Business context and reporting period
John Bean Technologies Corporation (JBT) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The company supplies technology, equipment and services to food and beverage and air transportation markets through JBT FoodTech and JBT AeroTech.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $328.8 million | $254.6 million | $595.9 million | $479.6 million |
| Operating income | $29.9 million | $23.2 million | $39.6 million | $36.9 million |
| Net income | $18.8 million | $14.4 million | $23.9 million | $22.4 million |
| Diluted EPS | $0.63 | $0.48 | $0.80 | $0.75 |
| Adjusted diluted EPS (non-GAAP) | $0.67 | $0.48 | $1.01 | $0.75 |
| Operating cash flow | Not reported separately | Not reported separately | $0.7 million | $39.8 million |
Q2 revenue rose 29.1%; net income rose 30.6%. Six-month revenue increased 24.2%, while operating income grew 7.3% and net income 6.7%. Gross margin was approximately 29.1% in Q2, broadly unchanged year over year; six-month gross margin was approximately 29.0%, also broadly stable. Six-month operating margin declined to approximately 6.6% from 7.7%, reflecting restructuring expense and higher corporate costs.
Q2 revenue growth included $40.2 million from acquisitions and $34.8 million of organic growth, partly offset by currency translation. For the first half, acquisitions contributed $79.2 million and organic growth $42.8 million, partly offset by $5.7 million of currency translation. FoodTech was the larger growth contributor: Q2 revenue increased 39.6% and segment operating profit 37.8%; AeroTech revenue increased 10.7% and segment operating profit 37.3%.
Balance sheet, cash flow and liquidity
At June 30, 2016, cash was $35.1 million, current assets $459.1 million and current liabilities $389.8 million. Total debt was approximately $313.1 million, including $305.4 million of long-term debt and $7.7 million of short-term/current debt. The revolving credit facility had $304.8 million drawn and $295.2 million available; reported total liquidity, including cash and borrowing capacity, was $196.1 million. JBT was in compliance with its credit covenants.
First-half operating cash flow fell to $0.7 million from $39.8 million. JBT attributed the decrease principally to inventory investment supporting a backlog 36% higher than a year earlier and increased receivables. Investing activities used $23.1 million, including $20.9 million of capital expenditures and $3.2 million for acquisitions. Financing activities provided $18.5 million, mainly reflecting increased revolving-credit borrowings. Cash declined $2.1 million to $35.1 million.
Material changes, outlook and risks
- Acquisitions and organic demand lifted revenue, but acquired businesses had lower equipment margins; management said higher aftermarket revenue, pricing and cost initiatives helped offset this.
- Restructuring expense was $9.1 million for the first half. The 2016 optimization plan targets FoodTech realignment, strategic sourcing and facility consolidation; estimated total costs are $11–$13 million, with an additional $1–$2 million expected by year-end.
- Management’s 2016 outlook was revenue growth of about 16% (approximately 5–6% organic and 10% from acquisitions), segment margin expansion of 50–75 basis points versus 2015, and diluted continuing-operations EPS of $2.00–$2.10 GAAP or $2.25–$2.35 adjusted.
- Risks highlighted include Brexit-related currency and economic uncertainty, foreign-exchange exposure, working-capital demands, and the possibility of covenant or credit-market pressure. A Delaware unclaimed-property audit covers 1986 to the present; the company could not reasonably estimate a possible loss. Management said pending legal matters were not expected to materially affect results or financial position, though an unfavorable resolution could materially affect a future period.
- JBT reported $176.2 million of performance-related guarantees and $0.9 million net exposure on customer financing guarantees. It expects $14.3 million of pension and postretirement contributions for 2016.
Most important facts for investors to verify
- Whether revenue growth and backlog convert into cash, given the sharp first-half operating cash-flow decline and increased inventories and receivables.
- Acquisition contribution, integration results and acquired-business margins versus organic growth and segment profitability.
- Delivery of the 2016 revenue, margin and EPS outlook, including the assumptions behind adjusted EPS and restructuring costs.
- Debt levels, facility availability, covenant headroom and renewal of local credit facilities.
- Developments and potential exposure from the Delaware audit, guarantees, pension funding and foreign-exchange risks.