John Bean Technologies Corporation (NYSE:JBT) Q3 2023 Earnings Call Transcript

John Bean Technologies Corporation (NYSE:JBT) Q3 2023 Earnings Call Transcript October 25, 2023

Operator: Good morning, everyone, and welcome to JBT Corporation’s Third Quarter 2023 Earnings Conference Call. My name is Bo, and I will be your conference operator today. As a reminder, today’s call is being recorded. At this time, all lines have been placed on mute to prevent any background noise. After the speakers’ prepared remarks, there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to JBT’s Vice President of Corporate Development and Investor Relations, Kedric Meredith. Please go ahead, sir.

Kedric Meredith: Thank you, Bo. Good morning, everyone, and welcome to our third quarter 2023 conference call. With me on the call is our Chief Executive Officer, Brian Deck, and Chief Financial Officer, Matt Meister. In today’s call, we will use forward-looking statements that are subject to the safe harbor language in yesterday’s press release and 8-K filing. JBT’s periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available in the Investor Relations section of our website. Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found in the Investor Relations section of our website. Now, I’ll turn the call over to Brian.

Brian Deck: Thanks, Kedric, and good morning, everyone. JBT reported another good quarter and our first as a pure-play food and beverage technology business. Third quarter orders were solid. While we maintain a cautious posture due to macroeconomic uncertainty, interest rate pressure and geopolitical risk, we’re encouraged by some strengthening of activity in Europe and Asia, and we believe that improving price/cost dynamics in the poultry industry will create a more attractive environment for investment and higher order activity in the fourth quarter and in 2024. While third quarter revenue came in a little soft, we are very pleased with margins that exceeded our forecast and resulting EBITDA growth. Overall, JBT’s performance continues to reflect the benefit of our resilient business model, a diverse product and end market mix and our value-added acquisitions.

With that, I’ll turn the call over to Matt, who will walk you through our third quarter performance and fine-tuned full year guidance.

Matt Meister: Thanks, Brian. In the third quarter, revenue increased 1.2% year-over-year, slightly below our guidance as book and ship orders were below expectations. However, as Brian stated, margins were stronger than we forecasted, with gross profit margins increasing over the prior year by 170 basis points, the result of our actions on pricing, restructuring and supply chain. With that, adjusted EBITDA grew 9.4% year-over-year to $66 million, with adjusted EBITDA margin of 16.4%, an increase of 120 basis points. Excluding corporate-related costs, the adjusted EBITDA margin from our operations was 20.9%, reflecting strong execution as we continue to make progress toward our Elevate 2.0 margin target. Income from continuing operations exceeded the midpoint of our guidance, driven by higher interest income from the investment of the proceeds on the sale of AeroTech.

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Q&A Session

Additionally, our effective tax rate for the quarter of 12.3%, which included some beneficial discrete items, was significantly better than we forecasted. Diluted earnings per share from continuing operations was $0.95 in the third quarter compared with $0.80 in the prior year. Adjusted EPS was $1.11 versus $0.96. Year-to-date free cash flow from continuing operations was $62 million, representing a conversion rate of 83%. For the quarter, free cash flow of $33 million represented a conversion rate of 107%, which excludes pension contributions of approximately $10 million. Moving forward, we expect our conversion rate to be more stable as a pure-play business. Completion of the sale of AeroTech, our net debt-to-adjusted EBITDA ratio as of September 30 was less than 1 times, providing excellent flexibility to pursue strategic initiatives.

Looking ahead, our guidance for the fourth quarter of 2023 includes year-over-year revenue growth of 0% to 4%, and adjusted EBITDA of $73 million to $79 million, representing a margin of 16.5% to 17%. We expect interest income of about $2.5 million, and a tax rate of 22% to 23%, resulting in forecasted adjusted earnings per share of $1.25 to $1.40. Given our updated fourth quarter guidance and year-to-date performance, we are narrowing our full year outlook for adjusted EBITDA to $265 million to $271 million, and adjusted EPS to $3.95 to $4.10. The midpoint of our guidance ranges, that translates to year-over-year growth of 18% and 10%, respectively, for adjusted EBITDA and adjusted EPS. With that, let me turn the call back to Brian.

Brian Deck: Thanks, Matt. Let me start by speaking to geographic trends. As I mentioned at the top of the call, we are seeing some improvement in Europe, with a pickup in orders in the pipeline. Activity in Asia improved as well. In North America, demand from protein customers remained soft in the third quarter, however, we believe rising prices at the wholesale level, lower corn feed costs and the result of improvement in profitability among our poultry customers will translate to healthier orders. Otherwise, in terms of end markets, we enjoyed strength in the fruit and vegetable, beverage, dairy and turkey end markets, and continued strength for our AGV warehouse automation business. One important shift we are seeing across our customer base is their demand for sustainability.

As we have discussed at length, sustainability is a core element of JBT’s cultural DNA. Our equipment features environmentally friendly packaging solutions, low emissions technologies and systems that reduce food waste and lower energy and water consumption. Increasingly, beyond yield improvement, high efficiency and labor savings, demand for sustainability of solutions is becoming a larger part of our customers’ decision process. We believe the commitment and investment that JBT has made to enhance the environmental performance of our systems will increasingly be a competitive advantage. On the logistics and supply chain front, conditions have materialized — have stabilized materially, with minimal component shortages and reduced lead times for electronics and fabricated parts.

This is enabling us to more aggressively execute our supply chain initiatives, the area that represents JBT’s largest margin enhancement opportunity. We are largely offsetting inflation with cost savings actions, including leveraging our spend, consolidating our supply base and value engineering our products. Additionally, with the improvement in lead times, we’re able to lower safety stock requirements, and we remain focused on improving inventory management. Changing gears. With the completed sale of the AeroTech business in the third quarter, which generated net proceeds of $793 million before taxes, JBT has the liquidity and capital structure to continue to invest in our pure-play food and beverage strategy. We are committed to identifying and acquiring technologies that expand our capabilities, will provide entry into near adjacencies that enable us to provide more comprehensive customer solutions.