John Bean Technologies Corporation — Form 10-Q
Reporting period: Quarter ended September 30, 2014; comparisons are with the three and nine months ended September 30, 2013. The filing identifies the registrant as John Bean Technologies Corporation, with JBT FoodTech and JBT AeroTech segments. It provides technology, equipment and services for food processing and air transportation.
Financial performance
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $243.2m | $233.5m | $688.8m | $646.1m |
| Gross profit | $64.2m | $54.2m | $184.5m | $163.6m |
| Operating income | $15.2m | $11.6m | $28.5m | $33.0m |
| Income from continuing operations | $9.0m | $7.4m | $15.7m | $20.3m |
| Net income | $9.0m | $6.8m | $15.6m | $19.5m |
| Diluted EPS from continuing operations | $0.30 | $0.25 | $0.53 | $0.68 |
Gross margin was approximately 26.4% in Q3 versus 23.2% a year earlier, and 26.8% for the first nine months versus 25.3%. Operating margin was approximately 6.3% in Q3 versus 5.0%; the nine-month margin was approximately 4.1% versus 5.1%. The filing reports no separate consolidated cash-flow or margin guidance beyond the outlook below.
At September 30, cash and cash equivalents were $23.3m; current assets were $388.0m and current liabilities $300.9m (current ratio approximately 1.29). Total debt, including current maturities, was approximately $127.3m: $75.0m of senior notes, $46.9m drawn on the revolver, and other borrowings. Management reported liquidity of $192.8m, defined as cash plus borrowing capacity under the revolving facility. The $75m notes mature July 31, 2015.
For the first nine months, continuing operating cash flow was $49.5m, investing cash flow was negative $64.3m, and financing cash flow was positive $14.7m. Cash decreased $6.1m to $23.3m, including a $5.6m adverse foreign-exchange effect. Investing outflows included approximately $38m for the ICS Solutions acquisition and $28.0m of capital expenditures.
Material changes and drivers
- Q3 revenue increased 4.2% year over year (12.0m in constant currency). FoodTech aftermarket sales and AeroTech equipment sales supported growth. For the nine months, revenue rose 6.6% (47.1m in constant currency), led by equipment and FoodTech aftermarket sales.
- Q3 operating income rose $3.6m, chiefly from $10.0m higher gross profit, including margin gains attributed to cost reductions, strategic pricing and favorable mix. Nine-month operating income fell $4.5m despite higher gross profit and segment operating profit, primarily reflecting $12.5m of restructuring expense and higher corporate costs.
- Q3 FoodTech revenue declined 1.5% reported, while AeroTech revenue rose 10.6%. Nine-month revenue increased in both segments; segment operating profit rose 15.3% for FoodTech and 25.4% for AeroTech.
- Inbound orders were $263.8m in Q3 versus $247.5m; nine-month orders were $733.9m versus $729.3m. Backlog was $427.3m at quarter-end, up from $366.3m at September 30, 2013, primarily reflecting AeroTech backlog growth.
Outlook, management commentary and risks
- For full-year 2014, management projected continuing-operations diluted EPS of $1.45–$1.55 on an adjusted basis and $0.92–$1.02 on a GAAP basis, with mid-single-digit revenue growth and segment operating margin improvement versus 2013. Adjusted EPS excludes estimated restructuring costs of approximately $14m, management succession costs of $7m and consulting costs of $3m.
- The global cost-optimization plan was estimated to cost approximately $14m; $12.5m had been recorded through September. Payments were expected during the remainder of 2014 and in 2015. The July 2014 ICS Solutions acquisition had preliminary purchase accounting and was not expected to materially affect 2014 earnings.
- Management’s preliminary assessment of newly finalized U.S. mortality tables estimated approximately $22m of additional pension and postretirement liabilities and $1.5m of annual expense, potentially increasing future plan funding requirements. JBT expected to contribute $17m to pension and postretirement plans in 2014; $9.2m had been contributed through September.
- Management stated it was in compliance with debt covenants and expected to remain compliant, but noted that economic volatility could affect covenant compliance or access to financing. The company was evaluating alternatives for the 2015 note maturity. Foreign-currency movements, including the reported $12.7m nine-month translation loss in other comprehensive income, are also relevant.
- JBT disclosed approximately $91m of performance-related guarantees and $10m of guarantees securing existing financial obligations. Customer-financing guarantees totaled $14.4m gross, with $1.9m net exposure. Management did not expect ordinary-course litigation to have a material adverse effect.
Important facts for investors to verify
- Whether full-year EPS and revenue projections were achieved, and how much of adjusted performance depended on excluding restructuring, succession and consulting costs.
- Funding and refinancing plans for the $75m notes due July 2015, revolver availability, and ongoing covenant compliance.
- Final pension-liability and expense effects of the mortality-table changes, and related cash-funding needs.
- Whether the ICS Solutions acquisition delivers expected strategic benefits and whether preliminary purchase accounting changes materially.
- Whether backlog converts to revenue and cash as expected, particularly given segment and geographic differences in order trends.