Business context and reporting period
John Bean Technologies Corporation (JBT; NYSE: JBT) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. JBT supplies equipment and services to food and beverage customers through FoodTech and to the air transportation industry through AeroTech. The quarter’s results were significantly affected by the COVID-19 pandemic.
Financial performance and position
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $411.5 | $493.3 | $869.2 | $910.8 |
| Gross margin | 31.6% | 31.4% | 31.4% | 31.0% |
| Operating income | $47.6 | $47.0 | $91.3 | $77.0 |
| Operating margin | 11.6% | 9.5% | 10.5% | 8.5% |
| Continuing-operations income | $32.5 | $34.0 | $61.5 | $53.7 |
| Diluted continuing-operations EPS | $1.01 | $1.06 | $1.92 | $1.68 |
| Adjusted diluted continuing-operations EPS (non-GAAP) | $1.09 | $1.42 | $2.10 | $2.19 |
- Q2 revenue fell 16.6% year over year; management attributed the organic decline primarily to customers delaying capital spending. Acquisitions partly offset the decline.
- Q2 operating income was slightly higher despite lower sales, reflecting improved gross margin, lower SG&A and restructuring costs, including pandemic-related cost reductions. GAAP continuing-operations income and diluted EPS declined year over year.
- For the first half, cash from continuing operating activities was $101.0, versus $13.1 a year earlier. Free cash flow, as defined by JBT, was $86.9 versus negative $1.0; the 2020 figure included $3.2 of deferred-tax-payment benefit under the CARES Act.
- Cash was $58.0 at June 30, versus $39.5 at year-end 2019. Balance-sheet short-term and long-term debt totaled approximately $647.7, down from $699.2 at year-end. The company reported $649.7 drawn and $342.0 available under its revolving credit facility, subject to its leverage covenant.
- Reported liquidity, defined by JBT as cash plus revolving-credit availability, was $414.3. Current assets were $640.2 and current liabilities $412.3.
- First-half capital expenditures were $16.2; dividends paid were $6.3. JBT paid down $50.9 of domestic credit-facility borrowings and made no share repurchases in the quarter.
Material changes and segment performance
- Q2 FoodTech revenue decreased 11.8% to $302.8; operating profit declined to $49.0, but margin improved to 16.2% from 14.9%. Higher recurring-revenue mix and cost actions supported margins.
- Q2 AeroTech revenue decreased 27.5% to $108.7, and operating profit fell to $10.3. Margin declined to 9.5% from 11.9%, reflecting lower mobile equipment and aftermarket demand and reduced fixed-cost absorption.
- Q2 inbound orders were $344.6, down from $467.2. First-half orders were $814.7, compared with $929.0.
- First-half revenue declined 4.6%, while operating income rose 18.6%; margin improved by 200 basis points. Lower corporate expense and restructuring charges and cost reductions contributed. Adjusted EBITDA was $134.1 for the half, compared with $129.0.
- Other comprehensive loss was $26.9 for the first half, largely reflecting $25.3 of foreign-currency translation loss.
Outlook, management commentary and risks
- JBT gave no full-year revenue or earnings guidance in the provided filing text. Management expected third-quarter inbound orders to increase from Q2, largely on replacement-equipment demand, but expected pandemic-related adverse effects on results to continue through the remainder of 2020.
- Management expected positive full-year cash flow, including approximately $11 of CARES Act deferred-tax-payment benefits, and capital expenditures of $25–$30, compared with $37.9 in 2019. It said cash flows and credit access were expected to cover operating and investment needs.
- Passenger air travel remained far below pre-pandemic levels, weighing on AeroTech mobile equipment and airport services. FoodTech faced weaker food-service-related demand and customer investment delays; management noted stronger retail demand for some liquid-food products and opportunities for labor-saving protein-processing automation. Restricted customer-site access also reduced aftermarket activity.
- JBT reported it was complying with debt covenants at June 30 and expected continued compliance, while cautioning that worsening conditions could affect covenant compliance or access to capital. Approximately 62% of facility debt remained floating-rate; the company had hedged the remainder with interest-rate swaps.
- Management planned $8–$9 of Q3 restructuring charges for manufacturing-capacity rationalization, with expected annualized benefits of approximately $6–$7 by the end of 2021. Previously expected savings from the 2018 restructuring plan were delayed beyond 2020.
- COVID-19-related uncertainties include customer demand and creditworthiness, supply-chain and logistics disruption, facility access and operations, and possible further restrictions. JBT reported no goodwill or long-lived-asset impairment trigger at June 30, but said it would continue monitoring conditions.
- Guarantees for future performance totaled $144.5; separate bank guarantees and letters of credit securing existing obligations totaled $7.6. Net exposure on customer-financing guarantees was $0.1. Management said pending legal matters were not expected to have a material adverse effect overall, though an unfavorable resolution could affect a future period.
- On June 23, 2020, JBT announced that its Chairman, President and CEO, Tom Giacomini, would take a medical leave. CFO Brian Deck became interim CEO, and director Alan Feldman interim non-executive chairman.
Important facts for investors to verify
- Whether orders and revenue recover as management expected, particularly given the steep Q2 declines in AeroTech and total inbound orders.
- Whether cost reductions and restructuring benefits are sustainable, and how planned Q3 charges affect reported and adjusted results.
- Whether operating cash generation remains strong after CARES Act timing benefits and changes in working capital.
- Revolving-credit availability, covenant headroom and floating-rate debt exposure if operating conditions deteriorate.
- The duration and financial effects of the CEO’s leave and interim leadership arrangements.
- The assumptions underlying management’s no-impairment conclusion and the effects of foreign-currency movements on equity and results.