just all over the board.
Speaker Change: It is it is quite a broad range.
Speaker Change: You are correct in that the morale.
Speaker Change: On their large projects, particularly in poultry and meat those do tend to be.
Speaker Change: In that ballpark in that longer ballpark of the 12 to 15 month range. We did see some nice order strengthen that in the first quarter.
Speaker Change: No.
Speaker Change: See slight slight elongation and we are clearly already quoting into 2026.
Speaker Change: That said.
Speaker Change: Still the vast majority of our backlog will be shipped in the current year.
Speaker Change: As we sit here so I can't give you a great answer because it's just all over the board.
Matt Meister: But that said, our lead times are not extending at this point. We still have the capacity to meet the demand that's out there. As poultry gets stronger and stronger, we have to make sure we work on that closely. But all in all, from a manufacturing operations perspective, we're well situated.
Speaker Change: But that said our lead times are not extending at this point.
Speaker Change: We still have the capacity to didn't meet.
Speaker Change: The demand Thats out there.
Speaker Change: Poultry gets stronger and stronger we have to make sure we work on that closely.
Speaker Change: But all in all from operations manufacturing operations perspective, we're well situated.
Brian Deck: Perfect. Thank you, Brian.
Speaker Change: Yeah, that's perfect. Thank you Brian.
Arni Sigurdsson: And just one last one, if I could, you know, Marel's margin is pretty strong in the quarter. I do believe the first quarter is a seasonal low for aftermarket mix. So just trying to understand some of the strength there.
Speaker Change: And just one last one if I could.
Matt Meister: Warehouse margins pretty strong in the quarter.
Matt Meister: I do believe the first quarter is a seasonal low for aftermarket mix. So just trying to understand some of the strength there.
Arni Sigurdsson: And maybe you can help us quantify some of the benefits from, you know, early synergy capture, if there were some Yeah, Ross, I mean, this is Arni here. I mean, some of the strength that we saw was clearly due to some of the actions that we have been taking on the business, which explains it. And I think it's also helpful that you're seeing that kind of like for like on a gap basis now, because we've been taking actions on lowering capitalization of innovation and stuff like that, that is now fully on a like for like basis.
Matt Meister: And maybe if you could help us quantify some of the benefits from early synergy capture if there were some.
Ross: Yes, Ross I mean this is already here.
Ross: I mean, some of the strength that we saw was clearly due to some of the actions that we have.
Ross: <unk> been taking on the business.
Ross: Which explains it and I think it's also helpful that you.
Ross: Youre seeing that kind of like for like on a GAAP basis now because.
Ross: We have been taking actions on lowering capitalization of innovation and stuff like that that is now fully on a like for like basis, but we also saw some good strength in some of the business such as pet food, where we saw both.
Matt Meister: But we also saw some kind of good strength in some of the businesses on pet food, where we saw both growth and margin enhancement. So I think kind of overall, just very pleased with the progress and also just considering that we're seeing continued strength on the order side. And kind of the driver in Q1 was kind of poultry. We saw a lot of strength on the other end markets in Q4, but they were still kind of at a healthy level in Q1.
Ross: Growth in margin enhancements, so I think kind of overall just very pleased with the progress and also just considering that we're seeing.
Ross: Continued strength on the order side.
Ross: And kind of the driver in Q1 was was.
Speaker Change: Poultry, we saw a lot of strength on the other end markets in Q4, but there was still kind of at a healthy level in Q in Q1, yes, Ross just to add to that I think touched on.
Arni Sigurdsson: Yeah, Ross, just to add to that, I think, you know, Arni touched on the volume strength and the order strength we saw in the legacy MarL business. But, you know, we are definitely seeing flow through and benefits from the restructuring actions that the business took at the end of last year in anticipation of the consolidation, as well as some early benefits on the synergy actions that we took primarily on the MarL side as well. Yeah, Arni, just on the question around the, or the comment on the lower capitalization R&D, is that purely translational? Or does that imply that you guys are kind of optimizing the R&D spend already?
Speaker Change: Volume strength in the order strength, we saw in the legacy.
Speaker Change: The legacy <unk> business, but.
Speaker Change: We are definitely seeing flow through and benefits from the restructuring actions that the business took at the end of last year in anticipation of the consolidation as well as some early benefits on the synergy actions that we took primarily on the morale side as well.
Arnie: Yes Arnie.
Arnie: The question around.
Speaker Change: The color on the lower capitalization of R&D is that purely translational or does that imply that you guys are kind of optimizing the R&D spend already.
Arni Sigurdsson: Yeah, so we have been taking action. So prior to the transaction, we were looking at that even in the second half of 2023. So you saw that in 2024. But as the two companies are coming together, what we're doing is really combining the full innovation portfolio, aligning how we measure it. And in the past model, it's been more talking about specific percentage that we invest in innovation. But I think we're moving more towards kind of measuring the output and figuring out kind of that way, what is the right level. So we also have some overlap between the two businesses that we're looking at.
Arnie: Yes.
Arnie: We have been taking actions open up prior to the transaction we were looking at that even even kind of in the second half of 'twenty. Three so you kind of saw that in 'twenty four but we are kind of as the two companies are coming together what were doing is really kind of combining the full innovation portfolio aligning how we could have.
Arnie: Measure it.
Arnie: And kind of in the past model, it's been more kind of talking about specific percentage that we invest in innovation, but I think we're moving more towards going to measuring the output and figuring out kind of that way what is the right level. So we also have some overlap between the two businesses that we're looking at so yes, we had.
Ross Sparenblek: So yes, we have been taking actions, but we're still we're still kind of working through finding the optimal investment in the right places. Because now we also have a bigger company with a bigger portfolio, and we need to evaluate kind of where do we get the best return on investment. Awesome, very helpful guys.
Arnie: Been taking actions, but we're still we're still kind of working through.
Arnie: Finding the optimal.
Arnie: Investment in the right places because now we also have a bigger company with a bigger portfolio and we need to evaluate kind of where do we get the best return on investment.
Speaker Change: Awesome very helpful guys. Congrats on the quarter. Thank you.
Unknown Executive: Congrats on the quarter. Thank you.
Arnie: Yes.
Justin Ages: Your next question comes from the line of Justin Ages with CJS Securities. I am morning off. Morning. gave some good color on poultry demand, continuing recovery.
Arnie: Okay.
Arnie: Your next question comes from the line of Justin.
Speaker Change: P. J S Securities Your line is open.
Speaker Change: Hi, good morning, all.
Speaker Change: Good morning.
Speaker Change: You gave some good color on pollster demand continuing recovery was just hoping you could.
Arni Sigurdsson: We're just hoping Update on something from last quarter, which is the the fish and whitefish in particular. So just any thoughts around that. Yeah, so on the fish side, I mean, whitefish continues to be a challenged market. So just to give you a data point, the quota in the Barents Sea is kind of being reduced by 25% in 2025. So we are kind of seeing a challenge there. But what is exciting, though, is due to that, there is more investment going into farming on the whitefish side, for example, on cod, for example, in Norway, which is more kind of a very attractive business for players such as a JPT model.
Speaker Change: Give us an update on something from last quarter, which is the weakness seen in the fishing whitefish in particular.
Speaker Change: Any thoughts around that end market would be helpful.
Speaker Change: Yes.
Speaker Change: Yes so.
Speaker Change: On the on the on the fee side, I mean white face continues to be challenged.
Speaker Change: Challenged market. So just to give you a data point.
Speaker Change: The quota in the Barents Sea.
Speaker Change: Being reduced by 25% in 2025, so we are seeing.
Speaker Change: Seeing a a challenge there, but what is exciting though is due to that there is more investment going into farming on the whitefish sites. For example on costs for example, in Norway, which is up more kind of a very attractive business.
Speaker Change: Four four players such as at JBT model, but I think the real bright spot is the.
Arni Sigurdsson: But I think the real bright spot is the salmon industry that has been improving over the last few quarters. You see that the challenges on the biological side has been improving. So there's been basically challenges in salmon farming, which has lowered the quality of the fish and that creates certain restrictions on whether you can export. But that has been improving. So actually, salmon prices have been coming down, which helps with demand. And that is feeding into production growth that is expected in the low to mid single digits for 2025 and even slightly higher in 2026.
Speaker Change: Is the salmon industry that has been improving over the last few quarters.
Speaker Change: You see that.
Speaker Change: The challenges on the biological side has been improving so there's been basically challenges in salmon farming, which has lowered the quality of the fish and that create certain restrictions on whether you can exports.
Speaker Change: But that has been improving so actually salmon prices have been coming down which helps with demand and that is feeding into production growth that we.
Speaker Change: As expected and the.
Speaker Change: In the low to mid single digits for for 2025, and even slightly higher in 2026. So I think that is promising and we see a bit more activity as we look at it.
Arni Sigurdsson: So I think that is kind of promising and we see a bit more activity as we look at the pipeline. But we're not out of the woods and we want to kind of see a little bit more strength coming into the numbers. But I would say overall, the salmon industry is moving in the right direction.
Speaker Change: Kind of at the pipeline, but we're not out of the board and we want to kind of see a little bit more strength coming into the into the numbers, but I would say overall.
Speaker Change: The salmon industry is moving in the right direction.
Justin Ages: All right, that's helpful. Thanks.
Speaker Change: Alright Thats helpful. Thanks, and then just on the recurring versus non recurring split I know some strength there, but just wondering how much of a recurring kind of ticking past that 50% Mark is related to the new digital offerings that were kind of touted that the combined.
Matt Meister: And then just on the recurring versus non... Kerring split. I know some strength there. We're just wondering how much of Schmidt and Raza Beatty. The primary reason why we're above 50% of the quarter is just because of the seasonality on the equipment revenue recognition. So from a dollar perspective, when you look at our 10-Q, which is coming out today, you can kind of see the difference between equipment and parts. That'll moderate over the course of the year as equipment shipments increase. That said, on the software side, so obviously, both sides of the business, their revenue is in both of our businesses, so it didn't have a material change from, you know, one quarter to the next.
Speaker Change: Entity versus just shifting.
<unk> orders.
Speaker Change: The.
Speaker Change: The primary reason why we're above 50% of the quarters, just because of the seasonality on the equipment revenue recognition. So from a dollar perspective, when you look at our 10-Q, which is coming out today, you can kind of see the the difference between.
Speaker Change: Equipment and.
Speaker Change: And.
Speaker Change: That will moderate over the course of the years.
Speaker Change: Equivalent chip shipments increase.
Speaker Change: That said on the software side, so obviously, the both sides of the business.
Speaker Change: Revenues in both of our businesses. So it didn't have a material change from one.
Speaker Change: Quarter to the next but that said I will say.
Matt Meister: But that said, I will say, our software and digital folks are pretty excited about bringing the two products together. Marel has a mix of what we call line software solutions, which really brings the pieces together across multiple products to get overall equipment efficiency of the line. And then JBT has been quite strongly focused on the optimization of the individual piece of equipment itself with visibility from our OmniBlue software. And Marel has made some good strides on the same as well. So we're bringing that equipment optimization software together. So it's still early days. There's a lot of, obviously, programming and whatnot that comes in.
Speaker Change: Our software digital folks are pretty excited about bringing the two products together.
Speaker Change: Morale has a mix of what we call software <unk> software solutions, which really brings the pieces together across multiple.
Speaker Change: Products to get overall equipment efficiency of the line.
Speaker Change: And then JBT has been quite strongly focused on the optimization.
Speaker Change: Of the individual pieces of equipment itself with visibility from our omni Blue software and <unk> made some good strides.
Speaker Change: On the same as well so we're bringing.
Speaker Change: That optimization equipment optimization software together so.
Speaker Change: It's still early days, there's a lot of obviously programming and whatnot that comes in so we haven't seen much.
Matt Meister: So we haven't seen much of an impact so far on revenue synergies there, but more to come with that. I hope that's helpful. Thank you.
Speaker Change: Much of an impact so far on revenue synergies, there, but but more to come with that.
Speaker Change: Got it that's helpful. Thanks for taking the questions.
Speaker Change: Thank you.
Baylee: And as a reminder, if you would like to ask a question, press star and then the number one on your telephone keypad.
Speaker Change: As a reminder, if you would like to ask a question press Star and then the number one on your telephone keypad.
Meg Dobre: Your next question comes from the line of Meg Dobre with RW Baird. Your line is All right, I got back in queue since we didn't talk about cost mitigation. I guess I'm gonna have to bring that up. No problem. Yeah, thanks for taking a follow up. So slide seven, very helpful. Appreciate all the detail there. So I guess two questions. It sounds to me like you're saying Q2 is really not going to experience a lot of these negative cost drags, because, you know, you have inventory and so on. And the guidance certainly looks that way.
Speaker Change: Your next question comes from the line of Matt O'brien with RW Baird. Your line is open.
Matt O'brien: Alright, I got back in Q since we didn't talk about cost mitigation.
Speaker Change: You have to bring that up no.
Matt O'brien: Yes, thanks for taking my follow ups.
Matt O'brien: Slide seven very helpful. I appreciate all the detail there.
Matt O'brien: So I guess two questions. It sounds to me like Youre, saying Q2 is really not going to experience a lot of.
Matt O'brien: These negative cost drags because you have inventory and so on.
Matt O'brien: And the guidance certainly looks that way.
Matt Meister: How do we think about the second half here? Because it sounds like you're saying you you think you have tools to be able Offset. I don't know if that's immediate, if that happens as soon as Q3, if it takes a little bit longer, maybe talk us through that. So you see the numbers on slide seven in terms of that $12 to $15 million per quarter. I think one of the concerns, obviously, is where the tariff rates go, which is why we provide the detail where we're doing the purchasing. So you could do a little bit your own math.
Matt O'brien: How do we think about the second half here because.
Matt O'brien: Looks like Youre, saying, you think you have tools to be able to offset.
Matt O'brien: Maybe half of these costs, but I don't know if thats immediate if that happens as soon as Q3, if it's if it takes a little bit longer maybe talk us through that.
Matt O'brien: Sure. So we will get impacted by in this in the second quarter. It's included in the guidance, it's about $3 million or so is our estimate.
Matt O'brien: Because we're writing checks for tariffs.
Matt O'brien: Alright, so it is happening.
Matt O'brien: Some of it gets capitalized into inventory and then as you saw it it gets.
Matt O'brien: It gets recorded but.
Matt O'brien: It will accelerate in the back half as you work through your inventory and whatnot. So.
Matt O'brien: So you see the numbers on slide seven in terms of that 12% to $15 million per quarter.
Matt O'brien: I think one of the concerns obviously is where the tariff rates go which is why we provide the detail where we're doing the purchasing so you could do a little bit your own massive if European tariffs come down or come up that will affect that number but.
Overall, we do feel we have a good path to mitigating the costs, which is why we suggested we can.
Matt Meister: If European tariffs come down or come up, that will affect the number. But you can't cut that impact by more than half, particularly in the back half, as some of these efforts get going. And specifically, a bunch of things in our tool chest here. Obviously, we're just simply push back on price increases. And then keep in mind, we are rarely single sourced on a part, on parts purchases. So we can either reallocate that demand to a domestic supplier, or we can just take the better cost there. We can certainly find new U.S. suppliers and reallocate that wallet share there.
Matt O'brien: Cut that impact by by more than half.
Matt O'brien: Particularly in the back half.
Matt O'brien: As some of these efforts.
Matt O'brien: Knowing and specifically.
Matt O'brien: Thanks, a bunch of things in our tool chest here, obviously, we're just simply pushback on price increases.
Matt O'brien: And then keep in mind, we are rarely single sourced on our part and parts purchases. So we can either reallocate that demand to a domestic supplier.
Matt O'brien: And just take up the better cost there.
Matt O'brien: We can certainly find new U S suppliers and reallocate that wallet share there and then we also are working on kind of the make versus buy.
Matt Meister: And then we also are working on kind of the make versus buy decision ourselves. We do have parts capacity in the U.S. at a couple of our facilities, as well as Brazil and perhaps even India. So we're looking to resource some of those parts. That takes a little bit more time, obviously, than just shifting vendors around or shifting the wallet around. But we do have that in our tool chest, and we're thinking about those. And then on the equipment side, again, that takes a little bit longer, we do ship a fair amount of equipment, particularly from the Netherlands.
Matt O'brien: Decision ourselves, we do have parts capacity in.
Matt O'brien: In the U S. At a couple of our facilities as well as Brazil, and perhaps even in DSO were looking to resource some of those parts.
Matt O'brien: Takes a little bit more time, obviously than just shifting.
Matt O'brien: Vendors around or shifting the wallet around but what we do have that in our tool chest and we're thinking about those.
Matt O'brien: And then on the equipment side again that takes a little bit longer we do ship a fair amount of equipment, particularly from.
Matt O'brien: The Netherlands, and but again, we do have production capacity in the U S and a few facilities.
Matt Meister: And but again, we do have production capacity in the US, and a few facilities, again, and as well as Brazil that we're thinking about moving this stuff around. So there's lots of moving pieces, obviously, you've got just all the uncertainty is the tariffs, what's the dollar amount, but we're well underway and trying to mitigate this. But I do feel confident that we can, mitigate it by at least half, especially when you consider combining the cost actions with the pricing actions. That's very helpful. And then as I think about 2026, and let's assume that the assumptions that you have on slide seven remain in place, the tariffs remain as they are.
Matt O'brien: Again, and as well as Brazil that we're thinking about moving this stuff for them. So there is lots of moving pieces, obviously, you've got Ya.
Matt O'brien: All of the uncertainty of the tariffs, what's the dollar amount, but we're well underway in trying to mitigate this but I do feel confident that we can.
Matt O'brien: Gated by at least half, especially when you consider combining the cost actions with the pricing actions.
Matt O'brien: That's very helpful. And then as you think about 2026, and let's assume that the assumptions that you have on slide seven remain in place with tariffs remain as they are.
Matt Meister: When we get to 2026, I think you'll be able. get to that point where the effect of these fully mitigated? You know, can you do that with pricing for your 2026 product? Or should we sort of think about Dragg is something that gets applied. I think generally speaking, our thoughts are that this just becomes a cost of doing business for us and our customers that gets embedded into the business. Obviously, that always makes our customers make sure that they still get the ROI on their investment. So I think that's an ongoing conversation. But I just do think this is going to be embedded into our respective cost structure.
Matt O'brien: When we get to 2026 do you think youll be able to get to that point where the.
Matt O'brien: The effect of these tariffs would be.
Matt O'brien: Fully mitigated can you do that with pricing for your 2026 product.
Matt O'brien: Or should we sort of think about this drag.
Matt O'brien: Drag this call it $6 million to $7 million.
Matt O'brien: Quarterly drag is something that that gets applied to 2026 as well.
Matt O'brien: I think generally speaking our thoughts are that this just becomes a cost of doing business for us and our customers that gets embedded into the business model obviously debt.
Matt O'brien: It makes our customers to make sure that they still get the ROI on their investment. So I think that's an ongoing conversation, but I do think this is going to be embedded into.
Matt O'brien: Our respective cost structures and.
Matt Meister: and and some of the if we have to move manufacturing around that could go into early 2026. But certainly by maybe the second quarter, or certainly the back half of 2026, we would be realigned is presuming we have some transparency and visibility on what the actual tariff rates are. And maybe just to add, what we've also talked about is just how do we see this as an opportunity? Because a lot of our peers in the market are situated kind of similarly to JVT models. So if you look on the legacy model side, a lot of the competitors are based in Europe when we're in Europe.
Matt O'brien: And some of the if we have to move manufacturing around that.
Matt O'brien: Go into early 2026.
Matt O'brien: Certainly by maybe the second quarter or certainly the back half of 2026, we would be realigned is.
Matt O'brien: Presuming we have some <unk>.
Matt O'brien: Transparency and visibility on what the actual tariff rates are.
Matt O'brien: And maybe just to add we've also talked about is just how do we see this as an opportunity because a lot of our peers in the market.
Our situation is situated similarly tool to to JBT model modest. So if you look on the legacy motto side a lot of the.
Matt O'brien: <unk> are based in Europe, when we are in Europe, but with the scale and the global rights and just the fact that we have kind of two supply chain that we are now bringing together we haven't brought them together fully already so kind of as we can I can think about I think we have more flexibility and more opportunity to adopt to the.
Matt Meister: But with the scale and the global reach, and just the fact that we have kind of two supply chains that we are now bringing together, we haven't brought them together fully already. So kind of, as we kind of can think about, I think we have more flexibility and more opportunity to adopt to the changing environment. So I think that's something that we're also kind of looking towards, as we think further ahead. And just to actually further the point, and I know I'm beating a stick to death a little bit, but on Arni's last point, we have a tremendous business in Brazil.
Matt O'brien: To the changing environment. So I think that's something that we're also kind of looking towards.
Matt O'brien: As we think further out.
Matt O'brien: And then.
Matt O'brien: Just to actually further to the point and I know, that's a little bit, but <unk> last point.
Matt O'brien: We have a tremendous.
Matt O'brien: Business in Brazil.
Matt Meister: The combined business, we have three large factories and one smaller manufacturing factory, and then we have a large distribution center for parts, as well as a customer innovation center there. So we do have the ability to, again, as Arni said, move some global supply chains around, and Brazil could be a really nice answer for us if we think Europe is just simply going to be too expensive, and we need to alleviate if we have any constraints in the U.S. or higher costs in the U.S. Understood.
Matt O'brien: A combined business, we have three large factories and one smaller manufacturing factory factory and then.
Matt O'brien: And then we have a.
Matt O'brien: The large distribution center for parts.
Matt O'brien: Well as the customer innovation center there. So we do have the ability to again as already said move some global supply chains around in Brazil could be a really nice answer for us. If we think Europe is just simply going to be too expensive and we need to alleviate.
Matt O'brien: And if we have any constraints in the U S or higher costs in the U S.
Arni Sigurdsson: Last last question is really on integration. It sounds like things are going well. I'm curious. Say, for instance, there is an adverse effect on demand. either in the back half or maybe even stretching. Six, what does that mean for your integration effort? You know, do you do you get to? pull forward some synergies? Do you have that ability?
Matt O'brien: Understood last last question.
Matt O'brien: Is it really an integration it sounds like things are going well I'm curious if.
Matt O'brien: So for instance, there is an adverse effect on demand.
Matt O'brien: Either in the back half or maybe even stretching into 2026, what does that mean for your integration effort.
Matt O'brien: Do you do you get to maybe.
Matt O'brien: Pull forward some synergies do you have that ability or maybe it's the opposite where if you are dealing with lower volumes and you do have to make changes to your manufacturing footprint. As previously discussed then that actually makes the integration process more complicated and and maybe raises the risks do you being able to deliver it.
Arni Sigurdsson: Or maybe it's the opposite where If you are dealing with lower volumes and you do have to make changes to your manufacturing footprint as previously discussed, then that actually makes the integration process more complicated and maybe raises the risk. I'm curious about your thoughts on the work that you've been able to deliver on those synergies that you outlined. It is it is a bit mixed. So certainly on the on the cost side on the SG&A, etc, logistics, whatnot, we can continue those. And if the demand environment changes, we have a history from a from our cost side of being able to our continuous improvement side of being able to react appropriately for the demand environment.
Matt O'brien: On those synergies that you outlined.
Matt O'brien: So your thoughts on that.
Matt O'brien: It is a bit mix. So certainly on the on the cost side on the SG&A et cetera logistics whatnot.
Matt O'brien: We can continue those and.
Matt O'brien: If the demand environment changes, we have a history from a.
Matt O'brien:
Matt O'brien: From a cost side of being able to our continuous improvement side of being able to react appropriately for the demand environment. So we feel that we have that in our tool chest and we can manage that appropriately.
Arni Sigurdsson: So we feel that we have that in our tool chest. And we can manage that appropriately. The say the potential offset that obviously would be not so much on the manufacturing side, because I think we can get that utilization one way or another and get that efficiency. One way, you know, if we move stuff around, the risk would be more so on how much materials you buy, right? So what's the just the pure volume of raw materials, parts, etc. And, and getting the synergy savings on that combined purchase. So that would be more of the risk in a lower demand environment.
Matt O'brien: The I'll say the potential offset that obviously would be not so much on the manufacturing side, because I think we can get that utilization, one way or another and get that efficiency.
Matt O'brien: If.
Matt O'brien: If we move stuff around.
Matt O'brien: The risk would be more so on how much materials you buy right. So what's the just the pure volume of raw.
Matt O'brien: Our raw materials parts et cetera.
Matt O'brien: And getting the synergy savings on that combined purchase so that would be more of the risk on.
Matt O'brien: The lower demand environment.
Unknown Executive: All right, appreciate it.
Matt O'brien: Alright, I appreciate it good luck.
Unknown Executive: Good luck.
Matt O'brien: Thank you.
Unknown Executive: And there are no further questions at this time.
Matt O'brien: And there are no further questions at this time, Mr. Brian deck, I'll turn the call back over to you for closing remarks.
Brian Deck: Mr. Brian Deck, I turn the call back over to you for closing remarks. Thank you all for joining us this morning. As always, Marlee will be available if you have any additional Thank you.
Speaker Change: Thank you all for joining us this morning as always Marley, we'll be available if you have any additional questions.
Unknown Executive: This concludes today's conference. You may now
Thank you. This concludes today's conference you may now disconnect.
Speaker Change: Okay.