JBT Marel Corp (JBTM) 2009 Q1 法說會逐字稿

Good morning.

My name is Christie and I will be your conference operator today.

At this time I would like to welcome everyone to the JBT Corporation 2009 First Quarter Earnings Conference Call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer question.

(Operating Instructions)

I will now turn today's conference over to Ms.

Cindy Shiao, Director of Investor Relations.

Thank you.

Good morning.

Thank you for joining us to review JBT Corporation's First Quarter 2009 Results.

With me on the call are our CEO Charlie Cannon and our CFO Ron Mambu.

During our call any comments or references to 2008 earnings per share are to pro forma earnings per share reflecting our spin off from FMC Technologies effective July 31, 2008.

Reconciliations to GAAP earnings per share may be found in the attachments of the earnings release issued yesterday.

Before I turn the call over to Charlie, I want to remind everyone that the forward-looking statements disclaimer in our earnings release and 8K filing apply to this morning's comments as well.

Both documents are available on our investor relations website.

I also refer you to our disclosures regarding risk factors in our annual report on Form 10K filed with the Securities & Exchange Commission.

Now I will turn the call over to Charlie.

Thank you, Cindy, and good morning, everyone.

We are pleased with our operating results for the first quarter.

During our fourth quarter earnings call we said that the global economic downturn would not affect all of our product lines equally with some impacted more severely than others.

We also expected to return to our historical seasonal pattern in which the first quarter is usually our weakest quarter in the year.

We are seeing just that.

While earnings are down due to the global recession, our earnings per share exceeded the consensus estimate.

Sales declined 35% and currency contributed 5 percentage points of that decline.

In response to the lower demand, we continue to implement the contingency plans that were laid out last year.

We made deeper cuts in the ground support equipment organization due to softening demand, and we are reducing through FoodTech headcount in Western Europe and Latin America due to the weak market conditions for freezing and protein processing product lines.

In addition, we took preemptive actions to further lower our cost structure across the Company, given the lack of visibility in this uncertain environment.

As a result of these difficult actions, we maintained our segment operating profit margin at 9%, unchanged from last year's first quarter after excluding restructuring charges of approximately $2 million.

Diluted earnings per share were $0.15, a 59% reduction from the pro forma diluted earnings per share of the prior year quarter.

Restructuring charges accounted for 10 percentage points of the decline.

We are focused on cash flow.

We generated $6.1 million from operating activities in the first quarter, some of which we used to fund our second quarterly dividend payment in March.

This resulted in maintaining our net debt level essentially unchanged from 2008 year end.

Looking forward we expect the global economic downturn to continue through 2009 and possibly into 2010.

Credit markets appear to be improving, but financing for some of our smaller customers remains difficult.

It is too early to tell how the various government stimulus programs around the world will affect the global economy in general or our businesses specifically.

To state the obvious, 2009 will continue to be very challenging.

We are certainly not immune to the global recession, but our business fundamentals remain strong.

We have a diverse customer base and a broad geographic reach.

We have a solid recurring revenue base and just as important we have demonstrated our ability to rapidly lower our cost structure in this recessionary environment.

We are confident that these business attributes will help us manage through this very challenging time.

Now let me provide some market commentary on each of our segments.

First JBT FoodTech.

The demand for our freezing and protein processing product lines has slowed, most notably in Western Europe and Latin America.

We believe Western Europe will lag other parts of the world in the recovery cycle and do not expect meaningful recovery in the near future.

In Latin America, activity is also significantly weaker than a year ago, primarily driven by the difficult credit markets and economies that are not broadly diversified.

Excuse me.

We continue to have discussions with the customers on various projects, but orders are taking longer to close.

We are implementing cost reduction initiatives to further lower our cost structure in these regions.

Turning to North America, the poultry industry remains challenging; however, we are encouraged by two recent trends.

One, the decline in corn prices, and two, higher poultry prices.

Longer term this should bode well for our poultry customers' profitability.

With the two large orders FoodTech received in late 2008, we have a solid backlog for the North American region; however, since we have seen the timing of orders begin to stretch out, we are monitoring North America closely.

In the developing world, Asia Pacific, Middle East and Eastern Europe, we continue to have a decent level of quota activities although at a slightly slower rate.

Amidst the economic gloom, we do see two bright spots in FoodTech.

The first is as consumers switch to lower cost alternatives, consumption of certain frozen and canned foods is increasing and traffic to the quick service restaurants has been higher.

We believe several of our FoodTech product lines are in a good position to provide the technologies that our customers need for this change in consumer demand.

The second bright spot is our customers are investing in maintenance to improve operating efficiency at the same time as they constrain their new capital investment.

Thus we continue to expect our after market parts and service business to provide a solid recurring revenue stream in these uncertain times.

Moving to JBT AeroTech, as I mentioned in our last quarterly earnings call, ground support equipment has been the most challenged product line in the Company and demand remains soft, reflecting the deep recession facing the airline and airfreight industries.

In response, we expanded our restructuring effort.

The staffing level and ground support equipment is now 10% lower than year end.

This is in addition to the 28% reduction from 2007 year end.

Order activity for our passenger boarding bridges remains healthy but we are experiencing some project delays reflecting the uncertain market.

We have a contingency plan in place if projects are further delayed.

As for the airport services product line, both airport authorities and airlines continue to outsource services to reduce costs and we expect to land some new contracts in the near future.

In January, we announced the award of a $28 million order for the US Air Force Halvorsen Loader, which will provide a solid production base for our military loaders through the middle of 2010.

Our automated guided vehicle product line has also been impacted by the downturn primarily from the US auto and newspaper industries and here, too, we have taken action to reduce cost.

Lastly, AeroTech aftermarket declined slightly in the quarter, but we are pursuing a number of overhaul projects and believe that annual aftermarket revenue will remain at 2008 levels.

To summarize for AeroTech, we expect demand in 2009 for ground support equipment to be substantially lower, but for the rest of JBT AeroTech's product lines we are cautiously optimistic about the remainder of the year.

In our last conference call, we said we planned to provide full year guidance at this time; however, future economic conditions remain unclear and the volatile financial markets continue to affect credit availability for some of our customers.

Given this economic uncertainty and lack of visibility into the fourth quarter, it is very difficult for us to provide an accurate estimate for 2009.

We have decided to defer 2009 guidance until we have better visibility for the entire year.

We do believe this year will more closely track our historical seasonality, thus we believe that the second quarter will be stronger in both revenue and profits than the first quarter.

In closing, I am proud of what our team has achieved in this challenging environment; however, we are not letting our guard down as we continue to actively monitor current market conditions.

Now I'll turn it over to Ron Mambu to provide you with some further financial detail on the quarter.

Thanks, Charlie.

We are pleased with our first quarter results, especially when considered in context with global economic conditions.

The recession adversely affected our first quarter results.

Revenue of $169 million declined 35% from the first quarter of 2008, and segment operating profit of $13.3 million declined 43% from the same period.

We recorded approximately $2 million in restructuring charges to realign our cost structure to the lower demand levels we're seeing.

The US dollar continued to strengthen in the quarter versus the prior year level, particularly versus the Brazilian Real and the Swedish Krona, resulting in reducing the translated value of revenue and earnings.

On a comparable basis, assuming constant exchange rates and excluding restructuring charges, revenue declined 30% and segment operating profit declined 27%.

While reducing headcount and restricting spending is never a pleasant task, the speed with which we can implement these adjustments does underscore JBT's largely variable cost structure.

Diluted earnings per share for the quarter of $0.15 are down 59% from the first quarter record high of 2008 on a pro forma basis.

Throughout 2008, and again during our year end conference call in March, we indicated that 2008's seasonal financial pattern was very different from our historical experience and that the first quarter is normally the weakest quarter in the year.

We believe this is what we're seeing in our first quarter results.

I'll turn now to operating segment performance and I'll close with corporate comments, including remarks regarding cash flow and liquidity.

FoodTech revenue declined 37% versus the first quarter of 2008, reflecting continued softness in Western Europe, a weak North American poultry segment, and delivery of a large Latin American project in the first quarter of 2008.

Additionally, the translation effect on the stronger US dollar negatively impacted revenue by $11 million.

FoodTech's operating profit declined 46% compared to the same period in 2008 primarily due to lower volume, restructuring charges of $800,000, and the stronger US dollar.

Inbound orders for the quarter were behind the prior year level by 33% or $49 million.

Unfavorable translation accounted for approximately $13 million of this difference.

Backlog was lower year over year; however, on a constant foreign exchange basis FoodTech backlog was actually 3% higher than the first quarter of 2008 and was up sequentially from the year end 2008 level.

In our AeroTech segment, revenue declined by 34% or $38 million, reflecting continued soft demand for our ground support equipment.

Overall, AeroTech operating profit lagged prior year results due to lower volume and restructuring expenses of $1.1 million.

Improved profitability in our passenger boarding bridge product line, military program and airport services helped to offset some of the decline from ground support equipment.

AeroTech inbound orders were up sequentially and versus the prior year due to the $28 million US Air Force order for Halvorsen Loaders received in January.

Backlog was behind the prior year quarter, but up sequentially from the fourth quarter of 2008.

Moving to the corporate items, our first quarter effective tax rate was 34%, in line with our expectation and well down from the 2008 level due to the carve out assumptions used in the prior year.

Corporate expenses were also down from the prior year level in part due to timing and also due to cost reduction initiatives.

Capital spending and depreciation and amortization for the quarter were $4.8 million and $5.1 million respectively.

This is also in line with our expectation for lower levels for both items versus 2008.

Shares issued and outstanding at the end of the quarter totaled approximately 27.5 million shares.

Finally regarding liquidity, one of the historical strengths of the Company has been the ability to generate free cash flow.

At the end of the first quarter, cash flow from operating activities totaled $6.1 million.

After capital expenditures and payment of the quarter's dividend, net debt was $143 million, essentially unchanged from the December 2008 level.

So in our seasonally weakest quarter of the year and operating in a difficult economic environment, we achieved break even cash flow.

We believe we have more than adequate liquidity with $20 million in cash on hand and about $112 million in available credit.

We continue to consider small bolt-on acquisitions and we believe we will generate sufficient free cash this year to meet all operating needs.

As communicated in our last call, we plan to contribute $14 million to our US pension plan this year to achieve an 80% funded status and we made our first contribution of $2.1 million in April.

In summary, we're very pleased with our Q1 earnings achieved in a very difficult economy.

We continue to produce positive cash flow from operations, and we have sufficient liquidity to meet our expected operating cash needs and fund our quarterly dividend as well as fund growth opportunities.

With that we would like to take your questions.

So, Operator, please open the call for questions.

(Operating Instructions)

Your first question comes from the line of Arnie Ursaner of CJS Securities.

Good morning.

It's actually Jason Ursaner calling in for Arnie.

In FoodTech you mentioned Latin America as one area of geographic --

Hello?

Jason?

Operator?

That question has been withdrawn.

Your next question comes from the line of Gary Farber of C.L.

King.

Hi, Gary.

How are you?

Hey, good morning.

I just had a couple of questions.

You talked about the financing environment being a little more difficult for your customers.

I'm wondering what are you seeing from your competitors in the market?

Are they acting rational as far as price and things like that?

I think in -- when times get -- Gary, in times like this -- I mean, especially in some of the international customers that have inventory there is pricing pressure for sure, if that's what you're referring to.

The financing needs of our big multi-national customers -- obviously they're fine.

It's some of the smaller customers we have around the world that are dependent on external financing.

Would that be a pretty small portion of your revenue base, though?

Yes, it's not huge.

Okay.

And then the other question was just -- I know it's early, but any thoughts on the deicer market for Q4?

We're probably just a tad early.

I'll now more about that in the next six to ten weeks.

Right.

It really starts about right now where people -- given the lead times where they need to start ordering.

And then lastly just the tax rate, the 34% -- that's a pretty good place -- that's sort of the run rate you would think for the rest of the year?

Yes, I think -- you know, we've previously talked about 34% to 35%.

So I think in that range.

That's a pretty tight range.

I think we'll hold within that range for the year.

Okay, thank you.

Your next question comes from the line of Jason Ursaner of CJS Securities.

Good morning, Jason.

Can you -- can you guys hear me now?

I can hear you, yes.

Okay.

In FoodTech you mentioned Latin America as one of the areas of geographic weakness driven by the tight credit environment.

Since juice extractors are part of the recurring revenue, wouldn't you think that this would be less impacted by the broader economy here?

That's correct, but my comments about Latin America were in light of the protein processing and freezer market, not the juice extractor market.

And how much does juice extractor drive the Q2 seasonal increase?

Oh, that's a big piece.

The -- one reason we have some confidence that the second quarter will be larger is it's typically one of our larger quarters.

The seasonal overlap between Brazil and Florida citrus processing is one reason.

And as you know, we don't carry a lot of backlog there.

We only enter backlog as we do it because it's lease revenues.

There's also some other seasonality in food processing which has to do with shipping product in the central valley to support the tomato season and in the third quarter that's -- equipment normally goes up in the second quarter.

So the seasonality effects will drive second quarter higher.

Okay.

And could you just try and qualitatively speak to the cost structure variable versus fixed and what type of utilization JBT can run when revenues are down as far as they are?

I'm not sure I grasp that question.

I guess the point we're making is we're largely variable.

We don't have a lot of fixed costs and so as each product line in the Company right now we have a budget plan, we have a 15% down plan, and we have a 30% down plan.

Depending on which product line, we're taking action to reduce costs and reduce discretionary spending.

I think the thing we're proud about, to be frank, on the cost reduction is, if you look at the first quarter, dramatically lower revenues.

We're able to hold operating margins, which speaks loudly to our variable cost structure.

Okay.

And in terms of acquisitions, can you talk about anything you're seeing -- anything targeting in the fragmented industry?

You know I'd like to be able to, but obviously I can't.

But I will say as I said before we are -- have been in the process since the spin of rebuilding our acquisition pipeline.

We were able to complete one year right after the spin and we've got several things in the hopper right now we're looking at but it's too soon to say how quickly we'll wrestle them down.

Okay, thank you.

Your next question comes from the line of Robert Wertheimer of Morgan Stanley.

Hi, Robert.

Hey, good morning everybody.

How are you?

Good.

How are you?

Good, thank you.

So I had a couple of questions, the first on FoodTech.

I just -- I understand some of your comments broadly about seasonality, but you've had new order above $130 million, $140 million for the past eight quarters or so, and then, you know, your revenues on FoodTech came in at below $100 million.

And so the question is was some of that being -- you know, customers delaying and being pushed out and therefore it will come in next quarter's?

Did you see a lot of cancellations or is it just lumpiness?

I can't tell which of the three.

I think lumpiness is a big piece.

The backlog that we had at year end '08 -- I don't know what the percent was -- but a chunk of that backlog was for second quarter delivery.

We announced a couple of major projects late in the year and those will be going out in the second quarter.

So part of it is lumpy -- it is one of the last inbounds we've had in FoodTech in multiple quarters.

The other thing that gets reflected in the period's inbound would be the change in the foreign exchange rates on backlog.

So quarter over quarter we've seen large depreciation in the dollar and as our backlog is adjusted each -- at each period end for the change in foreign exchange that runs through inbounds.

So you are seeing sort of the foreign exchange affect netted in the orders for the quarter.

Okay.

All right.

Did you see any cancellations, you know, for stuff you had planned to deliver in 1Q or no?

Yes, we've had a couple.

As you know, when we put in backlog it's pretty -- it's solid.

So when we say cancellation it's an order that we really don't have yet but we're 99% sure it's going to happen and then it drops and we've probably had I would say in the order of magnitude several million dollars of that kind of stuff.

Okay, that's very helpful.

And the second question -- your comments on the variable cost structure I understand.

It's still impressive, though.

You got maybe your highest gross margin in the last eight or 12 quarters on your lowest revenue, unless I'm wrong -- quarter in the last eight or 12 quarters.

And so was there something -- I mean, is it partially mixes or something else going on there?

There are three positive things that drove that.

The first positive, as you know, on the big, new equipment sales and big projects with a lot of pass through -- obviously the margin on those is not as high as my aftermarket.

So when that declines and we have a lot lower revenue -- and my aftermarket we said in both segments was down slightly but basically it was hanging in there versus last year -- and what that does is a huge mix issue to my more profitable aftermarket.

So that's the first driver.

The second driver is also a mix issue in that we have within the Company some product lines more profitable than others and this quarter some of our more profitable product lines held up in terms of sales versus some of the less rich margins.

So it was a product line mix issue as well.

And then finally, I mean, we've been doing serious planning and contingency work and so the cost reduction activities that we undertook beginning last September/October are starting to catch on.

So those three things drove that margin.

Now looking ahead I said in my comments that the second quarter will be -- we're confident we'll be strong during both revenue and earnings.

It wouldn't surprise me if the margins weren't as strong in the second quarter, but I'll have higher revenue and higher earnings but my margins won't be as rich for the same reverse reasons.

Does that make sense?

It does.

Okay.

Okay, thanks.

(Operating Instructions)

Your next question comes from the line of Liam Burke of Janney Montgomery.

Good morning, Liam.

How are you?

Good morning, Charlie.

How are you today?

Good.

Good.

Ron, you had a step up in inventory in the first quarter.

Is there a timing issue there, because it did affect the cash flows?

Yes, hi, Liam.

You know we've been, as always, paying a lot of attention to working capital and feel very good about the reduction in receivables.

You're right, though, you do see a higher level of inventory at the end of March.

And we have several projects, two, which will ship in the second quarter and one early in the third.

We have the China project for tomato processing that will go in Q2.

And we also have a protein processing for North America that will go in Q2 and we have another North American project for Q3.

So that's the reason that you see the bump up in inventory.

Now with the shipment of those we're hoping to convert those from inventory to cash versus the end of June, but we'll wait and see.

Okay.

And, Charlie, you did announce during the quarter that the contract in China or for the equipment in China; is Southeast Asia looking any better or worse than Europe and Latin America and North America?

Other than -- Australia's soft, but the rest of Asia is -- we're seeing activity levels similar to a year ago, so we haven't -- that's -- I don't want to call it a bright spot, it's flat, but compared to Western Europe and Latin America it's much better.

Great, thank you.

Your next question comes from the line of Dick Ryan of Dougherty.

Could you talk a little bit about outsourcing?

I'm not sure if you broke out what that was as a percent of AeroTech, but can you give a little more color on what you're seeing on the outsourcing side?

Airport services.

You mean on airport services?

Airport services, yes.

Yes, we're continuing to see that trend continue.

I mean there's -- it's manifesting in two ways.

These -- both airlines and airport authorities are under significant cost pressure themselves and so they're looking to outsource maintenance more and more as a way to reduce costs.

That's the good news.

The bad news is those same trends are putting price pressure on the suppliers of those services.

But we will probably -- I hinted in my comments that we've got a couple things that will probably be announced in the near future where we have picked up some new business that is part of this trend.

One is in airport authority and one is in airlines, so we see that trend being a positive for us.

Okay, great.

Great.

The seasonality you mentioned for Q2, I know the second half of the year there's probably not a lot of visibility as yet, especially late or in Q4, but how would the seasonality -- how would you describe the seasonality for Q3 and Q4?

Well by history -- and, you know, we're in uncertain times right now -- but if you look at the last five or six years in FoodTech the second and fourth quarters are typically the strongest.

The first is always the weakest, generally, and the third it comes in second.

And that's due to the seasonality of the citrus and the tomato crops that I described earlier.

Yes.

In AeroTech, the traditional seasonality is the first quarter is the weakest and then it gets stronger each quarter.

You know, obviously we're in uncharted waters right now, so we'll see.

And the reason we're hesitating on guidance is I don't have visibility into the fourth quarter yet, so we're hopeful that things pick up.

And I would say we'll probably have a good handle on the year by -- by mid-summer.

Great.

Anything on new product development we should be paying attention to?

We'll we're excited about the electrification of our ground support equipment fleet.

We think that's going to kick in at some point, it's just the airports are -- the airport industry is in sort of dire straights right now.

But there's going to be pressure environmentally to all the airports around the world and we're the only people right now that have an electric loader and there's a lot of interest.

We had an all-electric ground support equipment day in our Orlando facility about a month and a half ago and -- with lots of customers in airport authorities attending.

So that's an area that when we get a little bit of capital flowing in the airline industry sector I think that'll be a positive.

And we're continuing to do our incremental R&D in FoodTech with lots of detailed improvements in things for customers.

Great, thank you.

Thank you.

There are no further questions at this time.

I will now turn the conference back over to management for any closing remarks.

This concludes our first quarter conference call.

A replay of our call will be available on our website early this afternoon.

If you have any questions, please give me a call.

Thank you for joining us today.

This concludes today's conference call.

You may now disconnect.