JBT Marel Corp (JBTM) 2011 Q2 法說會逐字稿

Good morning, and welcome to JBT Corporation's second quarter 2011 earnings conference call. My name is Carley, and I will be your conference operator today.

At this time, 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).

I will now turn the call over to JBT's Director of Investor Relations, Ms. Cindy Shiao to begin today's conference.

Thank you, Carley. Good morning, everyone, and welcome to our second quarter 2011 conference call. 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 the forward-looking statements in today's call are subject to the Safe Harbor language in yesterday's press release and 8-K filing. Our 2010 Form 10-K also contains information regarding certain risk factors that may have an impact on our results. These documents are available on our Investor Relations website.

Now I would like to turn the call over to Charlie.

Thanks, Cindy, and good morning, everyone. We had another good quarter. Orders were up 17%. Strength was broad-based with expansion in many of our end-user markets.

Our European and Asian markets remain strong and the North American market is improving. However, some areas of concern remain, mainly the political unrest in the Middle East, continued high corn prices, the European debt crisis, as well as storm clouds over the US economy. But these areas haven't yet affected our business significantly, in fact demand is remaining steady in most of our product lines.

Turning to our second quarter results, both sales and operating income were up 21%. Diluted earnings per share increased 25%. This improvement was driven by strong performance in our AeroTech business reflecting improved market conditions. FoodTech revenue was up 14%, however, margin was behind year-over-year, both in absolute dollars and as a percentage of sales.

As I mentioned in our last earnings call, we are facing increasing margin pressure from a stronger Swedish krona against both the US dollar and the euro. Since the vast majority of our freezers are manufactured in Sweden, this has negatively affected FoodTech's margin performance.

To alleviate the currency impact, and more importantly, diversify our manufacturing capability, we are currently transferring some freezer manufacturing to the US and China.

Additionally, we are utilizing external experts in pilot programs to improve our pricing tools and operational processes. Since we will incur a majority of the start-up costs associated with these initiatives in the second half of 2011, we do not expect any margin improvement from these activities until 2012.

Now, I'd like to provide some color on our two segments. First, JBT FoodTech.

Order activity for freezing and protein processing remain strong in Europe and Asia Pacific. Germany continues to lead Europe, while the UK market is improving.

For the quarter, combined inbound in Germany, UK and the Nordic regions increased almost 50% year-over-year. Eastern Europe remains active. However, market conditions in France, Italy and Spain are all soft. Asia Pacific continues to be strong following three years of robust growth, driven by the developing markets in the region. We expect the high levels of activity in Asia to continue for the remainder of the year.

The Latin American market is improving albeit from a small base. However, the poultry segment in Brazil continues to be sluggish due to overcapacity, and we do not anticipate significant improvement until the excess capacity is absorbed.

Moving to North America, overall demand is improving. Inbound orders for the quarter increased more than 20% from the first quarter of 2011, driven primarily by activity in bakery and dairy segments.

As for the poultry segment, despite corn prices remaining above $7 per bushel, inbound orders for the quarter were leveled with the first quarter's inbound. We believe this is a result of continued investment by some of our poultry customers to improve operating efficiency.

In summary, for our freezing and protein processing lines, we are cautiously optimistic that strong order activities across most regions will continue.

Turning to fruit processing, Brazil is projected to have a bumper orange crop at 495 million boxes, up 32% from last season. The Florida orange crop size is also estimated to increase by a modest 4%.

While this is good news for our customers, we do not expect an immediate benefit from the bumper crop in Brazil, as our citrus lease rates there are largely fixed. Longer term, however, this will benefit JBT as our customers profitability improves.

Moving to the sterilization product line, after a weak 2010 and a very slow start in the first quarter this year, the North American market is showing signs of recovery. Demand in Europe remain steady, while Asia is very active, as our customers prioritize funds to expand their footprints in the region. We anticipate inbound orders for this product line to improve in the second half of 2011. FoodTech after-market volume for the quarter increased 23% year-over-year, or 12% in constant currencies.

In summary, we anticipate FoodTech revenue and earnings growth in 2011 driven primarily by improved market conditions in Europe and Asia Pacific for freezing and protein processing. However, as I mentioned earlier, given the foreign exchange headwind and some start-up costs for our strategic initiatives, we expect FoodTech margin percentage for the full year to be slightly down from 2010.

Moving to JBT AeroTech, overall activity -- order activity was strong across most of AeroTech's product lines. Second quarter inbound orders for ground support equipment increased 18% year-over-year and were the highest since 2007.

In June, the International Air Transportation Association lowered its industry profitability forecast from $8.6 billion to $4 billion due to higher fuel costs. This is still quite healthy from a historical perspective, as the airlines have been able to offset some of the cost pressure through various surcharges. Additionally, both cargo and passenger demand continue to improve during the second quarter.

As a result, quote activity for ground support equipment remains strong consistent with the profitable industry outlook.

Order activity for our gate equipment business remains healthy. We are awarded a $26 million bridge order for the Los Angeles Tom Bradley International Terminal, which we referenced in our last call. Inbound orders for the quarter in our gate equipment business increased 16% year-over-year and quadrupled sequentially from the first quarter 2011.

Based on the current level of backlog, we are anticipating year-over-year revenue growth for gate equipment. Our prospect list is quite active. However, we are pursuing many international projects that may slip and impact timing of inbound for the rest of the year.

Turning to airport services, bid activity is picking up, but projects are smaller. Our service business continues to grow albeit at a slower rate than we would like, we were awarded one new service contract in the Midwest region during the quarter. And as I've mentioned on past calls, this is a highly competitive industry, so we expect continued margin pressure for airport services.

Moving to the Halvorsen program, we completed the US Navy order during the second quarter. We will continue to provide logistic services to the US Air Force and ship a couple of smaller orders on hand. We are working on a significant order related to the recently announced Boeing sale of 10 C-17s to India. This will help us keep the production line open into 2012.

Finally, AeroTech's after-market volume for the quarter was essentially flat versus the prior year quarter. Looking forward, we expect AeroTech's revenue to grow in 2011, based on current backlog and strong order activity. Margin for AeroTech should continue to improve, reflecting the leverage of higher volume, partially offset by lower Halvorsen volume and competitive pricing environment in airport services.

In conclusion, we are pleased with the high level of order activity in most regions across both segments and expect this trend to continue.

On the margin front, we anticipate the full-year margin to be flat to slightly down versus 2010 levels, primarily driven by margin pressure at our FoodTech segment. As a result, we are revising the full-year earnings guidance range to $1.35 to $1.45 per diluted share.

Lastly, a majority of the consulting costs associated with our margin improvement pilot programs will be incurred in the third quarter. Coupled with a continued negative currency impact, we expect third quarter consolidated earnings to be slightly down from the prior year quarter, despite the anticipated favorable revenue performance.

With that, I will now turn it over to Ron Mambu to give you some more detail on our financial results.

Thanks, Charlie. As we mentioned in the last call, we expected a stronger second quarter. Actually revenue and operating income, both increased 21% from the prior year quarter. Diluted earnings per share for the quarter were $0.35, up from $0.28 earned in the prior year quarter.

We are also pleased with the strong order level during the quarter. Inbound orders were up across most product lines, increasing 17% year-over-year and 33% sequentially. Backlog was up 3% from the prior year quarter and up 10% sequentially.

Net debt at the end of the second quarter was $140 million, up $17 million from the first quarter of 2011. This increase was driven by higher receivables, mainly due to the timing of collections and higher second quarter revenue.

Nonetheless, we're disappointed by the increase in net debt. That said, we continue to be confident in our ability to generate positive cash flow from operations for the full-year.

I'll now comment on operating segment performance and then on corporate items. FoodTech second quarter revenue of $154 million increased 14% from the prior year quarter, driven by the shipment of several large tomato and fruit processing projects in Asia and the Middle East, higher after-market revenue and favorable foreign currency translation. The increase was partially offset by lower sales in freezing and protein processing equipment due to a soft North American market. In constant currencies, revenue was up 4%.

Operating profit of $14 million declined 8% or 18% in constant currencies from the prior year quarter due to unfavorable product mix, higher selling and R&D expenses, and the negative impact of a strongest Swedish krona.

As we mentioned in the first quarter call, the stronger Swedish krona is impacting both equipment and parts margins for our freezer product line. On average, the Swedish krona appreciated against both the US dollar and the euro by 18% and 7% respectively from the prior year quarter.

In addition to the actions that Charlie mentioned to mitigate the impact of currency fluctuations, we are able to offset some of the negative impact through our hedges, which are reported as part of corporate items. The unfavorable product mix was mainly driven by the shipment of several large tomato and fruit processing projects where margins are generally lower and the absence of higher margin poultry [processing] equipment sales in the quarter.

FoodTech inbound orders of $155 million increased 22% or 13% in constant currencies from the prior year quarter, driven principally by higher demand in Europe and Asia across all product lines. Inbound orders increased 16% sequentially. Backlog of $131 million increased 14% or 4% in constant currencies from the same period in 2010. Backlog was flat on a sequential comparison.

Moving to AeroTech, second quarter revenue of $97 million increased 35% from the same period in 2010, reflecting higher volume across all product lines. Strong backlog for gate equipment and continued strength in ground support equipment inbound orders were the main drivers for the favorable performance. The automated guided vehicle business after a very slow 2010 is experiencing a strong rebound.

AeroTech operating profit for the quarter was $7.6 million, up 95% year-over-year, and operating margin was 7.8%, up 240 basis points from the prior year quarter. This favorable performance was due primarily to higher sales volume and improved leveraging of fixed expenses and was partially offset by margin pressure at our airport services business. Inbound orders of $127 million increased 11% from the prior year quarter, driven largely by the $26 million contract to supply gate equipment for the Tom Bradley International Terminal.

Order activity for ground support equipment remained strong as airline and air freight customers continue to invest to improve efficiency. Inbound orders increased 64% sequentially. Backlog of $198 million declined 3% year-over-year, but improved 18% sequentially.

Now regarding corporate items. Income tax expense in the second quarter reflected an effective tax rate of 35%, in line with our guidance of 34% to 36%. Total corporate items, excluding net interest expense were $4.2 million, a reduction of $500,000 year-over-year. The decrease was driven by lower stock-based compensation expense. However, we anticipate expenses for corporate items to be higher in the second half of 2011, as we incur expenses related to margin improvement initiatives. For the full-year 2011, we expect total corporate items, excluding net interest to be 6% to 8% higher than in 2010, assuming no significant foreign exchange movement. Capital expenditures for the quarter totaled $4.9 million, and depreciation and amortization totaled $6 million.

For the new facility in Lakeland, Florida, we have narrowed the site selection and we have begun negotiations. We anticipate spending up to $4 million in the second half of 2011 with the majority of the expenditures to be incurred over 2012 and 2013. In line with our earlier guidance, we expect total 2011 capital spending to be in the range of $26 million to $28 million.

Cash used by operating activities in the quarter was $8.7 million. The Company ended the quarter with debt, net of cash of $140 million, up from $123 million at the end of the prior quarter.

As I mentioned in the beginning of my remarks, this is a disappointment. However, the unfavorable cash flow is primarily timing related, reflecting the timing of sales and collections within the quarter. We have experienced strong collections in July and expect to produce positive cash flow for the full-year.

Finally, net interest expense for the quarter was $1.7 million, a reduction of $300,000 from the prior year quarter, reflecting lower average interest rates on our variable rate debt. We're planning to file our 10-Q tomorrow, so there will be more detailed information readily available for your review.

In summary, we're pleased with the level of inbound orders and expect this order rate to remain above last year's levels. We expect third quarter earnings to be slightly down from the prior year quarter, due to continued headwinds pressuring our FoodTech margins and increased expenses related to our strategic initiatives. We expect operating margins to improve sequentially in the fourth quarter, driven by increased sales volume.

As a result, we anticipate our full-year consolidated EBIT margins will be down slightly for 2010 -- from 2010, and thus we are revising our full-year earnings per share guidance to the range of $1.35 to $1.45 per share.

With that, we'd like to take your questions. So, operator, please open up the call.

(Operator Instructions). Gary Farber, CLK.

Yes. Good morning. Just two --

Hi, Gary.

Hey. Just two questions. One, can you talk about the order trends as you moved through the quarter and into the end of July? Was there any meaningful change, or is it just sort of steady going all along? And then as far as the strategic initiatives you're talking about, can you sort of elaborate or give some examples?

Yes. On the first part, on the order, I guess what you're really asking is, we read the newspapers as well, and so, Ron and I were asking ourselves yesterday, are we being like pollyanna with all those bad news you read in the newspapers in the front page. But the fact is, our order rate has been steady and that has remained steady through July to this point. We obviously will be watching very cautiously the horizon to see if we see any downturn. But right now, we didn't feel like we've had any evidence (technical difficulty) earnings call that would say we can see a downturn.

On the initiatives, the first one we talked about was just in direct response to the Swedish krona. We are in the -- we have produced our first two large capacity freezers for US market, sort of high-tech freezers. We anticipate doing maybe 8 or 10 this year. There's a start-up obviously when you move manufacturing, where you go through the learning curve of making them here. So the benefit of that move probably we won't see uptil next year.

Similarly on the sort of lower-tech [end] freezers, what we call our classic line, we're going to build 4 to 5 in the second half of the year in China for those markets. So that's -- those are sort of strategic initiatives, given the currency situation we see around the world.

The other things we've referred to, really coming out of our 4G strategy. We've got a whole series of activities around the Company that are representing initiatives to follow up on our 4G pyramid, grow our technology advantage, grow past the sale in terms of growing our after-market. We've retained two consulting firms to help us on the improved margin side and we're running pilots. One is in AeroTech, where we've got a proposal and we're going to be spending money this back half of the year to sort of dramatically improve our process and we think there will be a payback of [3 to 4 to 1] on this expense investment. And if that works, we're going to try to roll that same kind of operational improvement, pilot throughout other operations in the Company.

On the FoodTech side, similarly we've got a pricing initiative. Despite the fact we think we do a reasonable job, you can always get experts who can help you do better. And so we're -- they're reviewing sort of the analytical process as we do to price after-market parts and services and trying to make sure we're pricing -- value pricing appropriately. Those things we should be value pricing and pricing more competitively sort of less proprietary parts and things. They're reviewing all our analytical tools and we hope to improve that, so we can ensure we don't have any value leakage in our after-market.

Again, if that's -- if we see success there, we intend to roll that through other operations over the next couple of years in the Company.

Okay. Thanks.

Michael Saloio, Sidoti.

Hi, guys. How are you doing?

Hi, Mike.

Hi, Michael.

Could you help us understand what the difference is between the demand picture in Europe versus North America right now? Is it just opening of the purse strings little bit in Europe, because I remember that was one of the weaker markets at FoodTech? I actually always picture that market being worst than North America. So could you just kind of explain what's going on with your customers?

Well, I agree. If you go back in the downturn, it sort of felt like Europe got hit worst than the US. On the recovery side, the Europe is kind of bifurcated [on it]. In my remarks, I commented on Germany, UK, Nordic is up dramatically over last year in terms of -- so the economies look like they're doing okay. The Mediterranean countries, for obvious reasons, I guess don't look very good at all.

And so it's sort of two different stories in Europe. In the US, I think more of it was -- had to do with -- we had two impacts. One -- kind of industry-related. One was poultry has been soft. Poultry is not exactly boom in the US, and you can see with the high corn prices, our customers there will continue to face a lot of pressures. So we're not in the glory years of poultry in the US, but it has been kind of steady as she goes.

In the canning area, I mentioned in my remarks, sterilization really had a weak 2010 and we were really concerned about it in the first quarter, but -- and all of a sudden that started to pick up and there's lot of projects on the horizon through the back half of the year.

So I don't know how it compared direct Europe to America to this kind of product line by product line. You got a comment, Ron?

Well, I think I mean across Europe, you have so many different regional markets between Southern Europe, Western Europe, Eastern Europe compared to the US. So, I think we get some of the benefits out of the diversity in Europe and the stronger economies in Germany and Northern Europe, as well as some growth in Eastern Europe.

And I don't -- I think that some of their poultry businesses are a little bit more subsidized than ours are here, and less impacted by the dramatic increases in the corn futures.

Got it. Is there anything else going on, on the cost side of the business in freezers other than the currency issue?

Well, I think we have a currency issue. We also have some product mix. Speaking of poultry in the US last year, we didn't have any sales of our DSI product portioning line in the second quarter and that's probably one of the highest margin product lines we have. And so that was a mix issue there, the large tomato and fruit projects and we had some -- they tend to be lower margin. But the fact is, I mean freezer is our biggest product line. And by our calculations, going back year-over-year, you can recover some of it from hedging, but that only protects you from the time you get the order until the time you sell it. It doesn't protect you on the fact that currency is different than it was a year ago. And given the size of the freezer product line and the dramatic move in the currencies, we think that (inaudible) a share and that [nickel a] share is kind of comes off the top of our forecast for the year.

Yes, I'd add to that. There are no execution issues that we saw on the quarter. And our freezer business, as Charlie said, is our largest product line. And the main impact that we've seen there is currency headwind.

It would be a lot easier if we had -- if we blew up a project or two, we can tell you, sorry, we messed up, it won't happen in the future. But that's -- we don't have that. We can't see any dramatic impact on any execution issue across the Company in the quarter.

Okay. Just one last question, and this is more of what I was getting at? Some of the other larger US industrial companies have been reporting some supply chain issues as far as fabricated steel and parts like that. Are you -- just kind of a general question, are you seeing anything like that in any of your product lines?

Yes, we are. It's -- thank you for mentioning that. We have just implemented steel surcharges in our ground support equipment. And as you know, you can't do that with 100% efficacy, end up with some leakage. And we estimate steel costs in our AeroTech segment is probably going to [Nick] is about $0.03 a share for the year. So we are seeing some of that. We are tracking cost -- trying to track cost inflation at our monthly performance reviews to stay alert to that.

And on a broad-based measure, we're not seeing sort of broad-based inflation everywhere. We're sort of seeing it's spotty by product line. So, fabricated steel for [GSC] just like ground support equipment just like you mentioned is one area where we're seeing it. Another area is in our citrus coatings that we [slack] and the prices slack is up 300%. We're having to reprice and reformulate to get away from that.

So we're seeing some spotty little -- spotty is not the right word. It's specific inflation on one or two areas, but nothing broad-based yet.

Okay. I'm going to jump back in for now.

(Operator Instructions). Jason Ursaner, CJS Securities.

Book-to-bill in AeroTech was pretty solid, a little over one, even excluding the big gate equipment order, and you mentioned strength from the airfreight guys. Are you seeing new investment, or is this more replacement demand than is it mainly on the deicer side?

I think it's -- [I have said this for last four] years. If you look at one of your airplanes, it's hard to find a piece of new equipment on the ramp, but there is pent-up demand. As long as the industry remains profitable, I think we're going to see quite a bit of replacement.

Last year's deicer -- we're going to have another good deicer to answer your question on deicers. Last year was a really solid year and we had two big orders. One was Delta, and one was Beijing, China, which -- that was like 50 deicers those two orders. We do not have the giant orders like that last year. If you take those out, the onesie, twosie, five size orders were actually up over last year. So it's going to be another good deicer year. That's coming from airfreight. It's coming from ground handling companies, as well as airlines. We have a nice order from US Air to actually rebuild, I think it's over [20 L&D], an old model deicer, large module deicers that are probably 15 years older -- are older and we -- it's part of our rebuild program where you're building all the fleet for them.

So, are you through the key order season for that line, or is it still sort of in that timeframe?

We're in the sweet spot right now.

Okay.

We had inbound in the second quarter. Deicers was actually greater than last year, because we didn't have those two big orders as of this time last year. But we're in the deicer ordering season right now.

Okay. And then just following up on the FoodTech side, I understand the headwinds, your translational impact and you're going to hit on the transactional side on costs. But the transferring of the manufacturing, is it just to serve local demand, or are you also, at some point planning to export here, and I guess bringing back the transactional impact potential?

What we're doing is, since we are producing -- basically all of our freezers in Sweden, the highest capacity sort of highest tech freezers typically are destined for the US market. So we're asking ourselves why are we importing from Sweden? Why not use our facilities here? And so we started that this year. I think we mentioned in the last quarter call, we were going to start that. We are now up and running. We've produced two. It takes you -- I go through the learning curve and get all your technology transferred, but by year-end, we should be up and running, and hopefully we will have shipped maybe 8 or 10 freezers. And those are sort of high-capacity, high-tech multi-million dollar freezers.

At the lower end of the product line, our Classic series, which is a 400 millimeter, 600 millimeter [belt], which are, I don't want to just call them commodities. They're not commodities, but they're more -- less technology. We are trying to produce 4, 5 in China this year, so that we have a low-cost base to export [those from] as opposed to making them in Sweden.

While we are doing that in China, we are also looking at certain freezer components from a global sourcing perspective instead of sourcing in Europe to source from China. And those are in direct response to us being more flexible on our manufacturing as well as to deal with this currency issue.

And eventually I guess as demand builds for some of the high-tech equipment in China, I mean do you still plan to only build the classics there, or I guess if you can comment at all on protection of IP and proprietary technology, just because -- in my understanding, this was one of the highest tech [lines]?

Yes. That's not -- we don't foresee that in the near-term. I don't think there will be demand for the highest capacity, high-tech in the near-term. Long-term is something we got to deal with, but not in the next several years.

Okay. And then just on the acquisition front, if you could talk at all about your pipeline, if you're still seeing price expectations that don't really match, I guess your views of what people should be expecting?

Yes. It's just (inaudible) broken record, I apologize. We every quarter, every call, we get the question, and I assure you, we have a corporate development team, I assure you we're not going to -- I personally have visited several companies in our space. We've got all kinds of divisional activities. We've got things in the pipeline.

We had another one fall out of the pipeline that I thought we would be able to get to the finish line just this quarter, where somebody -- whereas somebody got a -- somebody's [view of] value is a lot stronger than our view of value. So actually we're still facing this price expectation thing. I don't know if that will change when things -- if things start to soften, I don't know.

Are you mainly seeing competition from other strategic people, or is that on the financial side from private equity groups?

I don't --

(multiple speakers) I think the charge you're referring to, we're not sure exactly, because they're in a due diligence process and we don't know who has come in to that picture. So --

I would say in general, ownership in our two segments tend to be either private equity or private families. There's a lot of family companies in this. So there's not too much public. The one big exception was the end of last year, when GEA, the big German public company bought our competitor Convenience Food from a private equity firm for a new segment.

Got it. Okay. And then just last question, Ron, if you could I guess talk a little bit more about second half expectations for cash flow and how we should be thinking about some of the reversals in working capital?

As I mentioned, we are disappointed with the net debt result at the end of June, but we see that reversing in July. We've had good collections month in July. We will make a large one lump sum funding to our pension plan in September that we can take as a deduction against our 2010 taxes, and that will probably be in the order of magnitude of $8 million.

So the third quarter will have that outflow. But nonetheless, by the end of the year, I'm expecting to have a reduction in net debt from where we started this year based on continued diligence that we're placing on collections and working capital management across the Company. So that's why we said we expect to be cash flow positive for the year.

Okay. Sounds good. Thanks a lot guys.

Take care.

DeForest Hinman, Walthausen & Co.

(inaudible) questions. Can you talk about maybe the inventory turns target or DSO target you have for the end of the year, I mean we've seen a significant increase in the accounts receivable on a sequential and a year-over-year basis, so I mean that's a cause of -- for some concern to us?

Our receivables history going back for many years has been very strong on some large accounts like maybe Campbell Soup or Heinz we might chip on open account. But for most other international accounts, it's letters of credit and it's advance payments upfront, progress payments and payments by the time we ship, so they've very little, on the FoodTech side is outstanding after we ship.

AeroTech is more typical in terms of terms. But our bad debt experience has been negligible nil even through the recession. So at the end of last year, we had -- you're right. We closed the year with like $50 million more in receivables than we started the year, but that was largely due to a banner fourth quarter and we will have a strong fourth quarter again this year. But we would expect nonetheless that our cash flow for the year would be positive and net debt will be declined. And that -- our inventory typically moves in sync with backlog. So as our backlog increases, you will see inventory increase. But by the end of the year, we expect our inventory to be back in line with -- as a result of the large shipment.

Charlie, do you want to add anything to that?

I will just say I mean the normal seasonal pattern, from an earning standpoint, the second and fourth quarter are your big sales and earnings quarters due to the seasonality in FoodTech.

On a cash flow basis, I think Ron have looked at it in the past, I mean typically we start out, the first quarter is always our weakest and we start out with negative cash flow through the first half of the year and then it's all positive downhill after June. This year was unusual because of the big, big AeroTech quarter in the fourth quarter, and we had all those receivables in the balance sheet and we collected a lot of that and we're actually cash flow positive in the first quarter, which is the first time I can remember that happening.

This quarter, we got sales sort of back-end loaded in the quarter and ends up a little disappointed about our cash flow. Now the good news, Ron didn't want to say the number, but July cash flow is significantly positive. So we think we've just had a timing issue and we're going to be fine for the year.

Is there a significant difference on the collections and when you do AeroTech sale versus the FoodTech sale?

Yes, in FoodTech, we tend to command a lot more advance payments than we do in AeroTech. And the other -- we always said FoodTech is kind of world-class working capital performer, and AeroTech is more typical industrial numbers. The [Jelly] business is a project business, it tends to be -- have high DSOs because of the nature of the way the industry works. The ground support equipment guys are shipping around the world. And so you got inventory on the water. And so they have a tougher working capital issue to manage than the FoodTech guys.

Having said that though that our bad debt experience, like I said earlier, is negligible over many years, and that's true for AeroTech as well as FoodTech. And you can point to the AeroTech customers, the airlines and municipalities. We just haven't lost, thank God, any money on collecting receivables.

Okay. And separately on the customer advances, there has been pretty long-term trend almost two-and-a-half years of declining customer advances. Has anything changed from a contract perspective with how we build the customer and do projects? Is it a competitive thing, or what is happening there that makes the advances be trending down when for the last four quarters, we've been having an increase in sales and we've had some improvement in the backlog as well?

The most significant change, and you're right, that that it sort of happened over last three or four years, is the geographic area of our sales. So, in the US market, in FoodTech, that tends to be our strongest advance payments followed by Western Europe, the developed world and the developing regions of the world, and working with LCs from a competitive standpoint and the nature of those markets, the advanced payment terms aren't as good. And so as our developing world sales grow, we have been seeing not as favorable advances relative to sales.

I think the other thing that I'd add to that that contributes to that, is that I think it is a legitimate point is that we -- our order size is smaller. So when we have larger plants like if it involves $20 million order or it's a greenfield expansion, we tend to carry that advance payment for a lot longer and it's a larger advance payment. With the orders turning faster and with them being smaller, you don't see as much of that in our balance sheet as an advanced payment at a point in time.

That's a good point.

Okay. And my last line of questioning is going to be on the use of capital. I mean it continues to seem like you're having trouble closing acquisitions. We don't want to over pay. How attractive does our stock look relative to the valuations you're seeing for these acquisition targets? And then also can you talk about how you're thinking about the dividend moving forward?

Well, we've always said our priorities for cash flow are acquisitions, number one. Number two, pay down debt. And then number three, if we wake up, when there was no debt and not having done acquisitions, we've figured out a way to be good stewards of the cash flow, whether that was dividend or stock buyback.

Obviously, since our stock fell 5.7% yesterday, I don't want to comment on stock price, because we feel like our job is to run the Company well, and then we'll -- the stock market will decide what we're valued at. But I think those priorities are still the same today. We are still actually looking for bolt-ons. And absent to that, we'll pay down debt.

Okay. So you haven't really been thinking upon any share repurchase activity. I mean I think it's interesting to see that if you're having trouble doing these deals, and you talk about the very high multiple that the German competitor was willing to pay for on your -- on their competitor in that market. I think you said it was 10 or 11 times EBITDA, and your stock is trading much lower than that. How share repurchases don't enter into the discussion?

Well, we -- the subject you're touching on is one that the management team and the Board of Directors discusses literally every Board Meeting, but it's not one I would --.

It's always an alternative for us. And the difficulty with that is, of course that it reduces our volume and makes it more difficult for shareholders to get in and out of the stock. And Charlie and I've talked about it. It's something that we don't have a shelf right now, but it's something that could be put up pretty quickly if we chose to. And it's just not something that's on our radar screen at the -- currently.

All right. Thank you.

(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 on our IR website later this morning. Have a good day.

This does conclude today's conference call. Thank you for participating. You may now disconnect.