2023-06-01 08:38:41 ET
Summary
- John Bean Technologies has proven to be a solid value creator over time.
- With the sale of the AeroTech business, the company becomes a pure-play on FoodTech, and under leveraged play as well.
- I like the long term set-up and potential, but find current valuations more than fair.
In September of last year I concluded that it was no harvesting time for shares of John Bean Technologies ( JBT ). This came after shares had seen a big pullback already, after expectations ran away in the year 2021.
If not for a recent and pricey deal, I was warming up to the shares, although I feared the recent capital allocation move. Moving forward to today, John Bean has seen steady growth and announced a decisive move, this time a big divestment.
A Recap
Spun-off from FMC over a decade ago, John Bean Technologies has become a steady value creator. At the time a $10 stock, shares rallied to the $100 mark in 2017, as shares hit a high of $180 in 2021, after which shares were trading down to $85 in September of last year.
Ahead of the pandemic the company was comprised out of a FoodTech and AeroTech business, with both businesses combined generating $1.95 billion in sales in 2019, coming in pretty flat. The company posted margins around 10% of sales, with GAAP earnings reported at $4 per share and adjusted earnings seen around $5 per share. Sales fell to $1.7 billion in 2020, notably due to weakness in the AeroTech segment, with adjusted earnings down about a dollar per share to just shy of $4 per share.
With normalized earnings per share seen around $5 per share, it was very clear that a run higher to $180 by year end 2021 was too exuberant, despite solid operating momentum and bolt-on dealmaking. As it turned out 2021 sales recovered by 8% to $1.87 billion, still coming in just shy of the 2019 sales numbers, with adjusted earnings up very modestly to just over $4 per share due to margin pressure.
Operating momentum was strong as the company posted double digit sales increases in the first two quarters of the year as it guided for $5.00 per share in adjusted earnings. With shares trading at $85, the resulting 17 times earnings multiple was quite modest, granting the business a $3.3 billion enterprise valuation based on about $600 million in net debt.
This debt load would increase quite a bit following a $290 million deal to acquire provider of beverage processing and packaging solutions company Bevcorp. Pushing up leverage ratios to around 3 times, with pro forma net debt seen around $900 million, I was a little cautious here based on the leverage situation, yet the overall valuation looks reasonable, certainly given the track record.
Recovering
After trading steady in the $80s in September, shares have seen a solid recovery in recent months, with shares trading with a triple digits number here at $107 per share.
In February of this year, John Bean reported its 2022 results with revenues up 16% to $2.17 billion. While full year operating margins were down 80 basis points to 7.8% of sales, the company has seen a margin recovery in the final quarter of the year, adjusted earnings rose to $4.77 per share, still coming in a bit softer than initially thought. For 2023, the company provided a solid guidance, seeing full year sales up 6-10%, with adjusted earnings seen up to $5.00-$5.50 per share.
The 32 million shares traded around the $100 mark at the time, granting equity a $3.2 billion equity valuation, or $4.1 billion enterprise valuation. This was applied to a business with nearly $2.2 billion in sales, combined out of a $1.6 billion FoodTech business and a $575 million AeroTech business. FoodTech posts margins of around 13% of sales, with AeroTech only posting margins of nearly 8%, translating into operating profits of $43 million before corporate costs overhead.
First quarter sales rose nearly 13% to $529 million, driven by a recovery in the AeroTech business, which saw a spectacular profit recovery as well, posting segment profits of $13 million. The company reiterated the full year guidance and outlined a $330-$360 million EBITDA guidance, for a leverage ratio around 2.5-2.7 times.
A Big Deal
Towards the end of the month, John Bean announced that it has reached an $800 million deal with Oshkosh (OSK) to sell the AeroTech business. The deal will allow the company to essentially get non-leveraged overnight, with pro forma net debt seen around a two hundred million as the company unfortunately will incur a rather sizable $120 million cash tax bill.
Following the deal, John Bean will become a pure play on FoodTech, something which probably makes sense in the long term. The company believes that dilution is seen to the tune of $0.40 per share which is equal to about $13 million on the bottom line. That math could make sense given the $43 million segment operating profit reported in 2022 (set to rise in 2023) offset by lower interest expenses as well of course.
That said, the overall deal looks largely fair as shares have not seen a massive reaction to a sizable deal, if any, a slightly positive reaction was seen.
And Now?
With the midpoint of the earnings guidance seen just below $5 per share, we find ourselves in a similar position as September, although that pro forma leverage ratio of around 3 times will fall to less than 1 times, alleviating some of these concerns.
That said, shares have risen some 20-25% since September, which shows that the move to the triple digits is more than fair in my view, as I am pleased with the long term strategic rationale, yet the net cash proceeds from the sale are a bit soft.
Amidst all this, I am upbeat on the long term potential of the business, but fail to see a great need to get involved with the shares here at these levels.
For further details see:
John Bean Technologies Becoming A Pure FoodTech Play