JBT MAREL Corp quarterly report, Q1 FY2015

JBT 10-Q Summary — Quarter Ended March 31, 2015

Business context: John Bean Technologies Corporation (JBT) provides equipment and services to food processing and air transportation customers through JBT FoodTech and JBT AeroTech. This unaudited Form 10-Q reports the first quarter of 2015, with comparisons to Q1 2014 unless noted. The interim financial statements were reviewed by KPMG, not audited.

Financial performance

• Revenue increased 13.6%; management attributed growth to 13.5% organic growth and 5.0% from acquisitions, partly offset by a 4.9% foreign-currency translation impact.
• Segment revenue was $139.2 million for FoodTech (+2.7%) and $86.2 million for AeroTech (+37.5%). Segment operating profit rose to $21.5 million from $14.1 million. AeroTech’s improvement reflected higher equipment sales and margins; FoodTech benefited from volume, pricing, and productivity savings.
• Adjusted EBITDA, a non-GAAP measure, was $20.5 million versus $13.0 million. Adjusted continuing-operations diluted EPS was $0.27 versus $0.15; 2014 adjustments primarily excluded restructuring, management succession, and consulting costs.
• Operating cash flow improved by $9.4 million year over year. Capital expenditures were $7.8 million; operating cash flow less capital expenditures was $22.7 million. Cash declined $13.5 million to $19.8 million, including a $5.6 million adverse foreign-exchange effect.
• At March 31, cash was $19.8 million; current assets were $354.5 million and current liabilities $288.2 million (current ratio approximately 1.23). Total assets were $650.2 million and stockholders’ equity $104.4 million.
• Balance-sheet short- and long-term debt totaled $154.6 million. The company had drawn $72.7 million on its new revolving facility at a 1.45% weighted-average rate and had $75 million of 6.66% senior notes due July 31, 2015. Management planned to use the revolver to repay those notes. Reported liquidity, defined by management as cash plus borrowing ability under revolving facilities, was $264.9 million.

Material changes and management commentary

• Operating results turned profitable compared with the prior-year quarter, when $10.2 million of restructuring expense contributed to an operating loss. No restructuring expense was recorded in Q1 2015.
• Gross profit rose $11.0 million, supported by higher sales volume, strategic pricing, restructuring savings, and productivity initiatives. SG&A increased $2.3 million, partly due to aftermarket sales investment and acquired businesses; net interest expense also increased.
• Inbound orders increased to $305.9 million from $260.9 million, while period-end backlog was $435.4 million versus $439.4 million. FoodTech backlog rose, while AeroTech backlog declined.
• Comprehensive loss was $7.8 million despite net income of $8.0 million, principally because of $16.3 million in foreign-currency translation losses.
• JBT entered a new five-year, $450 million revolving credit facility in February 2015. It also entered forward-starting interest-rate swaps covering $175 million of borrowings at stated rates of 1.592% and 1.711%, plus the applicable leverage-based margin.

Outlook, risks, and contingencies

• For 2015, management projected revenue growth of 3%, including an estimated 5% unfavorable currency-translation effect; segment operating-margin expansion of 50–100 basis points; and diluted continuing-operations EPS of $1.65–$1.80, including a revised $0.15-per-share currency headwind.
• Management expected to contribute $15 million to pension and postretirement plans in 2015; $5 million had been contributed in Q1. It also expected about $7 million more to the U.S. qualified pension plan during the rest of the year.
• The company disclosed a Delaware unclaimed-property audit covering 1986 to the present; it could not estimate a possible loss. Management stated that pending and threatened legal matters were not expected to have a material adverse effect overall, though an unfavorable resolution could affect a particular future period.
• Outstanding performance guarantees and similar instruments totaled approximately $73.4 million; additional guarantees and letters of credit securing financial obligations were about $8.4 million. Customer financing guarantees had a gross value of $11.3 million and net exposure of $1.6 million.
• Key exposures include foreign-exchange movements, debt covenant compliance, access to credit, and possible additional taxes if foreign cash is repatriated. The company reported covenant compliance at quarter-end and expected to remain compliant, but gave no assurance against future adverse conditions. It also disclosed that shared-services and related control-process changes would continue through 2015; management reported disclosure controls effective.

Important facts for investors to verify

• Whether the $75 million senior notes were repaid as planned at their July 2015 maturity, and the resulting debt, interest cost, and revolver availability.
• Whether the 2015 revenue, margin-expansion, and EPS guidance was achieved, particularly after the disclosed currency headwind.
• Whether stronger orders convert into revenue and backlog, given that total backlog was slightly lower year over year and AeroTech backlog declined.
• Developments in the Delaware escheat audit, guarantees, and other contingencies, for which the filing does not provide a clear potential-loss estimate.
• Foreign-exchange effects on reported results and comprehensive income, and the sustainability of margin gains from pricing, restructuring, and productivity actions.