JBT Marel Corp (JBTM) 2016 Q2 法說會逐字稿

Good morning and welcome to JBT Corporation's second-quarter 2016 earnings conference call. My name is Sally, and I will be your conference operator today. (Operator Instructions) Thank you.

I will now turn the call over to JBT's Executive Vice President, Corporate Development, Mr. Debarshi Sengupta, to begin today's conference.

Thank you, Sally. Good morning, everyone, and welcome to our second-quarter 2016 conference call. With me on the call are our Chairman, President, and CEO, Tom Giacomini; and our Executive Vice President and CFO, Brian Deck.

Before we begin, I would like to remind everyone the forward-looking statements in today's call are subject to the Safe Harbor language in yesterday's press release and 8-K filing. JBT's periodic SEC filings also contain information regarding certain risk factors that may have an impact on our results. These documents are available on our investor relations website.

Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement.

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

Thanks, Debarshi, and thank you all for joining us on the call this morning. As you saw in our earnings release, JBT posted healthy gains again in the second quarter of 2016.

Revenue increased 29% year-over-year, and segment operating profit improved 38%, driven by segment operating margin expansion of 80 basis points. Diluted EPS was $0.63 for the second quarter of 2016 compared to $0.48 in the year-ago period. Excluding restructuring charges, adjusted EPS was $0.67 in the second quarter of 2016.

Profitability exceeded our expectations, with the ongoing benefits of our next-level strategy and solid performance in FoodTech's protein business and aftermarket, coupled with favorable mix in AeroTech, led by strong military sales. While FoodTech's inbound orders increased 38% year over year, including organic growth of 17%, some orders anticipated in the second quarter were delayed. Our close continued communication with customers gives us reason to expect these projects will convert to orders in the future.

We continue to see significant project and quote activity at the customer level that precedes order issuance and are focusing our commercial and engineering resources on converting these projects to orders in the back half of the year. We remain confident about the full year. As a result of our growth and improved profitability, we are raising our full-year guidance.

I'll let Brian provide some color on the second-quarter performance, our restructuring program, and JBT's full-year outlook. Brian?

Thanks, Tom, and good morning. JBT's year-over-year gains in the second quarter were strong across the board. Revenue expanded 29%, comprised of 14% organic growth and 15% growth from acquisitions. Segment operating profit was up 38%, of which 26% was organic. Currency translation had very little impact on the quarter.

On a segment basis, FoodTech posted revenue growth of 40%, including 16% organic growth. AeroTech posted revenue growth of 11%, all organic. FoodTech's segment margins were down slightly year over year due to the impact of acquisitions. Still, margins were better than expected, aided by strong protein equipment sales and aftermarket performance in the quarter. AeroTech's margins expanded over 200 basis points versus prior year due to strong military sales and an otherwise favorable product mix, as well as the ongoing benefits of our relentless continuous improvement initiatives.

Second-quarter corporate expense was somewhat above expectations, driven by higher incentive compensation and accounting and audit costs, particularly in connection with the 2015 acquisitions as well as shared service center costs. We recorded a restructuring charge of $1.9 million in the quarter for our optimization program, bringing the first-half charge to $9.1 million. We still anticipate full-year charges of $11 million to $13 million.

When we announced the optimization program, we talked about the realignment of FoodTech's protein business in North America and liquid foods business in Europe. In Europe, we are optimizing liquid foods, including the consolidation of duplicate offices, integrating engineering, and establishing a unified commercial organization. Similarly, in North America we are optimizing engineering and sales support for the protein business.

Additionally, we are taking steps to improve our cost structure in Asia and Brazil.

We now expect to capture savings associated with the optimization program of more than $3 million in 2016, up from our previous estimate of $2 million, which is reflected in our updated guidance. Looking ahead, we expect incremental savings of $4 million in 2017 weighted towards the back half of the year and another $1 million in 2018.

That brings total annual savings associated with the program to $8 million. These savings will continue to support investments in our growth initiatives as well as contribute to segment margin improvement.

On the cash flow front, we expect free cash flow conversion of about 80% for 2016, excluding pension contributions of about $14 million for the year. Our working capital build, which supported first-half -- higher first-half sales and our seasonally stronger second-half forecast, will moderate by year-end.

Based on our first-half performance and expanded margins, we have raised our full-year 2016 guidance. We now anticipate GAAP diluted earnings per share of $2.00 to $2.10, or $2.25 to $2.35 on an adjusted basis.

We expect full-year revenue growth of about 16%, reflecting organic growth of 5% to 6% and 10% growth from acquisitions. We now expect segment operating margin expansion of 50 to 75 basis points compared with the previous guidance of 25 to 50 basis points. Corporate expenses are forecast to be slightly over 3% of revenue, interest expense between $9 million and $10 million, and a tax rate between 32% and 33%.

With that, I'll turn the call back to Tom.

Thanks, Brian. Since we are at midpoint of our year, let me start with an update on geographic trends.

At FoodTech, customer activity remains quite strong in North America for our protein and AGV businesses, with liquid foods softer. In light of the recent Brexit vote, we are actively engaging our customers and keeping a watch on any possible impact on our business in Europe. For reference, JBT's UK sales represent less than 5% of total revenue. At this point in the process, our business in Europe remains on track.

Asia has been improving for protein, while liquid foods is steady. Quote activity in Asia is up, which is a positive indicator for future opportunities.

In Latin America, activity is mixed for both protein and liquid foods, with export-oriented customers like protein processors and orange juice producers faring well, being offset by lower local market activity.

At AeroTech, customer reaction to JBT's new products has been encouraging. In North America, which represents the majority of our business, market conditions remain positive. Europe remains more challenging, with our competitors benefiting from exchange rates.

Switching gears, I'd like to provide an update on our RCI initiative, which is an important part of our strategy to utilize continuous improvement to enhance our top and bottom line and to deliver a sustainable competitive advantage. JBT's RCI activity in 2016 has included a significant step up in our strategic sourcing activity.

Until 2014, our business units sourced independently. Through our sourcing analysis, we identified that they were largely buying similar items. In 2015 we started negotiating as an organization for indirect categories with good results. This year we are starting to tackle the much larger direct materials side. In the second quarter of 2016, we hired a highly experienced VP of Strategic Sourcing to lead our efforts.

The goal of our sourcing program is to consolidate purchase with fewer, stronger suppliers. This allows us to negotiate more favorably on material costs. It will also result in improved lead times, inventory levels, and ultimately the value we provide JBT customers. We expect the benefits to accrue over the next few years as we continue implementation, first in North America, with Europe and the rest of the world to follow.

On the M&A front our acquisition pipeline remains robust. We are driving an active and disciplined process. Our focus is on developing opportunities that meet our criteria for strategic fit with our customers' needs. In the past quarter we did choose to pass on an opportunity. While it was a good strategic fit, the pricing expectations exceeded our desired metrics.

I'd like to highlight some recent customer activity that affirms JBT's strong position in the marketplace. In the second quarter I visited a key East Coast customer that is leading the charge on innovative nutritional beverages, including organic teas and specialty waters. I was pleased to see that they've had a good experience with their high-tech Stork linear filler for these growing beverage categories and how our liquid foods organization has come together to offer service and support for this customer.

Last, I was encouraged by discussions about potential future investment using JBT's comprehensive solutions, including capabilities from our recent A&B acquisition and our core fruit and juice business portfolio, in combination with technology from Stork.

Another interesting project underway is with a major protein processor in Asia. As we have discussed in the past, customers in this geography represent a strong opportunity for full-line solution selling. In this case, our team in Asia is working towards a complete further protein line that includes breading, cooking and freezing equipment. This project is particularly exciting for us, as it demonstrates JBT's ability to meet emerging market customers' greenfield project requirements. These opportunities confirm the importance of our recent investments in Asia, including our new technology center and stronger leadership.

As you've heard from my remarks and Brian's, we were pleased with our second-quarter performance and outlook for the year. Our optimization program and ongoing RCI initiatives are benefiting our top- and bottom-line performance.

With that, we'll open the call to your questions. Operator?

(Operator Instructions) Schon Williams, BB&T Capital Markets.

Congrats on the quarter here. I just wanted to, first off, address the guidance. It looks like you raised the bottom end $0.10 but only kept the top end, only raised it $0.05. And that comes despite a pretty big beat in the quarter, some lower guidance around kind of interest and tax.

And I'm thinking, you know, seasonally I'd maybe expect a little bit more out of the back half of the year. Could you just talk about -- I don't know, are you being conservative here? Is there any headwinds that we need to keep an eye on in the next two quarters here?

Schon, as I mentioned, our confidence is building in the year, and we are optimistic about how it's developing. But that said, as you know, JBT -- our back half of the year requires a significant amount of execution, particularly our fourth quarters, which are quite large.

But as I look at it, I'm quite pleased that we are showing strong organic growth for the Company at 5% to 6%. And we're delivering with this upgrade in our guidance a $0.075 improvement in the midpoint of our guidance, and that translates to over 20% EPS growth for the year. So from our perspective, this is really a strong guide. And we're really pleased with the results that we're delivering this year.

Okay, excellent. And then on the new sourcing manager, could you just talk a little bit about -- I don't know -- is there low-hanging fruit that he can get started on immediately? Is this kind of more of a 12 to 18 months in terms of when we'll start to see some benefit there? Just any color there would be helpful.

Sure. So the new sourcing manager is somebody I've worked with in the past. He's a very capable and confident individual, and I'm pleased to have him on our team. I would tell you that we've already started some of the work on some of the easy areas. I mentioned the indirect categories; those are things like travel and supplies that you use, MRO. And we have started to take advantage of that. And some of that is coming into our results.

But as we go into the direct category, Schon, where there's a real opportunity -- those are the steel spends, the pumps, the motors, the controls, et cetera. That's where the largest opportunity is for JBT. And that's where it takes more heavy lifting. And we are quite confident that there's going to be some nice results, giving our historic purchasing activity and the way we manage that. But we're just going to have to put the effort in to realize those results.

So it will be a multiyear pay-off, as you mentioned. We'll start to see things materialize in 12, 18, and 24 months. But it's going to be a real benefit to the Company and our margins.

And I don't want to minimalize the fact that the way we've purchased as independent business in the past has really sub-optimized our supply base and our ability to get good terms, consignment inventories, shorter lead times, things of those nature that will also come along with this project. So it's multidimensional, the benefits that will accrue to us.

And do you have a sense, just segment-wise, who benefits the most out of this? Is it AeroTech versus FoodTech?

Well, it will be similar benefits, but obviously the food spend is considerably larger. So in terms of absolute dollars, you would expect food to have a greater contribution. But you should expect similar benefits on a margin basis perspective.

And I would tell you that the Food spend was probably even more fragmented than the Aero spend, because we had more units. So there might be a little additional tailwind that comes from that.

Okay, perfect, guys. I'll get back into queue. Appreciate it.

Thank you.

Larry De Maria, William Blair.

As it relates to the FoodTech orders, I guess we can back into kind of a first-half plus 1% year-over-year organic FoodTech number. It seems a little bit light, especially with the second quarter being an easy comp. So I just kind of wondered if you guys could dig into that a little bit. Is it just -- is it mostly around timing? And how do we think about the rates of organic growth in the second half, so therefore we have some nice organic growth into next year?

Right, Larry. That's something we did mention with the timing of the orders and some of that moving out into later in the year -- that's exactly the point. We did experience 1% growth organically in the front half of the year, even with the favorable comps year-over-year. And that's why we highlighted it.

From my perspective, in close communication with the customers where we did see the orders move out, they still remain committed to the projects we're working on. It's just that the orders had not originated at the time frame we expected. And as we work our way through the back half of the year, we have a significant amount of orders to book, and we'll continue to work that.

And from my perspective, it's all around making sure our customers have all the information they require; the engineering activity is complete, things of that nature. And I don't believe any of the delays that we saw so far were to do with JBT. It was just simply our customers deciding when it was appropriate or when they wanted to make the investments.

As you know, we do make -- our large equipment sales are capital-oriented purchases for our customers by nature. So they do have some flexibility when they commit back capital. And from our perspective we'll just continue to be very diligent and work towards that.

As you point to 2017, obviously, from our perspective we do have to complete the order book as it stands in the back half of the year. But for 2016 our confidence is solid. And that's why Brian and I and the team felt confident in raising our guidance, and that's how we're moving forward, which will give us the solid organic growth that we've outlined for the year.

Okay. And some of the orders have slipped, I guess, [for] a month into the next quarter. Has anything converted yet? And with these push-outs, is it really just customer specific, or are they concerned about the market? Or anything out there to worry about -- in other words, as it relates to the market? Or I would think that some of them would have already converted so far.

Okay, so from the communications we have, there's no red thread that runs through there or any specific issue that our customers are confronting that would tell us it's a market-based issue. They were specific to the customers. And from my perspective, that's the way we see it. And for that reason, Larry, we don't believe at this point that there's a macro issue at work that's affecting the order book.

We don't comment on current-quarter activity as we ramp up. But I would tell you that my expectation would be that a number of those orders will book in this quarter. But we just have to see how that continues to develop and the projects that we're planning to close in the third and fourth quarter come to be. And we're making all the efforts we can and putting ourselves in a place to win.

Okay, thanks. And then just last question: as it relates to M&A, I know you guys have a -- I would assume you have a pretty robust pipeline; you can comment on that again if you want. But the -- and you passed on something because of price. This is price challenge more prevalent in the market now? In other words, valuations and bid/ask spreads getting wider? Or do you still see good opportunities, or should we temper our enthusiasm around you guys' ability to close M&A?

We continue to see good opportunities, Larry. And then we're maturing those. And we don't believe this is a systematic ramp-up in the pricing for opportunities in front of us. This happened to be a process that was probably looked at a bit more broadly than many of the deals JBT typically matures. So there was more competition around it.

And from my perspective, we just remain very disciplined in terms of, first, that strategic fit -- are we bringing in a company that enhances our value creation in front of the customer, in the customer's eyes? And then, secondly, as we model it out with our synergies and our thoughts around how JBT can manage a business, do we generate an appropriate return for our shareholders with the capital we're going to deploy? And we need and will require and do require those two boxes to be solidly checked before we move forward on a deal.

And the strategic fit was there on this deal. We really liked that. But as you started to model, and -- you know, we did our best work on the financials of the business, the price that was figured on the deal was higher than our ability to generate adequate return. And from our perspective, that's a no deal, and we passed. But we do have a number of other deals we are continuing to work towards. And our pipeline is rich, and we feel we can continue to get this done in a way that creates value for our shareholders.

Okay, yes, thanks. Your discipline is very good. Thank you very much. Take care.

Walter Liptak, Seaport Global.

I wanted to stick with the FoodTech business and ask about -- I think some of your comments were that protein was strong, but liquid foods I think you called out as maybe being not as strong. So I'd like to understand, because it sounds like the industry for liquid foods has been growing double digits, and I wonder if your comments were about orders or shipments, and maybe what the pipeline for liquid foods looks like?

Yes, Walt, the commentary was more around customer activity and partially as it relates to orders. But you know, we had seen and experienced in the quarter some slowdown and some specific customer activity on liquid foods. We don't believe it's a long-term or a structural change in the marketplace.

We do believe that those markets will continue to grow. But as customers put in capacity and make investments in this equipment, they do tend to get step-function type increases in their production. And as I mentioned, they make decisions around that with their capital. So from our perspective, we still remain bullish on the end markets and what they mean. And we just work with our customers to make sure we're innovating and developing the right projects to meet their needs.

As I mentioned, like, the visit to that East Coast customer -- their business was very strong. They are working on a lot of these specialty waters and organic ready-to-drink teas. And they are enjoying a great business with their end users, and our equipment is serving those needs well. And we were discussing future investment plans much more comprehensively than they'd made in the past, because they became aware of JBT's full capabilities.

So from our perspective, we do like the market. But as we look at the second quarter and just the general activity, it had slowed a bit in North America. And from our perspective that's not a long-term structural occurrence; it's just some dynamics that are relative to the marketplace today.

Okay. Makes sense. Is liquid foods something where you're expecting orders in the back half of the year that were delayed? Or is this something where just the longer-term growth 2017/2018 looks good?

It's more around the longer-term prospects for JBT. Obviously, we do have some orders we need to book -- and I want to make sure everybody understands that -- in the back half of the year, just for JBT in general. But our confidence is there, Walt, and we do see the activity.

We do see the projects we're working on. And from our perspective, it's just we had some orders slip out, and we wanted to talk about it and make sure that people were aware. But I'd also couple that with the notion that we are working on quite a few really encouraging projects, and the activity level is high; it's just making sure we're working with the customers, and they are making the investments to get those projects converted to orders. And that's where our energies are at at this point.

Okay, perfect.

We definitely remain optimistic as we look at the liquid foods market about what it means for JBT, our strong position there, and the consumer trends that are behind it -- you know, the organic nature of the liquid foods, the meal, kind of ready-to-eat on-the-go capability. All of those kind of trends are continuing to play out. So we've just got to make sure our technology and product offering fits those customer profiles.

Okay, great. And if I can ask a question about the AeroTech business and the margin improvement there: I think, Brian, you called out the military and other product mix as well as some of the RCI improvements, and I wonder if there's a way of parsing out mix versus kind of structural improvements that you have made to that business?

Yes, so more of the improvement in the second quarter was due to the mix issue. The military products and a few other activities in the quarter were quite strong that helped the margins. And if you look at the margins for the first half, about 10.5% or so, 10.4% -- I think that's a general guideline for what we're seeing in the second half. So you're not going to see that kind of 11%-type product mix impact as we go into the second half.

Okay. And when we were out visiting AeroTech a year or so ago back, it looked like there was a lot of progress that was being made on lean. Any update on how those are progressing?

Yes, Walt, absolutely. As you know, in particularly our GSE, our mobile equipment business in Orlando has taken a strong leadership position in developing the RCI initiatives. And we have seen some benefits that have shown up in our margins.

But in addition, we're just seeing better flexibility coming out of that facility in terms of meeting our customers' needs in our lead times on some of our key products. We're seeing some nice improvement in the back half of the year. So the benefits are definitely accruing to us.

And from our perspective, we have still got some work to do on the inventory and things of that nature, but we know we're on the right path. We know we're making progress, and from our perspective we like the fact that it has this duality to it, which is that it helps us improve our income statement; it improves our return on our invested capital; but most importantly, it helps us win with our customers moving forward.

Okay, great. Thank you.

Chris McGinnis, Sidoti.

Can you maybe just talk a little bit about maybe synergies from the acquisitions, maybe some of the positives you are seeing from the recent acquisitions? I know you highlighted Stork in your commentary, but any maybe numbers around what you're seeing from the past.

Chris, what I'd like to highlight -- and that's why I brought forward the example of the visit to our customer on the East Coast, it was -- sitting at that table with the customer, it was very clear to me the power that's coming together by combining these great businesses under the JBT umbrella.

So we had a customer here who is growing -- has some great end markets and customers they are providing these liquid foods to. And they are faster growing categories. And we -- really this customer came to us via the Stork Food & Dairy acquisition, where they had invested in some of the Stork technology prior to our acquisition. And when we were able to sit down, myself and the team included, and talk with this customer about the comprehensive capabilities that came together with A&B and our core fruit and juice technologies, our ability to deliver complete process systems to this customer now, our knowledge around fruit and juice purees and introducing those into their beverages, coupled with the aseptic technology we brought from Stork -- it was quite powerful.

And it made it very clear to me the opportunity and the value that's coming from our strategy on that side. And we were able to have a material discussion and talk about their future investments, and how JBT would now be able to get a larger share of that than what we would have historically enjoyed. So that was a very satisfying to me.

On the protein side, we are seeing similar things play out, where by combining our cooking, freezing, and portioning with some of the secondary knowledge that we have gathered with Wolf-tec and to some of our recent inspection equipment activity is coming together to create much more compelling value for our customers. So instead of having to independently select a number of equipment suppliers, work their way through the validation and the integration of that, JBT, all of a sudden, is positioned in a much stronger position to be able to offer them a system that delivers on their need -- for example portioning a steak, and measuring and inspecting it, and making sure that they can deliver that with a higher confidence of quality of their customer; but at the same time, deliver it in a more effective way.

So in other words, using the example of that steak, if you are able to trim it more effectively and to guarantee your weight with a higher confidence, then you don't have to give your end customer additional because you are not portioning properly. So that translates to our direct customer to higher profitability and higher margins by running our equipment. And doing that with a system, we can provide them the data and the feedback sometimes through some things like our Internet of Things in a way that gives them confidence and control, and they can provide that data to their customers.

So it's a double win for them. They come together with their customer with better data and it improves their profitability. So we are absolutely seeing the discipline around our strategic fit with our acquisitions. And offering these more complete solutions is definitely resonating with our customers.

And Chris, I would add -- this is Brian -- that when you look at the acquisition activity, it really -- having those additional facilities and businesses have helped us to formulate our optimization plan. So the activities in Europe and in North America where we have a -- be able to attack it from a more holistic view of a protein business in North America and a liquid foods business in Europe, with the Stork acquisition really allows us to do things like optimizing and engineering the salesforce, et cetera. And that's what's really helping to drive some efficiencies, not just for synergies in the acquisition itself, but cost savings across JBT as well.

Sure. And just thinking about the two different pieces of food tech with the protein and the liquids, you have almost -- or I guess a complete solution on the liquids side. Is not having a complete solution maybe on the protein side hold you back in terms of growth rate maybe? And how important of expanding that share is it to drive further growth?

Right. So Chris, just a point of clarification. Although we have been able to complete some larger deals on the liquid food side, there's still significant opportunities for us, in front of us, to round out those categories. So I wouldn't say that we've reached a point where we've absolutely maximized that full systems approach on the liquid foods side.

But looking forward, in a perfect world, our preference would be able to do a little more on the proteins than the liquid foods to balance our portfolio. And we certainly see opportunities on both sides, and we are working towards those. And with protein, from our perspective, it's not just completing the -- if you think about our M&A chart, just filling the boxes, but there is the multidimensional nature of that. There is seafood, chicken, beef, pork.

On the liquid food side, you move across from teas to dairy-based beverages, to juices. So there's that multidimensional aspect there also. So there's lots of room for us to run. And from my perspective, you should expect us to continue to do deals on both sides.

Okay. And then lastly, just on the aftermarket, has there been a change in the way you are going to market? What's the biggest driver of that kind of increase that you called out in the release itself?

Sure. In the last two quarters, we've enjoyed strong aftermarket contribution to our results. Certainly we believe it's a result of the next level of investments we've made in additional engineering, additional supporting people inside the businesses, and then the additional sales resources, Chris.

But I would tell you that from our perspective, in the first quarter, it was interesting -- it was more of the top line. We just saw some more projects, and that drove that in the first quarter. The second quarter, interestingly enough, there was a strong aftermarket but we saw more margins. And that has to do with the mix of the kind of projects we are working on in the aftermarket. Not all aftermarket opportunities are created equally.

So certain things -- certain kind of parts, mix of parts or rebuilds are more lucrative than others. And from our perspective, we are just really encouraged to see the aftermarket coming through and helping JBT improve its performance, given the strategic focus we put on that. So it's confirmatory of our desire to grow that and invest behind it.

Great. Thanks for taking my questions.

George Godfrey, CL King.

Very nice job in the Q2. I just wanted to dig in a little bit more on the revenue guidance and the 16% for the full year. If I look at what the first-half 24% growth year-over-year -- first half compared to last year -- and I look at what the guidance implies for second half, it seems like there is a pretty significant deceleration on the top-line growth rate. And I'm just wondering if that's tied to the delay in orders, or if you are seeing anything there?

No. What I would tell you George is that the second half of last year had a fair amount of the acquisitions already baked into it. So the moderation in the back half is because you don't have that big impact from the acquisition. So that 24%, first half of this year versus first half of last year, quite a bit of it was from the acquisitions.

So we still see organically 5% to 6% growth in both AeroTech and FoodTech this year. And we did see strong growth in the first half. It moderates a little bit, but part of that is we had a really particularly strong second half last year. So that's really kind of how the math works on that.

Okay. And the 5% to 6% growth; I think you called out in the press release though a double-digit organic growth in FoodTech orders. So some of those orders could perhaps get pushed out into 2017, the realization?

Yes, part of them could go into 2017.

Right. Which is what we would expect. It's not that those orders we booked are pushing out in the order book. It's just that as you know, George, a lot of the orders we booked are for 6 months or a year out. So that's not unexpected.

Okay, got it. And then just looking at the delta of GAAP versus non-GAAP, $0.20 on the first half. It looks like it's annualized into $0.40 versus GAAP and adjusted earnings. As you look out to 2017, do you have any idea what you think the adjusted versus non-adjusted earnings would be, relative to one another, or do you think they converge?

At this point, we are only sticking to the 2016 guidance. As we get into the back half of the year in November, Investor Day, what we perhaps will give you some general guidance in 2017. But as we sit here today, we are not giving guidance for 2017.

And I can respect that. I was just thinking you must know what the amortization or restructuring charges are as you go into the next year. So I'm just trying to get a sense of what that GAAP versus non-GAAP delta is.

Yes. So the $12 million to $13 million of restructuring -- sorry, $11 million to $13 million of restructuring charges this year; so, the expense of that will, on this particular program, is expected to predominantly if not all hit the income statement this year. The cash will get paid out over the course of this year, and a little bit into next year over the course of several quarters.

And then you start to see some of the benefits of that roll in here in the second half of the year. And we actually saw a little bit of the benefit in the second quarter. But then again that incremental $4 million of benefits from the optimization program you'll see in 2017, and then another $1 million in 2018. But the charge itself is effectively all this year.

Got it. And then just my last question, just thinking about future years and periods. If I look at the cash flow from operations first quarter, second quarter versus last year, or in prior years -- and I heard your comment about getting ready for a big second half.

Is this something we should expect in future periods, that the cash flow could be breakeven, $200,000 in Q1 and $500,000 here in Q2, versus a much higher net income number? Is that a pattern that we should expect in future years?

I'll tell you, generally speaking, the first half of the year does have more inventory build compared to the second half. We do create more cash flow in the second half. That said, we did use more cash in the first half than prior-year. And talking through that a little bit, if you look at our inventory on a FIFO basis, it's up about 16% versus June of last year. And, meanwhile, our revenue is up for the first half, 24%. Our backlog is up 36%.

So we did -- we have a lot of activity in support of a really strong second-half here. So that is generally driving it a little bit more than it might normally. I will say that the efficiency of that inventory activity in the first half is not totally satisfying. There are particular areas and businesses that do need to improve, and we'll see that improvement in the second half.

So, I would say, first half, a little bit less efficient than we otherwise would want this year. But overall, our first half would generally be more of a cash user, and the second half would be a cash generator.

Okay, thank you very much.

(Operator Instructions). Jason Rodgers, Great Lakes Review.

I wonder if you could discuss any new products on the food side that have been especially successful versus the competition, as well as maybe some commentary around the new product pipeline?

I'd like to highlight a couple of products. I'm reticent to discuss some more specifically against the competition. But we had a couple of meaningful new product introductions this year. We've launched a blade portioner which really rounds out the lower end of the portioning world. We've always been the high technology, high-capacity provider with our waterjet portioners and our advanced scanners. And we are able to take that learning and develop a much more compelling, higher-value blade portioning solution that rounds out the market for us. And we are getting a lot of positive feedback from our customers on it.

We are in our early field trials, and we will expect to start booking some commercial orders as we end the year. And it will certainly be accretive to our revenues for the following year.

Secondly, on the cooking side, we've introduced what we call our new Twin Drum Oven, which is an oven that has a number of benefits versus some of the traditional technologies and the competition that's out there. We are able to maintain temperature gradients more effectively in our oven, and the humidity levels. And what that means from a layman's perspective is we're able to cook the product more reliably but also increase the yield. Because the humidity levels in the oven determine the net weight of the cooked protein.

So by doing that more effectively, we are able to increase your yield, which means we are able to sell the oven for more competitively for a higher price, or for a better position against the competition. And we've seen some nice sales on that, and we started the blade portioner in the US. We started the oven in Europe. Our two engineering areas of strength; and those -- both those products are hitting the marketplace with good success, and we are early days on that.

That said, the food industry moves slowly. And we were encouraged by the feedback we are getting by the customers. But as you launch these new products, it really is a multiyear annuity. And we'll see those sales grow from year one to year three, four, five, just because of the way the industry moves slower -- slowly embracing new technologies.

But the common piece that runs through both of those is that the designs were put together and developed around the state-of-the-art with the competition, and our ability to deliver better economics for our customers by using our equipment. And very much an ROI selling, not a price of our equipment selling. So, designed and developed to support our value selling input -- our value selling approach to our customers. And it's great to see that our engineering team was able to deliver the value. And our feedback from the customers so far is that they are embracing the value in terms of their acceptance in the marketplace.

So we are really encouraged by those. And we have a number of other projects underway, products under development. And we'll continue to work those as we invest both on the food and the aero side.

That sounds good. Also, would you provide some detail on the ERP system implementation and the planned timeline for that?

Sure. For 2016, right now we are very much involved in the development of the platform that will be applicable to all of our businesses that ultimately get on the platform. So, we will begin our first true implementation in the fourth quarter, and we'll see that implementations over 2017 and 2018. And with some of the acquisitions, it could go beyond that. But we are really in the development stage; and again, the first true implementation here in the end of the year.

And then, finally, are you running up against any capacity constraints? And what is the estimate for CapEx for 2016?

From a capacity perspective, we don't have any issues as we sit here. And I can tell you from a CapEx perspective, we are looking at about $40 million for the year.

Thanks very much.

George Godfrey, CL King.

Thank you. I just had one follow-up. Tom, you were clear that the orders on the FoodTech side were delayed, not lost. And you can see some of those close in the second half of this year. I was just wondering if there was any commonality on the reasons customers gave you on why they were delaying those orders?

George, no. As we had mentioned, they were customer-specific decisions that were made. There wasn't any trend in the marketplace or a macroeconomic issue they were pointing to. It was just investment decisions, readiness of their facilities; their capital budgets, and whether it's the end of a current year or a new year. Those kinds of things.

Got it, that's great. That's exactly what I was looking for. Thank you very much.

Walter Liptak, Seaport Global.

I wanted to do a follow-up on that capacity answer that you gave. And primarily you have talked in the past -- and I think on the call you talked a little bit about throughput in the factories, and your revenue came through better than expected. I wonder if you could give us an update on how your factories are doing in terms of turning orders into shipments.

Sure, Walt. We look at a productivity metric, which is dollars produced as a function of labor hours. And for both businesses we saw some nice improvement in productivity year-over-year, as we looked at the second quarter as our production started to ramp up. And that's very encouraging for us. So that indicates the initiatives we are taking on lean, and things you've been seeing in your visits to our facilities, do allow us to leverage our people and facilities better.

And quite simply, we haven't seen any significant barriers to our ability to support the growth with our current footprint. And as Brian mentioned, as we made acquisitions, we've been able to better position ourselves to win going forward.

So for example, with the Wolf-tec acquisition, we moved our AGV production into that business to better support our future growth. Because Wolf-tec had an exceptional state-of-the-art facility, and it was better than what we currently enjoyed. And that allowed us to optimize our facility better for the AGV business with respect to engineering and development, while leveraging the Wolf-tec production capability.

So from a JBT perspective, we constantly test ourselves and say hey, do we have an appropriate capital structure? Are there opportunities to improve it? And certainly, the lean and RCI allows us to make better use of our facilities without having to make investments to support the growing business we enjoy.

Okay, great. Are there any step functions that you can think of that would reduce lead times? Or is this an ongoing (multiple speakers) will be out the next couple years?

It's an ongoing improvement. But one of the things I did mention, one of the areas we do see as a real opportunity, Walt, is our supply chain. Many times, our lead times are determined more by our suppliers then JBT's capabilities itself. So, we purchase some fairly specific pieces of technology on the outside. And because we don't have these deep and broad relationships across JBT with our suppliers, sometimes they quote us significant lead times; and also, minimum order quantities, as you can imagine, right?

So both of those play against us in our current situation. So one of the things that we've got dead center in terms of our sourcing initiative isn't just pulling those spends together to get lower prices, so to speak, from our suppliers; but equally important, to get the best suppliers who will offer us shorter lead times, will offer us, in many cases, consignment inventory where we can pull on that immediately to eliminate that lead time issue. Or at a minimum, have more focus on us and a willingness to be more flexible and shorten up their lead time to us, which is quite critical to our delivering a complete system in a shorter lead time.

Okay. That sounds like a great focus. Thank you.

There are no further questions at this time.

I will now turn the call back over to Mr. Tom Giacomini for closing remarks.

Well, we certainly appreciate your time and interest in JBT and look forward to talking to you again next quarter. Thank you all for joining us today.

Thank you, ladies and gentlemen, for your time and participation. This concludes today's conference call. You may now disconnect.