JBT 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. JBT provides equipment, systems and services to food and beverage customers through FoodTech and to air transportation customers through AeroTech. Amounts below are in millions of dollars unless noted.
Financial performance
- Third quarter: Revenue was $555.4, up 16.3% year over year. Operating income was $45.9, up 13.3%, while operating margin slipped to 8.3% from 8.5%. Net income was $34.2, up 16.7%; diluted EPS was $1.07 versus $0.91.
- First nine months: Revenue was $1,566.9, up 14.3%. Operating income fell 5.5% to $118.7 and operating margin declined to 7.6% from 9.2%. Net income rose 7.4% to $93.2; diluted EPS was $2.90 versus $2.71.
- Margins and drivers: Third-quarter gross margin was 28.8%, down 100 basis points; nine-month gross margin was 28.8%, down 220 basis points. JBT cited supply-chain disruption, production inefficiencies, inflation in materials and freight, and labor costs. SG&A increased, including acquisition and OmniBlu digital-development costs.
- Segments: Third-quarter FoodTech revenue rose 11.1% to $398.9, with segment margin increasing to 14.4% from 13.6%. AeroTech revenue rose 32.4% to $156.6, and segment margin increased to 7.4% from 5.9%. For nine months, FoodTech and AeroTech revenue rose 11.4% and 23.2%, respectively, but segment margins fell to 12.8% and 6.8%.
- Cash flow: Nine-month operating cash flow was $74.6 versus $163.3 a year earlier. Increased inventory investment and lower collections of receivables and customer advances were principal factors. Capital expenditures were $65.7; acquisitions used $329.7. Cash declined $26.2 to $52.6.
- Debt and liquidity: September 30 balance-sheet debt was $979.8, including $587.0 drawn on the revolving facility and $402.5 principal amount of 2026 convertible notes; cash was $52.6. Revolver availability was $706.6, subject to the leverage covenant. The company reported liquidity of $424.8, defined as cash plus borrowing ability. It reported compliance with credit covenants.
Changes and notable items
- Revenue growth reflected organic growth and acquisitions, partly offset by unfavorable currency translation. For the quarter, organic revenue increased $77.8 and acquisitions added $26.5; currency translation reduced revenue by $26.3.
- Third-quarter inbound orders were $461.7, down from $520.7. Nine-month orders were $1,590.0, approximately flat with $1,586.9 in 2021.
- Acquisitions of Alco and Bevcorp closed in July and September 2022. Their purchase accounting remained provisional. The acquisitions contributed $17.2 of revenue and a $0.3 operating loss after acquisition through September 30.
- Foreign-currency translation reduced nine-month comprehensive income, with a $49.2 translation loss recorded in other comprehensive income.
- The nine-month effective tax rate was 15.6%, compared with 27.3% in 2021, reflecting $6.3 of favorable discrete tax items. The company also noted that U.S. R&D expense amortization requirements could materially reduce 2022 operating cash flow.
Outlook, risks and contingencies
- Management reported weaker European demand as customers delayed investment amid higher energy and input costs, and moderating FoodTech demand in North America amid higher interest rates. It expects continued FoodTech demand from capacity, labor-saving and product-introduction needs. AeroTech recovery was improving, but management did not expect a full return to pre-pandemic levels before 2023.
- JBT expected supply-chain, labor and inflation pressures to continue through 2022, potentially affected by the Ukraine conflict. Pricing, productivity and supplier actions had offset some, but not all, of the pressures. Management said quarterly margins improved sequentially in both segments.
- The company expected positive cash flow for full-year 2022 and approximately $90 of capital expenditures, including about $45 for digital initiatives. It did not provide specific revenue or EPS guidance in the supplied filing text.
- JBT began a FoodTech cost-optimization restructuring plan in the third quarter; charges were $1.3 to date, with approximately $3.0 of cumulative savings associated with its first phase. The prior restructuring plan was completed in June 2022.
- JBT was evaluating strategic alternatives for AeroTech and expected to complete its assessment in the first half of 2023. The filing cites risks including distraction of management, loss of employees or customers, and potential impairment or disposal costs.
- Legal proceedings were not expected by management to have a material adverse effect on results or financial position, though an unfavorable resolution could materially affect a particular future period. Guarantees included $140.2 of performance-related instruments; customer-financing guarantees had $0.3 net exposure.
Important facts for investors to verify
- Whether order trends, especially the third-quarter decline, translate into future revenue and how the $1.0 billion of remaining performance obligations converts to sales.
- Whether pricing and operational improvements can recover margins amid supply-chain, labor, freight and inflation pressures.
- Working-capital needs, cash generation and liquidity, including effects of R&D tax amortization and acquisition spending.
- Debt levels, variable-rate exposure, covenant headroom and the impact of higher interest rates.
- Integration and final purchase accounting for Alco and Bevcorp, and the outcome and financial implications of the AeroTech strategic review.