John Bean Technologies Corporation (NYSE:JBT) Q4 2023 Earnings Call Transcript February 21, 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, everyone, and welcome to JBT Corporation's Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Audra, 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 to begin today's conference.
Kedric Meredith: Thank you, Audra. Good morning, everyone, and welcome to our year end 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. A lot has occurred since our last call a few months ago, so let me dive in. As you know, JBT announced its intention, to pursue a merger with Marel. We believe this merger would be transformative, for our customers and shareholders, bringing together two exceptional providers of food and beverage solutions, with synergistic products, great technology, and globally recognized brands. I'll provide more color on that, but first about our financial performance. We are very pleased with JBT's strong results in 2023. On a 5% increase in full year revenue, adjusted EBITDA increased 20%. We also generated strong free cash flow with a conversion well over 100%. Moreover, we introduced financial guidance for 2024, which reflects further revenue growth and continued margin expansion. With that, I'll turn the call over to Matt, who will walk you through our 2023 performance and our guidance for 2024. Matt?
Matt Meister: Thanks, Brian, and good morning. Our full year and fourth quarter performance reflected a significant year-over-year improvement in profitability, and outperformed the guidance we provided on our last earnings call. For the full year, revenue increased 5%, and gross margins improved 190 basis points year-over-year. Driven primarily by the benefits from restructuring savings, enhanced operating efficiency, a favorable mix of recurring revenue, and our supply chain initiatives. Adjusted EBITDA grew 20% year-over-year to $273 million. Adjusted EBITDA margin increased 210 basis points to 16.4%. From an EPS perspective, we delivered diluted earnings per share from continuing operations of $4.02, compared with $3.23 in 2022 and adjusted EPS of $4.10 versus $3.67.
We were also very pleased with our 2023 cash flow performance. For the full year, excluding any impact from AeroTech, free cash flow was $167 million, representing a conversion rate of 129%. Our year-over-year increase in free cash flow, was driven by strong operating results and better inventory management, as the supply chain constraints experienced in 2022 improved. As of year-end, our net debt to adjusted EBITDA ratio was 0.6 times, a slight increase from the end of the third quarter, due to the tax payment associated with the sale of AeroTech. Fourth quarter of 2023, strong execution resulted in an adjusted EBITDA margin of 18.2%, a 260 basis point improvement year-over-year. Adjusted EPS, which excludes a $0.33 discrete tax benefit on the sale of a subsidiary, increased 24%.
Regarding our guidance for 2024, we are projecting solid top-line growth of 5% to 7% or 4% to 6% organic, which excludes a benefit from FX of 1%. Our organic revenue guidance includes approximately 1% from price, as we work to stay price-cost neutral, and about 1% to 2% impact from equipment market growth, as we expect North American poultry demand to show some recovery in the back half of the year. Additionally, we expect to see growth from our AGV business as we deliver on strong backlog that, has been built from demand for warehouse automation. Finally, we are forecasting continued growth in our recurring aftermarket revenue, as we invest in resources, to support improved customer equipment uptime, as well as benefit from continued ramp in OmniBlu adoption.
In 2024, we are forecasting adjusted EBITDA of $295 to $310 million, representing year-over-year growth of 11% at the midpoint. Our margin guidance of 17% to 17.5%, reflects a year-over-year improvement, of approximately 85 basis points at the midpoint. This increase is the result of continued benefits from our ongoing supply chain initiatives and operating leverage, along with restructuring savings of $7 million to $9 million. We expect full year net interest income of $4 million and a tax rate of 22% to 23%, resulting in adjusted earnings per share guidance of $5.05 to $5.45. At the midpoint, our adjusted EPS guidance represents a year-over-year increase of 28%. And finally, we anticipate free cash flow conversion of more than 100%, which includes CapEx, of about $50 million to $60 million.
Included in our full year guidance, is approximately $15 million in M&A costs for the first half of the year, related to the intended merger offer for Marel. As a reminder, these M&A costs, are excluded from adjusted EBITDA and adjusted EPS. On a reported GAAP basis, we have updated our guidance ranges, versus our preliminary outlook from January 19 to reflect the revised M&A cost assumptions. We will continue to provide updates on estimated costs, from this potential merger, as we move throughout the year. The first quarter is traditionally, our seasonally slowest in terms of revenue and profitability, a trend that we expect will continue in 2024. Given the timing of the anticipated recovery in North American poultry markets. We expect the 2024 second half revenue to be approximately 53% of the total versus 51% in 2023.
A close-up of a technician mixing ingredients in a large food processing factory.
We are forecasting margin improvement in each sequential quarter of 2024, as market conditions are expected, to improve and supply chain actions flow through to the results. With that, let me turn the call back to Brian.
Brian Deck: Thanks, Matt. We are entering 2024 with good order momentum and backlog. Fourth quarter orders were a solid $418 million, and full year orders increased 5% year-over-year. In the fourth quarter, similar to the third, we enjoyed strengthening order trends in Europe and Asia, including from the poultry industry. While we have yet to see improved orders from North American poultry customers, the industry's price-cost dynamics are improving. We recently returned from the annual IPPE, otherwise known as the poultry show, where attendance was among the best ever. The mood was more upbeat and the conversations constructive. Overall, our interactions support our belief that we are entering a period of recovery and equipment demand from that market.
Switching gears, as we have talked about for the last few years, JBT's greatest opportunity for margin improvement, rests in our supply chain initiatives. Given post-pandemic supply chain pressures during 2021 and 2022, we were hyper-focused on continuity of supply. In 2023, supply chain conditions improved, allowing us to shift our focus and resources, to optimizing costs and inventory management. With the sale of AeroTech, we can focus our supply chain efforts on a more homogenous supply base. We are engaged in our strategic sourcing initiative, consolidating JBT's spend to concentrate purchasing, where we can improve the economic delivery, and quality of our supply base. We're also engaged in our process of value engineering, as we work to standardize components, and reduce complexity of product design, without compromising our quality, or performance promise to our customers.
This will lower costs, improve manufacturing efficiency, and facilitate inventory management. We plan to build on the supply chain success, we captured in 2023 and generate some 25 to 50 basis points of incremental margin expansion in 2024. As you can see from our strong performance in 2023 and our 2024 guidance, JBT's prospects remain bright, reflecting our business - our strong resilience business model, the diverse product and end market mix and our value-added acquisitions. Beyond what we've already achieved, the proposed merger with Marel, represents a unique opportunity to create broad stakeholder value. We have not yet launched, the tender offer for Marel, which we now believe will - most likely occur in the second quarter. And of course, the proposed merger is subject, to respective shareholder approval and regulatory clearance.
We will share more about the transaction on the conference call, we plan to hold post-launch. In the meantime, here's what we can share. We believe the combination will accelerate growth by capturing cross-sell opportunities across our complementary portfolios and through an expanded global commercial footprint, and customer care resources. The combined company would offer an even fuller line of solutions in protein, pet food, and plant-based protein processing. Scalable R&D would expand our ability to develop innovative solutions, to address customer priorities, including the growing demand for automation and sustainable solutions. The enhanced reach of the customer care organization, would improve service levels and make it easier to do business, with the combined company.
Furthermore, by leveraging our complementary and comprehensive digital solutions, JBT's OmniBlu and Marel's Innova, we would optimize equipment uptime and efficiency for customers and further the digital engagement ecosystem. Even before considering revenue synergies, which could be meaningful, we have identified cost synergies of more than $125 million that we expect to capture within three years of completing the transaction. We believe our ongoing supply chain initiatives would improve the collective cost base. Additionally, we expect benefits from leveraging our collective G&A spend and optimizing manufacturing efficiency. Importantly, we will advance the business in a way that respects and supports Marel's heritage. We anticipate - that the combined company will be named JBT Marel.
Marel's shareholders are expected to have representation on the combined Board of Directors proportional to their pro forma ownership. And we are committed to building a best-in-class talent organization. The plan is to have a European headquarters in Iceland, and the company's shares will have a secondary listing on NASDAQ Iceland. Assuming the transaction closes at year-end 2024, the combined company is expected to have a net leverage ratio of less than 3.5 times, which is prior to any cost synergies. And given the strong cash flow profile and improving EBITDA of the combined business, we would expect leverage to be well below three times by the end of 2025. With all the activities surrounding the intention to merge with Marel, it remains business as usual for JBT.
Our priority, as always, is to provide superior solutions and service to customers. And it's JBT's employees around the globe that make that happen every day. With that, let's take your questions. Operator?
