John Bean Technologies Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 23, 2024

There are 7 speakers on the call.

Operator

Good morning, and welcome to JBT Corporation's 3rd Quarter 20 24 Earnings Conference Call. My name is Prilla, 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.

Operator

Thank you. I will now turn the call over to JBT's Director of Investor Relations, Marley Spangler to begin today's conference.

Speaker 1

Thank you, Preella. Good morning, everyone, and welcome to our Q3 2024 earnings 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 ks filing. JBT's periodic SEC filings also contain information regarding risk factors that may have an impact on our results.

Speaker 1

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.

Speaker 2

Thanks, Marley, and good morning, everyone. We were very pleased with JBT's results for the Q3. As expected, we posted double digit year over year revenue growth and captured meaningful margin expansion. Moreover, we continue to generate strong orders and benefit from the ongoing recovery in demand from the global poultry end market. Overall, our progress and performance in the 3rd quarter reinforces our confidence in our full year expectations of 3% to 5% revenue growth in 2024 and adjusted EBITDA growth of 10% at the midpoint of our guidance.

Speaker 2

Matt will walk you through an analysis of the Q3. He will also discuss the securing of commitments for financing the Morrell merger. Then I will speak about end market and geographic trends, discuss updates on the combination with morale and provide some highlights on our exceptional automated guided vehicle business. Matt?

Speaker 3

Thank you and good morning. As Brian mentioned, we achieved strong growth and margin improvement in the Q3 of 2024. Revenue of $454,000,000 increased 12.4% year over year. As anticipated, we converted our strong backlog to revenue and recovered the revenue shortfall from the Q2. Adjusted EBITDA of $82,000,000 increased 23% year over year, and our adjusted EBITDA margin of 18% increased 160 basis points.

Speaker 3

This year over year improvement was driven by higher volume flow through as well as cost savings from both our restructuring program and supply chain initiatives. Adjusted EPS in the 3rd quarter was $1.50 versus $1.11 in the prior year. EPS benefited primarily from our strong operational performance and positive net interest income. Year to date, we generated free cash flow of $79,000,000 dollars For reference, on a trailing 12 month basis as of September 30, we achieved free cash flow of $184,000,000 Our strong performance in the Q3 is the result of higher income and improved working capital management. And for the full year, we remain confident in our ability to achieve a free cash flow conversion rate in excess of 100%.

Speaker 3

Given JBT's strong year to date performance and backlog, we are reiterating our full year guidance for revenue, adjusted EBITDA and adjusted EPS. We are, however, updating guidance for income from continuing operations and GAAP EPS to reflect our plan to settle all outstanding obligations of JBT's pension plan through a combination of voluntary lump sum settlements and the purchase of an annuity contract. And in the Q4, we expect a portion of eligible participants to elect to receive lump sum settlements from the plan. As a result, we expect to incur approximately $30,000,000 in non cash pre tax charges during the quarter. This brings our full year estimate for income from continuing operations to $116,000,000 to 125,000,000 dollars and GAAP EPS to $3.60 to $3.90 Additionally, in the Q1 of 2025, we expect to settle the remaining obligations of the plan and anticipate further non cash pretax charges of approximately $145,000,000 Given the plan's fully funded status, we anticipate these actions will have an immaterial impact on cash flow.

Speaker 3

Lastly, as outlined in our press release, in October, we secured financing commitments contingent on the completion of the merger with Morrell. Once executed, we will issue a $900,000,000 Term Loan B and expand our existing revolving credit facility to 1,800,000,000 dollars Funds from this new capital structure along with cash on the balance sheet will be used to pay the cash portion of the transaction, refinance Morrell's outstanding debt and pay transaction related expenses. As a first time issuer in the Term Loan B market, we are very pleased with the overall demand and pricing structure. With an offering that was more than 3x oversubscribed, we were able to upsize and achieve favorable pricing. Additionally, we believe that lenders' willingness to add a leverage based pricing step down indicates confidence in management's ability to delever the business.

Speaker 3

As we have stated, we are committed to reducing JBT's leverage to less than 3 times by year end 2025. With that, I'll turn the call back to Brian.

Speaker 2

Thanks, Matt. Let me start with order trends. Orders, which totaled $440,000,000 in the quarter, increased 10% from the prior year period. We feel good about what the order strength means for the current state of our business and it positions us well as we plan for 2025. Driving the overall gains in orders, we enjoyed continued recovery in demand from the poultry end market, which showed improvement globally.

Speaker 2

Pet food, fruit and vegetable and pharma end markets also experienced healthy demand in the quarter. Orders at AGV normalized from the record Q2. While there were pockets of weakness, including certain CPG areas like beverages, our overall strength is a function of JBT's broad product portfolio and end market and customer exposure. As we have said, we have the diversified portfolio to serve our food and beverage customers regardless of changing consumer preferences. Geographically, we experienced nice pickup in order activity in Asia and a good quarter in Europe.

Speaker 2

North America also experienced good order momentum. As we mentioned last quarter, our AGV business is posting record sales and orders. Secular demand for facility automation, which is critical to addressing labor shortages and high costs, remains robust. Within the factory and warehouse automation market, AGV boasts a differentiated product, the results of decades of experience, the quality of our technology and the ability to integrate with customers' operations. Over the past few years, we have invested heavily in AGV's R and D and adjusted its business model.

Speaker 2

Specifically, we have focused on the intelligence, safety and service element of our value proposition, while focusing on larger scalable projects with our customers as opposed to bespoke projects. This strategy is paying off. We are seeing customers who installed AGV at 1 or 2 warehouses return to us as they seek to establish an expanded automation solution across their enterprise. Additionally, with the introduction of our proprietary motion operating system, we have moved to a subscription model, which requires a multi year software contract along with parts and service contract. This allows for a high touch premium value proposition based on delivering the highest performance and safety throughout the life of our systems with constant access to the most recent software features and cybersecurity upgrades.

Speaker 2

With this model, we expect recurring revenue continue to grow meaningfully as we build out the installed base. At the same time, as we discussed last quarter, changes to our manufacturing process and product standardization have improved internal efficiency and cost. As a result, we have enhanced our ability to deliver AGV systems and reduced lead times to address ongoing robust demand. Moving on to even bigger developments. On the merger with Morral, we continue to focus on integration planning and day 1 preparedness, including an evaluation of our future organizational structure.

Speaker 2

In our planning, we are viewing our businesses through the lens of the customer to create a go to market structure that aligns with their needs. We have also sought to capitalize on the respective strengths of JBT and Morrell's complementary portfolios, enabling us to optimize operational synergies while providing the most comprehensive solutions to customers. On the regulatory front, we are nearing the final stages of completing required approvals. We have been engaged in an in-depth pre notification process and dialogue with the European Commission and have received feedback that we will be able to formally file our notification to the EC in the coming days. Once we submit this merger filing, a 25 day business review period begins, after which we anticipate receiving formal approval.

Speaker 2

In terms of the voluntary takeover itself, JBT and Morale will work with FSA in Iceland to determine the appropriate extension, which will provide adequate time following the regulatory approvals for Morrell shareholders to tender their shares. JBT and Morrell will issue press releases related to the extension of the offer. Based on these most recent developments, the timeline to close remains on or about the end of 2024. And based on our extensive outreach and conversations with Morrell shareholders, we remain confident that they are supportive of the merger. Lastly, I want to thank the JBT team members.

Speaker 2

JBT's growth, operational excellence and passionate commitment to our customers wouldn't be possible without our people around the world. Now let's open up the call. Operator?

Operator

Thank you. And your first question comes from the line of Mig Dobre with R. W. Baird. Please go ahead.

Speaker 4

Thank you. Good morning, everyone. Good morning. So Brian, you spent maybe more time than normal talking about AGV and it sounds like this is a portion of the business that is doing quite well. It would be great to get a bit of a reminder from you in terms of the size of this business at this point, especially since it's been growing so much.

Speaker 4

And I'm curious how margins look like for this product. Is this positive for mix or is it maybe a little bit below your average portfolio margin?

Speaker 2

Great. So thanks for the question. So in terms of revenue, they will be north a little bit north of $150,000,000 this year, with impressive growth, like you said, north of 30% growth this year. And in terms of from a margin perspective, if you look at JBT's guidance for the year is 17% to 17.5%, they are above that range. We're striving for 20% plus this year.

Speaker 4

Interesting. And as you think about this business and its potential, I'm sort of curious as to how you think 2, 3 years out? And is there anything within the AGV business that would be able to either cross sell or cross pollinate with what Marella is doing some of their customers? Yes, I would love some comments on that as well.

Speaker 2

Sure. So, yes, and just if you think about the portfolio that they have, anywhere where you have warehouse automation, it's applicable. Certainly, quite a few of our CPG customers, beverage customers are using these operations, these AGV vehicles. I would say probably the easiest area, if you will, to cross sell with this would be on their pet food business. So, their Winger acquisition from a couple of years ago, there are potentially opportunities as you go downstream with some of the other end markets that they have.

Speaker 2

Once they get into a warehouse stage, that has a potential. But certainly, on, I would say, the more traditional CPG type and fast food type items, that's the clear opportunity.

Speaker 4

Got it. Then maybe on the core business, poultry sounds better. I'd love a little more insight as to what you're hearing from customers there. I mean, frankly, why are things getting better? How sustainable do you think this is into 2025?

Speaker 2

Right. So it's good news. They continue to make good money. We continue to have good conversations with them. We are aware of several projects that they are working on either from, I would say, a brownfield perspective, but also from a refurbishment or replacement of individual lines.

Speaker 2

So as they obviously, they've had some pent up or deferred investment over the years, we do generally feel good about it. So I think it never snaps back at the pace you would really want it to go, but we do have a consistent kind of, I'll say, improvement month over month, quarter over quarter. Our pipeline is good. We saw some what was really nice to see in the Q3 was some orders on the primary side. So JBT is not a huge player on the primary side.

Speaker 2

We do chillers and some other systems. But what's nice about that there, that's where Morrell is particularly strong. So we're hoping that is a precursor to some of the strength that we would hope to see into 2025 and thereafter. I think in terms of visibility, I would say we probably have a good 18 to 24 months visibility as we sit here. Obviously, that could change if the fundamentals change, but the fundamentals are hanging in there for sure, both from an input perspective.

Speaker 2

We've seen some seasonal declines in the poultry prices, but overall, they remain at levels where our customers are quite profitable. So generally, we feel good about that and we would expect kind of this slow but steady March to get back to full recovery. And I think it kind of depends on if we're talking primary or secondary or end of line as to when you get to those full recoveries, but either 2025 or perhaps 2026 full recovery.

Speaker 4

I guess my final question and this I don't know if you actually want to answer this or tackle the topic, but we've got an election here coming up in a few days and the whole discussion around immigration and potential deportations from Mr. Trump have certainly made headlines. And I do remember during the 1st Trump administration, there was some disruption that protein processors have had ice raids, things of that sort that have impacted their labor force. In your discussions with customers, are they sort of looking at this as something that will need to be addressed on their end, meaning this whole idea that we're going to need some additional automation or equipment that is maybe more efficient in order to sort of manage the inherent risk to their labor force that could develop down the line? Thank you.

Speaker 2

Yes, it's a very interesting and applicable question. I will say over the last what we have heard over the last few years is that labor has been more available. And I would say more of our efforts have been on improving yield efficiency, etcetera, and a little bit less what we saw during the Trump administration on pure labor replacement. So under a circumstance where you have tighter controls on immigration, I frankly would expect more opportunities on going from, say, manual cut up lines where you have folks standing shoulder to shoulder with knives and whatnot to more automated solutions. That would generally be the thesis under a Trump administration.

Speaker 2

Obviously, we'll have to see how long it takes for that to play out and whatnot. But that would generally bode well for companies like JBT and Murrow.

Speaker 4

Appreciate it. Thank you.

Speaker 2

Thanks.

Operator

Your next question comes from the line of Ross Berenblak with William Blair. Please go ahead.

Speaker 2

Hey, good morning gentlemen. Good morning. Hey, can

Speaker 5

you maybe help us size the poultry contribution to orders in the quarter? And then also your expectations for orders exiting the year into 2025? Just trying to get a sense of seasonality versus potential acceleration as we think about the cadence for next year.

Speaker 2

Yes. So in terms of the incremental orders versus the second quarter, something in the range of $10,000,000 to $15,000,000 more ballpark. So and I would say we're still that does not yet bring us, I would say, fully back to kind of where we otherwise need to be, kind of, as I mentioned with Mig on the where we get to full recovery, but In North America. Yes. Now what was interesting, Ross, is so that was North America.

Speaker 2

We actually saw some improvements outside of North America as well, specifically Asia. So that was nice to see because as you know, Asia is kind of a lumpy business for us. They tend to be do fuller lines, but we are starting to see some investments in poultry in Asia and actually Europe had a decent quarter as well.

Speaker 5

No, that's a perfect segue. I'm trying to understand, I mean, is it more a geographic angle between why you're seeing more of an acceleration in your poultry orders versus Morel thus far? We haven't seen our 3rd quarter results. Or is it kind of brownfield, greenfield, upstream, downstream, as you kind of noted with the strength in your business in the quarter?

Speaker 2

Right. I won't specifically talk to Morel and kind of where they've been, but I will just generally say JBT does play further along in the line, kind of that your second assumption. They are more upfront in full processing type primary secondary lines. JBT is further down the line generally, which so they're not as full line solutions. They tend to be 1 or 2 or 3 pieces of equipment, which have shorter sales cycles and shorter lead times versus a full system.

Speaker 2

So just a little bit different place where we play in the lines. Okay. And then thinking about

Speaker 5

the Norel timeline here, 25 day EU notice, I think that kind of mitigates any concerns from Remedy, which is a positive. But can you just remind us of what other countries outside of Europe we should be watching out for as it relates to filings?

Speaker 2

Yes. So, we're really pleased with where we are with the EU. That's been a very long process, very collaborative process we've had with them, multiple back and forth. So to get to this stage, that's a major milestone for those that are familiar with the EU, the EC filing process. So them giving us the green light to go ahead and the formal filing to kick off this 25 day waiting period is very, very positive.

Speaker 2

We have one other jurisdiction that we're finalizing. I would say, I would characterize it as, and that's Australia, dotting some I's and crossing a few T's. That does that is out there, but we feel confident that will play itself out within the same timeframe, which basically brings us to full regulatory expectation approvals by the end of November. And then we would again extend the VTO, the voluntary takeover offer period to probably a couple of weeks after that. We're working with Morrell on precisely the dates that we choose and then we will announce that here in short order.

Speaker 5

Perfect. All right. If I can maybe just get one more in. Now you've had more time with the business to look into the hood, should we expect maybe upward revision to synergy targets once the acquisition is closed? Or maybe you can give us an early read there.

Speaker 5

It just looks like REL margins and based on consensus aren't where they really need to be in regards to the pro form a targets and maybe is a little bit more cost out that will be required to hit your accretion goals?

Speaker 2

Well, I would say we have done quite a bit of work over the last 6 months. We have gotten to know them quite a bit. We certainly have a funnel and pipeline, if you will, to deliver on the $125,000,000 of all in savings all in synergies. So I would just say we're confident in that. If we get to the point where we think we can do more, we'll certainly let you know.

Speaker 2

But, really, there's only so much you can do until you actually combine businesses, in terms of visibility, perfect visibility. So I think it's appropriate to just stick with the 125 as I sit here. Yes.

Speaker 3

I think the margin improvement that we're also expecting is going to come from, again, further recovery in the protein markets and how that benefits Morrell in the higher volume. So not only are there synergies, but there's also just the recovery in volumes, which will help drive improved margins at the Morrill side. Yes.

Speaker 2

And certainly, they're also doing their own improvement efforts kind of regardless of, I would say, synergy opportunity.

Speaker 4

All right. That's perfect.

Speaker 5

I'll leave it here. Congrats, guys.

Speaker 6

Thank you.

Operator

Your next question comes from the line of Walter Liptak with Seaport Research. Please go ahead.

Speaker 6

Hi. Thank you. Good morning, everyone. Congratulations on a nice quarter. I wanted to ask about the order strength and the recovery that we're seeing in the poultry market.

Speaker 6

So it seems like it's still early days, But as we look at it geographically, where do you expect most of this where do you see the recovery strength coming from? Is it it sounds like Asia is doing well, Europe is doing well, maybe North America?

Speaker 2

Yes, I would say the pace of improvement, probably North America remains our biggest opportunity. For those who've been following for years, North America was always just the always the strongest market for us and it hasn't been over the last 2 years or so. So typically, that's our go to in terms of strength and consistency. And so that's why I do think just in terms of getting back to that level of strength and consistency is what we're looking forward to, that would be the primary.

Speaker 6

Okay. All right. Great. And then the aftermarket sales, we haven't talked too much about that on this call. But the growth, how do you feel about the 5% plus revenue growth?

Speaker 6

And can you tell us about some of the initiatives that you've had to keep that growing and maybe any positives or negatives around aftermarket?

Speaker 2

Yes. Sure. No, we're very happy with the 5% growth. As you know, that's a more stable business than the equipment side. I think we had 20% plus equipment growth in the quarter and that's obviously reflective of some of the recoveries and the strength in the backlog and whatnot that we've been talking about over the past few years.

Speaker 2

So, if we can continue to deliver consistent mid single digit aftermarket growth kind of in good times and bad, that's a really good answer. Obviously, considering that does have a better margin profile. In terms of the things that we are doing, it is really about provide there's a couple of things, but the most important things that we have to continue to focus on is on time delivery on parts. So we're doing some additional work on making sure we've got the right parts in the right places and really focusing on that. Certainly, continue to penetrate with our OmniBlue digital offering helps us in terms of those relationships with our customers and having that more engaged model.

Speaker 2

And then lastly, our service network, making sure we've got again, right, the right people in the right places, the responsiveness. So it's about having the right metrics, looking through the eyes of the customer and what are the metrics that they feel are important, not just things that you think about from a business perspective like inventory turnover and whatnot, like really kind of flipping those metrics and that's the focus that we've had and that's the combination with Morrell adds to our ability on the aftermarket side meaningfully. Again, they've got some really well developed parts distribution centers. So we're working with that how to optimize the usage of that, but also a pretty impressive service network in terms of their people and their coverage. So, and that's usually one of the biggest constraints in terms of being able to serve our customers effectively.

Speaker 2

Our service techs are quite valuable and they know the business and the products and the customers quite well. So that's a really wonderful opportunity as we come together.

Speaker 6

Okay, great. Okay, thanks so much.

Operator

Thank you. And there are no further questions at this time. I would like to turn it back to Mr. Ryan Beck for closing remarks.

Speaker 2

Thank you all for joining us this morning. As always, Marley will be available if you have any follow-up questions. Thank you. Have a great day.

Operator

Thank you. And this concludes today's conference call. Thank you all for participating. You may now disconnect.

Powered by Quartr

Key Takeaways

  • In Q3 2024, JBT posted 12.4% revenue growth to $454 M, drove a 23% rise in adjusted EBITDA to $82 M and expanded margins by 160 bps to 18%, lifting adjusted EPS to $1.50.
  • The company reiterated full-year targets of 3–5% revenue growth and 10% adjusted EBITDA growth, plus over 100% free cash flow conversion, following $184 M of trailing-12-month free cash flow.
  • JBT secured financing for the Morrell merger with a $900 M Term Loan B (3x oversubscribed) and expanded its revolver to $1.8 B to fund the cash payment, refinance debt and cover transaction costs.
  • The Automated Guided Vehicle (AGV) segment delivered over 30% growth, exceeding $150 M in revenue, and is targeting >20% margins as it shifts to a multi-year subscription model generating recurring software, parts and service revenue.
  • Orders rose 10% to $440 M in Q3, driven by a global poultry end-market recovery and broad strength across pet food, produce, pharma and automation, with gains in North America, Europe and Asia shaping a positive 2025 outlook.
AI Generated. May Contain Errors.
Earnings Conference Call
John Bean Technologies Q3 2024
00:00 / 00:00