JBT 2018 Q3 Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2018. The filing is by John Bean Technologies Corporation (JBT), which operates FoodTech and AeroTech businesses; the filing text does not identify the registrant as JBT MAREL. Financial statements are unaudited interim statements reviewed by KPMG.
Business context and results
JBT provides equipment, systems and services to food and beverage customers through FoodTech and to air transportation customers through AeroTech. Management’s Elevate strategy emphasizes new products and services, recurring revenue, operational initiatives and disciplined acquisitions.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $481.9 million | $420.8 million | $1,382.4 million | $1,151.4 million |
| Operating income | $36.6 million | $41.9 million | $84.7 million | $91.5 million |
| Operating margin | 7.6% | 10.0% | 6.1% | 7.9% |
| Net income | $26.4 million | $25.8 million | $61.2 million | $61.1 million |
| Diluted EPS | $0.82 | $0.80 | $1.90 | $1.93 |
| Adjusted diluted EPS (non-GAAP) | $1.06 | $0.82 | $2.64 | $1.99 |
| Adjusted EBITDA (non-GAAP) | $63.5 million | $55.3 million | $160.0 million | $131.6 million |
Q3 revenue rose 15% year over year, reflecting 10% organic growth, a 4% contribution from ASC 606 adoption and 3% from acquisitions, partly offset by a 2% foreign-currency impact. For the nine-month period, revenue increased 20%, including 7% organic growth, a 9% ASC 606 contribution, 3% from acquisitions and a 1% currency benefit.
FoodTech Q3 revenue was $332.5 million, up 12%; segment operating profit was $41.9 million and margin was 12.6%, versus 12.8%. AeroTech revenue was $149.5 million, up 20%; segment operating profit was $17.6 million and margin was 11.8%, versus 12.3%. Nine-month total inbound orders were $1,420.4 million, compared with $1,262.8 million.
Cash, debt and liquidity
- Cash and cash equivalents were $38.5 million at September 30, 2018, versus $34.0 million at December 31, 2017; $34.4 million was held by foreign subsidiaries.
- Nine-month operating cash flow was $26.6 million, down from $69.2 million. Capital expenditures were $28.5 million; acquisitions used $57.6 million net of cash acquired. Cash from operating activities less capital expenditures was therefore negative $1.9 million.
- Long-term debt was $486.1 million, with $0.1 million of short-term debt and current maturities. JBT reported $489.8 million drawn on its $1 billion revolving facility, which matures in June 2023. The filing does not reconcile the facility draw to the balance-sheet debt amounts.
- Reported liquidity, defined by JBT as cash plus borrowing capacity under credit facilities, was $394.4 million. JBT was in compliance with its credit covenants at quarter-end.
- Cash dividends declared were $0.10 per share in Q3 and $0.30 per share for the nine months.
Material changes and unusual items
- Operating margin declined despite revenue growth. Q3 gross margin fell to 28.0% from 28.9%; nine-month gross margin fell to 27.4% from 29.0%. The company cited equipment mix and margins, installation costs, foreign exchange, and the revenue-recognition transition. Restructuring expense was a significant additional drag.
- Reported restructuring expense was $11.6 million in Q3 and $32.8 million for the nine months, compared with $0.3 million and $1.3 million, respectively, in 2017. JBT reported $36.3 million of 2018-plan costs incurred during the nine months, including consulting and severance.
- ASC 606 was adopted January 1, 2018. JBT said it increased reported revenue by approximately $17.8 million in Q3 and $99.9 million year to date; the filing’s pro forma comparison estimates nine-month net income would have been $43.0 million without adoption, versus $61.2 million reported. Adoption changes timing and presentation, not customer billing or cash flows.
- JBT acquired FTNON in July 2018 and also acquired Schröder in January. Five acquisitions made during 2017 and 2018 represented aggregate net consideration of $166.2 million; some purchase accounting remained provisional.
- The effective tax rate was 25.71% in 2018 versus 31% in 2017, reflecting the Tax Act. Q3 tax included a $0.6 million discrete expense and $1.5 million discrete benefit related to provisional Tax Act estimates.
Outlook, commentary and risks
- No consolidated revenue or earnings guidance is provided in the supplied filing text. Management expects approximately $50 million total cost for the 2018 restructuring plan, with the remaining costs expected by mid-2019. It targets $45 million of annualized savings: about $2 million in Q4 2018, an incremental $13 million in 2019 and $28 million in 2020. Savings realized through September 30 were $2 million.
- Management said operating cash flows and the credit facility are expected to fund working capital, R&D, restructuring, capital spending, pension contributions, anticipated repurchases, acquisitions and other requirements. It expects covenant compliance to continue, while noting that economic volatility could affect compliance or access to financing.
- Market and execution risks include foreign-exchange exposure, floating-rate debt (approximately $264.8 million, or 54% of debt, was exposed to market rates), acquisition integration, and pressure on equipment margins. JBT also warned that tariffs, trade restrictions or retaliation could raise costs, disrupt supply or reduce demand.
- JBT had $232.4 million of performance-related letters of credit, bonds and other guarantees, plus $6.6 million of guarantees securing financial obligations. Customer financing guarantees had a gross value of $6.9 million and stated net exposure of $0.3 million.
- The company is participating in a Delaware unclaimed-property voluntary disclosure process and said it could not estimate whether significant obligations exist. Management did not expect pending legal matters, individually or in aggregate, to materially affect results or financial position, but an unfavorable resolution could affect a particular future period.
Most important facts for investors to verify
- How much of reported revenue and earnings growth reflects underlying demand versus ASC 606 timing, acquisitions and currency effects.
- Whether gross-margin performance and cash conversion improve as projects progress and the restructuring plan is implemented.
- Actual restructuring savings, remaining costs and timing compared with management’s $45 million annualized savings target.
- Debt balances and available revolver capacity, covenant headroom, and the effect of higher interest rates on floating-rate borrowings.
- Acquisition integration and final purchase accounting, including provisional FTNON and Schröder valuations, as well as the outcome of the Delaware unclaimed-property review.