JBT (John Bean Technologies Corporation) — Q2 2018 Form 10-Q
Business context and period: The filing covers the quarter and six months ended June 30, 2018. JBT supplies food-processing technology and services through FoodTech and equipment and services for air transportation through AeroTech. This is JBT’s 2018 filing under the John Bean Technologies name.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $491.3 million | $386.1 million | $900.5 million | $730.6 million |
| Gross margin | 28.6% | 29.7% | 27.1% | 29.1% |
| Operating income | $42.2 million | $29.4 million | $48.1 million | $49.6 million |
| Operating margin | 8.6% | 7.6% | 5.3% | 6.8% |
| Continuing-operations income | $33.5 million | $18.3 million | $35.1 million | $35.9 million |
| Diluted continuing-operations EPS | $1.04 | $0.57 | $1.09 | $1.14 |
- Q2: Revenue grew 27%; management attributed the increase to 14% organic growth, an 8% ASC 606 accounting benefit, 4% acquisitions and 1% foreign exchange. Net income was $33.6 million versus $17.9 million.
- Six months: Revenue grew 23%, including an 11% ASC 606 benefit. Operating income declined 3% and net income was $34.8 million versus $35.3 million. Restructuring expense rose to $21.2 million from $1.0 million.
- Cash flow: Continuing operating activities generated $15.1 million in the first half, versus $2.0 million a year earlier. Investing used $36.3 million, financing provided $25.9 million, and cash increased $2.3 million to $36.3 million. Operating cash flow benefited from customer advances and payables, partly offset by inventory, receivables and contract-asset investment.
- Balance sheet and liquidity: Total assets were $1.479 billion; current assets $685.2 million and current liabilities $516.1 million. Cash was $36.3 million. Long-term debt was $437.2 million and short-term/current debt $0.1 million. The company reported $460.7 million of liquidity, defined as cash plus available borrowing capacity.
- Financing: JBT entered a new $1 billion revolving credit facility maturing in June 2023 and had $441.1 million drawn at quarter-end. It was in compliance with covenants. About $216.1 million, or 49% of facility borrowings, was exposed to floating rates after interest-rate swaps.
Material changes and management commentary
- FoodTech Q2 revenue increased 30% to $361.6 million; AeroTech revenue rose 21% to $129.5 million. Inbound orders increased to $530.3 million from $418.1 million in Q2 and to $972.3 million from $822.4 million for the first half.
- Q2 total segment operating margin improved to 12.6% from 10.9%. Higher volumes supported profit growth, while gross margins weakened because of ASC 606 revenue mix and higher labor and material costs; management noted a lag before pricing benefits.
- For the first half, gross margin fell 200 basis points and operating margin fell 150 basis points. Management cited ASC 606-related mix and higher installation costs on projects executed in Q1, as well as higher restructuring charges.
- ASC 606 was adopted January 1, 2018. JBT said it increased reported revenue by $31.6 million in Q2 and $82.1 million in the first half, without changing customer billing or cash flows. The filing’s illustrative “without adoption” reconciliation also shows lower reported first-half net income by $15.2 million; accounting timing effects should therefore be considered when assessing growth and earnings.
- Q2 adjusted diluted EPS was $1.24 versus $0.58, and first-half adjusted diluted EPS was $1.58 versus $1.17. Adjusted results exclude restructuring expense and are non-GAAP measures; reported diluted EPS was $1.04 and $1.09, respectively.
Outlook, risks and unusual items
- No overall full-year revenue or earnings guidance is provided in the supplied filing text. JBT expected $266 million of remaining performance obligations extending beyond one year at June 30; 55% was expected to be recognized in 2018, with the balance in 2019 and later.
- The 2018 restructuring program was estimated to cost approximately $50 million, with the remainder after the $24.7 million incurred through June expected by mid-2019. Management projected annualized savings of $45 million: approximately $2 million in the second half of 2018, an incremental $13 million in 2019 and an incremental $30 million in 2020. These are expectations, not guaranteed results.
- On July 12, 2018, JBT completed its acquisition of FTNON for €32.0 million ($38.4 million) before customary adjustments, funded with cash and revolver borrowings. Purchase-price allocation was still being determined.
- Reported Q2 tax expense reflected a 25.63% effective rate versus 31.17% a year earlier; discrete tax benefits of $5.0 million, primarily from stock-based compensation vesting, contributed to the period’s result. Tax Act accounting remained provisional in certain areas.
- Risks highlighted include potential tariffs and retaliatory trade measures, foreign-exchange exposure, variable-rate interest expense, execution and cost estimates for customized contracts, and ability to comply with credit covenants. Legal matters were not expected by management to have a material overall effect, though an unfavorable resolution could affect a future period. The company could not yet estimate whether its Delaware unclaimed-property review would create significant obligations.
- Management reported effective disclosure controls as of June 30, 2018. The independent accountant’s interim review was not an audit and expressed no audit opinion.
Important facts for investors to verify
- Separate organic growth from the sizable ASC 606 timing benefit, acquisition contribution and foreign-exchange effects.
- Track whether gross-margin pressure, project installation costs and pricing catch-up improve, and compare reported results with non-GAAP adjusted measures.
- Monitor restructuring spending against the approximately $50 million estimate and test whether forecast savings are achieved on schedule.
- Reconcile debt balances with revolver borrowings, assess interest-rate exposure and covenant headroom, and account for FTNON’s post-quarter financing and integration.
- Review working-capital trends—particularly inventory and customer advance payments—and the eventual outcome of tax and unclaimed-property estimates.