JBT Marel Corp (JBTM) 2020 Q2 法說會逐字稿

Good morning, and welcome to JBT Corporation's Second Quarter 2020 Earnings Conference Call.

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

(Operator Instructions)

I will now turn the call over to JBT's Vice President of Investor Relations, Megan Rattigan, to begin today's conference.

Please go ahead.

Thank you, Amy.

Good morning, everyone, and welcome to our second quarter 2020 conference call.

With me on the call is Brian Deck, Interim Chief Executive Officer and CFO.

We're also joined today by Paul Sternlieb, Executive Vice President and President of FoodTech Protein.

In today's call, we'll use forward-looking statements that 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 risk factors that may have an impact on our results.

These documents are available in the Investor Relations section of our website.

Also, our discussion today includes references to non-GAAP measures.

Please be sure to reference our press release from yesterday where we provide reconciliations of these measures to a comparable GAAP measure.

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

Thanks, Megan, and good morning, everyone.

As you know, I've been serving as Interim CEO since the end of June when we announced that Tom Giacomini would be taking a medical leave of absence.

I'm grateful to my colleagues and the management team and the Board of Directors for their commitment and assistance as we have worked hard to make this a smooth transition while continuing to execute on our priorities.

Tom and I remain in communication, and he wanted me to convey his appreciation for all the well wishes he has received from many of you as he focuses on his health and recovery.

And he expresses his gratitude and confidence in the broader JBT management team during this interim period.

Now turning to JBT's performance.

In the face of what has been a sudden and massive disruption in the global marketplace, JBT has been, in a word, resilient.

Despite lower revenue across FoodTech and AeroTech, segment margins expanded due to effective cost management.

Our laser focus on managing liquidity is reflected in outstanding free cash flow generation.

And while the service side of our business has not been without its challenges, given difficulties in accessing customer sites, our recurring revenue stream remains a strong source of stability and profitability.

While JBT has taken swift and meaningful actions to align our cost structure with this demand environment, we have maintained an unrelenting commitment to the customer -- care of our customers, as well as the health and safety of our employees.

Moreover, we have sustained our investment in product development, particularly as it relates to accelerated demand for labor savings with automation.

Paul will talk more about that shortly.

Let me switch gears and break down our second quarter performance a bit further.

FoodTech outperformed our most recent expectations on volume, margin and cost control.

On a sequential basis, FoodTech revenue was down 2% versus an expected decline of about 5%.

Gross margins from recurring revenue outperformed due to outsized performance from our juice extractor business, strong parts margins and better-than-expected mix of refurbishment projects.

On the cost side, FoodTech SG&A was about $3 million better than expected driven by management of controllable costs and lower-than-expected health care and travel expenses in the period.

As a result, FoodTech adjusted EBITDA exceeded expectations by approximately $9 million and margins by more than 250 basis points with segment operating margins of 16.2% and adjusted EBITDA margins of 21.4%.

Turning to AeroTech.

Revenue declined 27% sequentially.

However, we are able to limit the segment's adjusted EBITDA margin contraction to 250 basis points, a little better than the color we provided last quarter, again, on the strength of cost controls as well as the benefit from slightly better-than-expected revenue.

Corporate expenses came in $2 million lower than expected, mainly as a result of an accrual adjustment on long-term incentive compensation due to the pandemic impact on earnings.

All told, JBT posted diluted earnings per share from continuing operations of $1.01 or adjusted EPS of $1.09.

Sequential orders contracted across the board due to the pandemic impact with a decline of 17% at FoodTech and 47% at AeroTech.

FoodTech's performance was somewhat weaker than expected as customers focused on keeping daily operations running.

At the same time, we generated free cash flow of $81 million in the quarter as our businesses did an outstanding job of managing accounts receivable, while customer deposits did not deplete meaningful despite lower orders.

With that, net debt declined from $659 million to $590 million, while our total liquidity stood at $414 million at the end of the second quarter.

Our bank leverage ratio was 2.2x, which keeps us in a healthy position relative to our debt covenants.

I've asked Paul to join us today given the significant disruptions in the protein market in Q2, then I'll speak to liquid foods and AeroTech and provide some color around the next quarter.

Paul?

Thanks, Brian, and good morning.

In the second quarter, we experienced challenging market conditions on the protein side of the business.

As has been widely covered in the press, the meat processing industry has been particularly hard hit by COVID-19, causing plant slowdowns and shutdowns.

It's never been harder to access our customers, both in terms of physical visits and mind share, as they were overwhelmingly consumed with new safety protocols and trying to maintain production.

As it relates to JBT's ability to access customers, travel has obviously been limited for most of the population, and our team was no exception.

Having said that, protein, along with the liquid foods and AeroTech businesses, have made extensive use of technology to keep in contact with our customers regarding new projects, aftermarket service and training where we utilized virtual support and augmented reality technologies.

We are encouraged by the fact that in June, U.S. meat plants were operating at 95% of last year's production levels according to the Department of Agriculture.

Although JBT's ability to access customer plans for installations and service is starting to improve, it will continue to affect JBT in the third quarter.

One of the reasons protein production has been so hard hit is the relatively low level of automation in the plants as compared to many other types of food production.

But that creates a timely and significant opportunity for JBT automation solutions, such as our DSI automated waterjet protein terming and portioning systems, prime poultry automation equipment, our XVision FlexScan X-ray sorting and inspection systems, DSI protein harvesting robots, automated loading and unloading equipment and end-of-line packaging solutions with Tipper Tie and Proseal.

Our AGV robotic vehicles and our iOPS system that increase equipment efficiency and reduce reliance on on-site labor are also key elements of JBT's automation solutions for customers.

In an industry characterized by tightly packed labor conditions and severe vulnerability to a COVID outbreak, automation has suddenly gone from being a means to reducing labor costs to a business imperative.

In just the past few weeks, 2 states have issued workplace rules mandating social distancing measures at all facilities with other states considering similar actions.

Given the labor density of meat processing facilities, it will be extremely difficult to maintain production levels without greater automation.

Over the past couple of months, JBT's enterprise-level discussions with major protein customers about automation solutions have accelerated.

The quality and scope of the conversations are encouraging and lead us to expect this engagement to translate into orders in the coming quarters.

Our recently completed voice of the customer research with protein customers across the globe reinforces our view that customers plan to invest in automation solutions and confirms that JBT is well-positioned to help.

Finally, during the quarter, JBT acquired the assets of MARS Food Processing Solutions.

While small, MARS' proprietary solutions for monitoring and managing the efficiency of poultry processing plants complements our existing equipment and iOPS solutions and advances JBT's participation in primary poultry processing.

With that, let me turn the call back to Brian.

Thanks, Paul.

The liquid foods side of our business also saw weaker activity -- order activity in the quarter, albeit better than the protein side.

Generally, the customers served by our liquid foods equipment employ a higher level of automation, making them somewhat less vulnerable to COVID disruptions.

And as you know, end markets such as juice, canned foods and ready meals have experienced extremely high retail demand.

Customers producing these retail staples are running very hard in engaging JBT regarding capacity upgrades either via refurbishments or new equipment as well as a strong need for parts and maintenance.

However, reduced access to customer facilities and mind share distractions have extended the time line for converting the pipeline to orders.

On the AeroTech side, our prospects vary widely by end market.

As we outlined last quarter, direct sales to airlines and ground handlers represent about 40% of AeroTech sales.

At that time, we said we do not expect many equipment orders from airlines for the remainder of the year.

That held true with virtually none in the second quarter.

But we continue to engage in dialogue to maintain our strong relationships and provide whatever support and service they need.

The market dynamics for the remainder of AeroTech are more favorable.

15% of AeroTech's business represented by defense and cargo markets have held up well and represent long-term growth opportunities for JBT.

The R&D investments JBT has made in electrification and military products are generating strong customer interest that are starting to convert to orders.

In fact, military orders are forecast to expand to double-digit rates in 2020 for shipments in 2021.

As for the roughly 45% of sales to airport authorities and related contractors for infrastructure, the business remains strong.

Based on our backlog and robust pipeline of infrastructure projects with associated funding, we expect the fixed equipment side of our business to remain solid through 2021.

Across all JBT businesses, our supply chain has performed well.

We did not experience any notable shortages in the quarter due to our historical reliance on a regional and local procurement strategy.

Over time, we expect to utilize more low-cost country and consolidated sourcing to improve margins but not at the risk of flexibility or surety of supply.

Operationally, we have taken meaningful steps to support a safe working environment.

While we have had some employees impacted by COVID, our facilities have yet to experience a breakout that has stopped production, enabling JBT to provide continued service to our employees -- to our customers.

That said, we are aware of the pandemic risks within and outside of our working environment, particularly as it relates to our operations in Florida and Brazil.

We continue to communicate frequently with our employees on internal protocols and external risks.

As you know, over the past few years, JBT has engaged in restructuring initiatives focused on operational efficiencies and process improvements, as well as the utilization of the JBT operating system that enhances our ability to monitor and manage the business.

We have also evaluated opportunities as it relates to our manufacturing footprint.

In the third quarter of 2020, we plan to significantly downsize the manufacturing operations at our AeroTech facility in Spain.

And we are looking to consolidate manufacturing at 2 modest-sized FoodTech plants into our existing operations with planning underway.

These represent moves we are already considering, but the current crisis made those decisions even more compelling.

Looking to the third quarter, we anticipate a sequential pickup in orders as demand for replacement equipment and maintenance increases and customers become more engaged.

However, from a P&L perspective, the third quarter will be dampened given the challenging order environment in the second quarter and higher-than-expected expense levels.

We expect FoodTech revenue in the third quarter to be down approximately 10% to 12% sequentially.

Operating margins are expected to contract sequentially in connection with the lost contribution margin on the lower sales.

Additionally, cost reductions are expected to moderate, in part, in connection with the increased customer engagement expected in the third quarter.

In total, we anticipate higher FoodTech spending of $3 million to $4 million sequentially while maintaining or increasing investments in items such as R&D, strategic sourcing and value engineering.

All told, we expect FoodTech adjusted EBITDA margins to return to first quarter 2020 levels at around 18% and operating margins of around 12% given the fixed impact of depreciation and amortization expense on margins.

At AeroTech, we expect a sequential increase in revenue of about 6% to 8% based on existing backlog and seasonality as we enter the deicer season.

Adjusted EBITDA margins are expected to improve sequentially, 75 to 100 basis points, as a result of the contribution margin from increased sales while maintaining cost controls.

Corporate expense is also expected to increase sequentially, approximately $2.5 million in the third quarter due to the absence of a onetime adjustment related to the long-term incentive compensation accrual in the second quarter.

In the third quarter of 2020, we expect to take restructuring and other charges totaling $8 million to $9 million with the manufacturing rationalizations previously mentioned.

These actions are expected to generate run rate benefits of $6 million to $7 million annually as we exit 2021.

On the tax line, we expect to incur $1.5 million or $0.05 per share discrete tax charge during the third quarter in connection with new U.K. tax laws.

This is incremental to the -- in the quarter show our base rate estimate of 24% to 25%.

Before we open the call to questions, I'd like to extend my heartfelt thanks to JBT employees across the world.

I'm grateful for the outstanding work they have done in a very challenging environment and the commitment they have made demonstrated to our customers and to JBT.

I'd also like to recognize our customers that have weathered extraordinary conditions and continued to deliver their critical products and services.

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

Operator?

(Operator Instructions) Your first question today comes from the line of Allison Poliniak with Wells Fargo.

First, I want to talk to FoodTech and some of the inquiries you're seeing.

Is there any noticeable difference in terms of regional demand or product verticals or types of products people are looking at that, I guess, one could drive an odd mix as we go forward or just any noticeable like differences, I would say?

Yes.

I'll speak to the geographies, and Paul can give a little bit of color on some of the products, especially within protein.

Geographically speaking, I could tell you that it seems that Europe and Asia are a little bit ahead of North America and Latin America.

Frankly, we thought Asia was going to be a little bit further along in the second quarter.

But that does seem starting to materialize here in the third quarter.

And Latin America is certainly probably the farthest behind given, in particular, our presence in Brazil.

In North America, as you know, with the second outbreak, it's a little bit slower.

That said, Paul did mention some of the enterprise-level discussions we're having in North America with some of our bigger customers.

So that's a promising thing that we're seeing over the last several weeks.

Yes.

Brian, yes, I would add, in terms of the kind of mix on product, I mean, obviously, it varies depending on the quarter.

I would say the discussions remain focused on the key things our customers are continuing to look for, which are, of course, yield and operational efficiencies, also food safety, which is increasingly more important every day for our customers.

But I would point you to the comments that we made in the remarks at the beginning of the conference session here about automation.

And those conversations are increasing with many of our customers around the globe.

They're very seriously intent at looking and implementing those sort of technologies.

And by the way, I would also point you to our AGV, or Automated Guided Vehicle, business.

We have many enterprise customers who are really looking at making the decision to essentially exit manual fork truck operations and move to fully automated solutions.

So those sort of technologies are continuing to gain traction with our customers around the globe.

Great.

And then just turning to AeroTech.

I know you noted orders on the defense side and some of the fixed equipment.

Is there any mix issues to be mindful of here going forward in terms of those different verticals versus, say, the commercial piece that's still obviously very weak here?

Right.

The margins on military are a little bit better, but the infrastructure versus the -- sorry, the infrastructure versus the airports and the other ground support equipment are fairly similar, just a little bit more beneficial on the military side.

Your next question comes from the line of Lawrence De Maria with William Blair.

First of all, obviously, best to Tom.

Glad to hear he's recovering.

Do you guys have any comments on the preliminary timing or possibility of his return?

And obviously, are we still expecting him to return at this point?

Yes.

Not a whole lot of additional color, Larry.

Obviously, given that it's a health issue, we're going to be pretty quiet on that.

That said, the Board was very clear that this was an interim assignment.

And so that's where we're sitting at this point.

I'm in communication with Tom.

So we do talk as necessary, but he is disengaged from the business appropriately so.

So as we know more, we'll pass along at the appropriate time.

Okay.

And is that an impediment to you conducting M&A, let's say, in the second half?

Or are we also just thinking that it gets pushed out at this point?

No, I don't think it's an impediment to M&A.

I could tell you that we have a well-developed strategy on M&A.

The Board is aligned with us.

We've got the continued engagement with the potential targets.

And just to give a little bit more color more broadly on M&A, as we sat here a quarter ago, things were quite different in terms of, first of all, some of the uncertainty regarding debt leverage, forward EBITDA, cash flow, as well as the banking markets and the capital markets were really not in a particularly great spot.

Over the last quarter, we've significantly improved at the JBT side on our cash flows, our leverage sitting at about 2x, our liquidity at over $400 million.

The capital markets have returned.

The banking markets, while not totally back, are in pretty good shape.

So I would say we're really well-positioned if we see opportunities that maybe we otherwise wouldn't have in terms of customers -- sorry, acquisition targets, succession planning or, frankly, valuations.

So I think we're well-positioned.

I would like to see some improved forward EBITDA and some clarity on our orders.

But all that said, if you look at our liquidity and our leverage, I could see potentially doing acquisitions over the next year or so, given if we can keep it within our 2 to 3x leverage ratio within our current capital structure.

I would tell you that strategy of a 2 to 3x leverage ratio has served us well, particularly given the experience and our demonstrated ability over the last quarter or 2 to manage our costs, to manage our liquidity and the demonstrated resiliency of our recurring revenue.

So I think that 2 to 3x leverage ratio is a good overall target and strategy, and it does allow us some flexibility from here.

Great.

And if I could just sneak in 2 quick ones here.

First, the AGV business, you mentioned that a couple of times.

I think it used to be around $100 million.

Can you just size that for us?

And secondly, based on your comments on trajectory around AeroTech with some of the business, obviously, ordered evaporated, but a lot of the business is actually in pretty good shape.

And you talked about even orders through 2021.

Is it -- I know you don't have guidance, but is it reasonable to assume that there'll be some organic growth from where you stand now in 2021 that you'd be preparing for or -- based on the orders that you have and expectations?

Or is it more likely to be negative from here into '21?

Right.

Larry, this is Paul.

I can address your first question on AGV.

It's still -- I think we said that it's roughly about 5% of the total company, and that remains consistent today.

But it's a business we continue to be very excited about and a business we invest particularly heavily in R&D because of all the customer trends and the needs in that space.

So we remain very excited about that.

Right.

And as it relates to AeroTech, it's a little bit too early to give a particular position on 2021.

But just to break it down a little bit, on the infrastructure side, 2020 is good -- looks like it's going to be a record year for that business.

And so 2021, we were suggesting, based on the pipeline of activity, it's going to be another solid year.

But I would say more flattish as opposed to growing just in light of the strength of this year's market.

And in terms of ground support to the airline industry, we don't expect growth in 2021, but we do expect some military growth in 2021 as well as on the cargo side.

But how that all shakes out in the aggregate, it's really too early to tell.

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

I wonder if you could walk us through maybe in a little bit more detail some of the monthly trends that you saw in terms of ordering.

And I'm wondering if in July, there was any incremental ordering, especially on the FoodTech side, that may have given you some of the confidence to talk about a better second half for orders.

Right.

So Walt, I would tell you that we haven't seen a particularly consistent pattern with regard to orders.

It's been up a week, down a week, generally fairly lumpy, especially considering we have lumpy orders in general.

So our confidence does not come from the trends.

It comes from the pipeline and the amount of engagement with the customers and how we see that unfolding over the rest of the quarter and into the back half of the year.

Okay.

Great.

And with the discussions that you're having with your customers on the FoodTech side, do you think that this trend towards automation and safety that they're talking about, do they have the balance sheet?

Do they have the capital ready for this year?

Or do you think it becomes more of a 2021 event if they do start investing in automation?

Yes.

I'll give us some color, and then I'll ask Paul to give some color as it relates to protein.

I would tell you it's a wide range of capital structures and balance sheet strength within our customer base.

Certainly, the big guys have more than enough bandwidth and capital available.

As you get into the more local and regional guys, that's going to be a little bit more of a challenge, and perhaps they're looking for some -- we have seen some requests for more extended terms, again, amongst the smaller guys.

The big guys, I'm confident they got the balance sheet.

Paul?

Right.

Yes.

I would just maybe make a few points I referenced in the comments about our voice of customer research, and I could share a few interesting points from that.

Nearly 2/3 of the respondents to our research indicated that labor availability -- and this is protein-specific, that labor availability is challenging, and they're going to need to automate more.

And by the way, we did the same research about a year ago, and that response rate has significantly increased over last year.

And more than half of our customers that responded to the survey indicated they see that their go-forward plans for new equipment or new processing equipment are going to be changed to reduce their reliance on labor.

I would also add, by the way, that we have seen a higher percentage of customers that are looking for cost savings through more energy and water efficiency than in previous years.

And we are particularly well-positioned in that space with our prime water reuse systems and our other energy-efficient equipment.

I guess the last point I'd make is that, overall, based on the research we've done, it certainly seems clear that customers are becoming more bullish as they look over the next 18 months of investment levels.

And over 2/3 of them responding to our survey indicated a desire to increase production capacity as well through new equipment purchases.

So I'm encouraged by the research finding.

I'm also encouraged by the percentage of customers that rank JBT as better positioned than our competitors to meet their needs, and that significantly increased year-over-year.

So overall, the research is telling us some relatively promising pieces of news here.

Okay.

All right.

That's great.

Yes, there's no doubt you guys have some great automation equipment.

Do you have a rule of thumb?

Or is there a way that you could talk about what your customers would get in terms of a payback period or ROI, if they automate?

Like if a customer put in a DSI machine, how long is the payback period?

Yes.

It does vary widely.

But generally speaking, it's as quick as 18 months and as long as, I'd say, 4 years, with kind of the general rule of thumb is kind of in that 2-year time frame.

Your next question comes from the line of Mig Dobre with Baird.

And Tom, if you're listening to this, we wish you well.

I guess my first question on FoodTech.

Based on your prepared remarks, the way I'm interpreting kind of what you were saying is that the liquid side of the business has remained strong.

You're expecting better orders in Q3 versus Q2.

Is it fair to infer that it's really liquids that's driving that sequential bounce?

Or are you starting to see the protein business get better as well?

And I'm wondering if that incremental improvement is sort of driven by maintenance catch-up and such versus just pure OE purchases at this point.

Right.

What I would tell you on liquid foods is, while it was stronger than FoodTech, it was still -- it met our expectations, but it was still weaker than a year ago.

So it's hard for us to say it was strong, right, but it was just stronger than protein.

As we convert from Q2 to Q3, I would expect more of the increase to come from the protein division given the weakness they saw in the second quarter.

So I do expect that.

And it's going to -- on the liquid foods, it is a different environment in liquid foods versus protein because, as I mentioned, liquid foods is already a little bit more automated than protein.

So really, what we're seeing on the liquid foods side is more -- some capacity increases, refurbishments and just more general care and maintenance of the existing, and then in certain spots, capacity increases for areas that they see expanding and have confidence to now invest in, particularly in packaged goods, right?

The packaged areas are extraordinarily strong right now.

That was our Proseal acquisition have performed well in the quarter and as well as some of the other staple items that we're seeing increases in demand.

On the protein side, as Paul said, it's a little bit more focused on automation and in certain spots, capacity increases, including on the freezing side where we're seeing a lot of frozen food activity given the retail strength in that area.

Yes.

I see.

I guess what I'm really trying to get at here, and this is maybe a tough question for you to answer at this point.

But I'm trying to think through the progression of 3Q and 4Q in the segment and the setup that we're going to have into 2021 from a backlog standpoint because, obviously, the comparison from an order perspective in the fourth quarter gets considerably tougher.

And once again, I'm sort of wondering here if at this point, you're sort of seeing enough momentum in the end markets to kind of generate that normal sequential uptick in orders into year-end.

And if that's not the case, then how do you think about the setup into 2021?

Should we expect additional cost action to sort of rightsize the footprint as you start contemplating that fiscal year?

Right.

So we do expect better orders in the back half of the year than the front half of the year.

And we do see the underlying retail consumer and even increased demand of the QSRs and some of the food service customers that ultimately drive the demand.

The question that remains the open answer, which is it is difficult to answer your question specifically because what we really need to see is the conversion rates of those opportunities into orders, right?

And that's been -- certainly, that was a challenge in the second quarter.

But again, based on that increased engagement, we do see that improve in the back half, which would really more benefit 2021 and perhaps the fourth quarter, depending on when those orders come in.

So I would say some of the typical seasonal patterns on orders is a little bit out of the window in this environment, right, because it's just a different environment that we're operating in.

And so again, it's more about that customer engagement.

We do have the underlying consumer demand to support it.

But really, what we're trying to focus on is getting that backlog developed in a wholesome as we enter into 2021, knowing that there's just a significant amount of noise here in 2020.

I appreciate that.

And if I may, one last point here.

If your orders improved sequentially in FoodTech, again, based on the guidance or the direction that you've provided on FoodTech sales, it seems like you're going to be pretty close or close enough to be in book-to-bill of about 1. Is that a fair way to think about how you're managing production in your business?

You're kind of trying to stabilize backlog and target close to 1 book-to-bill as we think about the fourth quarter and into early 2021.

And that's it for me.

Yes.

That's a decent way of thinking about it, Mig.

We do need to build our backlog, which would suggest that we're going to -- we would like to see a book-to-bill greater than 1, 1:0.

And I would say on the expense side because I know you asked that a little bit as well, but given that increased engagement in the customers and kind of where we see things, we are spending a little bit more as we go in from Q2 to Q3.

And at this point, based on that forecasted level of activity, we don't see incremental need at this point.

That said, obviously, if conditions change, we're positioned to do additional actions.

On the footprint side, we mentioned the 2 FoodTech and 1 AeroTech locations.

We continue to evaluate our entire footprint.

I think that's appropriate that we should always be doing, and we'll consider that as we go forward from here.

But it would not be kind of in a short-term reactionary way just because if we did hit orders for the quarter, it would be more how we're thinking about the business more on a longer-term basis and what's the right setup for JBT over the next couple of years.

Your next question comes from the line of Patrick Baumann with JPMorgan.

You mentioned strength early in the call.

You mentioned strength in the juice extractor business as supporting, I think, margins in FoodTech in the first quarter and versus your expectations.

I assume this means lease revenue was stronger sequentially year-over-year or what have you.

Is that right?

I'm just curious what drove it.

And then can you also remind us the profitability for that juice extractor business versus the overall segment?

Right.

You said first quarter, I think you meant second quarter, right?

So there was strength.

Yes, there was an absolute strength in the juice extractor business, better than expected, basically because there's an increased consumer demand on orange juice.

Really, what happened was it was a -- all the -- basically, all the oranges in the country got squeezed during the course of the quarter.

Sometimes it rolls a little bit into the third quarter.

So it was really packed into the second quarter, which makes the decline from Q2 to Q3 a little bit more pronounced than it otherwise would have been because of the strength in the second quarter.

And the lease business is fairly lucrative given that it's a fixed cost base.

And then as the volume increases, we do have some cost -- variable revenue components to that model in certain contracts.

And when the volume goes up, we do get a little bit of benefit, and that's what we saw in the second quarter.

Understood.

Okay.

The aftermarket revenue for the total segment, how much -- I assume that lease business is included in aftermarket revenue.

Just curious, what is the...

It's recurring revenue.

Yes.

So the aftermarket and leases makes up recurring revenue, yes.

Yes.

No.

I was going to ask, what is the -- what did the recurring revenue grow in the quarter?

Did you say that earlier?

Or I might have missed that.

Yes.

In the -- I don't think we mentioned in the quarter.

Year-over-year, it declined about 3%, which is pretty good, all things considering the access issues that we saw.

And as a percent of the total revenue in the quarter, it came in at 49% versus an expectation of 48% and 50% in the first quarter.

I'm sorry to go back to that.

But within that, was the juice extractor business actually up?

Or was it...

Yes, it was.

It was up.

Okay.

It did.

Yes, that was part of the reason why we were a little bit higher on the mix.

Coming from 48% expectation to 49% was part of that, and then a couple of other items here and there.

Got it.

And then maybe on cash flow.

I would have expected advances to be a drag given the decline in orders you saw both year-over-year and sequentially.

Can you just discuss kind of why that wouldn't be the case -- or why that wasn't the case in the quarter?

It was a pleasant surprise that the customer deposit balance only declined $5 million given the decline in orders overall.

What I could tell you is we were really focused on cash and deposits.

And we -- in some of the bigger orders that we had has got some really large deposits on them.

It's not linear.

For every -- it's not like we get every -- for every dollar of order, we get x percent.

It very much -- it does vary widely.

And in many cases, we get letters of credit as support for the orders as well.

And in this particular quarter, given our focus on cash, our folks just did a really good job of focusing on that, and that's just how it turned out.

There's really no magic to it other than a focus on getting better deposits in the quarter.

Got you.

And then just sticking on the orders, one last one for me.

I think you said you're seeing increased interest in automation mainly in protein in the U.S. I just want to be clear.

Is that what you said?

And then if you could remind us how big is kind of the nonrecurring piece of U.S. protein as a percentage of the FoodTech segment.

Right.

So we do see more automation opportunities in the protein world than liquid foods world.

That said, there are areas within liquid foods that also are ripe for automation, in particular, fresh food processing, vegetable processing.

We have a fairly decent business in that area.

So there are definitely opportunities on the automation side there.

It just happens to be a little bit bigger in the protein world from here.

And in terms of their mix of recurring revenue versus liquid foods, it's slightly less because liquid foods has the lease business but not materially.

It's still in that 40% to 45%-type range versus liquid foods, which is closer to 50%.

And Pat, it's Paul.

I could add just some color on the geography.

I mean the conversations that we're having with customers on automation are across the globe.

I would say they're probably more pronounced in the U.S., just given some of the different market conditions and obviously, given the severity of COVID here.

But we've also had very meaningful conversations with customers in Europe and to an extent, in Asia and Latin America as well about automation.

(Operator Instructions) Your next question comes from the line of Andrew Obin with Bank of America.

David Ridley-Lane on for Andrew.

Could you give us some idea of the timing of the benefits around your planned restructuring actions?

It sounds like there's not going to be a lot of benefit in 2020, but just wanted to check.

Right.

There will be a little bit starting in the fourth quarter.

And I would tell you, of the $7 million, I would expect about half of that in year 2021 and then the full run rate of -- about the $6 million to $7 million in 2022.

Great.

And then what was the benefit of the mix shift to services versus equipment in second quarter in FoodTech margins?

The benefit relative to expectations or relative to a year ago, I guess, is the question.

Year-over-year, if you have it.

Yes.

It is going to be about a 100 basis point benefit due to that.

But then obviously, that gets offset on the equipment side by the loss of the contribution margin.

Got it.

And then maybe last one for me.

What was the benefit from temporary cost savings in second quarter?

And I know some of that is slowing back.

If you can give some commentary on how much is kind of coming back here in the third.

Sure.

So we had expected year-over-year savings of about $15 million.

It ended up at about $20 million because of a couple of things.

One, I mentioned the accrual adjustment on the long-term incentive compensation.

So that will go away as we go into the third quarter.

Also, FoodTech, in particular, overachieved a couple of areas.

One, our health care expenses were about $700,000 better than expected, mainly because we're seeing -- we saw in the second quarter less activity of people visiting doctors for non-COVID reasons.

And as we ended the quarter, we saw that trend starting to reverse.

So we think that overall for JBT, about $1 million and about $700,000 for FoodTech.

And that comes back.

Additionally, we are going to start spending some more money on travel during the quarter as we engage in our customers.

And then also, we actually saw a relatively low level of commission expense accrual in the second quarter, given the lower level of orders that we accrue as we book orders.

So all told, we had $20 million of savings versus our expectations of $15 million.

And based on some of the -- either the givebacks or the intentional spending on travel, et cetera, and customer engagement and return of furloughs, I would expect that to be about $14 million in the third quarter.

And there are no further questions in queue at this time.

I turn the call back to Mr. Deck for any closing remarks.

Thank you all for joining us today.

As always, Megan will be available if you have follow-up questions.

Thank you.

And this concludes today's conference call.

Thank you for your participation.

You may now disconnect.