John Bean Technologies Corporation (NYSE:JBT) Q1 2024 Earnings Call Transcript

John Bean Technologies Corporation (NYSE:JBT) Q1 2024 Earnings Call Transcript May 4, 2024

John Bean Technologies Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to JBT Corporation's First Quarter 2024 earnings conference call. My name is Marcelo, and I will be your conference operator today. As a reminder, today's call is being recorded. [Operator Instructions] I will now turn the call over to JBT's Vice President of Corporate Development and Investor Relations, Mary Dave, to begin today's conference schedule. Kedric, you may begin.

Kedric Meredith: Thank you, Marcelo. Good morning, everyone, and welcome to our first quarter 2024 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 eight 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's first quarter our seasonally lightest period came in largely as expected. Consistent with previously outlined commentary, we continued to capture margin expansion with a 60 basis point increase in adjusted EBITDA margins compared with the prior year period. As announced at our April 5th press release, we signed a definitive transaction agreement with for the agreement, which was approved by both companies' Board of Directors reflects extensive collaboration between the teams. Based on our diligence, it confirms our belief in the industrial logic of the combination and value creation opportunities for customers, shareholders and other stakeholders. The agreement also represents a significant step forward in anticipation of the submittal of a voluntary takeover offer.

With that, I'll turn the call over to Matt, who will walk you through our first quarter performance. Then I'll speak about the anticipated recovery in the poultry market and provide greater detail about the progress we've made on the proposed merger with Marel. Matt?

Matthew Meister: Thanks, Brian, and good morning. For the first quarter, our revenue was $392 million, an increase of 1% year-over-year. Our gross margin in the quarter of 35.8%, an improvement of 160 basis points was driven primarily by the cost saving benefits of restructuring actions and continued progress on our supply chain initiatives. Adjusted EBITDA of $57 million increased 6% year-over-year, and adjusted EBITDA margin increased 60 basis points to 14.6% as increases in incentive compensation and in labor inflation partially offset the gross profit improvements we realized in the quarter. From an operating perspective, we are pleased with our continued margin expansion. As we have discussed, we believe that JBT's greatest opportunity for margin improvement is from our supply chain initiatives.

In the first quarter alone, we realized savings of approximately $5 million in terms of direct, indirect and logistics spend additionally, we have seen a significant and steady improvement in supplier on-time delivery, driven by our actions to consolidate procurement activity with key suppliers as this has had a meaningful and positive effect on JBT's production efficiency, allowing our businesses to further shift their resources to additional supply chain and manufacturing productivity projects. First quarter adjusted EPS was $0.85 versus $0.61 in the prior year. EPS was positively impacted by our operational improvements, which added about $0.07 per share, as well as $9 million of net interest expense improvement, which contributed about $0.22 per share.

This was partially offset by a higher effective tax rate for the quarter, which included a discrete item of approximately $0.03 per share. First quarter is generally our seasonally slowest free cash flow quarter and our results in the first quarter reflect our preparation for revenue growth through the remainder of the year. While we still have work to do on working capital management. We remain confident in our ability to achieve a free cash flow conversion rate in excess of 100% for the full year. As of the end of the first quarter of 2024, we completed our multiyear restructuring program, recording total charges of $18 million. All-in, cumulative annual run rate savings are on track to be $18 million as we exit the second quarter of 2024.

Regarding our full year 2024 outlook, we are reiterating our guidance for adjusted EBITDA at $295 million to $310 million and adjusted EPS at $5.05 to $5.45, which at the midpoint represents 11% and 28% year-over-year growth, respectively. We continue to expect organic revenue growth of 4% to 6%. However, we did adjust the total revenue range to account for current expectations for foreign exchange translation. Additionally, we have updated guidance for GAAP EPS to a range of $4.40 to $4.80 from the following items. First, we revised our expectations for M&A costs, which are now estimated to be $30 million to $35 million for the full year, excluding any transaction contingent fees. Additionally, our updated forecast for net interest income of $2 million includes the impact of our new bridge credit facility secured as part of the expected tender offer from Marel .

Finally, in the second quarter, we are forecasting a discrete tax benefit of between $8 million to $9 million related to the successful implementation of internal tax planning actions. With that, let me turn the call back to Brian on for things map.

Brian Deck: Thanks Matt. Orders booked in this first quarter of 2024 reflected So select market softness in North America. Separately, we experienced some order timing issues in our AGV business. But as we have been saying, that market remains quite robust while orders from the poultry industry in North America didn't recover in the first quarter, the economics of that market have continued to improve. Corn input price costs have remained stable while wholesale poultry pricing has increased due to more favorable supply demand dynamics. For example, the benchmark large bird deboned breast meat is now hovering around $2 per pound versus less than $1 just five months ago. We are optimistic that the improved poultry industry, the economics will translate to orders during the second quarter.

We are very encouraged by the expanding level of quote activity. Specifically, we are seeing demand for midstream and downstream equipment, which we call secondary and further processing producers are looking to increase output and efficiency of their value added processes to capture more margin dollars and address deferred investments. Geographically, while orders softened year-over-year in North America. As discussed, inbound remained solid in Europe and Middle East posted a record quarter in terms of end markets, we enjoyed particular strength in fruit, juice processing and convenience meals. Let me switch gears and provide updates on the proposed merger with Marel. As I mentioned earlier, the execution of the definitive transaction agreement was a major milestone in combining our two companies as outlined in the agreement, preserving Marel's heritage and culture is important to advancing the combined business and having the opportunity to work closer with Marel since the execution of the transaction agreement, I am as confident as ever on the compelling industrial logic of the transaction, including meaningful value creation opportunities.

We expect substantial revenue synergies such as cross-selling, enhanced service and improved and an improved overall value proposition, which we continue to analyze and intend to communicate in connection with the offer launch. Regarding the cost synergies, we expect annual run rate benefits of more than $125 million within three years of transaction close and continue to explore for upside as we refine our work. We anticipate approximately 45% of cost synergies will come from cost of goods sold and approximately 55% from operating expenses. In terms of cost of goods sold, we expect to generate meaningful supply chain savings as the combined company consolidates and optimizes procurement standardizes components through value, add value engineering processes and expand best cost country sourcing.

We also expect to leverage the combined production capacity and gain efficiencies across a broader footprint. As it relates to OpEx, we expect to realize savings from cost overlaps, including IT systems, public company costs, third party contracts and certain back office resources. Additionally, we will leverage the combined company's R&D and selling of service resources to have a greater collective impact for the customer. Since the announcement of the transaction agreement JV team and Marel have made considerable progress on the conditions required to launch the offer. In mid-April, we initiated the review process of offer document and prospectus with the Financial Supervisory Authority of Iceland or the FSA in May, we expect to file the registration on Form S-4 with the SEC, which will contain a preliminary proxy statement and prospectus.

Subject to the approval of the required documents by the FSA, we expect to promptly launch the voluntary takeover offer. At that point, we plan to host a joint transaction-specific investor call. We have secured a fully committed bridge financing facility to guarantee funds for the takeover offer as required, and we'll pursue a conventional long-term financing structure in connection with the closing of the transaction. In terms of other workstreams, we have filed antitrust notification documents in the U.S. and started comparable regulatory clearance work in other filing various jurisdictions. In early summer, we expect to commence the formal application for the secondary NASDAQ Iceland listing and pending approval of the final S-4 by the SEC expect to hold JBT's shareholder vote later in the summer.

While the overall transaction timetable remains primarily dependent on the regulatory clearance process. We continue to plan for a year and close of the transaction. As always, let me extend my sincere thanks to our teams around the globe that deliver exceptional service and solutions to our customers every day. I would also like to extend my appreciation to our partners at Marel as we work together to advance the value-creating combination of our two great businesses. With that, let's take your questions. Operator?

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