John Bean Technologies Corporation

Good morning and welcome to JBT Corporation's first quarter 2021 earnings conference call. My name is Megan and I will be your conference operator today. At this time, all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, please press star 1 on your keypad. To withdraw your question, please press the pound key. I will now turn the call over to JBT's Vice President of Investor Relations, Megan Rattigan. You may begin.

Thank you, Megan. Good morning, everyone, and welcome to our first quarter 2021 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 filing. JVT'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 press release issued last night, which is also in the investor relations section of our website. Now, I'd like to turn the call over to Brian.

Thanks, Megan, and good morning, everyone. As you saw from our earnings release, JBT delivered a very good first quarter. Commercially, we are enjoying a strong recovery in demand of food tech, with record orders in the period. Cash flow was outstanding. We also saw some encouraging signs at Aerotech. On the other hand, we are experiencing increasing operational challenges created by supply chain constraints, inflationary pressures, and COVID-related customer access and select geographies, pressures that will likely persist through the remainder of 2021. That said, I am extremely proud of how well our people, from sales and customer care to manufacturing and procurement, have managed this environment, and we continue to expect a meaningful sequential ramp in our performance through the next three quarters. Matt will walk you through our updated guidance for the full year, as well as provide analysis on our first quarter results. Thanks, Brian. We are pleased with our first quarter performance. In the quarter, we saw strong quarter growth in food tech at 22% year-over-year. Revenue met our forecast, and both earnings per share and pre-cash flow exceeded our expectations. On a year-over-year basis, revenue increased 1% at food tech, while declining 28% at aerotech. Food tech margins were in line with guidance with operating margins of 13.3% and adjusted EBITDA margins of 18.7%. Aerotech margins were ahead of expectations with operating margins of 9.3% and adjusted EBITDA margins of 10.7%. The better than forecasted margins were the result of favorable equipment picks, better than expected aftermarket revenue, and good cost control. Earnings in the quarter also benefited from lower interest expense, as continued strong cash flow reduced our debt balance. Additionally, corporate expense, M&A, and restructuring costs were slightly favorable to guidance. As a result, JBT posted adjusted diluted earnings per share from continuing operations of 90 cents, or GAAP EPS of 84 cents. Pre-cash flow for the quarter significantly exceeded our expectations, at $78 million, driven by continued strong collection of accounts receivable and customer deposits. The robust cash flow performance improved our bank leverage ratio to 1.9 times and increased overall liquidity to $496 million. We expect to expand our balance sheet to support an increase in sales in the back half of the year to achieve full-year free cash flow conversion just above 100%. As we look ahead to full year 2021, while we are benefiting from strong commercial activity, challenges in the operating environment are expected to increase further as we work through extended vendor lead times, worldwide constraints on logistics, and inflationary pressure, specifically on metals, as well as COVID travel and access restrictions in Europe and Asia Pacific that increase the cost of doing business. With that in mind, we have refined our full year 2021 guidance. Given the strength of orders and outlook for food tech, we have raised top line growth to 9% to 11%, up from our previous guidance of 5% to 8%. However, while we expect to be able to mostly offset inflationary input costs with sourcing actions and pricing, The operational challenges I mentioned previously are expected to exert downward pressure on margins. Therefore, we have lowered full-year margin guidance by 25 basis points, with operating margins of 14.25% to 14.75%, and adjusted EBITDA margins of 19.25% to 19.75%. Our guidance for Aerotech is unchanged, with projected revenue growth of 0 to 5%, operating margins of 10 and 3 quarters to 11 and a quarter percent, and adjusted EBITDA margins of 12 to 12 and a half percent. Due to existing pricing commitments and current market conditions, in the short term, Aerotech is limited in its ability to adjust prices to offset inflationary conditions. Therefore, although Aerotech exceeded margins In Q1, we have held our full-year margin guidance. We are holding our forecast for corporate costs at 2.7% of sales, while lowering interest expense to about 11 million. Altogether, this increases the full-year adjusted EPS range to $4.40 to $4.60. Our GAAP EPS guidance is now $4.20 to $4.40, with M&A and restructuring costs of $8 to $10 million. Now, in terms of Q2, we expect revenue of $325 to $340 million at FoodTech and $105 to $115 million at Aerotech. Our second quarter guidance for operating margins are 13.75 to 14.25% at FoodTech, with adjusted EBITDA margins of 19 to 19.5%. For Aerotech, operating margins are forecasted at 8.75% to 9.25%, with adjusted EBITDA margins of 10% to 10.5%. For the quarter, we expect corporate costs of $12 million to $13 million, M&A and restructuring costs of $4 million, and interest expense of about $3 million. That brings second quarter adjusted earnings per share guidance to $0.90 to $1 and $0.80 to $0.90 on a gap basis. With that, let me turn the call back to Brian. Thanks, Matt. I'd like to start by talking about order trends and what we hear about the market from our customers' perspective. In the first quarter of 2021, food tech orders hit a record $386 million. The pandemic-driven boost in eat-at-home retail and quick service restaurant demand continued into the quarter. fueling orders from food processors requiring additional capacity and automation to serve these markets. From a geographic perspective, North America and the Asia-Pacific region continue to be strong. South America improved meaningfully, while demand in Europe remained volatile as the region worked through the challenges of the pandemic. Our research and customer engagement confirms our expectations of double digit expansion in capital expenditures among our food tech customers in 2021. This is consistent with our forecast for food tech equipment growth, which is expected to outpace our more stable recurring revenue. Beyond the current strength on the retail side, we believe progress controlling COVID, particularly in the US, will spur new projects on the food service side. Inquiries and conversations with customers serving the food service market have picked up. At the same time, the pandemic has accelerated customer investment and permanent design changes. Production flexibility so producers can respond quickly to shifts in demand is increasingly important. Moreover, the pandemic serves to make automation, which was always a priority and imperative for food processors. Automation not only addresses labor shortages and enhances productivity, but is necessary to reduce worker density. At Aerotech, although orders were down 35% compared to pre-pandemic levels a year ago, it met our expectations, and there are some encouraging signs. We continue to see stability on the infrastructure side with our services and passenger boarding business. but with some construction related push out of bridge deliveries from Q2 to Q3. This is reflected in our guidance. And as we've discussed over the past few quarters, we're excited about the outlook for cargo in 2021 and military demand longer term. Additionally, our engagement with commercial airlines improved in the quarter, resulting in a few equipment orders. something we had not seen since the collapse in passenger air travel in 2020. The recent increases in domestic consumer air travel in North America is a welcome sign. However, we believe improvement in commercial airline CapEx spending will be gradual over the next two years. Let me switch gears and talk about M&A. As we said last quarter, we're looking to deploy capital in 2021 and beyond, as we evaluate strategic acquisitions that advance FoodTech's competitive position as an innovative, comprehensive solution provider. Our M&A pipeline is active and includes opportunities to leverage JBT's capabilities and scale. We continue to look at equipment providers that enhance our ability to provide full-aligned solutions, as well as those that expand our penetration to attractive food categories. Additionally, We look at companies with unique service, digital, and process-enhancing capabilities that enhance JVT's strategy to be a more meaningful solutions partner to our customers. Overall, we are reassured by the robust commercial activity of Foodtech and indications that Aerotech is on the upswing. While we have challenges ahead this year caused by transitory supply chain imbalances, JVT and our people look forward to delivering in 2021. With that, let's take your questions. Operator?