Business context and reporting period
John Bean Technologies Corporation (the registrant named in this filing) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2012. It provides technology, equipment and services to food processing and air transportation customers through JBT FoodTech and JBT AeroTech.
Key financial results
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | $214.4 million | $419.1 million | $252.5 million / $454.0 million |
| Operating income | $14.0 million | $21.8 million | $17.4 million / $26.7 million |
| Income from continuing operations | $7.9 million | $11.9 million | $10.4 million / $15.3 million |
| Net income | $7.7 million | $11.6 million | $10.3 million / $15.2 million |
| Diluted EPS from continuing operations | $0.27 | $0.40 | $0.35 / $0.52 |
For Q2, revenue fell 15.1% and operating income fell 19.5% year over year; operating margin was 6.5%, versus 6.9%. Gross margin improved to approximately 25.2% from 23.7%. For the first half, revenue declined 7.7%, operating income declined 18.4%, and operating margin was 5.2%, versus 5.9%; gross margin was approximately 24.9%, versus 24.4%.
Q2 segment revenue was $137.5 million for FoodTech, down 10.9%, and $77.7 million for AeroTech, down 20.1%. Segment operating profit was approximately unchanged at $14.1 million for FoodTech and $7.5 million for AeroTech. First-half segment revenue was $253.8 million for FoodTech, down 2.8%, and $163.5 million for AeroTech, down 13.8%.
Cash flow, liquidity and debt
- Continuing operating activities generated $48.0 million in the first half, compared with $13.2 million in 2011; the company attributed the improvement primarily to lower receivables following lower sales. Investing activities used $15.4 million, including $5.0 million for an acquisition; financing activities provided $33.5 million, primarily reflecting increased credit-facility borrowings.
- Cash was $74.6 million at June 30, 2012, compared with $9.0 million at year-end; $72.9 million was held by foreign subsidiaries. The company reported net debt of $104.9 million, down $26.2 million since year-end. Balance-sheet debt was $179.5 million, including $100.7 million drawn on the revolving facility and $75.0 million of senior notes.
- Current assets were $385.4 million and current liabilities $224.4 million. The $225 million revolving facility expires July 31, 2013; $114.3 million of additional availability remained at quarter-end. The company said it was reviewing renewal or replacement options and expected to arrange this before expiry.
- The company reported compliance with debt covenants at June 30, 2012, including a 2.1 leverage ratio and 12.8 interest coverage ratio. It expected to remain compliant but cautioned that economic volatility could affect compliance or access to credit.
Material changes and management commentary
- Lower new-equipment revenue drove the declines: Q2 new-equipment revenue decreased $39.7 million, partly offset by a $10.1 million increase in recurring revenue. For the first half, new-equipment revenue declined $47.2 million, partly offset by a $23.6 million increase in recurring revenue.
- FoodTech’s Q2 comparison reflected several large tomato and fruit processing projects completed in Q2 2011. AeroTech revenue was affected by an anticipated production gap in Jetway passenger boarding bridges; gate-equipment revenue was down $16.9 million in Q2 and $31.9 million for the first half.
- Management cited higher aftermarket mix and cost-reduction savings as support for gross margins and relatively stable Q2 segment profits despite lower sales volume. First-half corporate and other expenses increased, including lower foreign-currency gains and higher costs.
- Backlog was $308.0 million at June 30, up $62.0 million from year-end but down $21.1 million from June 2011. Q2 inbound orders were $243.0 million, versus $283.1 million a year earlier; first-half orders were $481.1 million, versus $496.3 million.
Outlook, unusual items and risks
Management reaffirmed 2012 guidance for modest top-line growth and diluted EPS from continuing operations of $1.35–$1.45, expecting strategic-action savings and typically stronger second-half seasonality to support margin expansion.
- The June agreement transferring French hospital AGV contracts and services to Swisslog France generated a $1.4 million gain. The Molenaar rotary sterilization technology acquisition included $0.6 million of Q2 costs; the company paid $5.0 million in May and expected a further $5.0 million payment in December 2012.
- Foreign-exchange exposure is significant: forward contracts had $477.7 million aggregate notional value. The filing reported $3.9 million of maximum counterparty credit exposure without collateral. The company said market-risk disclosures had not materially changed from its 2011 Form 10-K.
- Ordinary-course litigation was not expected to have a material adverse effect, according to management. Performance guarantees and similar instruments totaled approximately $68.7 million; customer financing guarantees had a $2.3 million maximum future payment obligation and a $0.3 million recorded liability.
- Management cautioned that quarterly results may not indicate full-year performance. It reported no material changes to the previously disclosed risk factors and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether the expected second-half seasonal improvement and reaffirmed $1.35–$1.45 EPS guidance were achieved.
- How quickly backlog converts to revenue, particularly given lower AeroTech orders and delayed anticipated equipment awards.
- The renewal or replacement terms for the revolving credit facility expiring in July 2013, and subsequent covenant headroom.
- The availability and tax consequences of using the largely foreign-held cash, and the scheduled December acquisition payment.
- The extent to which recurring aftermarket growth and cost savings can offset weaker new-equipment demand and currency-related volatility.