JBT Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The filing is for John Bean Technologies Corporation (JBT), not a company identified as JBT MAREL Corp. JBT supplies food-processing and air-transportation equipment and services through FoodTech and AeroTech.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $409.2 million | $344.5 million |
| Gross profit / margin | $103.6 million / 25.3% | $97.6 million / 28.3% |
| Operating income / margin | $5.9 million / 1.4% | $20.2 million / 5.9% |
| Continuing-operations income | $1.6 million | $17.6 million |
| Net income | $1.2 million | $17.4 million |
| Diluted EPS | $0.04 net income; $0.05 continuing operations | $0.57 net income; $0.58 continuing operations |
| Cash from continuing operations | $(4.1) million | $24.0 million |
| Cash and cash equivalents at quarter-end | $30.6 million | $34.0 million at Dec. 31, 2017 |
| Total debt at quarter-end | Approximately $416.3 million | Approximately $383.2 million at Dec. 31, 2017 |
Revenue rose 19%, but JBT attributed the increase to a 3% organic decline, 3% from acquisitions, 4% foreign exchange benefit, and 15% from adopting the new revenue-recognition standard. The company said Topic 606 boosted Q1 revenue by approximately $50 million; this is a significant comparability factor, not equivalent to organic growth.
- FoodTech: Revenue was $303.6 million, up $62.0 million; organic revenue declined 4%. Segment operating profit was $21.5 million versus $20.5 million, while margin fell to 7.1% from 8.5%.
- AeroTech: Revenue was $105.6 million, up $2.7 million. Segment operating profit fell to $7.9 million from $9.6 million; margin declined to 7.5% from 9.3%.
- Total segment operating profit was $29.4 million versus $30.1 million. Higher project installation costs, weaker mix, operational inefficiencies, and higher SG&A and R&D weighed on results.
- Adjusted continuing-operations income, a non-GAAP measure, was $11.1 million versus $17.9 million; adjusted diluted EPS was $0.34 versus $0.59. Adjusted EBITDA was $32.1 million versus $33.1 million.
Cash, liquidity and balance sheet
- Operating cash use was $4.1 million for continuing operations. Investing activities used $29.0 million, including $18.8 million for acquisitions and $10.4 million of capital expenditures. Financing provided $29.9 million, including $34.7 million of net domestic credit-facility proceeds. Cash declined $3.4 million during the quarter.
- Reported current assets were $678.6 million and current liabilities $543.7 million. JBT reported liquidity of $292.9 million, defined as cash plus borrowing capacity. It had $333.1 million available on its revolving facility, subject to covenant limits.
- Debt included $266.9 million drawn on the revolving facility and $148.1 million on the term loan; both mature in February 2020. JBT was in compliance with its credit covenants at quarter-end.
- Reported inventory rose to $305.4 million from $190.2 million at year-end. The adoption of Topic 606 materially changed balance-sheet classifications and amounts, so this movement should not be interpreted as purely operational.
Material changes, outlook and risks
- JBT adopted Topic 606 on January 1, 2018 using the modified-retrospective method. It changes the timing of revenue recognition for certain customized equipment contracts and contract combinations; customer billing and cash flows are unchanged. The filing reports $206 million of remaining performance obligations for contracts extending beyond one year, with 60% expected to be recognized in 2018 and the balance in 2019.
- A new global restructuring plan generated $14.4 million of expense in the quarter; the income statement reports $12.7 million restructuring expense, while the plan disclosure includes $3.4 million of consulting and $11.0 million of severance. Estimated total plan cost is approximately $50 million, with the remainder expected through mid-2019. Management expects annual savings of approximately $45 million in 2020.
- Management cited cumulative $8.2 million savings through March 31 from earlier restructuring plans. No formal revenue or earnings guidance is provided in the supplied filing text.
- Q1 operating cash flow was affected by lower earnings and higher contract assets; management said working capital needs, capital spending, restructuring, pensions, acquisitions and other requirements were expected to be funded through operations and credit facilities. Approximately 46% of debt was floating-rate, leaving earnings exposed to interest-rate increases.
- Risks include potential tariffs or retaliatory trade measures affecting costs, supply, and demand; execution and cost estimates for customized projects; acquisition integration and preliminary purchase accounting; foreign-exchange exposure; and compliance with debt covenants. JBT disclosed $195.2 million of performance-related guarantees and $0.5 million net exposure on customer financing guarantees. It could not estimate whether its Delaware unclaimed-property review would result in significant obligations.
- The Tax Act accounting remained provisional in certain areas, with the company continuing to analyze tax effects. The auditor performed an interim review, not an audit, and reported no material modifications needed for GAAP conformity.
Key facts for investors to verify
- Reconcile reported revenue growth with the approximately $50 million Topic 606 timing effect and the organic revenue decline; assess comparability of prior-period and current-period contract accounting.
- Track gross margin and segment profitability, especially project execution costs, mix, and FoodTech organic performance.
- Monitor restructuring charges against the approximately $50 million estimated cost and test whether savings approach the stated $45 million annual target in 2020.
- Assess working-capital conversion, contract assets and liabilities, cash generation, acquisition spending, debt maturities, floating-rate exposure, and covenant headroom.
- Follow tariff developments, tax-accounting updates, acquisition valuation adjustments, and potential outcomes of the unclaimed-property review and other contingencies.