JBT Corporation — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. JBT provides equipment, systems, and services to food and beverage and air transportation markets through FoodTech and AeroTech. Amounts are in U.S. dollars; financial statements are unaudited.
Financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $386.1M | $328.8M | $730.6M | $595.9M |
| Operating income | $29.7M | $29.9M | $50.2M | $39.6M |
| Continuing-operations income | $18.3M | $18.8M | $35.9M | $24.0M |
| Net income | $17.9M | $18.8M | $35.3M | $23.9M |
| Diluted EPS | $0.56 | $0.63 | $1.12 | $0.80 |
| Adjusted EBITDA (non-GAAP) | $43.2M | $41.3M | $76.3M | $66.8M |
- Q2 gross profit was $114.8M, or approximately 29.7% of revenue, versus $95.8M, or 29.1%. Operating margin was approximately 7.7%, compared with 9.1%.
- Six-month gross profit was $212.4M, or approximately 29.1% of revenue, versus $172.6M, or 29.0%. Operating margin was approximately 6.9%, compared with 6.6%.
- Operating cash flow from continuing operations was $2.0M for the first half. Capital expenditures were $17.5M and acquisitions, net of cash acquired, used $62.1M; cash declined $6.9M to $26.3M.
- At June 30, cash was $26.3M and total current assets and liabilities were $560.4M and $403.7M. Reported short-term and long-term debt totaled $399.5M. The company reported $241.1M of liquidity, including cash and borrowing capacity.
- Cash dividends were $0.10 per share in Q2 and $0.20 per share for the first half.
Changes and operating performance
- Q2 revenue increased 17.4%; management attributed $43.6M of the increase to acquisitions and $13.7M to organic growth. Six-month revenue rose 22.6%, including $77.6M from acquisitions and $57.1M organic growth.
- Q2 operating income was nearly flat despite higher revenue, as gross profit growth was offset mainly by higher SG&A, including acquired-business costs and investment in the Elevate strategy. Net income declined 4.8% year over year.
- First-half operating income increased 26.8%, helped by higher gross profit and $8.1M lower restructuring expense. First-half net income increased 47.7%; results included a $5.8M discrete tax benefit from updated share-based compensation accounting.
- FoodTech Q2 revenue rose 21.9%, while segment operating profit was essentially flat at $31.1M. AeroTech revenue rose 6.6%, but segment operating profit fell 5.3% to $10.8M.
- First-half inbound orders increased to $822.4M from $651.4M. FoodTech orders rose to $600.9M; AeroTech orders fell to $221.4M from $228.6M.
- In March, JBT issued 2.3M shares and received $184.1M net, using proceeds partly to reduce revolving-credit borrowings. Outstanding shares were 31.6M at July 24, 2017.
Outlook, risks, and unusual items
- The filing provides no specific full-year revenue or earnings guidance. Management said operating cash and credit availability were expected to fund working capital, R&D, restructuring, capital spending, pension contributions, acquisitions, and other needs.
- Management’s Elevate strategy focuses on product and service development, recurring revenue, growth and efficiency initiatives, and disciplined acquisitions. It reported $5.7M of cumulative savings through June 30 from the 2016 optimization plan and expected further savings in 2017 and 2018, with some reinvested in growth initiatives.
- JBT acquired Avure Technologies in February 2017 for $58.9M. After quarter-end, it acquired AMSS for £10.0M and PLF for £28.0M; the filing said both were funded with cash and revolving-credit borrowings. Purchase accounting for the post-quarter acquisitions was not yet complete.
- JBT expects to adopt the new revenue standard on a modified-retrospective basis in 2018. It estimated that 30–40% of revenue could be affected, with some equipment and refurbishment revenue potentially recognized over time and earlier than under the prior method; the impact was still being quantified.
- Debt covenants were in compliance at June 30. The credit facility’s maximum leverage ratio was 3.5x after a May amendment; a temporary increase option may be available following qualifying acquisitions. Approximately $173M, or 43% of debt, was exposed to floating rates, creating interest-cost risk.
- Risks and contingencies include foreign-exchange exposure, an ongoing Delaware unclaimed-property audit covering 1986 onward for which a possible assessment could not be estimated, and $171.1M of performance-related guarantees. Management did not expect pending legal matters to materially affect financial position or results overall, but noted an unfavorable resolution could materially affect a particular future period.
- Quarterly results included restructuring charges, acquisition costs, and discontinued-operation losses. The interim statements were reviewed, not audited; management reported effective disclosure controls.
Investor verification points
- Reconcile organic growth and acquisition contributions, and assess whether order growth—especially in FoodTech—converts into revenue and segment profit.
- Track segment margins and SG&A growth as acquisitions and Elevate investments scale.
- Evaluate working-capital consumption and cash generation against acquisition spending, capital expenditures, and planned pension contributions.
- Confirm post-quarter AMSS and PLF purchase accounting, financing, and contribution to results.
- Monitor covenant headroom, floating-rate exposure, foreign cash and potential repatriation taxes, and the outcome of the Delaware audit.
- Follow the quantified effects and implementation progress of the 2018 revenue-recognition transition.