JBT Marel - Q3 2024

Executive Summary

• Record quarter: revenue $453.8M (+12% YoY), adjusted EBITDA $81.7M (+23% YoY; 18.0% margin), adjusted EPS $1.50 (+35% YoY); orders $439.6M (+10% YoY) and backlog $698.1M.
• Guidance: Revenue, adjusted EBITDA, and adjusted EPS reiterated; GAAP EPS and income from continuing operations lowered to reflect a planned non-cash pension settlement charge in Q4 ($28–$32M pre-tax), with adjusted EPS unchanged.
• Operational drivers: Sequential recovery from Q2 shortfall via backlog conversion, restructuring and supply chain savings, and net interest income; continued poultry demand recovery; strong AGV momentum with above-company margins.
• Marel combination: Financing commitments secured (7-year $900M TLB at SOFR+225 bps, step-down to +200 bps <3.25x leverage; 5-year $1.8B revolver), EC filing imminent with 25-day review; close expected around end of 2024.

What Went Well and What Went Wrong

What Went Well

• Record revenue, adjusted EBITDA, and adjusted EPS from continuing operations, driven by backlog conversion, cost savings (restructuring and supply chain), and lower net interest expense.
• Orders strength and demand recovery in global poultry; order pickup across Asia and solid quarter in Europe; diversified end-market exposure supported momentum.
• AGV business scaling with R&D-led product standardization, subscription software model (recurring revenue), improved lead times; targeting >20% margins and >30% revenue growth in 2024, above company average.

Management quotes:

• “Record quarterly revenue, adjusted EBITDA, and adjusted EPS” (CEO Brian Deck).
• “Adjusted EBITDA margin of 18% increased 160 bps” (CFO Matt Meister).
• “Secular demand for facility automation… remains robust” (CEO Brian Deck on AGV).

What Went Wrong

• GAAP EPS and income from continuing ops guidance cut due to planned non-cash pension settlement; additional non-cash charge expected in Q1’25 for remaining obligations (estimated ~$145M).
• Earlier Q2 revenue shortfall from book-and-ship performance and temporary systems upgrade impacts on overtime projects and aftermarket parts; required catch-up in H2.
• Pockets of weakness in certain CPG areas like beverages; North America poultry still below historical strength though improving.

Transcript

Operator (participant)

Good morning, and welcome to JBT Corporation's third quarter two thousand and twenty-four earnings conference call. My name is Prila, 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 speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press Star one again. Thank you. I will now turn the call over to JBT's Director of Investor Relations, Marlee Spangler, to begin today's conference.

Marlee Spangler (Director of Investor Relations)

Thank you, Prila. Good morning, everyone, and welcome to our third quarter twenty twenty-four earnings 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 (CEO)

Thanks, Marlee, and good morning, everyone. We were very pleased with JBT's results for the third quarter. As expected, we posted double-digit year-over-year revenue growth and captured meaningful margin expansion. Moreover, we continued to generate strong orders and benefit from the ongoing recovery and demand from the global poultry end market. Overall, our progress and performance in the third quarter reinforces our confidence in our full-year expectations of 3%-5% revenue growth in 2024 and Adjusted EBITDA growth of 10% at the midpoint of our guidance. Matt will walk you through an analysis of the third quarter. He will also discuss the securing of commitments for financing the Marel merger. Then I will speak about end market and geographic trends, discuss updates on the combination with Marel, and provide some highlights on our exceptional automated guided vehicle business. Matt?

Matt Meister (EVP and CFO)

Thank you and good morning. As Brian mentioned, we achieved strong growth and margin improvement in the third quarter of 2024. Revenue of $454 million increased 12.4% year over year. As anticipated, we converted our strong backlog to revenue and recovered the revenue shortfall from the second quarter. Adjusted EBITDA of $82 million increased 23% year over year, and our adjusted EBITDA margin of 18% increased 160 basis points. This year-over-year improvement was driven by higher volume flow-through, as well as cost savings from both our restructuring program and supply chain initiatives. The adjusted EPS in the third quarter was $1.50 versus $1.11 in the prior year. EPS benefited primarily from our strong operational performance and positive net interest income. Year to date, we generated free cash flow of $79 million.

For reference, on a trailing twelve-month basis, as of September thirtieth, we achieved free cash flow of $184 million. Our strong performance in the third quarter is the result of higher income and improved working capital management, and for the full year, we remain confident in our ability to achieve a free cash flow conversion rate in excess of 100%. Given JBT's strong year-to-date performance and backlog, we are reiterating our full-year guidance for revenue, Adjusted EBITDA, and Adjusted EPS. We are, however, updating guidance for income from continuing operations and GAAP EPS to reflect our plan to settle all outstanding obligations of JBT's pension plan through a combination of voluntary lump sum settlements and the purchase of an annuity contract, and in the fourth quarter, we expect a portion of eligible participants to elect to receive lump sum settlements from the plan.

As a result, we expect to incur approximately $30 million in non-cash pre-tax charges during the quarter. This brings our full year estimate for income from continuing operations to $116 million-$125 million, and GAAP EPS to $3.60-$3.90. Additionally, in the first quarter of twenty twenty-five, we expect to settle the remaining obligations of the plan and anticipate further non-cash pre-tax charges of approximately $145 million. Given the plan's fully funded status, we anticipate these actions will have an immaterial impact on cash flow. Lastly, as outlined in our press release, in October, we secured financing commitments contingent on the completion of the merger with Marel.

Once executed, we will issue a $900 million Term Loan B and expand our existing revolving credit facility to $1.8 billion. Funds from this new capital structure, along with cash on the balance sheet, will be used to pay the cash portion of the transaction, refinance Marel's outstanding debt, and pay transaction-related expenses. As a first-time issuer in the Term Loan B market, we are very pleased with the overall demand and pricing structure. With an offering that was more than three times oversubscribed, we were able to upsize and achieve favorable pricing. Additionally, we believe that lenders' willingness to add a leverage-based pricing step-down indicates confidence in management's ability to delever the business. As we have stated, we are committed to reducing JBT's leverage to less than three times by year-end 2025. With that, I'll turn the call back to Brian.

Brian Deck (CEO)

Thanks, Matt. Let me start with order trends. Orders, which totaled $440 million in the quarter, increased 10% from the prior year period. We feel good about what the order strength means for the current state of our business, and it positions us well as we plan for 2025. Driving the overall gains in orders, we enjoyed continued recovery and demand from the poultry end market, which showed improvement globally. Pet food, fruit and vegetable, and pharma end markets also experienced healthy demand in the quarter. Orders at AGV normalized from the record second quarter. While there were pockets of weakness, including certain CPG areas like beverages, our overall strength is a function of JBT's broad product portfolio and end market and customer exposure. As we have said, we have the diversified portfolio to serve our food and beverage customers, regardless of changing consumer preferences.

Geographically, we experienced nice pickup and order activity in Asia and a good quarter in Europe. North America also experienced good order momentum. As we mentioned last quarter, our AGV business is posting record sales and orders. Secular demand for facility automation, which is critical to addressing labor shortages and high costs, remains robust. Within the factory and warehouse automation market, AGV boasts a differentiated product, the result of decades of experience, the quality of our technology, and the ability to integrate with customers' operations. Over the past few years, we have invested heavily in AGV's R&D and adjusted its business model. Specifically, we have focused on the intelligence, safety, and service element of our value proposition, while focusing on larger scalable projects with our customers as opposed to bespoke projects. This strategy is paying off.

We are seeing customers who installed AGV at one or two warehouses return to us as they seek to establish an expanded automation solution across their enterprise. Additionally, with the introduction of our proprietary Motion Operating System, we have moved to a subscription model, which requires a multiyear software contract along with a parts and service contract. This allows for a high-touch, premium value proposition based on delivering the highest performance and safety throughout the life of our systems, with constant access to the most recent software features and cybersecurity upgrades. With this model, we expect recurring revenue continue to grow meaningfully as we build out the installed base. At the same time, as we discussed last quarter, changes to our manufacturing process and product standardization have improved internal efficiency and cost.

As a result, we have enhanced our ability to deliver AGV systems and reduced lead times to address ongoing robust demand. Moving on to even bigger developments. On the merger with Marel, we continue to focus on integration planning and day one preparedness, including an evaluation of our future organizational structure. In our planning, we are viewing our businesses through the lens of the customer to create a go-to-market structure that aligns with their needs. We have also sought to capitalize on the respective strengths of JBT and Marel's complementary portfolios, enabling us to optimize operational synergies while providing the most comprehensive solutions to customers. On the regulatory front, we are nearing the final stages of completing the required approvals.

We have been engaged in an in-depth pre-notification process and dialogue with the European Commission and have received feedback that we will be able to formally file our notification to the EC in the coming days. Once we submit this merger filing, a 25-day business review period begins, after which we anticipate receiving formal approval. In terms of the voluntary takeover itself, JBT and Marel will work with the FSA in Iceland to determine the appropriate extension, which will provide adequate time following the regulatory approvals for Marel shareholders to tender their shares. JBT and Marel will issue press releases related to the extension of the offer. Based on these most recent developments, the timeline to close remains on or about the end of 2024. Based on our extensive outreach and conversations with Marel shareholders, we remain confident that they are supportive of the merger.

Lastly, I want to thank the JBT team members. JBT's growth, operational excellence, and passionate commitment to our customers wouldn't be possible without our people around the world. Now, let's open up the call. Operator?

Operator (participant)

Thank you, and we will now begin the question and answer session. If you would like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. Again, please press star one to join the queue. One moment, please, for your first question. And your first question comes from the line of Mircea Dobre with R.W. Baird. Please go ahead.

Mircea Dobre (Senior Research Analyst)

Thank you. Good morning, everyone.

Brian Deck (CEO)

Morning.

Mircea Dobre (Senior Research Analyst)

So Brian, Brian, you spent maybe more time than normal talking about AGV, and it sounds like this is a portion of the business that is doing quite well. It would be great to get a bit of a reminder from you in terms of the size of this business at this point, especially since it's been growing so much. And I'm curious how margins look like for this product. Is this positive for mix, or is it maybe a little bit below your average portfolio margin?

Brian Deck (CEO)

Right. So, thanks for the question. So, in terms of revenue, they will be north, a little bit north of $150 million this year, with impressive growth, like you said, north of 30% growth this year. And, in terms of from a margin perspective, if you look at JBT's guidance for the year is 17% to 17.5%. They are above that range. They're, we're striving for, twenty percent plus this year.

Mircea Dobre (Senior Research Analyst)

Interesting. And, you know, as you think about this business and its potential, I'm sort of curious as to how you think, you know, two, three years out. And, you know, is there anything within the AGV business that would be able to either cross-sell or cross-pollinate with what Marel is doing, some of their customers? Yeah, would love some comments on that as well.

Brian Deck (CEO)

Sure. So, yes, interesting. If you think about the portfolio that they have, anywhere where you have warehouse automation, it's applicable. Certainly, quite a few of our CPG customers, beverage customers, are using these operations, these AGV vehicles. I would say probably the easiest area, if you will, to cross-sell with this would be on their pet food business. So, their Wenger acquisition from a couple of years ago. There are potentially opportunities, as you go downstream, with some of the other end markets that they have. Once they get into a warehouse stage, that is a potential, but certainly on, I would say, the more traditional CPG type and pet food type items, that's the clear opportunity.

Mircea Dobre (Senior Research Analyst)

Got it. Then maybe on the core business, poultry sounds better. I'd love a little more insight as to what you're hearing from customers there. I mean, frankly, why are things getting better? How sustainable do you think this is into twenty twenty-five?

Brian Deck (CEO)

Right. So, it's good news. They continue to make good money. We continue to have good conversations with them. We are aware of several projects that they are working on, either from, I would say, a brownfield perspective, but also from a refurbishment or replacement of individual lines. So, as they, obviously, they've had some pent-up or deferred investment over the years. We do generally feel good about it. So I think it, you know, it never snaps back at the pace you would really want it to go, but they, we do have a consistent kind of, say, improvement month over month, quarter over quarter. Our pipeline is good. We saw some... What was really nice to see in the third quarter was some orders on the primary side.

So, you know, JBT is not a huge player on the primary side. We do chillers and some other systems. But what's nice about that, that's where Marel is particularly strong. So we're hoping that is a precursor to some of the strength that we would hope to see into 2025 and thereafter. I think in terms of visibility, I would say we probably have a good 18-24 months visibility as we sit here. Obviously, that could change, you know, if the fundamentals change, but the fundamentals are hanging in there for sure, both from an input perspective. We've seen some seasonal declines in the poultry prices, but overall, they remain at levels where our customers are quite profitable.

Generally, we feel good about that, and we would expect kind of this slow but steady march to get back to full recovery. And I think it kinda depends on, you know, if we're talking primary or secondary or end of line, as to when you get to those full recoveries, but either twenty-five or perhaps twenty twenty-six, full recovery.

Mircea Dobre (Senior Research Analyst)

I guess my final question, and, you know, this, I don't know if you actually want to answer this or tackle the topic, but, you know, we've got an election here coming up in a few days, and, you know, the whole discussion around immigration and potential deportations from Mr. Trump have certainly made headlines. I do remember during the first Trump administration, there was some disruption that protein processors have had, ICE raids, things of that sort, that have impacted their labor force.

In your discussions with customers, are they sort of looking at this as something that will need to be addressed on their end, meaning this whole idea that we're gonna need some additional automation or equipment that is maybe more efficient in order to sort of manage the inherent risk to their labor force that could develop down the line? Thank you.

Brian Deck (CEO)

Yeah, it's a very interesting and applicable question. I will say over the last few years what we have heard is that labor has been more available, and I would say more of our efforts have been on improving yield, efficiency, et cetera, and a little bit less what we saw during the Trump administration on pure labor replacement. So under a circumstance where you have tighter controls on immigration, I frankly would expect more opportunities on going from, I'd say, manual cut-up lines, where you have folks, you know, standing shoulder to shoulder with knives and whatnot, to more automated solutions. That would generally be the thesis under a Trump administration.

Obviously, we'll have to see how long it takes for that to play out and whatnot, and but that would generally bode well for companies like JBT and Marel.

Mircea Dobre (Senior Research Analyst)

Appreciate it. Thank you.

Brian Deck (CEO)

Thanks.

Operator (participant)

Your next question comes from the line of Ross Sparenblek with William Blair. Please go ahead.

Ross Sparenblek (Research Analyst in Industrials)

Hey, good morning, gentlemen.

Brian Deck (CEO)

Good morning.

Ross Sparenblek (Research Analyst in Industrials)

Hey, can you maybe help us size the poultry contribution to orders in the quarter? And then also, your expectations for orders ex in the year and in twenty twenty-five? Just trying to get a sense of, you know, seasonality versus potential acceleration as we think about the cadence for next year.

Brian Deck (CEO)

Yeah. So in terms of the, I'll say, incremental orders versus the second quarter, something in the range of $10 million-$15 million more, ballpark. So and I would say we're still that does not yet bring us, I would say, fully back to kind of where we otherwise need to be, kind of, as I mentioned with Mircea, on the before we get to full recovery. But some decent improvements in the quarter, specifically, as I mentioned, on the primary side.

Ross Sparenblek (Research Analyst in Industrials)

Got it. Okay. So $10-$15 million order poultry, quarter over quarter, I mean-

Brian Deck (CEO)

In North America, specifically.

Ross Sparenblek (Research Analyst in Industrials)

In North America.

Brian Deck (CEO)

Yeah. Now, what was interesting, Ross, is so that was North America. We actually saw some improvements outside of North America as well, specifically Asia. So that was nice to see, 'cause as you know, Asia is kind of a lumpy business for us. They tend to do fuller lines, but we are still starting to see some investments in poultry in Asia and actually Europe had a decent quarter as well.

Ross Sparenblek (Research Analyst in Industrials)

Now, that's a perfect segue. I'm trying to understand, I mean, is it more a geographic angle between why you're seeing more of an acceleration in your poultry orders versus Marel thus far? We obviously haven't seen their third quarter results, or is it kind of brownfield, greenfield, upstream, downstream, as you kind of noted with, you know, the strength in your business in the quarter?

Brian Deck (CEO)

Right. I won't specifically talk to Marel and kind of where they've been, but I will just generally say JBT does play further along in the line. It's kind of that your second assumption. They are more upfront in full processing type primary, secondary lines. JBT is further down the line, generally, which. So they're not as full line solutions. They tend to be, you know, one or two or three pieces of equipment, which have shorter sales cycles and shorter lead times versus a full system. So just a little bit different place where we play in the lines.

Ross Sparenblek (Research Analyst in Industrials)

Okay. And then thinking about the Marel timeline here, 25-day EU notice, I think that kind of mitigates any concerns from remedy, which is a positive. But can you just remind us of what other countries outside of Europe we should be watching out for as it relates to filings?

Brian Deck (CEO)

Yes. So, we're really pleased with where we are with the EU. That's been a very long process, a very collaborative process we've had with them, multiple back and forth. So to get to this stage, that's a major milestone. For those that are familiar with the EU, the EC, filing process. So, them giving us the green light to go ahead and the formal filing to kick off this 25-day waiting period is very, very positive. We have one other jurisdiction that we're finalizing. I would say, I would characterize it as, and that's Australia, dotting some I's and crossing a few T's.

That is out there, but we feel confident that will play itself out within the same time frame, which basically brings us to full regulatory expectation of approvals by the end of November, and then we would again extend the VTO, the voluntary takeover offer period, to probably a couple weeks after that. We're working with Marel on precisely the dates that we choose, and then we will announce that here in short order.

Ross Sparenblek (Research Analyst in Industrials)

Perfect. All right. If I can maybe just get one more in. Now that you've had more time with the business to look under the hood, should we expect maybe a upward revision to synergy targets once the acquisition is closed? Or maybe you can give us an early read there? It just looks like Marel margins, and based off consensus, aren't where they really need to be in regards to the pro forma targets, and maybe there's a little more cost out that will be required to hit your accretion goals.

Brian Deck (CEO)

I would say we've done quite a bit of work over the last six months. We have gotten to know them quite a bit. We certainly have a funnel and pipeline, if you will, to deliver on the $125 million of all-in savings, all-in synergies. So I would just say we're confident in that. We'll, if we get to the point where we think we can do more, we'll certainly let you know. But, really, there's only so much you can do until you actually combine businesses in terms of visibility, perfect visibility. So I think it's appropriate to just stick with the $125 million as I sit here.

Matt Meister (EVP and CFO)

Yeah, I think the margin improvement that we're also expecting is gonna come from again, further recovery in the protein markets and how that benefits Marel in the higher volumes, so not only are there synergies, but there's also just the recovery in volumes, which will help drive improved margins at the Marel side.

Brian Deck (CEO)

Yeah. And certainly, they're also, I mean, they are also doing their own improvement efforts, kind of, regardless of, I would say, a synergy opportunity.

Ross Sparenblek (Research Analyst in Industrials)

All right. It's perfect. I'll leave it here. Congrats, guys.

Matt Meister (EVP and CFO)

Thank you.

Operator (participant)

Your next question comes from the line of Walter Liptak with Seaport Research. Please go ahead.

Walter Liptak (Industry Analyst)

Hi, thank you. Good morning, everyone. Congratulations on the nice quarter. Wanted to ask about the order strength and, you know, the recovery that we're seeing in the poultry market. So seems like it's still, you know, early days, but as we look at it geographically, where do you see the recovery strength coming from? Is it? You know, it sounds like Asia's doing well, Europe's doing well, maybe-

Brian Deck (CEO)

I would say-

Walter Liptak (Industry Analyst)

That's what-

Brian Deck (CEO)

Yeah, I would say the pace of improvement, probably North America remains our biggest opportunity. For those who have been following for, you know, for years, North America was always just the strongest market for us, and it hasn't been over the last two years or so. So typically, that's our go-to in terms of strength and consistency. And so that's where I do think, just in terms of getting back to that level of strength and consistency, is what we're looking forward to. That would be the primary.

Walter Liptak (Industry Analyst)

Okay. All right, great. And then, you know, the aftermarket sales, we haven't talked too much about that on this call, but the growth, you know, how did you feel about the 5% plus, you know, revenue growth? And, you know, can you tell us about some of the initiatives that you've had to keep that, you know, growing and, you know, maybe any positives or negatives around aftermarket?

Brian Deck (CEO)

Yeah. Sure. No, we're very happy with the 5% growth. As you know, that's a more stable business than the equipment side. I think we had, what? 20% plus, equipment growth in the quarter, and that's obviously reflective of some of the recoveries and the strength in the backlog and whatnot that we've been talking about over the past few years. So, if we can continue to deliver consistent mid-single digit, aftermarket growth, kind of in good times and bad, that's a really good answer. Obviously, considering that does have a better margin profile. In terms of the things that we are doing, it is really about. There's a couple things, but the most important things that we have to continue to focus on is on-time delivery on parts.

So we're doing some additional work on making sure we've got the right parts in the right places and really focusing on that. Certainly, continuing to penetrate with our OmniBlue digital offering helps us in terms of those relationships with our customers and having that more engaged model. And then lastly, our service network, making sure we've got, again, the right people in the right places, the responsiveness. So it's about, you know, having the right metrics, looking through the eyes of the customer, and what are the metrics that they feel are important, not just things that you think about from a business perspective, like inventory turnover and whatnot. Like, really kind of flipping that, those metrics, and that's the focus that we've had.

And that's the combination with Marel adds to our ability on the aftermarket side meaningfully. Again, they've got some really well-developed parts distribution centers, so we're working with that, how to optimize the usage of that, but also a pretty impressive service network in terms of their people and their coverage. And that's usually one of the biggest constraints in terms of being able to serve our customers effectively. Our service techs are quite valuable, and they know the business and the products and the customers quite well. That's a really wonderful opportunity when as we come together.

Walter Liptak (Industry Analyst)

Okay, great. Okay, thanks much.

Operator (participant)

Thank you. And once again, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. And there are no further questions at this time. I would like to turn it back to Mr. Brian Deck for closing remarks.

Brian Deck (CEO)

Thank you all for joining us this morning. As always, Marlee will be available if you have any follow-up questions. Thank you. Have a great day.

Operator (participant)

Thank you, and this concludes today's conference call. Thank you all for participating. You may now disconnect.