JBT MAREL Corp quarterly report, Q3 FY2012

Business context and reporting period

John Bean Technologies Corporation (JBT), as named in this filing, filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2012. JBT provides equipment and services to food processing and air transportation customers through JBT FoodTech and JBT AeroTech. The interim financial statements received an independent accountant’s review, not an audit.

Financial performance and position

• Q3 gross margin improved to approximately 25.3% from 24.8%, while operating margin declined to 5.0% from 6.2%. For the nine months, operating margin was 5.1% versus 6.0%.
• Continuing operating cash flow was $68.6M for the nine months, up from $44.2M. Cash and equivalents were $84.4M at September 30, including $81.4M held by foreign subsidiaries.
• Total debt was approximately $176.8M; management reported net debt of $92.4M. The $225M revolving facility had $98.4M drawn, $9.1M of letters of credit and $117.5M available. Current assets were $423.2M and current liabilities $362.5M.
• Capital expenditures were $17.3M for the nine months. Dividends declared were $0.07 per share in Q3 and $0.21 year to date.

Material changes versus comparable periods

• Q3 revenue fell 10.9% year over year, primarily because approximately $26M of deliveries shifted from Q3 to Q4. Nine-month revenue declined 8.8%; lower new-equipment sales were partly offset by higher recurring revenue.
• Despite lower Q3 revenue, segment operating profit rose 3% to $17.4M as margins improved in both segments. Consolidated operating income fell 28%, largely because Q3 2011 included $3.6M of foreign-currency transaction gains versus no comparable gain in Q3 2012.
• For the nine months, FoodTech revenue declined 5.1% while segment operating profit increased 6.8%; AeroTech revenue declined 12.7% and segment operating profit declined 11.7%.
• Q3 inbound orders were $258.7M versus $211.8M, and backlog was $343.9M versus $310.6M a year earlier. The filing’s executive overview cites Q3 orders of $258.9M, differing from the detailed order table.

Outlook, commentary and risks

• Management projected a record fourth quarter, supported by backlog and cost savings, but expected modest full-year 2012 revenue contraction as sales volume was lower than previously forecast and certain large orders shifted to 2013. Full-year diluted EPS from continuing operations was forecast at $1.22–$1.28.
• JBT expected to renew its revolving credit facility, which expires July 31, 2013, before year-end 2012. It was in compliance with debt covenants at quarter-end and expected to remain compliant, while warning that economic and credit-market volatility could affect covenant performance or financing access.
• Foreign-exchange exposure is managed with forward contracts; aggregate notional value was $499.2M. Counterparty exposure was stated as a maximum potential loss of $1.2M. Cash held abroad may incur additional tax if repatriated.
• Performance guarantees, bonds and letters of credit totaled approximately $82.2M; separate guarantees securing existing financial obligations were approximately $6.1M. Customer-financing guarantees had a maximum future obligation of $2.3M, with a $0.3M liability recorded.
• Ordinary-course litigation and assumed pre-spin-off proceedings were not expected to have a material adverse effect. Two U.S. Air Force contract modifications removed $17.5M of unfilled deliveries from backlog; JBT said this did not affect 2012 sales or earnings.
• The 2011 FoodTech cost-reduction plan involved about 115 positions and a $10.3M charge. JBT had paid $7.2M by the filing date and expected to pay another $2.6M during the remainder of 2012.

Important facts for investors to verify

• Whether delayed Q4 deliveries were completed as expected and how much order slippage extended into 2013.
• Whether backlog converted into revenue and whether the conflicting Q3 order figures ($258.7M versus $258.9M) are clarified in company reporting.
• Facility renewal terms, borrowing costs, debt levels and ongoing covenant headroom.
• Cash-generation quality, including the effects of receivable collections, customer advances and inventory movements, and the location and tax implications of foreign cash.
• Progress and remaining costs of the restructuring plan, Lakeland plant investment and Molenaar acquisition integration.