Business context and reporting period
John Bean Technologies Corporation (JBT) filed this unaudited Form 10-Q for the quarter ended March 31, 2017. JBT supplies equipment and services to the food and beverage and air transportation industries through its FoodTech and AeroTech segments. The filing’s registrant is John Bean Technologies Corporation; it is not identified as “JBT MAREL Corp.”
Financial performance
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $344.5 million | $267.1 million |
| Gross profit / margin | $97.6 million / 28.3% | $76.8 million / 28.8% |
| Operating income / margin | $20.5 million / 6.0% | $9.7 million / 3.6% |
| Income from continuing operations | $17.6 million | $5.2 million |
| Net income | $17.4 million | $5.1 million |
| Diluted EPS from continuing operations | $0.58 | $0.17 |
| Adjusted EBITDA (non-GAAP) | $33.1 million | $25.5 million |
| Cash from continuing operating activities | $24.0 million | $0.2 million |
- Revenue rose 29.0%; management attributed $34.0 million of the increase to acquisitions and $44.7 million to organic growth. FoodTech revenue increased 36.1% to $241.6 million; AeroTech revenue increased 14.2% to $102.9 million.
- Gross profit increased by $20.8 million, but gross margin edged lower due to product mix. Operating income rose by $10.8 million, helped by higher volume, productivity and lower restructuring costs.
- Segment operating profit was $20.5 million for FoodTech and $9.6 million for AeroTech. FoodTech’s operating margin fell to 8.5% from 10.6%; AeroTech’s fell to 9.3% from 9.5%.
- The reported tax benefit was $0.5 million, including a $5.8 million discrete benefit from new share-based compensation accounting guidance. Adjusted income from continuing operations was $17.9 million and adjusted diluted EPS was $0.59, both non-GAAP measures.
Balance sheet, debt and liquidity
- At March 31, cash was $42.9 million, compared with $33.2 million at year-end. Current assets were $520.5 million and current liabilities $402.2 million.
- Total debt was approximately $380.4 million, down from approximately $498.7 million at December 31, 2016. This included $225.0 million drawn on the revolving facility and a $150.0 million term loan. JBT reported $375 million of revolving availability and total liquidity of $386.9 million, defined as cash plus borrowing capacity.
- Operating cash flow was $24.0 million; investing activities used $68.4 million, including $61.0 million for acquisitions; financing activities provided $53.5 million. Cash increased by $9.7 million during the quarter.
- JBT issued 2.3 million shares in March, receiving approximately $184.3 million in net proceeds. It used $117.1 million to repay revolving borrowings and the remainder for general corporate purposes. The quarterly dividend was $0.10 per share.
Material changes and notable items
- JBT acquired Avure Technologies on February 24, 2017, for $58.8 million. Avure provides high-pressure food processing systems; purchase accounting remained preliminary. Goodwill and intangible assets increased in part because of acquisitions.
- Revenue growth also reflected the full-quarter contribution of acquisitions made in 2016. Acquisition-related costs, integration costs and purchase accounting affected segment results.
- Restructuring expense declined to $0.4 million from $7.2 million. JBT reported $4.5 million in cumulative savings from its 2016 optimization plan and expects additional savings of $2.5 million in 2017 and $1.0 million in 2018; some savings are expected to be reinvested in growth initiatives.
- Adoption of new share-based compensation guidance contributed the $5.8 million tax benefit. JBT also changed its stock-award forfeiture accounting policy, recording a $0.6 million cumulative retained-earnings adjustment.
Outlook, risks and contingencies
- The filing provides no specific consolidated revenue or earnings forecast. Management describes its Elevate strategy as focused on new products and services, recurring revenue, operating initiatives and disciplined acquisitions.
- JBT expected cash flows and credit availability to meet working capital, investment, restructuring, pension and other financing needs. It expected to contribute $14.0 million to pension and postretirement plans in 2017.
- JBT was in compliance with credit covenants and expected to remain compliant, but warned that economic volatility could affect covenant compliance or access to financing. A temporary increase in the maximum leverage covenant from 3.5x to 4.0x was in effect through September 30, 2017, following a qualifying acquisition. Approximately $155 million, or 40% of debt, was exposed to floating interest rates.
- A Delaware unclaimed-property audit covers 1986 through the present; JBT said it could not reasonably estimate a possible assessment. Management did not expect pending legal matters to have a material adverse effect overall, although an unfavorable resolution could materially affect a particular future period.
- Performance guarantees and similar instruments totaled $173.8 million; separate bank guarantees and letters of credit securing existing obligations totaled $8.2 million. Customer financing guarantees had a gross value of $7.3 million and net exposure of $0.5 million.
- JBT identified foreign-exchange exposure, credit and counterparty risk, acquisition integration and purchase-accounting uncertainty, and potential U.S. tax and withholding costs if foreign cash is repatriated. The company also noted that interim results may not represent full-year performance.
Important facts for investors to verify
- How much reported earnings growth is sustainable after excluding the $5.8 million discrete tax benefit and lower restructuring expense.
- Whether FoodTech and AeroTech margins recover as product mix, acquisition integration and growth investments evolve.
- Avure’s eventual purchase accounting, contribution to revenue and earnings, and integration progress.
- Working-capital trends, acquisition spending, debt reduction and covenant headroom, particularly after the temporary leverage-ratio increase expires.
- The potential assessment from the Delaware escheat audit and the company’s exposure under guarantees and other contingencies.
- The impact of adopting the new revenue-recognition standard. JBT expected to recognize over time revenue for a large portion of manufactured equipment and refurbishments and anticipated this could accelerate revenue; the impact was still being quantified.