JBT Marel Corp (JBTM) 2017 Q3 法說會逐字稿

Good morning and welcome to JBT Corporation Third Quarter 2017 Earnings Conference Call.

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

(Operator Instructions) I will now turn the call over to JBT's Director of Investor Relations, Mr. Jeff Scipta to begin today's conference.

Thank you, Emily.

Good morning, everyone, and welcome to our third quarter 2017 conference call.

With me on the call are 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 on our Investor Relations website.

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

Thanks, Jeff.

We're pleased to be with you this morning to talk about an excellent quarter at JBT.

In the period, we posted double-digit revenue earning gains, captured strong margin expansion and booked robust orders.

We feel really good about how our business developed in the quarter and how it positions us for the remainder of 2017 and the year ahead.

I'll let Brian provide color on our third quarter performance and updated guidance for 2017.

Brian?

Thanks, Tom, and good morning, everyone.

JBT posted across-the-board strength in the third quarter, with double-digit growth in revenue, operating profit and orders at both FoodTech and AeroTech.

Third quarter revenue growth of 20% was composed of 5% organic and 15% from acquisitions.

On a segment basis, FoodTech posted revenue growth of 26%, including 5% organic and 21% from acquisitions.

AeroTech posted revenue growth of 11%, including 8% organic.

Third quarter total segment operating profit expanded 32% year-over-year, with a 110-basis-point increase in segment margins.

This pickup was a bit better than expected and bolsters confidence in delivering continued sequential margin improvement in the fourth quarter.

At the FoodTech level, margins of 12.8% increased 80 basis points year-over-year and 160 basis points sequentially.

This resulted from our Elevate initiatives, good operating leverage and as expected, better margin contribution from acquisitions.

AeroTech posted record earnings in margins in the third quarter, with 170-basis-point year-over-year expansion in margins to 12.3% due to improved mix and solid operating leverage.

Acquisitions contributed $52 million of revenue, with operating margins at 7.6% in the quarter.

That's up 3% -- that's up from 3% operating margins in the second quarter.

This improvement reflects the pattern we expect as we work through the short-term acquisition-related transaction costs, inventory step up and integration costs.

Corporate expense was 2.5% of revenues in the period.

We expect an increase in Q4 and for the full year, remain on track for corporate expense of a little under 3%.

Overall, business conditions and demand remain healthy.

Inbound orders were up 27% versus the third quarter of 2016.

FoodTech and AeroTech orders were ahead 22% and 38%, respectively.

Backlog was ahead 23%, booked over -- year-over-year to a record level.

JBT's third quarter adjusted EBITDA of $55 million represents a 42% year-over-year gain, primarily driven by organic performance.

We generated strong free cash flow in the quarter of $64 million, prior to a $6.5 million pension contribution.

On a year-to-date basis, our free cash flow conversion was 80% of net income from continuing operations.

We still expect 90% free cash flow conversion for the year.

JBT's performance in the third quarter and continued robust order flow reinforces confidence in our full-year guidance.

Looking to the full year, based on the strength of recent order activity, we now expect the revenue to be at the top end of our previously announced range of 6% to 7% organic growth.

Combined with the acquisition revenue growth of about 13%, we are confident on delivering total top line growth of 20%.

Additionally, we have refined our earnings guidance with projected earnings per share of $3 to $3.10 compared with previous guidance of $2.95 to $3.10.

Before I turn it back to Tom, let me provide an update on the projected 2018 impact of FASB ASC 606, the new standard on revenue recognition that we mentioned last quarter.

Overall, we believe a new standard will better reflect the manner in which we create value for our customers.

It should reduce some of the quarterly variation, although we still expect revenue to be back half-weighted.

We do not anticipate the new revenue recognition guidelines will have a meaningful impact on future full year results.

As a reminder, approximately 1/3 of our revenue will be affected by the change in standard.

As for reporting, we have elected the modified retrospective method, which means when we report quarterly results in 2018, we will provide the financials based on the new standards as well as under the old standards for comparability.

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

Thanks, Brian.

In 2017, we embarked on our Elevate strategy, JBT's 3-year plan to deliver annual revenue and earnings growth of 10% and 15%, respectively, and 2019 return on invested capital of 15%.

Underlying the Elevate strategy is a set of specific initiatives.

A key Elevate initiative is to continue growing our recurring revenue base.

JBT's investment here is paying dividends, with recurring revenue ahead 29% through the first 9 months of 2017, including strong organic performance.

Another initiative is to build our Asia Pacific business.

We continue to believe this is a promising market for JBT.

In the third quarter of 2017, strong business activity translated into outstanding order rates.

Of course, our disciplined acquisition program remains an important component of our Elevate strategy.

Over the past 12 months, JBT has acquired C.A.T., a manufacturer of valuated protein solutions; Tipper Tie, a leading provider of processing and packaging solutions; Avure, a major provider of cutting-edge high pressure processing solutions; PLF, which makes food and beverage filling systems; and AMSS, a manufacturer of military aviation equipment

While total revenue from these acquisitions already put us ahead of pace on our Elevate journey, we have a solid pipeline and financing capacity as we look forward.

The pipeline is focused on opportunities in proteins and liquid foods that enhance JBT's ability to provide comprehensive solutions that improve customer profitability.

I want to specifically mention Avure.

Last quarter, we talked about a significant expansion in the sales pipeline by leveraging JBT's customer relationships and global reach.

We are announcing that interest translate into our orders for Avure's HPP systems.

On a geographic basis, within FoodTech, our protein business remains very strong in North America, Europe and Asia.

Liquid foods activity is strong in North America and Europe, while improving in Asia and South America.

At AeroTech, North America, which represents the majority of our business, is quite healthy, driven by strong airline and freight activity.

Europe, on the other hand, remains competitive.

Before I open the call to questions, I'd like to take the opportunity to thank all of our team members, especially those at our locations in Florida and Texas.

In the face of personnel challenges during and after the hurricanes, they took extraordinary steps to take great care of our customers.

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

Operator?

(Operator Instructions) Our first question comes from the line of Walter Liptak with Seaport.

I want to ask the first one to Brian about his comment about 7.6% operating margins in the acquired revenue.

Was that better than you were expecting?

Or is that in line?

And the operating leverage was better this quarter than it did in the past, what do you attribute that to?

Yes, so the 7.5% on the acquisition is around about $50 million of revenue, that was well in line with what we expected.

And we would expect that to march up in the fourth quarter as well, and that's going to contribute to the margins.

The operating leverage was really good for the quarter.

We mentioned that on the last call that we were going to see really good order strength, revenue strength, but with only modest increases in our SG&A expense.

And I would attribute that to all the work that we've been doing on our Elevate initiatives, some of the benefits from our restructuring program and frankly, just managing the business and just the fact that it is that when you have a lot of revenue growth on fairly flat SG&A expense, you just -- that just naturally happens as part of our third and fourth quarter.

Okay, great.

How much purchase accounting flowed through this quarter?

And what are you thinking about for purchase accounting next quarter?

Right.

So if you look at the 7.5% or so contribution from the acquisitions this quarter, the impact is about $2 million when you think about inventory step up, the transaction costs and some of the integration costs.

And that will go to a relatively modest level in the fourth quarter.

You should see -- we should see some margins near north of 9% for the acquisitions in the fourth quarter.

Okay, great.

And then kind of the same question in FoodTech, the leverage there was pretty good.

Was that related to mix?

Or is it Elevate strategy improving profitability?

It's the same answer.

The operating leverage was the most important thing, obviously, the acquisition improvement and a little bit better mix.

Our next question comes from the line of Chris McGinnis with Sidoti & Company.

Can we just dig maybe a little bit onto the -- we talked about a little bit of the aftermarket maybe kind of the rate of growth and just kind of the contribution for the quarter or so?

Yes, we mentioned Chris, it's both aftermarket and the recurring revenues.

And that's been an area of focus for us.

And as we mentioned, we're off to a really strong start this year.

And I can tell you, the initiatives around the increased technical support in the field, a more focused selling, some of our ProCARE agreements where we're selling new equipment with comprehensive warranty programs are all combining to generate a great revenue stream.

I would remind you, from a CEO's perspective, it's great to see the strength of the aftermarket at JBT and the recurring revenues.

And I think it just positions us fairly uniquely in the industrial world to have that large percentage flowing through our business.

Our next question comes from the line of Larry De Maria with William Blair.

Couple of questions.

First, obviously it is probably a bit late in the year and you have a strong backlog and a lot of which will obviously hit this year.

Just curious about how you think about the variability into year-end, given you're probably 90%-plus covered at this point.

And just what are some of the puts and takes towards the variability into year-end, given you still have a -- tend to have a wide range on the EPS estimates -- EPS guidance?

Larry, you've been following JBT for a while and you know as a management team, the fourth quarter is always a large quarter for JBT.

And the variability really resides around our customers.

And we do our best to forecast it.

But they're building large projects, updating facilities, building new facilities.

And a lot of times, our equipment sales get tied into their construction cycles and the management of their projects, so it's an imperfect process.

And as we look at it, we do our best to forecast at looking at specific knowledge around the projects and the historic norms for the business, and that's what gives us the range we arrive at.

But I would tell you that business is shaping up really well this year.

And we accelerated strong in the end of the third quarter.

And we're really encouraged by the progress we're making here at JBT.

And just in general, the activity in the marketplace has been really a positive for us.

And we think those are all really good indicators for the fourth quarter and as we head into 2018.

Okay.

Thanks.

And I guess you just made a comment that things accelerated in the third quarter.

So as it went to the third quarter, things continue to get better?

And is it safe to assume that organic orders in the quarter were also up and obviously acquisitions were a big impact as well.

Sure, yes.

As I look at it, Larry, I was really pleased with our orders in the quarter.

Combined with the strength we had in the first half, we're just in a great position to close out the year and move into 2018.

I think it's important to look at a point of reference where we stand at the end of this quarter, with respect to orders in backlog.

Is it even better than where we were at this point in 2017?

So I think that's demonstrative of -- excuse me, 2016 leading into 2017.

And that's demonstrative of the strength we're seeing in the marketplace and with our customers.

And maybe just last one.

You did mention obviously, the weather events for Texas.

I'm curious if there's any impact to your customers or manufacturing that was friction in the quarter.

But related to that, if you could talk some high level about maybe -- I know obviously I suspect there's no guidance for next year or anything, but some of the puts and takes to think about for the next year in the high level because you have more of the acquisitions flowing through, you have less of the friction from the M&A-related costs and I don't know if there is friction from the weather.

So could you just talk about how to think about starting to frame next year from a high level if you can?

Well, certainly, from my perspective, let's start with the weather.

We did see some impacts in our business.

And particularly in Florida, we had 2 of our operations there and we had some downtime, but we're able to perform through that, get our deliveries out when we hoped to get or meet our customer commitments and deliver the strong results you saw.

None of which was structural or changed, thinking about our business for this year, next year.

So the teams did a great job.

And that was in the backdrop of particularly in Texas and to a lesser extent, Florida, a lot of people dealing with some fairly significant personnel challenges.

So from my perspective, I think the company did a great job.

And our team members did just a super job bringing us through that.

I don't see there any structural outcomes for the company as results of the weather that would change our thinking about the strength of our performance this year heading into next year.

As it relates to acquisitions, as you know, we are a frequent acquirer.

We certainly will have less friction from the current acquisitions as we're getting through the purchase accounting, et cetera, as we head into 2018.

But for JBT, we do always plan to be in the acquisition game, so there's always a potential that we'll have other acquisitions we'll be talking our way through as we go into next year.

But it's all around the strategy of developing proteins and liquid foods solutions that enhance our customer profitability and allow us to provide more comprehensive solutions.

So you put that together, I think it's just continuing on the value creation, that engine that we have at JBT.

So therefore, would you expect on the margin front from the acquisitions to more or less be, going into next year, at corporate level for the businesses that were acquired?

And obviously, you may do something between now and then, who knows, but -- which would not be subject to this.

But the stuff you've acquired has been a friction this year that could be back -- that can be at normal levels going into next year?

Larry, this is Brian.

So what I would tell you, all these short-term impacts from inventory step up, integration costs, those should be gone.

Now there's still the ongoing impact from very high amortization costs, so that does put a little bit of pressure on margins relative I'll call it to a baseline.

But we do see a continued trajectory of good organic growth on those businesses and margin expansion.

And I would encourage you to look at our EBITDA because that obviously pulls away the amortization expense.

So certainly on an EBITDA basis, the businesses are expected to perform at levels comparable to the JBT in the aggregate.

Our next question comes from the line of Mig Dobre with Robert W. Baird & Co.

Maybe a quick question for you, Brian.

So trying to get some detail on your guidance here as you look at the fourth quarter.

I'm guessing that your guidance implies about 15% operating margin in FoodTech.

Am I close on that?

Is that what you're thinking?

You're in the ballpark.

Okay.

So one of the things that I think we've kind of struggled with throughout the year was this year-over-year progression in margins here when we're looking at the fourth quarter of '16, and I'm just kind of trying to range as to what the step up would be here.

If I remember correctly, in the fourth quarter of '16, there was impact from the C.A.T.

acquisition.

It was something like $0.04.

I think a lot of that ended up flowing through the FoodTech operating margin.

Am I correct?

Yes, that's correct.

So I don't know if you have this number in front of you, but just on my model, it seems like on an adjusted basis for the fourth quarter of '16, excluding this C.A.T.

impact, the margin would have been closer to, call it, 14.8%, 14.9%, am I close there?

That sounds a little bit high, but it would be certainly better than 12-ish percent than what we performed at.

But yes, so it would be a -- it would have been a strong number.

Was it north of 14.5%?

I don't have it in front of me, but it was -- certainly, we'll have a 14% handle.

Okay, because what we're trying to figure out here essentially is how -- the best way to think about margin progression year-over-year and sequentially.

So I'm kind of trying to run through the numbers here.

I don't know if there's a way that you can kind of maybe shed some light on this and get us all a little more comfortable with modeling assumptions.

Right.

So we talk about -- sequentially, you're talking certainly north of 100%, somewhere on that range call it 200 basis points sequentially and call it 100 basis points year-over-year-ish.

And sequentially, you're going to get the benefits of a little bit better operating margin than we saw sequentially in 2016.

So we did, by virtue of some of our Elevate initiatives, some of the restructuring costs that have -- benefits that had come through, you're going to see that benefit.

And then will you also get sequentially from Q3 of this year to Q4 of this year, the better impact from the acquisitions.

So they were a drag in Q3.

There will be, I'll call it, a very low drag, if any drag in Q4.

So hopefully that kind of describes it.

But really the operating leverage and the cost management, the restructuring benefits, the Elevate initiatives are going to be the biggest driver, both sequentially and year-over-year on the margin expansion.

Okay.

Then if we can maybe go back to Avure, C.A.T., Tipper Tie, I mean, you talked about Avure starting to gain some traction.

I'd love to hear about the other 2 companies as well.

And is there a way to frame what growth, post-acquisition, has been versus your initial expectations for these businesses?

Yes, Mig, from my perspective, we're very much on track with what we hoped in terms of the activity we're seeing in the marketplace.

And for JBT, what's been interesting to see unfold is a couple of things.

First of all, with C.A.T., we had a company that was very much focused on the poultry industry.

And there's been benefits that we probably didn't fully appreciate in our core organic base business in terms of their ability to have very strong customer relationships and to bring JBT more strongly into that than where we were historically positioned, and that's been really nice to see.

So we're getting these overlaps that we probably didn't fully appreciate when we started the journey.

Secondly, as you look at Avure, it was really a pretty small company that -- on a high-growth trajectory.

And one of their biggest challenges was just getting the word out about the technology, their position in the marketplace, the strength of its capabilities.

And if you think about JBT at our core, we're very much a company that finds unique ways to preserve and deliver healthy foods to consumers.

And Avure was just a natural because it's an extension of our story, it's the latest technology that supports it.

So you have a sales and marketing group at JBT that understands this and can bring those messages to the customers and have the greatest technology.

So that's really the power of the acquisition program and our ability to help build these companies.

Looking forward, I would tell you that we continue to see opportunities for other pieces we'd like to put in the portfolio that would have the same benefits.

And we continue to work that pipeline.

Okay.

Then I wanted to ask a little bit about anything that you're hearing from customers on the poultry side.

Obviously, through the quarter, we've seen a number of press releases pointing to some nice CapEx being deployed here.

How does this play into your business in terms of demand?

And I understand that you're in secondary rather than primary processing, but kind of help frame this, if you would.

Sure.

Our customers are healthy in the protein industry in general and in poultry.

We're seeing a lot of great orders, but we're also, as I'd like to talk about, the customer activity that front ends those orders is very solid, Mig.

And I would tell you that if you read beyond just the CapEx numbers, you think about strategically where a number of poultry and protein customers are going, is they're continuing to identify products that allow them to add more value, right, portioned, cooked, marinated, et cetera, taking a basic chicken, beef, pork and putting more value around it, which improves their profitability because the value-added products ultimately sell for higher prices and higher margins than the base protein.

And that's where JBT really has a strong position, right?

We make all the equipment that adds value to the food and the protein in this case, and that's what really allows us to help our customers grow their business first of all, and secondly improve their profitability because as they create these more value-added products, it definitely improves their profit picture if you read their financial results.

So from my perspective, I really like the way we're positioned.

And secondly, I point out that historically at least, the value-added piece tends to be a bit less cyclical than the primary, where those pieces of capacity go in, in larger chunks, so to speak and then it takes the time for marketplace to absorb that, while the value-added investments tend to be maybe a bit smaller at a headline number but more frequent and less cyclical.

So I really like where we're positioned and we'll continue to look at primary and see if there's a right point for us to enter through acquisitions.

But right now, we really enjoy the position we're at.

Okay.

Last question for me on AeroTech.

We don't talk a lot about AeroTech, but growth here has been a lot better than I would have guessed.

And I'm wondering through the prism of the last call at 12 to 24 months, when we look at your Elevate strategy, you talked about 3% to 5% growth through 2019.

This business is running well ahead of that.

Is there some sort of a cyclical demand pull forward that's occurring right now?

Or some kind of a particular CapEx-type driver that you're observing to where we should be sort of adjusting our expectations going forward to much lower growth either in '18 or '19?

Or is this growth driven by something that's more intrinsic to the company?

Sure, Mig.

First of all, I'd say the AeroTech team has done an excellent job this year.

We are seeing strong growth.

A good chunk of that, Mig, is coming from some of the new products we've invested in the last few years and our ability to get those in the marketplace.

But secondly, I would tell you that I wouldn't describe it as a pull forward.

I would describe industries beginning to catch up to some investments that have long been neglected by the airlines in terms of the infrastructure around the airplanes.

And what that means is, it's all around the customer experience and the ability for the airlines to earn a profit, right?

Their biggest fixed operating asset is all of the airplanes, the ability to turn those more quickly and operate those more hours, improves the profitability of the airline and also improves the customer experience.

And if you start to think about the equipment that we provide, the jet bridges, the pushback tractors, the loaders, the latest technology in de-icing, those are all central to allowing the airlines to have a better customer experience and to get a better return from their investment in the aircraft.

So from my perspective, we continue to see strength in the activity with the airlines.

And we don't believe it's a short-term situation we're enjoying right now.

We know the equipment out there is still aging as a total fleet, both fixed and mobile.

And we're pretty darn optimistic about the way the marketplace is delivering and developing.

And I think our team is doing a good job delivering on -- bringing home some of those opportunities.

Your next question comes from the line of Joel Tiss with BMO.

So Mig asked a lot of questions and Larry, too.

And I just wondered, can you talk a little bit about pricing and raw material costs that wasn't really covered at all just kind of more holistically, going forward for the next 18 months or so.

Sure.

If you look at our Elevate initiatives where we're always looking to create more value for our customers, designing products that really improve their profitability.

And if you think about the food industry in particular, Joel, a key element of that is including -- is improving their yield on the basic foodstuffs they're manufacturing.

So a number of the new equipment types that JBT has brought to the marketing in the area of portioning and cooking have technology to deliver on that, and that certainly drives the desire to invest by our customers and make that happen.

And hopefully, as part of that, when we improve the profitability for our customers, JBT can share in that improved profitability.

So that's what we worked very hard to get done.

Secondly, on material cost, I'd say in the first front half of the year, we are definitely seeing more pressure on some of the material costs, particularly steel and in particular on our Aero business, but to a lesser extent in food.

A lot of that was around concerns around trade and tariffs, et cetera.

We've seen that moderate more recently, so that's a positive trend.

I can't predict exactly where we'll go from a political situation on that, but we seem to be in a really good position.

The second part of that material cost piece is we do work hard to manage that risk with our customers and our suppliers by making sure we have some clauses in our contracts where possible to recover as materials movement materially in a large way.

And then secondly, work with our suppliers where we know we have some base business that's going to go out for 12, 18, 24 months, extending our buys to assure ourselves of the economics.

And we're fairly active in that this last year, too, and I think we've done a reasonably good job of that.

So altogether, that's a big part of what Elevate is and our supply chain activity and creating a delta around the material cost incoming and the actual price we spend with our suppliers so that we improve our margins there.

And then improving our customer's profitability with our new products and sharing in a larger part of that profitability, both are tailwinds that we're working to deliver on and elevate and continue to expand our margins.

Yes, that's the second thing I wanted to ask about.

It seems like between the acquisitions and a huge amount of internal improvement as well that the margin profile of the company is changing maybe a little higher than how you were thinking about it 18 or 24 months ago.

Is there starting to be more of a pathway to get to the midteens operating margins, say, in the next 5 years?

Joel, like we did with Next Level, what I'm really focused with my team on is achieving the Elevate initiative goals.

And we're on a good pace, we got out to a strong start with the acquisition activity.

We're making our operational improvements.

And our goal, if at all possible, is to deliver those sooner than our initial commitment.

And we're working very hard to do that.

And we're off to a good start this year, and that's where our energies are focused.

And as we get to that end of that journey, we'll certainly come back and work to refine that framework.

But our management team is just laser-like focused on delivering those Elevate initiative results and if it all possible, working very hard and thoughtfully in a very specific way to deliver those sooner.

Your next question comes from the line of Steve Tusa with JPMorgan.

What's the acquisition pipeline looking like out there?

Yes, Steve, we worked very hard as a management team, and we're really encouraged by where our acquisition pipeline is at.

As I mentioned in my prepared comments, we're very much focused on proteins and liquid foods.

We're looking at expanding our solution sets so that we can be a more valuable supplier to our customers and we're busy at it.

And as you know, acquisitions are episodic, but our financial position is strong to complete some deals.

And we've got the pipeline there and we've just got to continue to work it to get some of these to close as we look forward.

And is there any uptick in people that are willing to kind of sit down and maybe discuss a little bit more a reasonable multiple, given that earnings are now probably improving at some of these companies.

I mean, what's -- what are you seeing in kind of the buyer and seller conversations?

I'd say, in general, given the strong multiples that sellers are seeing, there does seem to be more of an interest in selling late this year and into next year.

I believe that is propelling some companies to maybe sell a little early, whether they're in family ownership or in maybe financial buyer's hands.

But that's balanced by us being very strategically focused and disciplined in terms of our financial metrics.

And for JBT, much of what we like to develop, if at all possible, is a proprietary pipeline where we're dealing with a lot of orders of businesses, where they can really see the value being realized, joining JBT, globalizing their regional technology and making that happen.

But in general, I'd say there does seem to be more interest in people marketing their businesses now than there was a year ago.

Your next question comes from the line of Andrew Obin with Bank of America Merrill Lynch.

Just a follow-up on free cash flow.

I know you sort of highlighted that with your conversion is going be.

But just looking on year-over-year basis, should we expect free cash flow in the fourth quarter that's sort of an absolute trend similar to 4Q of '16?

And particularly, what I'm looking at sort of opportunity for best payments collection in the fourth quarter inventory opportunity because this seems that you can continue to release a lot of working capital relative to history.

Great.

What I would tell you on the inventory side, you would see something similar to what you would see in the fourth quarter in last year.

The customer deposits, that really is dependent upon the order strength.

We did have pretty good orders in the fourth quarter last year, so it's really going to be dependent upon that.

We did have a good -- I don't have it in front of me, but dollar-wise, it was a good number last year.

We didn't have as good of a third quarter last year, so we did pick up a little bit.

So I wouldn't expect it to be quite as strong as last year, but I would expect certainly the inventory activity to improve.

And as I said in my prepared remarks, we would expect -- we're confident in that 90% free cash flow conversion for the year.

I guess, I'm just trying to figure out how much upside there is to this number that digest to the question, a lot of the potential source of upside.

Yes.

Certainly there is potentially some upside if we can perform on our inventory.

And they take a lot of orders, which results in advance payments.

It is frankly, even for us, very hard to quantify.

But we are -- we're confident where we're going to collect on our ARR, where we will perform on our inventory and our payables.

It's the advanced payments that could swing that number by a fair amount.

And I'd like to give you a little bit more certainty on upside, but it's really hard for us.

Your next question comes from the line of David Stratton with Great Lakes Review.

I just wanted -- really quick, since most of the low-hanging fruit has been answered.

When we talk about your ERP system, as you started the July 1 upgrading, how has that initially been received?

And have you noticed any problems or any benefits as we move forward as far as will there be any impacts going into the future?

Sure.

So what I would tell you is the launch was successful.

There is always a little bit of bugs that come out in the back end in terms of other reports the way we want them.

And it's already being measured, the exact same way it used to be from a reporting perspective.

But operationally, it's solid.

And from a SOX perspective, it's solid as well.

So we've crossed all those bridges and we'll continue to refine it.

In terms of operational improvements, this is just the first installation.

So there's nothing really material until you start to get the benefits of additional installations as you consolidate your general ledger, have better visibility on your overall data across the business.

So nothing that I would point to for 2018 because we're going to have much more installations with that year.

As you get into 2019 and beyond, you will certainly see some benefits on supply chain and ability to manage our customers and whatnot.

And then I just wanted to circle back to some of the acquisition impacts.

Are you still expecting to see the same revenue in EPS benefits that you enumerated in the last quarter's call?

Has there been any changes there?

Or what should we expect in that realm?

Yes, materially we're on track to that.

The only caveat to that is we did have a change in our share count by virtue of the equity offering in March, so you have to adjust about 7% or 8% for that.

But otherwise, we're collectively on track.

Your next question comes from the line of Walter Liptak with Seaport.

I wanted to do a follow-up on Larry's question about 2018.

And I know you're not giving guidance yet, but when you did the 5 acquisitions that are going to be additive or accretive in 2018, you gave EPS accretion numbers.

It sounds like those are all still on track that maybe some of the acquisitions are even doing better than when you acquired them.

So you'd still expect that same accretion, which I think adds up to about $0.50 or $0.60 per share.

Yes.

As I just mentioned on the last question, it does add up to what we were expecting overall.

Obviously, you have to adjust for the share count.

But collectively, it's as we would have expected.

Okay, great.

And so working off the base, all things being equal, $3 to $3.10 for this year, we have the accretion and then there's going to be some growth for the organic plus some leverage on that?

Walt, yes, you did point out, we don't want to get on the call and give guidance for 2018.

But I would say just if you think about JBT in the Elevate framework, we do intend to continue to improve the business, we intend to grow organically, so we've got margin expansion, organic growth and then continuing on our M&A track.

So you should expect us as a management team to continue to work all 3 legs of that stool.

And we're busy working with our leadership right now to begin the steps to pull our planning together for next year and look at the -- all 3 elements of that.

I would tell you that the one point that I'd really like to make is the customer activity is encouraging.

And it all starts and stops with that, right?

And as we look across both Food and Aero, we're just seeing a lot of positive project activity and work we're doing with the customers which really helps us feel well about 2017 and what we're doing as we head into starting 2018.

And from my perspective, that's really important for JBT and I would think about our future.

Okay, yes.

It sounds great.

Yes, we'll wait until I guess you give guidance next year after the fourth quarter?

Correct.

Okay.

Yes, we'll wait for that.

We just have to (inaudible).

(Operator Instructions) And I see no further questions.

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

JBT delivered strong third quarter results.

And through the first 9 months, posted double-digit top and bottom line gains.

As such, we enter the fourth quarter confident in our full-year outlook and the long-term prospects for continued growth and margin expansion as part of our Elevate strategy.

Thanks again for joining us this morning.

This does conclude today's conference.

You may now disconnect.