JBT Marel Corp (JBTM) 2009 Q2 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the JBT Corporation 2009 second-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 session.

(Operator instructions.) Thank you.

Ms.

Shiao, you may begin your conference.

Thank you, Brandy.

Good morning.

Thank you for joining us to review JBT Corporation's second-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 31st, 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 8-K 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 10-K filed with the Securities & Exchange Commission.

Now I will turn the call over to Charlie.

Thanks, Cindy.

Good morning, everyone.

This morning I will provide a brief color commentary on our quarterly results, a market update for each of our two segments, and our expectations for the remainder of 2009.

Ron will then cover the financials in more detail.

Since our first-quarter earnings call, the pace of market decline has moderated.

However, the global economy and capital equipment markets continue to be challenging.

Despite these difficult conditions, our team delivered another solid quarter.

We expected a seasonally strong second quarter and we saw just that.

We are also pleased with the margin expansion in the quarter.

In light of the continued slowdown, we made further staff reductions to match lower demand in the AeroTech ground support equipment and the FoodTech freezing and protein processing product lines.

In addition, we strengthened our cost containment measures across the Company.

Although our traditional aftermarket sales for the quarter were down 9% from the prior year in constant currencies, we improved aftermarket margins in both segments.

Excluding restructuring charges of approximately $1.3 million, the second-quarter segment operating margin improved 130 basis points year over year.

Diluted earnings per share were $0.34, a 17% reduction from the pro forma diluted earnings per share in the prior-year quarter.

Restructuring charges and unfavorable currency rates accounted for nearly all of the $0.07 decline.

Our cash flow for the quarter was very strong.

We generated $22 million from operating activities.

We utilized some of this cash to fund the Double D acquisition, a Scottish commercial oven manufacturer, as well as our quarterly dividend and an initial pension contribution.

Our net debt was $132 million, a reduction of almost $11 million from first-quarter 2009.

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

First, JBT FoodTech -- As we've mentioned in prior conference calls, the global recession has not impacted all of our FoodTech product lines equally.

The demand for our freezing and protein-processing product lines remains soft in Western Europe and Latin America.

Although our quote activity in Western Europe has recently picked up, the average project size is smaller than prior years.

We believe the market is near bottom, but we do not expect a broad-based regional recovery in the near future.

In Latin America the credit markets are stabilizing and activity levels have improved.

However, declining poultry exports from Latin America to Europe are causing project delays.

Turning to North America, as consumers reduce spending and prepare more home-cooked meals, demand for our in-container sterilization product line has increased.

We are projecting 2009 volume for this product line to be slightly higher than last year.

We are also encouraged by the improved profit prospects for our poultry customers.

Corn prices have declined, while poultry prices have stabilized.

However, our customers remain cautious, which is resulting in order delays in the near term and may mean a slower recovery for JBT product lines in the next two to three years.

In the developing world, Asia-Pacific, Middle East, Eastern Europe, the markets are active and we are working on a number of good-sized orders that we to inbound by the end of the year.

Our FoodTech aftermarket revenue held up well.

While some of our customers reduced maintenance spending in the midst of downturn, year-to-date aftermarket volume has declined only 6%, excluding foreign currency impacts.

We have a number of overhaul projects in process, and expect our aftermarket volume for the remainder of the year to remain steady at 2008 levels, again excluding any currency impacts.

Moving to JBT AeroTech, our ground support equipment product line continues to be the most severely affected of our businesses in this downturn.

With sharp declines in passenger and freight volume, airlines and air freight companies have significantly reduced capital spending.

The inbound orders for the ground support equipment product line have dropped approximately 60% from the 2008 record levels.

But we hope we are finding bottom, as the rate of decline has slowed.

The next three months are critical as we enter our seasonally stronger third and fourth quarters.

To align our cost structure with a lower demand we once again reduced headcount in this business.

Staffing levels of ground support equipment in the third quarter will be 39% lower than the beginning of 2008.

Turning to our Jetway business, order activity for our passenger boarding bridges remains healthy, but we are experiencing some project delays.

We have implemented a furlough program to provide some flexibility to our production schedule.

As for airport services, we announced the renewal of a seven-year maintenance contract in Houston with Continental Airlines.

This was a major win and will continue to provide a solid base for us to pursue other opportunities.

Airlines and airport authorities are continuing to outsource and we expect to announce some additional contracts in the next month or two.

Activity in our automated guided vehicle product line has also improved, with projects in the US and Europe by customers who want to improve the operating efficiency of their plants.

AeroTech aftermarket declined 18% in the quarter.

However, we are pursuing a number of rebuild projects that could make our AeroTech aftermarket in the second half of 2009 equal the second-half 2008 levels.

To summarize for AeroTech, we expect demand in 2009 for ground support equipment to be substantially lower than 2008.

For the rest of JBT AeroTech's product lines, we are anticipating volume to be flat to slightly down relative to 2008.

Looking forward, we expect a continued challenging economic environment in the second half of 2009, extending into 2010.

We expect credit conditions to remain tight, causing our customers to constrain capital spending.

Based on these considerations we are providing full-year guidance in the range of $0.95 to $1.15 per share.

The lower end of this range assumes continued soft demand for ground support equipment, and continued FoodTech weakness in Europe and Latin America.

The upper end of the range assumes a modest seasonal recovery in demand for ground support equipment and improvement in the European market for JBT FoodTech.

Although we do not provide quarterly guidance, we are expecting a sequentially weaker third quarter and a seasonally stronger fourth quarter, our normal historical pattern.

In summary, we are very, very pleased with the results of our quarter.

Despite the top-line pressures, we expanded our segment operating margins and generated strong cash flow, allowing us to further pay down debt.

We have lowered our cost structure and are well positioned to take full advantage of the eventual rebound of the global economy.

Now I'll turn it over to Ron Mambu.

Thanks, Charlie.

As we indicated in the press release, we're pleased with our second-quarter results, especially when considered relative to global economic conditions.

The recession affected our top line as revenue of $230 million declined 17% from the second quarter of 2008, while segment operating profit of $22.5 million declined 10%.

The US dollar exchange rates were generally stronger in the second quarter than the prior-year period and reduced the translated value of revenue and earnings.

On a comparable basis, assuming constant exchange rates and excluding restructuring charges, revenue declined 11%, while segment operating profit increased by 3%.

We recorded approximately $1.3 million in additional restructuring charges to further reduce headcount to respond to the lower demand levels we're seeing.

Our actions to realign our organization once again underscored JBT's largely variable manufacturing cost structure.

Diluted earnings per share for the quarter of $0.34 were, as expected, well ahead of the level earned in the first quarter.

I'll add some brief operating segment commentary and close with some corporate comments, so as to move on to your questions.

First, FoodTech revenue of $146 million for the quarter was down 8%, or $13 million, versus the second quarter of 2008, primarily due to a stronger US dollar.

Excluding the unfavorable exchange rate impact of $14 million, FoodTech revenue was slightly higher, reflecting delivery of two large projects, a poultry project in the US and a tomato project in China.

This was partially offset by continued weakness in the Western Europe and Latin America markets.

As Charlie mentioned, although our poultry customers' profit outlook is improving, they continue to be cautious with new investments.

Asia remains a bright spot.

Sales in the region were stronger than in the second quarter of 2008.

Pretax operating profit of $16.5 million was 15% higher than the prior-year quarter, due to lower expenses resulting from aggressive cost reduction and improved aftermarket margins.

This includes a negative impact on operating profit from unfavorable foreign exchange translation of about $2 million and restructuring charges in the quarter of approximately $700,000.

Inbound orders for the quarter were behind the prior-year level by 23%, or $34 million, again, mainly related to soft Western European markets.

Unfavorable translation accounted for approximately $14 million of the difference.

FoodTech backlog on a constant foreign exchange basis was 13% lower than in the second quarter of 2008.

In our AeroTech segment revenue declined by 29%, or $33 million, reflecting continued soft demand for ground support equipment.

Overall, AeroTech operating profit lagged prior-year results due to lower volume in ground support equipment and restructuring expenses of $600,000.

Improved profitability in our passenger boarding bridge and military product lines, along with steady earnings from airport services helped offset some of the decline in ground support equipment.

Although AeroTech aftermarket volume declined in the second quarter, gross margin percent was higher than in the prior-year quarter.

AeroTech inbound orders and backlog were down $30 million and $45 million versus the prior year, respectively.

Moving to the corporate items, our effective tax rate for the year-to-date period was 34.5%, up half a percentage point from the first quarter due to an increase in pretax earnings in higher tax jurisdictions.

Nonetheless, our effective rate remains in line with our prior expectations of a 34 to 35% rate for all of 2009.

Total corporate expenses, excluding interest, were also down from the prior-year level due to mainly higher allocations from FMC Technologies, our former parent, for the carve-out periods in 2008 prior to the spin-off.

2009 corporate expenses reflect our standalone costs and are more representative of the current run rate.

We continue to expect overall expenses for the corporate staff and other items in 2009 to be 10 to 15% lower than 2008.

However, significant foreign exchange movements in a quarter could distort prior-period comparisons.

Capital spending and depreciation and amortization for the quarter were $5 million and $5.5 million, respectively.

Annualizing our year-to-date capital expenditures and depreciation and amortization is probably a good estimate of the expected level for the full year.

Shares issued and outstanding at the end of the quarter totaled $27.6 million.

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

Year-to-date cash flow from operating activities totaled $28 million.

After capital expenditures, payment of quarterly dividends and funding the Double D acquisition, net debt was $132 million, a decrease of $11 million from the December 2008 year-end level.

We believe we have more than adequate liquidity with $17 million in cash on hand, and about $128 million in available and undrawn credit lines.

We plan to continue to -- looking for bolt-on acquisitions and we believe we will generate sufficient free cash flow this year to meet all of our anticipated operating needs.

As communicated in our last call, we plan to contribute $14 million to our US pension fund this year, to maintain an 80% funded status.

Year to date, we've contributed $4.3 million and expect to make our final contribution for this calendar year by September 15th, so as to take the contributions as a 2008 tax deduction.

Lastly, we plan to file our 10-Q tomorrow, so there will be more detailed information readily available for your review.

In summary, we are very pleased with our second-earnings achieved in a very difficult economy.

Our segment margin percentage not only held up well and improved both sequentially and year over year.

We continue to produce positive cash flow from operations.

We completed our second bolt-on acquisition and have sufficient liquidity to meet our expected operating cash needs, as well as to fund growth opportunities.

And we are providing full-year earnings per share guidance in the range of $0.95 to $1.15.

With that, we would like to take your questions.

Operator, please open the call for questions.

Certainly, sir.

(Operator instructions.) Jason Ursaner; CJS Securities.

Good morning.

Charlie, in your prepared remarks you mentioned a sequentially weaker Q3.

Just trying to make sure I understand.

Is this indicating a change in the magnitude of the sequential decline, or just reiterating that fiscal year '09 is likely to track with the traditional seasonal trend?

I think the predominant signal is that it's our normal seasonal.

That's the predominant signal.

I mean, if you look at our numbers, you can see our backlog situation.

And we wanted to make sure people understood that we -- that's why the full-year guidance was meant to kind of reassure that we've got our normal seasonal pattern.

And then the question on -- the range of our guidance is based on how strong quarter four will be.

Right.

And looking at the guidance, GSE should seasonally be stronger in the back half, as it is.

So is the high end more of a base expectation and the low end is the trends deteriorate further?

No.

The low end is we muddle along like we are and the high end means we get some of that seasonality we're talking about in ground support.

Okay.

And --

And to be very frank, we're forecasting -- we have a lot of activity for orders that we're looking at in the third quarter.

The question is, do they slide or do they hit and we ship them by year end.

So that kind of provides the delta on our range guidance.

And if they slide, would you expect to eventually sign them, or could these just be delayed and kind of eventually just lost?

We haven't seen, in either segment, to be very blunt, seen lost orders due to market share.

We have seen delays and delays.

And I guess the question is, for every company, I mean, at what point does a delay become forever.

Is that an answer?

Yes.

And then, the other thing -- you had very strong free cash flow in the quarter, paid down debt, bought Double D, paid the dividend.

What's the priority for free cash going forward?

Well, our first priority is to -- is we'd like to in this time do bolt-on acquisitions.

Obviously we've done two in the first year of our existence.

We'd like to be doing a little bit more than that, but we've got the issue of seller expectations and we're not going to overpay.

So we're doing our best to rebuild the pipeline and hope to do more bolt-ons, but, in the meantime, if we don't, the next priority will be to pay down debt.

And with all the cost-cutting actions that you've taken, in a recovery what could margins potentially look like in a 3 to 5% GDP growth environment?

Well, as I said in the road show a year ago, when we received a little bit of criticism about why weren't our margins expanding more as our revenues grew, we're largely a variable cost structure.

Now, you're seeing the benefit of that in the downturn, but, again, I would caution you that if we do rebound, we'll get some of it to the bottom line, but it won't be a massive leveraging of fixed costs.

Okay.

Thank you very much.

Great quarter.

Look forward to seeing you guys at our conference in two weeks.

Liam Burke; Janney Montgomery.

I had a question on Asia.

You mentioned it's stronger, but are there any particular product lines that are doing well in that market?

I think it's -- well, you saw we had a big tomato project in China, so that was one big lumpy order.

And we're really talking about outside Australia, because Australia has been weaker.

But I'd say it's across FoodTech, all the product lines.

Okay, great.

Ron, on the balance sheet, the inventory was up from the end of the year.

You delivered two large orders and your sales are down.

Is there a reason for that still being up?

Yes.

Hi, Liam.

Our inventory, you're right, is up from the end of the year.

It is down about $8 million or $9 million from the end of March.

We do have a couple of larger FoodTech orders that we're planning to deliver in the fourth quarter.

I think we commented or released an earnings -- an announcement on these late last year.

So that's part of the reason.

There's two of them that will go in Q4.

Great.

Thank you.

(Operator instructions.) There are no further questions at this time.

Are there any closing remarks?

This concludes our second-quarter conference call.

A replay of our call will be available via phone and our website later this morning.

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

Thank you again for joining us today.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.