JBT Marel Corp (JBTM) 2010 Q2 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the JBT Corporation second quarter 2010 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.

Cindy Shiao, Director of Investor Relations.

You may begin your conference.

Thank you, Serra.

Good morning, everyone, and welcome to our second quarter 2010 conference call.

We issued a press release yesterday after the market closed that provides an overview of our financial performance for the period.

With me on the call are Charlie Cannon, Chairman and CEO; and Ron Mambu, Vice President and CFO.

Before we begin, I want to remind everyone that this call may contain certain forward-looking statements that are subject to the Safe Harbor language in yesterday's press release and 8-K filings.

Both documents are available on our Investor Relations website as are a reconciliation of non-GAAP financial measures mentioned on today's call to their corresponding GAAP measures.

I also refer you to our disclosures regarding risk factors in our 2009 annual report on Form 10-K filed with the Securities and Exchange Commission.

Now, I will turn the call over to Charlie.

Thanks, Cindy, and good morning, everyone.

In our last quarterly call, I communicated that many of our markets were improving and we expected this trend to continue.

We also forecasted that our second quarter inbound orders and ending backlog would be significantly higher than last year.

We saw exactly that.

Both grew double digits from the same period a year ago which is very encouraging.

While we remained concerned with the macroeconomic issues we read about in the newspapers, most of our end markets are getting healthier and we expect the level of order activity to hold up in the back half of the year.

Now, I'll provide a brief update of our performance for the quarter followed by a discussion of current market conditions for our two segments, as well as our outlook for 2010.

Ron will then provide more detail on our financial results.

For the quarter, revenue declined 10% from last year to $208 million and EBIT declined 16% to $14.4 million.

Diluted earnings per share were $0.28, in line with our expectation.

Despite the improving order levels to date, our second quarter revenue was below last year's, primarily due to smaller order sizes and lower backlog levels at the beginning of the year.

More importantly, both orders and backlog were up year-over-year by 33% and 24% respectively.

Backlog was also up 12% sequentially.

As the higher inbound converts into revenue, we expect earnings to improve at a faster rate, as we benefit from leverage associated with higher sale.

We believe most of our businesses have turned the corner.

We saw continued strengthening in the product lines that were most significantly impacted by the downturn.

For example, inbound and backlog for freezing and protein processing product lines were higher, most notably in the European and North American markets.

Our airline and airfreight customers are reporting significant year-over-year improvement in their operating results, which in turn led to higher inbound and backlog for our ground support equipment product line.

Now, let me provide some color on what is driving these trends for each of the two segments.

First, JBT FoodTech.

Demand for our freezing and protein processing product lines continues to rebound.

Second quarter inbound orders grew significantly year-over-year in most regions while Asia-Pacific held steady.

Due to the European sovereign debt crisis, the pace of the market recovery there is uneven.

Germany and the Nordic countries are back to pre-recession levels, with France and Eastern Europe following closely behind.

However, activity in the UK, Italy and Spain remain slow.

Overall, our European inbound orders for the quarter grew more than 40% over the same period a year ago.

Based upon our prospect list, we anticipate the current activity levels to continue into the next quarter.

As for the North American market, second quarter inbound orders increased more than 50% from a year ago, driven by higher activity in the poultry segment.

For example, one of our poultry customers placed a $6 million DSI portioning order in order to improve their labor efficiency.

We believe this is an early indication of a return to more normalized spending levels for our customers in this segment.

Activity in Latin America improved considerably, albeit from a very low level with most of the activity in areas other than poultry.

In summary, we are very pleased with the level of activity we are seeing for our freezing and protein processing product lines.

Turning to the food processing product line, as we communicated in May, we anticipated that most of the impact of a smaller Florida orange crop would be felt in the second quarter.

We were able to mitigate the earnings impact through additional extractor units installed internationally as well as higher project work.

However, demand for tomato and other food processing equipment was weaker than previously anticipated.

Project delays in Europe, Middle East and Africa further exacerbated the revenue decline.

With the reduction in tomato production and significantly lower tomato paste prices, we do not expect the demand levels to improve in the second half of 2010.

Lastly, FoodTech aftermarket volume declined 4% from the second quarter of 2009.

We believe this decline is temporary in nature and expect our customers' full-year maintenance spending to increase modestly.

In summary, for 2010, we expect the FoodTech top-line to grow modestly with commensurate year-over-year earnings improvement, reflecting improved market conditions in Europe and North America for our freezing and protein processing product lines.

Moving to JBT AeroTech, second quarter inbound orders for our ground support equipment product line more than doubled from the prior-year level and backlog was the highest since the onset of the global recession.

All indications in this segment point to a continuing upward trend.

Growth in air travel and airfreight volumes are accelerating.

Load factors have reached record levels and perhaps more importantly, the International Air Transportation Association's 2010 forecast for airline industry profitability has improved from a $2.8 billion loss to a $2.5 billion profit.

Although we do not anticipate the inbound level for ground support equipment to return fully to pre-recession levels, in the near future, we believe the recovery is taking hold and will continue to gain momentum.

Turning to gate equipment, inbound orders remained very strong.

We expect the activity level for this product line to moderate somewhat, but continue to be in line with our historical levels.

As for airport services, we were awarded a three-year contract for one of the terminals in a major West Coast airport.

However, the pace of the outsourcing trend has slowed to some degree, as airlines are holding off on bids due to industry consolidation as well as apparently to increasing union opposition.

Consequently, we expect price pressure on this product line to continue.

Moving to the Halvorsen program, we are pleased with the receipt of a $7 million order from the US Navy following the completion of the US Air Force loader order in the first quarter this year.

In addition, we remained under contract to provide services and parts to the US Air Force.

Although we continue to pursue other international opportunities for Halvorsen sales, we expect this year's revenue to be lower than the prior year.

Finally, AeroTech traditional aftermarket volume increased 14% from the second quarter of 2009, reflecting the catch-up in maintenance spending as our customers' profitability improves.

To summarize, we expect JBT AeroTech's revenue to grow modestly with improved earnings, driven by the ground support and gate equipment product lines, partially offset by the lower Halvorsen volume and competitive pricing pressures in airport services.

To recap, despite the macroeconomic uncertainties, we expect the overall improvement in our end markets to continue.

As a result, we are reaffirming our full-year earnings guidance in the range of $1.15 to $1.30 per share, with substantially stronger performance expected in the second half of the year compared to our first six-month results.

The lower end of the EPS guidance assumes the economic recovery stall and the upper end of the range assumes the activity levels continue to improve.

Due to the timing of orders, we expect the improvement to be weighted toward the fourth quarter, with the third quarter's performance only slightly ahead of the prior-year period.

Now, I'll turn it over to Ron Mambu.

Thanks, Charlie.

As Charlie mentioned, our second quarter results were in line with our expectations.

Second quarter revenue of $208 million declined 10% from the same period a year ago, primarily due to shipment of two large FoodTech projects totaling $30 million in the second quarter of 2009.

Additionally, earlier this year, we completed the 2009 order from the US Air Force for Halvorsen loaders.

Diluted earnings per share for the quarter were $0.28, down from $0.34 earned in the prior-year quarter.

Net debt at the end of the quarter was $125 million, reduced slightly from the first quarter.

I'll now comment on our operating segment performance, then corporate items.

FoodTech revenue of $136 million declined 7% year-over-year.

The slower start in 2010 is largely due to the lower order backlog at the end of 2009.

The unfavorable sales comparison in the second quarter reflects the two large FoodTech orders inbounded in 2008 and shipped in the second quarter of 2009.

We've previously commented that FoodTech's sales and sales comparisons can be lumpy due to the timing of large projects.

FoodTech's operating profit was $15.2 million, down 8%, primarily due to lower sales, partially offset by lower operating expenses from cost reductions and the absence of restructuring charges of $700,000 from the prior-year quarter.

Operating profit as a percent of revenue was 11.2%.

The impact from foreign currency translation rates was minimal.

FoodTech's second quarter inbound orders increased year-over-year by 14%.

This reflected continued strong demand for our freezing and protein processing product lines across all regions.

FoodTech's backlog was 4% lower in the second of 2009, which included four large projects totaling $31 million, compared to $8 million in the large projects in the current quarter's backlog.

Moving to AeroTech, revenue declined 14% from the second quarter of 2009.

This was driven by a completion of the Halvorsen loader at the US Air Force and the impact of lower backlog levels for ground support equipment and automated guided vehicle product lines coming into the quarter.

AeroTech's operating profit of $3.9 million declined 35% from the prior-year quarter.

Negative impacts included lower volume, competitive pricing pressures for airport services and unfavorable product mix.

Partially offsetting these impacts were significant margin improvement in ground support equipment due to cost reductions as well as the absence of prior-year restructuring charges.

JBT AeroTech's second quarter inbound orders increased year-over-year by 65%.

The current quarter inbound included two large orders for gate equipment totaling $26 million, a $13 million order for ground support equipment and a $7 million order from the US Navy for Halvorsen loaders.

Order activity for ground support equipment continues to improve.

AeroTech's backlog was up year-over-year and sequentially by 48% and 26% respectively, reflecting the favorable inbound trend.

Now, regarding corporate items, our second quarter tax rate of 34.5% is in line with our guidance of 33% to 35%.

Total corporate items excluding interest expense were favorable compared to the prior-year period, primarily driven by lower pension expense from freezing the US defined benefit plan at the end of last year.

For 2010, we expect total corporate items excluding interest to be flat to slightly up from 2009, assuming no significant foreign exchange movement.

Capital spending, and depreciation and amortization for the quarter were $4.4 million and $5.4 million respectively.

Lower capital spending for the quarter was primarily timing related.

We projected in our last quarterly call that capital spending would increase by 20% to 25% due to replacement of our citrus facility in Lakeland, Florida.

We are evaluating several alternatives and no longer expect any meaningful capital requirement for this project in 2010.

In summary, we anticipate the current year's capital spending to remain at our pre-recession levels.

Finally, for the quarter, our operations generated $10 million in cash from operating activities.

Net debt was $125 million, a reduction of $4 million from the first quarter of 2010.

At the end of the second quarter, we had $9 million in cash on hand and about $143 million in available and undrawn credit lines.

In the third quarter, our net debt will include the impact of approximately $10 million funding of our US pension plan, which we can take as a deduction on our 2009 tax return.

For the full year, we believe we should generate sufficient free cash flow to meet our anticipated operating needs.

We are very pleased with the pace of order activity in the second quarter.

The improving trend in our end markets has impacted the timing of orders and in turn our typical seasonal pattern.

As a result, we expect the third quarter to be up slightly year-over-year.

We expect the fourth quarter to be up significantly both year-over-year and sequentially.

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

In summary, we are pleased with the increase in our inbound and backlog levels in the quarter.

Additionally, both revenue and earnings were in line with our expectations.

Secondly, we are reaffirming our full-year earnings per share guidance in the range of $1.15 to $1.30 per share, supported by continued high level of order activities.

With that, we would like to take your questions.

Operator, please open the call for questions.

(Operator Instructions).

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

All right.

Good morning.

This is Joe O'Dea in for Rob Wertheimer.

First question is just on order activity during the second quarter, could you give us a little bit of detail on a month-by-month basis and then maybe also what you saw in July?

Yes.

We don't have month by month in front of us.

I think I mentioned in the -- you may be asking that question because in the last quarterly call, I said that we had a very, very strong April which boded well for the quarter.

We don't have the monthly information for that.

We do have a sense -- we haven't closed the books on July, but we do have a sense that July continued to be solid.

Okay, thank you.

And then, looking at the AeroTech margins in the quarter, the lowest we've seen in some time.

I guess pricing pressure on Halvorsen contributing to that, but can you just talk about sort of offset expectations in the second half of the year to bring those margins back up to what we've seen over the last several quarters?

Yes, I think as Ron commented, the first impact was we used to have lower volume and then on top of that volume impact, we had the mix impact of having basically completed the Halvorsen US order in the first quarter.

So that was a -- in terms of a mix issue impact to this.

And then, our Airport Services, we've had the slowdown in the outsourcing trend and it has been pretty competitive.

So while the margins are still fine there, they are just not as rich as they were last year.

Looking ahead for the rest of the year, the way I kind of look at it is, ground support equipment was the single hardest hit product line in the Company and the AeroTech segment, as you saw, was harder hit than FoodTech going down.

What we are experiencing -- I hate to say we, but what we are experiencing is the rebound in AeroTech is actually almost like a mirror image of going down, so it's rebounding sharply.

And while we've always maintained, we're largely variable cost and we don't have too much leverage, we have SG&A leverage.

The fact is when we have this kind of volume swing, we do expect operating leverage that will impact our margins positively in the second half of the year.

So right now, as we shape up, we've taken a look at both segments for margins for the year and even though we are kind of trailing behind year-to-date, we are forecasting ourselves right now that margins in both segments will be flat to slightly up, I mean EBIT percent margins.

So if that holds true, that implies that our second-half EBIT margins are going to be richer.

Okay, great.

Thank you.

Your next question comes from the line of Michael Saloio with Sidoti & Company.

Hi, thanks for taking my question.

Hi, Mike.

Hi, Mike.

I was just wondering if you could give us a little bit more detail about what's going on with the municipalities.

It seems like some of the trends you mentioned that are leading to pricing pressure and contract delays are the same trends that we're supposed to be driving this outsourcing trend.

Well, I think the first comment on municipalities is they are getting a little bit smarter at how to structure these contracts and how to specify certain things in the contract.

So they are getting a little more as they learn how to do this, they are getting a little better at competing these things on the municipality side.

I think the outsourcing trend that we are hoping to ride was largely going to be US airlines where they had not really outsourced as much as municipalities and we had major US airlines last year ask us to quote, I don't know, I think it was more than a dozen locations for outsourcing and we had a second major US airline late in the year do the same thing.

We've won a couple of sites, but what we're seeing is with the consolidation, that's kind of brought all that activity to a halt as these -- and you know which airlines I'm talking about, as they sort out who is in charge and who is running what, etcetera.

And then secondly, I'm not an expert here, but I think if you look at the last 15 to 20 years of the US airline industry, when times are good is when the union power is strongest and the management of airlines don't want to take on major decisions that could impact when times are good and I think they make more progress on their cost cutting and outsourcing when times are tough.

And so that's kind of our hypothesis of what's going on, why this trend is slowing down.

We think in the long haul, that trend will come back and continue, but we may be in a couple of years or so where it slows down.

Okay.

And secondly, what does this mean for -- I guess given the improvement in profitability of commercial airlines, what does this mean for municipalities as a total percentage of revenue at AeroTech this year and next?

And what does this mean for boarding bridge demand moving past 2010 into 2011?

I'm not sure I can answer your question on the impact on the percent that goes to municipalities based on consolidation.

I have to think about that one.

Right now, we've been in sort of a mini boom on bridges, not just globally but even in the US, and we don't think that will continue to grow at that same rate, but we think in the next 12 to 18 months, based on the activity we see, it should remain pretty steady.

As far as the impact on the consolidation and as far as US airlines getting more profitable, I think one impact showed up in this quarter, which is -- and I think I mentioned this in the last call -- they had -- aftermarket spending by the airlines was down which is obviously not long-term smart, but as their profitably improves, we saw -- I think it was a 14% pickup in the aftermarket in AeroTech.

So that's good, both from their standpoint and ours.

Okay.

That's all I have for now.

Thanks.

Your next question comes from the line of Gary Farber with CL King.

Hi, Gary.

Hey, how are you doing?

Just two questions, can you just address the environment for acquisitions and do you think there will be larger ones out there over the next six to 12 months, trends on raw materials?

And also, can you just revisit -- reiterate what you said about the weighting towards the fourth quarter, what the third quarter might look like?

I thought you said there was only two questions, I can't --

I guess I can't count.

I got them written down here.

In terms of the environment for acquisitions, as I said in the last call, we're disappointed we haven't done more.

We don't think price expectations have adjusted enough and we're not willing to overpay.

So while we still are working, we did announce a very small in Asia this quarter which we're real pleased with; it was really more of an acquisition of technical capabilities, so that our Asia thermal processing group had the same level of technical thermal process skills as we have in Europe and the United States.

And we think long-term, that's going to be a real smart-little bolt-on we did.

So I don't see any major change in the environment for the bolt-ons we are looking at.

We do have a Board meeting next week where we're going to have really our first major post-spin strategy discussion looking at all kinds of questions.

I don't anticipate any major announcements after that.

It will be sort of a start of a dialogue, but I can't forecast any big acquisitions but we continue to keep our eyes open to the whole environment.

As far as raw materials, I think we saw some negative strengthening in prices of some of our steel raw materials over the last six months.

So I think we are forecasting short-term for that to flatten out a little bit.

And then, I think longer-term, it's anybody's guess on commodities, depending on what your view is of the macroeconomic situation.

So, we feel well in hand on the FoodTech side.

We are protected because we normally have our cost in hand before we bid.

On the AeroTech side, I know we've taken a longer position for hot-rolled steel for Jetways and feel protected for the next six months.

And in ground support equipment, we always -- well, we're subject to a steel plate price inflation based on our suppliers given its fabrications; in that case, if we notice anything, we typically can get surcharges in place and we haven't had to do that yet.

And the last question was, the timing of the third and fourth quarter.

Yes, as we look ahead, we can see -- one of the problems having smaller orders and not having any of the [biggies] in your backlog is your visibility drops down a little bit.

We clearly have a strong backlog position at AeroTech and feel pretty comfortable as we look out four to five months.

In FoodTech, we're dealing with looking ahead maybe three or four months and so the issue on the fourth quarter, I guess, to beat is the inbound rate that we are seeing right now and have seen for three months, does it maintain through the third quarter?

And if it does or continues to improve, we will be at the high-end of the range and if we run into any soft spots in the next 90 days or 120 days, that would drive us toward the low end of the range.

And the timing would be, we think third quarter will be a little bit stronger than next year, I mean barely and then we think the big hit will be in the fourth quarter.

Okay, thanks.

By the way, we looked at the fourth quarter to see if we were being outrageously optimistic and we have shipped fourth quarters like we were forecasting in the past.

So, we don't think it's a stretch.

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

Hi, Liam.

Good morning, Ron.

How are you?

Good morning, Liam.

Fine.

Thanks, yourself.

Good, thanks.

Charlie, you touched on Asia-Pacific and said it was flat year-over-year.

Looking into the second half, how does Asia-Pacific look through the rest of the year?

In that case, flat is a good thing because as you'll recall, we suffered no downturn in 2009.

So, we never saw a recession in our Asia activity.

And we are forecasting [it through the year because it] is going to be a good year in Asia.

I mean, it's not going to be year-over-year double-digit or anything like that because it's been good, it has not fallen but it remains solid.

Okay.

And on the competitive front, I know pricing is an issue on the services side on the airport, are there any areas or pockets price competition you're seeing in other businesses?

Well, I think I mentioned in the last call, we've seen in some cases sporadically by region, by product line different competition.

For example, we're selling a lot of vegetable freezers in Eastern Europe right now.

It's a very price-sensitive market and so we are seeing a little bit of price there.

But on the other hand, we haven't seen any price pressure on our aftermarket.

Asia, typically is -- you've got to be just -- and the nature of that market is kind of price competitive and then a lot of the airport stuff has been and always will be sort of price competitive.

So I'll say the two changes in the last year have been the airport services and then sort of product line by product line, certain product lines in certain regions in our freezer business.

Great.

We don't see any major across the portfolio fear about pricing.

Great, thank you.

I should mention one of the things about Asia, Liam, is I mentioned the strategy work we are doing and one major component that's drawing a lot of our time and thinking is Asia.

And while we have been successful there, the region is so large and the opportunity potentially is so great that we feel like we need to be ramping up our efforts.

So, we actually have a subset of our strategy focused on Asia that probably we will keep working for the next four to five months.

Actually, John Lee, our Vice President of AeroTech is over there for a grand opening of a new operation to produce Jetways in Shenzhen.

And I guess they will fly their flags and have the mayor of the city, etcetera.

And so we are looking at boosting our boots on the ground over there and giving ourselves more capability to operate.

Great.

Thanks.

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

Hi, Jason.

How is it going?

Good.

Just first, looking at the orders, the improvement -- you talked about -- is the size of orders recovering?

If you are talking about FoodTech, I think we had some nice-size orders in AeroTech.

In FoodTech, you will recall, I think we entered the year on January, 1 and we didn't have a single order backlog over $5 million, I think.

And the previous year, we had -- I think it was -- I don't know, five projects that were almost $60 million.

So we didn't have any of the big ones.

The sizes have gotten a little bit better.

We had a nice-size order, I mentioned in my remarks, on the poultry.

We had a -- I think it was a $4 million or $5 million order in Germany for a McDonald's supply chain supplier.

So we have been able to bag, I don't know, a handful of these $4 million or $5 million, $6 million projects, but we haven't -- we don't see any of the 18 -- the big ones yet.

But it's not quite the reversal of a small ball that might be associated with more greenfield plants and new capacity?

Yes, that's right.

I haven't -- I can't think of a single greenfield right now, but typically the ones that are a little bit bigger, like these $4 million to $5 million are where your -- a plant is trying to boost capacity like particularly in Germany, we were able to significantly boost the capacity of the number of burger patties being frozen in a single footprint and that order was sizable for $4 million or $5 million.

So -- but no greenfield.

And then, staying on FoodTech, just I guess what's the thought behind the FoodTech recovery if backlog is down?

I think the South American citrus market, the yield might be a little lower for the year and aftermarket in the quarter was down.

So just on a back half of the year basis, where is the improvement in that segment coming?

Well, first of all, we think the aftermarket and the quarter is just a quarterly thing, we are not concerned.

We've got -- we can see several large aftermarket orders.

By the way, large in the aftermarket is not $5 million, but it might be $900,000 or $1 million to rebuild something.

We have quite a bit of aftermarket activity in the second half.

So actually aftermarket is one of the places we think this second half will be stronger.

In FoodTech compared to AeroTech, you got to recall how much recurring revenue we have.

So it's not like you can look at our backlog and draw too strong of a conclusion.

I think through the first half of the year, the recurring revenue was 50% of our -- 50%.

So 50% of our sales in the first half probably never saw in our backlog.

So, that's a reason for less concern.

In Food Tech though, I should point out this, I hinted at it in my remarks, in freezing and protein processing which were hard hit, especially in US and Western Europe in the downturn, they have rebounded strongly, and both backlog and order rates are up.

If you'll recall in the canning and tomato and fruit and citrus areas in 2009, we didn't really experience a downturn.

And subsequently, as I mentioned in my remarks on tomato and other fruits and also I didn't mention, but also in canning we've had some softening.

So part of the FoodTech improvement -- dramatic improvement in one part of the group is being offset by softness in the other.

As far as citrus, you can't read too much out of Brazilian crop sizes, the big suppliers down there sort of control how much goes to fresh and so if they have too much fruit, they just throw it to the fresh market.

So you can't draw any conclusions from crop sizes in Brazil.

And we think the USDA does not put out the citrus crop estimate for Florida until early October which is another eight weeks away but the industry is scuttled by [I believe] knock on wood, absent hurricanes, etcetera that the crop size in Florida should rebound for the fall 2010 through 2011 season.

So, all in all, what we need in FoodTech, we are watching closely is for our inbound activity which is good right now and our prospect list which is good is to remain that way for the next three to four months.

Right.

And I think you said revenue may be relatively in line, a little bit of growth from last year, but the mix shift to freezing from -- In-Container and some of the others, is that going to be beneficial to margin?

I wouldn't say significantly.

I think the bigger margin impact which you hinted at which is aftermarket we think will be stronger in the second half.

Okay.

And then in AeroTech in GSE, obviously without Halverson, the GSE is really is what's going to predicate the recovery there, is it catch-up for these orders or is it I guess economic recovery?

Is it pent-up demand that's more of a one-time catch-up or is it really just a better level going forward?

That's a -- I don't know how to divvy up the customer intent when they order something that finely.

The downturn hit hard and hit the industry hard, and they were shutting down, they were putting airplanes in the desert, they were trying to be disciplined on the way down and now it's -- you see the FedEx and UPS announcements, which bodes well.

The freight sector has -- the inbound has been, I'll call it, much more healthy than it was a year ago and we are seeing spending by US airlines.

Now, I'm [afraid] to bring this up.

A year ago in the same call, I said de-ice orders are based on weather and we had a bad winter.

So normally de-ice orders would be really, really strong and yes, we are going into this -- we are in this recession.

So we'll find out which impact is bigger.

While the answer last year was a recession overwhelmed the bad winter, we had another bad winter and we'll wait and see but the activity level around de-icers is super high and we will just have to see how that turns into business here in the next 60 to 90 days.

Okay.

And then, on airport services, obviously, the price doesn't seem to be a short-term issue if the airports are kind of smartening up to the -- to pricing it.

Does this change your long-term outlook even if the outsource trend continues?

I think we are looking at that.

It's a fair question.

I think as part of our strategy we're rethinking at it.

As you'll recall from our previous presentations, we've always had high hopes that we could introduce differentiation through software and maintenance.

We've made some decisions recently to try to sell some of that softwares separately and build a position, but we are looking at.

I would like to stress again that the product area does not look unattractive to us.

It's just where the margins aren't what they were a year ago.

Right.

And then, for Ron, in terms of cash flow, can you just talk a little bit about the working capital needs for AeroTech relative to FoodTech with down payments and how this might reverse in the second half?

Yes.

I mean AeroTech doesn't draw the same advanced payments.

AeroTech and FoodTech's working capital behaves sort of differently.

When orders are going up in FoodTech, we draw more advanced payments and it's good for working capital.

On AeroTech, we drew down working capital last year as we saw a decline in sales.

And we are seeing some buildup in working capital now in AeroTech and our big backlog there will be largely executed by the end of the year.

So the key for us is going to be not only turning that into sales but turning it into cash.

We said we are still planning to be cash positive for the year, but the challenge will be in the fourth quarter to collect on that.

Okay.

And then, just touch more on the M&A, PPM Technologies is a company that I guess you guys used to own.

They've just re-emerged out of a bankruptcy.

Did you evaluate that in the M&A process?

We don't comment on what we may or may not have done.

I mean we follow the news.

[It's not clear to me] they have emerged yet, I don't know.

The last I heard, they were trying to.

I don't know if they did or not.

I mean when we exited the product line -- was it about four years ago, we obviously had a strategic view of that particular -- where they operated.

So that might be one.

Okay.

I think that's it from me.

Thanks, guys.

Thanks, Jason.

(Operator Instructions).

And at this time, there are no further questions.

Thank you, everyone, for joining us on the call this morning.

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

A replay of our call will be available later this morning.

Have a good day.

This concludes today's conference call, you may now disconnect.