JBT Marel Corp (JBTM) 2017 Q1 法說會逐字稿

Good morning, and welcome to JBT Corporation's First Quarter 2017 Earnings Conference Call.

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

(Operator Instructions)

I would now like to turn the call over to JBT's Director of Investor Relations, Mr. Jeff Scipta, to begin today's conference.

Thank you, Carol.

Good morning, everyone, and welcome to our first quarter 2017 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 and on our Investor Relations website.

Now I'd like to turn the call over to Tom.

Thanks, Jeff.

JBT got off to a strong start for 2017 with a solid first quarter performance.

FoodTech orders were robust, and we are on track to achieve the operating income gains we projected for full year 2017.

I'll let Brian provide color on our first quarter performance and update our guidance for 2017, then I'll follow with some details on the implementation of our Elevate strategy and provide some further comments.

Brian?

Thanks, Tom, and good morning, everyone.

JBT's revenue increased 29% in the first quarter composed of 16% organic growth and 13% from acquisitions.

This exceeded our expectations as we enjoyed strong shipments of protein equipment within FoodTech and fixed equipment within AeroTech.

Additionally, we saw some shipments that had originally been expected for Q2 move into Q1.

On a segment basis, FoodTech posted revenue growth of 36%, including 17% organic and 19% from acquisitions.

AeroTech posted revenue growth of 14%, all organic.

JBT's adjusted EBITDA improved 30% versus prior year's adjusted EBITDA.

Segment operating profit increased 10% year-over-year while segment margins declined 150 basis points, primarily due to transaction and integration costs as well as purchase price accounting associated with the 3 acquisitions.

Specifically, the acquisitions added $34 million of revenue in Q1 2017, but no operating income contribution, reducing overall segment margins by approximately 100 basis points.

FoodTech's segment margins were also impacted by a less rich equipment sales mix versus a year ago, particularly within our liquid foods business.

Similarly, as it relates to AeroTech, we had a stronger mix of shipments of fixed equipment, which tends to carry lower margins than mobile and military equipment.

Inbound orders were ahead 18% versus the first quarter of 2016, with a 43% increase at FoodTech more than offsetting a 29% decline at AeroTech.

On the FoodTech side, customer engagement remains solid.

In AeroTech, we have a clear line of sight on orders and remain confident in its full year performance.

In total, JBT backlog is up 4% from Q1 2016.

First quarter corporate expense was $9.2 million versus $10.4 million in the year ago period.

The reduction was primarily related to lower variable compensation expense.

For the year, we continue to expect corporate expense to be just under 3% of revenue versus 3.2% in 2016.

As discussed last quarter, JBT booked a discreet tax benefit, which totaled $5.8 million or $0.19 per share in the first quarter associated with new accounting tax rules on stock compensation.

This was included in reported diluted earnings per share of $0.58.

In the first quarter of 2016, GAAP EPS was $0.17 and adjusted EPS was $0.34.

Our tax rate excluding the discreet item was 30.8%, and we continue to expect a rate of 30% to 31% for the remainder of the year.

Cash flow was strong in the first quarter with cash flow from operations of $24 million compared to $0.2 million in the prior year quarter.

This reflects seasonal accounts receivable collection and inventory investment cycle, coupled with strong customer deposits.

We remain confident that 90% of our net income from continuing operations will convert to cash in 2017.

During the first quarter of 2017, we completed a follow-on equity offering, issuing 2.3 million shares with net proceeds of $184 million.

Prior to the offering, our leverage, as measured by our banks, stood at about 3.2x.

With the offering, we reduced that leverage and we are now at the lower end of our target range of 2x to 3x.

This provides JBT strong liquidity and the capacity to continue our disciplined acquisition program.

The equity offering reduces our interest expense.

Previously, we guided to full year 2017 interest expense of $19 million to $20 million.

The current guidance is approximately $14 million.

That is up from $9.4 million in 2016, due to financing for the C.A.T., Tipper and Avure acquisitions.

It also reflects our expectations to additional Fed rate increases during 2017, impacting our variable rate debt, which represents about 40% of total debt.

At the same time, the equity offering increased our share count, resulting in modest dilution to EPS.

We are now guiding to earnings per diluted share from continuing operations of $2.95 to $3.10 in 2017.

On an operating income basis, we expect to achieve our full year prior guidance.

We have raised our full year revenue growth from forecast to 16%, reflecting higher organic growth of 4% to 6% versus prior guidance of 3% to 5%, with growth from completed acquisitions of 11%.

We are also adjusting our projected segment operating margin to increase 25 to 50 basis points compared with the previous guidance of approximately 50 basis points.

The 2017 guidance continues to include the discreet $0.19 tax benefit we enjoyed in Q1 and a headwind from the Avure acquisition of about $0.05.

For the second quarter of 2017, we expect revenue of approximately $380 million and earnings from continuing operations of $0.50 per diluted share.

This includes the previously mentioned impact from certain accelerated shipments into Q1 and the construct of our backlog, which is more weighted towards Q3.

Q2 segment operating margins are expected to increase over 100 basis points sequentially.

This includes continued acquisition-related items and unfavorable product mix, similar to the first quarter of 2017.

Acquisitions will contribute approximately $45 million in revenue in Q2 with operating income margins of about 2%.

For the full year, we continue to expect the acquisitions to collectively contribute $0.08 to $0.17 per share.

Due to the associated interest expense and other acquisition costs, they are expected to be dilutive in the first half and nicely accretive in the second half, in line with our full year expectations.

Overall, for full year 2017, we expect earnings to be more back-half loaded as mix improves and the acquisitions contribute more fully.

The third quarter is expected to show solid improvement versus the second, followed by the typical seasonal increase from the third quarter to the fourth.

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

Thanks, Brian.

Entering 2017, we began implementing our Elevate strategy: JBT's 3-year framework to achieve annual revenue growth of 10% and annual EPS growth of 15%.

We are managing Elevate the same way we did our successful Next Level strategy with a disciplined process.

For each of our initiatives, JBT has established specific objectives and deliverables with monthly summaries and detailed quarterly reviews of each initiative with the business champions.

With this system, JBT maintains accountability and ensures progress towards its goals.

One of the initiatives discussed as part of Elevate is our strategic sourcing program.

We see significant opportunities to negotiate as ONE JBT and consolidate our purchases with fewer, stronger suppliers, yielding 2% to 3% of annualized savings by 2019 on approximately $600 million of spend.

In April, JBT hosted a supplier summit in Chicago for a select group of supply chain partners.

We had 80 suppliers from the metals, electronics, MRO, fabrications, power transmission and other business segments within our supply chain.

As part of the summit, cross-functional teams from multiple JBT locations collaborated with suppliers to uncover ways to minimize costs, lead times and working capital requirements.

We also explored ways to reduce complexity in our products and business processes and to support new product development through early engineering engagement.

More than 150 unique value creation ideas were generated, representing benefits JBT's total cost of ownership and the value proposition to our customers.

JBT's strategic sourcing team is in the process of pursuing these opportunities.

Overall, it is our intention for the strategic sourcing program to deliver improvements in our competitive position, margins and working capital.

Switching gears, let me mention the progress at our AGV business, which provides Automated Guided Vehicles systems.

We're enjoying rapid growth and a strong order pipeline.

In the first quarter, we booked a significant order from a leading high-tech company.

We are particularly excited about this order, which we see as a validation of our technology in the marketplace and our enterprise selling strategy.

Finally, I'll comment on our recent acquisition of Avure Technology, which we completed in the first quarter of 2017.

I've had the chance to visit with customers since the acquisition and discuss Avure's high pressure processing technology, known as HPP.

We're seeing real interest in HPP, which creates opportunities for our customers to develop food products that address consumer demand for clear labels.

And as we discussed today, we are pleased with the record orders at FoodTech in the first quarter, and we are expecting strong AeroTech orders as we move forward in the year.

For the remainder of 2017, we have a second quarter with sequential margin improvement and remain confident we are progressing towards our year-end objectives while continuing to strengthen the business for the long term.

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

Operator?

(Operator Instructions) And your first question today comes from Allison Poliniak from Wells Fargo.

Just want to touch on the orders.

Is there -- could you give us a little color, help us understand the core order trends in the quarter?

I know they're very strong in FoodTech, but just trying to get the sense of the underlying trends with the core business.

Yes, sure, Allison.

Let me give a little color.

We usually like to talk through it a little bit by geography.

And I'll tell you, as we look at it, it was a really strong order book.

It was strong in record, as we mentioned.

And both organically and for acquisitions, very solid.

But as we look at the geographies in FoodTech, North America significantly improved for liquid foods where we had seen some weakness last year and remain strong for protein.

In Europe, the liquid foods activity was also strong and protein tapered a bit.

It wasn't that the project activity slowed down, we just didn't have as many orders show up as we would have expected in the period.

So we'll expect to convert some of those as we move forward in the year.

Asia was very strong for protein in particular and continues to be strong.

And South America, with some of the challenge we've seen, particularly in Brazil, was a little weaker than it was last year.

So altogether, the geographies are looking positive for us.

South America is not a large part of the business, but we do expect to see that moderate through the year also.

Great.

And I guess any -- going back to Europe, just any concerns on that protein business tapering there?

No, it was order activity, and we see the projects.

And I think, just some of the things, once again, with all the election activity, we had saw some of this when the U.K. and Brexit was going on.

I suspect with France going through, what we're seeing, that always affects our customers' investment plans a bit.

But it seems like things are settling in a bit, and we're comfortable and confident that the project activity we have in front of us and the customer engagement that's going on is going to provide us the order activity we need to get through the year and deliver on our results as we see it today.

Great.

And then just lastly, how much of the orders are newer here that you booked in the quarter are to be shipped this year?

Or they bleed into 2018?

Yes.

Particularly related to FoodTech, I would say, essentially, all of them will be shipped this year.

And then with AeroTech, the order book is a little bit longer, but most of them will still be shipped in the current year.

Your next question comes from Larry De Maria from William Blair.

I want to talk a little bit about, I guess, the mix issue.

I guess, why was, I guess, a surprise, assuming it was a surprise?

And does that have anything to do with pricing dynamics?

Or can you just flush out the -- what's going on with mix a little bit more, first?

Yes, Larry, when we got into the year, this is certainly in our thinking.

And what's happening is, as you know, we have these large equipment projects.

And particularly in liquid foods, we had some particularly high margin ones last year that made for difficult comparables.

And as we go forward and we're seeing our project and order activity develop, we see and are gaining the confidence in the back half of the year that our mix will become more favorable as some of the new projects that have higher margins that have come in.

So from our perspective, the sequence of the quarters is similar to what we expected.

And for us, it's just about completing our order book and executing well on that in the back half of the year.

So it has nothing to do, in other words, with pricing dynamics in the industry, anything like that?

No, we don't believe so.

It was just that we can -- when we look inside of it, we saw some specific projects we had with customers that were particularly profitable and around some of our liquid foods technologies and we see some of that project activity developing for the back half of the year now as we move forward.

And then can you maybe just -- I know you don't always give exact organic numbers, but help us order of magnitude organic versus inorganic in FoodTech?

And related to that, what gives you the confidence that we will see a nice profit recovery in the second half?

Is it mostly what you see in the order book?

Or is there anything else going on as well?

Sure, it's a two-part answer.

The organic orders were very strong, Larry, and we're very pleased with what happened there.

Secondly, when we see what's in the order book now and the projects that we have closer at hand, that's what's giving us the confidence as we look forward into Q2 sequential margin improvement and then a significant step-up in 3 and 4, given what we have in front of us.

So as we sit here today, as we mentioned, our confidence is high on that.

Your next question comes from Mig Dobre from Baird.

I'm going to try the same thing as Allison and Larry here.

I'm trying to figure out how to think about organic growth in FoodTech vis-à-vis your broader company guidance given the kind of order growth that we have seen in the first quarter.

Can you sort of help frame this for me?

Well, sure.

As we've indicated, we raised our organic growth expectations for the full year.

That's on the strength of the orders that we converted in the first quarter and what we see happening with customer activity.

And certainly, FoodTech's an important part of that.

And as I look forward, Mig, we're just really encouraged by the activity we have with our customers and the new products and work we're doing in the marketplace all coming together.

And as I mentioned, when you look at the geographies with North America remaining strong; Asia, which is a good growth engine for us, continuing strength; and Europe improving for liquid foods, there's just a lot of markers heading our way that give us the confidence to do that.

I see.

Well, maybe put differently.

If we're looking at your guidance, 4% to 6% organic growth, at the low end, that basically implies sort of flattish organic growth over the next 3 quarters, and I get it that comps are varying.

I guess, I'm just wondering, is there any scenario that you can think of where organic growth would be flattish, Q2 through Q4, based on what you're seeing in your Food business?

What I would tell you is that the -- with the way we look at the back -- at the last 3 quarters of the year, it's in that 3%-ish growth range.

We obviously outperformed in Q1, and we do tend to always look at it on a full year basis.

So we do still see a decent growth at -- in that 3-ish percent range in the back half.

And obviously, the order book was very strong in the first quarter.

And as the orders progress over the course of the year, we'll continue to keep an eye on that, what folks have [ billed ] during the course of the year.

Right.

And the other thing that I always like to mention as we enter the first quarter with JBT, we got off to a great start and the indicators are positive.

And all I would say is that, as you look at how typically our year develops, Mig, Q3 and 4 are quite large.

And as Bryan and I go through this process, we are always sensitive to that.

And all the indicators are very positive in the right direction, and we're just focused on executing against those large Q3 and 4 as we move forward.

And as Brian mentioned, as we get further resolution through the year, we'll make sure we provide appropriate updates.

But at this point in the journey, we're very encouraged by the order activity that came in.

We mentioned that we expect Aero to be strong with orders going forward also.

And so far, from our perspective, things are shaping up well and that's what gives us the confidence to raise that revenue guide, which a big part of that is organic.

I see.

Then if we can talk a little bit about margin, too.

First, I wanted to make sure that I clearly understand the puts and takes to your slight adjustment to your overall margin guidance for the year.

And then also related to this, can you talk a little bit about your costs?

Obviously, we're seeing raw material cost move higher.

How does that flow through your P&L?

Yes.

So with regard to the margins.

Really, what we're looking at is -- prior guidance, it was about 50 basis points.

And at the midpoint of the guidance is 37.5 basis points, and that's just getting the fuller visibility of where the backlog is concerning Q1 and Q2.

So with the orders that have come in and we just have much better visibility on that mix, so we've adjusted it appropriately.

And then I'm sorry, what was the question with regard to material cost?

Yes, raw material cost and compensation, and whatever else you have, in terms of inflation?

Yes.

We've been talking through that and we have seen some pressure in steel, although it's not a large portion of our cost picture, Mig, except -- with the exception of our fixed equipment, and we certainly have tried to incorporate that thinking in our pricing and be protective and working with our customers.

But I would tell you that, as we work our way through this, our pricing or our customer value program, we obviously look to make sure we recover that.

And then secondly, as I mentioned and described on the call, we have a significant supply chain activity underway and that's going to bring benefits to JBT, not just in the short term, but in the mid to long term over this 3-year runway.

And this is the first time, as a company, we've really collectively gone to work on our purchases, try to align our supply chain, fewer, stronger suppliers, better economics and helping us with our balance sheet in terms of helping with inventory and containment.

And then last, a big part of this, we've mentioned in the past, one of the issues that we have in the marketplace is because of this complex nature of our products, we tend to have significant lead times.

So by working more closely with better suppliers, we should be able to get our purchases in more quickly, which will help us be more competitive on our overall lead time.

So a significant amount of energy underway on supply chain, lots of opportunity going forward.

And from our perspective, we still feel the calculus is more positive than negative given the inflationary pressures on cost.

Your next question comes from Chris McGinnis from Sidoti & Company.

I just want to focus maybe on the past acquisitions.

I think now you have 6 that's over a year old in terms of when they were acquired.

I was wondering if you can just dig in terms of how the synergies are playing out in terms of maybe more so on the revenue side as you've had a lot of time in those acquisitions to integrate them.

Yes, thanks, Chris, for the question.

We really are seeing the benefits.

When we started this journey on M&A, we felt there was a benefit to JBT having a broader and more complete product offering and our ability to take these regional customers -- competition, excuse me acquisitions, and put them on the global stage, and we are definitely seeing the benefits of that.

We can point to a number of orders we received for our acquisitions that wouldn't have occurred if they had been standing alone.

And particularly in the global setting, bringing those acquisitions in Asia, Latin America, has been a significant tailwind for them.

Acquisitions wise, we've worked very hard and in a very strong way to integrate these quickly, and we've spent behind that and we've gotten benefits from it.

And although we maintained the brand names in the marketplace because they have equity, we are collectively selling those products out in the marketplace and offering a much more comprehensive JBT capability.

So the liquid foods, because we did a little more earlier, we're strong there.

Some of the early protein acquisitions are also well integrated.

And then now, we're knee-deep and working away on the 3 that we have today and we've dramatically improved our presence in protein.

It was very obvious when we went to the Poultry Expo earlier this year, how much more of a significant player JBT is in the protein marketplace and poultry, and we're very encouraged by that given the long-term trends when you read the newspapers and the magazines today with consumers becoming more and more sensitive to what they eat and the quality of what they eat.

They're just really moving more to protein, and that's a great trend for JBT as we go forward given the acquisitions we've completed.

Great.

And then secondly, just following, just the recent secondary and your thoughts around continued M&A opportunities in the space?

Yes, we continue to work our pipeline and develop our opportunities.

As you know, they're episodic.

But JBT has strengthened its balance sheet, as Brian mentioned, and we're in a good position to act on our opportunities should they mature.

And we are out both on the protein and liquid foods side, developing and maturing our opportunities and are working as hard as it -- at it as we have in the past.

So there's a lot of engagement in the company going on there, and we expect to continue to work at it.

Our next question comes from Joel Tiss from BMO.

I just wonder, like maybe a little more specific on what exactly you guys doing beyond the purchasing on the integration of acquisitions and are you discovering any real positives or negatives in terms of the customers, what the customers are seeing.

I guess your product line-up continues to strengthen.

And -- but just having these new products in there, is it really leading to kind of more momentum?

Or is that going to take a little while?

Thanks, Joel.

A little bit about our integration program.

We do the planning well in advance of completion of the acquisitions, and we have a detailed plan by week initially, then month and quarter as we move forward.

And we hold ourselves accountable to that, and there's a significant amount of activity underway on the 3 acquisitions for the integration.

I would tell you that we are absolutely seeing benefits to JBT having a stronger, collective offering.

Our customer awareness has increased.

The number of high-level management meetings we're having is higher than we had in the past as we become a more important supplier.

Our ability to understand more strategically where our customers are heading, and the benefits that are coming from that has been real positive.

Although we have, historically, a very broad and wide customer base, there have been a few pleasant surprises of customers that the acquisitions have brought us that JBT didn't have a long or as maybe a completed history with.

So that's been a bit of a pleasant upside.

And then most recently, as I mentioned on Avure, which was been a very interesting acquisition because of 2 reasons.

One, it's a pretty much equal parts protein and liquid foods.

And then secondly, because it's a technology that really enables these clean labels and extended fresh foods that are an important part of the customer base.

It's been really encouraging as we engage our traditional customers.

In many ways, when I've met with them and when our key sales people have met with them or technical people, they've all asked for download, tell us about HPP, what could this mean to our business, how should we think about this.

And those are really interesting discussions and important ones for us as we go forward because we do expect that to be a nice and -- nicely growing company and expect it to grow, as we mentioned, above market rates.

So from my perspective, that was very encouraging validation of the reason we've acquired Avure.

So altogether, the position of JBT in the marketplace by virtue of our acquisition program and the work we've done on new products and improving our sales and service organization has really elevated our importance to the industry and the awareness around JBT.

And I'm comfortable and confident that if we -- we're going to continue to work at that and become an even more integral, important part of the industry moving forward.

That's great.

And then is the acquisition pipeline -- I don't know if this is really the right way to ask it, but you'll know what I'm asking after I finish.

Is it getting a little more crowded?

Because it seems like you're kind of bumping up against the edges of other companies who are in this sector and -- like a Middleby or something is moving in a couple of different directions, and it seems like people are kind of starting -- they're just starting to move into each other's territories.

Is that -- are you seeing that in the market or not really yet?

Yes, Joel, what I would tell you, the space is really broad and -- so there's lots of opportunity.

There's -- it is an attractive industry to many, and we do see competition on all the deals.

I would say, private equity is particularly interested in the space based on the cash flow profile of the businesses.

But I would tell you, based simply on the size and the breadth of the industry, relative to where JBT plays, I think there's plenty of opportunity for us to pick our spots where we think we can have the most value to our customer.

Our next question comes from Walter Liptak from Seaport Global.

I want to see if we could just drill down a little bit more into some of your comments about the M&A cost in this quarter and the integration costs and how much flow-through and an estimate next quarter, how much is going to be flowing through and impacting the FoodTech business.

Yes.

So the way to think about it, Walt, is I mentioned that we had $34 million of revenue in the quarter, first quarter, for the acquisitions and about $45 million in the second quarter.

And I also mentioned that margins in Q1 were basically 0 and about 2% in the second quarter.

And then you got the interest expense impact as well, which basically makes these acquisitions dilutive in the first half.

But if you think about that $34 million in the first quarter and with the 0 margins, you would normally expect something in the 10% to 15% range.

There is a delta there that will ultimately flush out in the back half of the year.

So it's very impactful because not only you're not getting the positive impact, you're basically getting all those costs really depleting your -- what you otherwise would have been operating margins.

So it's really -- it's that integration cost, inventory step-up.

And frankly, that's why we're focused on that full year guidance because it's really hard for everyone to see, and we recognize that.

But as the quarters progress, it gets significantly more accretive as the year goes on, as you get -- it takes about 6 months or so to really get through all those acquisition-related costs.

And I'll reiterate that we had forecasted originally $0.08 to $0.17 contribution for the year, and we're still very confident on that.

Okay, that sounds great.

So it sounds like, at the low end, maybe $4 million to $5 million and then maybe similar amount in the second quarter.

The -- as you think about these last acquisitions and you kind of alluded to this in some of the other calls, are you seeing growth from the acquisitions that's faster than you expected when you did the deals?

Like are we in a market where your strategy is, plus the market growth or helping your organic growth from acquisitions?

Or are they coming in as planned?

Yes, Walt, I'd say the most positive part of the acquisition program has been how, as we work collectively, our conversion rate and maybe the breadth of the orders we're seeing in our core business has definitely improved as a result to the acquisition.

We know there's specific projects because we offer the stronger, more collective offering.

We're getting better orders and what I would've described to our historic base business.

As you can imagine, as you get 6 months or a year or 18 months in, those numbers get harder to parse.

But when I look into the specific projects we're working on, the customer engagement we're having -- we're working -- we're having as we look at our collective offering, I see better conversion also benefiting in our base business.

So I'd say it's a two-part benefit.

And I'd say that the way they've helped our base business, it's been a pleasant surprise and probably better than what we would've initially expected coming out and starting this acquisition program.

Okay, that sounds good.

And then maybe for a last one, I wanted to ask if the order book in FoodTech organically looked pretty strong to me this quarter.

And I wonder if there's any very large orders that came in.

I know you said it was kind of broad-based geographically.

But on a customer basis, are there any large customer orders that were lumpy this quarter and helped that strong organic order growth?

As you know, we get a continuum of orders, Walt, some are large and some are less than $1 million, but I'd say there wasn't anything extraordinary large or that was particularly outstanding.

I would mention, on the AGV business, we were pleased to get that order from a real leader in the high-tech industry and one that really validated some of the improvements we've made in that business.

And then on liquid foods, we did have one nice order that, in particular, was encouraging to us because it's in front of a new beverage trend that a lot of consumers are excited about.

So the position of the orders was positive and was similar to last -- similar to what we've seen in prior quarters, with 2 that were pretty strong, but nothing of an outsize nature that would make things different or not comparable.

Your next question comes from George Godfrey from CL King & Associates.

I just wanted to drill in on the organic growth rate or the forecast for the year a little bit more.

I realized you took it up from the range of 3% to 5% up to 4% to 6%, and I heard what you said about the AeroTech orders coming back a little bit stronger.

So the forward guidance, we incorporate a 3% to 4% growth in AeroTech, is that correct?

Yes, it's in that 3% range for the back half of the year, yes.

Okay, yes.

And so if I look at FoodTech, the organic revenue growth this quarter just for that segment, was that about 17%?

Yes, that's right.

So what I'm struggling with is the forecast of 4% to 6% for the full year, if AeroTech is going to be 3%, we came into Q1 with 17%, it just seems like -- that seems overly conservative.

And I wanted to go back a little bit for the third quarter of '16 when you forecast 7% -- I believe it was 7%, correct me if my numbers are wrong, 7% full year organic growth and the number actually came in at 9%, which 2 percentage points is a pretty big difference.

So I'm wondering, is there some type of element here that the organic growth in the back half of this year could be significantly higher than you're forecasting today?

Yes, what I would tell you, when you look at the quarterly mix, so the first quarter is always the smallest in terms of dollars, so $1 impact in Q1 year-over-year, that 17% growth, is a much smaller impact on subsequent quarters.

So the back half is really extraordinarily strong relative to the first half.

And so I think a lot of it is just kind of the way the -- it rolls out over the course of the year.

And we mentioned the Q1 numbers -- sorry, the Q2 numbers relative to the Q2 of last year will be relatively modest, but with really strong pickup in the back half.

And then as I said earlier, as we get more visibility into our backlog and orders during the course of the year, we'll get better visibility.

Just keep in mind, the -- it is always -- this is very lumpy business and sometimes we really struggle to know exactly when something's going to ship in the last half of the year, is it going to go into January or not?

And that can change revenues by $10 million, $15 million, which is 1% or 2%.

Okay.

But I mean the orders look great, the rolling 4 quarter book-to-bill in FoodTech look outstanding.

It's just everything would seem to point to a more robust growth environment, but I trust you at your word.

Okay.

Yes, George, just following on Brian's comments, I agree as we've got a couple of big quarters ahead and we're encouraged by the progress.

And from my perspective, as we continue to see things develop, we'll certainly look to update everyone.

But as we mentioned, it's off to a great start in the beginning of the year here.

Our next question comes from David Stratton from Great Lakes Review.

I just wanted to make sure I'm understanding this correctly, and that is, for 2Q, you're forecasting EPS to be off -- for -- to around $0.50 a share, and that is because of the acquisition, dilution and related costs and step-ups.

Am I understanding that correctly?

Yes, it's that along with the product mix.

So there is a portion that is from the acquisition that is negatively contributing, particularly when you consider the interest expense from the monies we spent over the last few years, but not getting really any operating income.

And then there is an impact year-over-year in the product mix, which Tom talked about earlier.

All right, I just wanted to make sure I got that right.

And then secondly, we've talked about -- you're now in your target debt ratio range and we've talked about M&A.

Is there anything on the CapEx side that is now changing, that you're in that sweet spot as far as debt goes, where you might have some internal opportunities?

And maybe just give us a glimpse of what your CapEx looks like going forward.

Sure.

I wouldn't -- I would say that the change in our leverage ratio hasn't changed our thoughts as it relates to CapEx.

We're still -- we're going to still continue to spend where we think we get good IRRs, and that really hasn't changed.

I would tell you that the rate that we would expect somewhere in the range of $45 million of CapEx for the year, which is a little bit under 3% of our revenues.

That's generally the pace you should consider us to be normally on.

Our next question comes from Larry De Maria from William Blair.

I just wanted to follow up.

I'll stick with the second half outlook, it looks like we need to get to around 14% or so segment margins to get to the EPS guide, and you've never been there before.

So I guess can you just talk about the puts and takes to get there?

And does that become the new run rate?

I just kind of want to see if that's the stretch- margin targets or if you feel like that's obviously clearly doable.

Yes, so you're right.

That's about right on the segment margins in the back half.

And what I would tell you, again, is this really does reflect the backlog mix that we see coming through.

Obviously, we booked really strong in the second -- in the first quarter here.

We do continue to get some benefits from our restructuring programs or whatnot that we get really nice operating leverage as we grow in the second half.

So a big part of it is just the benefit of the operating leverage and just some of the efficiencies we've gotten as well as just the mix of the order book is going to strengthen in the second half.

And the third leg that comes in is the acquisitions, Larry.

As we mentioned, the acquisitions we've done were strong on margins, and we expect, as we get through all of the onetime items and the purchase accounting and the integration expenses, as Brian outlined for you earlier, Q3, they start to kick-in in a material way.

And then Q4, we start to see the full benefit of the margins coming through from the acquisitions.

Now as you look forward into next year, obviously as volumes come down and we scale our way through that, we'll have to talk our way through it in next year.

But as you know, JBT has a weaker first half than the second half.

So you should always expect margins, unless something changes in our normal mode in the second half of the year to be stronger than in the first half.

Okay, makes sense.

And then last thing -- been some large M&A deals in protein, I guess Tyson comes to mind.

How do you think about those deals as it relates to JBT strategically as we see maybe more consolidation?

Is that an opportunity to get bigger with big customers?

Or is that more of a concern as maybe the balance of power tips to those larger companies?

No, I'd say, on balance, the consolidation that's happening with our customers is a positive for JBT given our global position, our ability to serve those customers around the world and the strength of our relationships.

So we're positive on the consolidation, assuming it makes sense for the industry, and we believe it positions us better as we continue to build our franchise out, Larry.

(Operator Instructions) And there are no further questions in queue at this time.

I would like to turn the call back to Mr. Tom Giacomini for closing remarks.

Thank you.

As we discussed, our first quarter was a strong start to the year and puts us on track to achieve our forecasted mid-teens revenue and high-teens earnings growth in 2017.

Thank you all for joining us on the call this morning.

This concludes today's conference.

You may now disconnect.