2023-09-06 08:44:15 ET
Summary
- John Bean Technologies Corporation sold its AeroTech business to Oshkosh for $800 million, making it a pure-play food and beverage investment opportunity.
- JBT's strategic transformation into a pure-play FoodTech entity aims to enhance operational efficiency and growth.
- The company's high valuation and increased debt burden raise concerns, but the sale of AeroTech will improve its financial position.
Investment Summary
One of the most significant news this year for John Bean Technologies Corporation ( JBT ) was the announcement to sell the AeroTech business to Oshkosh ( OSK ) earlier this year. The deal was valued at $800 million and has now made JBT a pure-play food and beverage investment opportunity for investors.
The transaction closed on August 1 2023 so we are yet to see the true impact of the sale and how the company is now going to be operating. The revenues from the continued operations increased by 9% and the bottom line managed to outpace as it grew by 11% YoY. The valuation though for the company continues to remain unattractive as it is trading at a significant premium to the sector based on earnings. The quality of the business though makes it justified to have JBT as a hold for the meantime at least.
Changing Directions
Earlier in 2023 JBT disclosed a significant development by announcing a substantial agreement with Oshkosh ( OSK ). This strategic move entails the sale of its AeroTech business, an endeavor that carries a transaction value of $800 million. This move signals a pivotal juncture for both companies and has elicited considerable interest within the industry.
Deal (Investor Presentation)
As a result of this transaction, JBT is poised to undergo a strategic transformation into a pure-play FoodTech entity, a decision that carries notable implications for the company's future trajectory. This move aligns with a broader strategic vision that aims to consolidate and strengthen the company's position in a specific market segment.
The shift towards becoming a pure-play FoodTech company is rooted in a forward-looking strategy that aims to capitalize on the company's strengths and market opportunities. By focusing its resources and efforts on a single, specialized sector, JBT can channel its expertise, innovation, and resources more effectively, potentially resulting in enhanced operational efficiency and growth.
End Markets (Investor Presentation)
Looking at the broader end markets that JBT has the largest one is poultry, red meat, and seafood. As for what JBT mostly focuses on it comes down to providing technology solutions for the food and beverage industry where it offers a variety of services in preparing food which is then sold off to supermarkets and chain places for cooking. Some of the markets in the largest end market the company focuses on could be marinating, blending, or portioning food.
Quarterly Result
Becoming a more pure-play food and beverage company, we should have a look at the revenues for the company and how they have been impacted.
Income Statement (Earnings Report)
The guidance for the company now sees the revenues for 2023 landing at $1.67 - $1.73 billion in total with the net income being between $89 - $102 million. On an FWD basis, the company is now trading at a p/s of 1.97 which compared to the sector is a premium of nearly 50% and this point makes me come back to why I don't find JBT to be a very appealing buy right now at all. The company may have been able to complete a significant transaction of one of the parts of the business, but the company is still trading at a rich valuation. A p/s closer to 1 - 1.5 might seem far more reasonable in my opinion.
Risks
The company's debt burden is poised to experience a significant uptick due to its recent endeavor - the acquisition of Bevcorp, a prominent player in the beverage processing and packaging solutions sector, in a deal worth $290 million. This strategic move, while aimed at expanding its market presence and diversifying its portfolio, raises concerns regarding the potential consequences of heightened leverage.
Revenue Growth (Investor Presentation)
Following the acquisition, the company's leverage ratios are projected to rise considerably, reaching approximately 3 times, which can have far-reaching implications on its financial stability and flexibility. The pro forma net debt, estimated to hover around $900 million post-acquisition, underscores the magnitude of this increased indebtedness. As a result, this development has raised a degree of caution within the investment community, warranting a closer examination of the company's overall leverage situation and its impact on future operations.
Financials
Asset Base (Earnings Report)
Looking at the cash position for JBT right now it sits quite comfortably at $42 million, but when compared to the long-term debts which are nearing $1 billion right now is creating an alarming discrepancy in my opinion. The results don't include the impact of the transaction of selling off the AeroTech business, so the additional $800 million would be of great use to reduce the long-term debts. With that additional capital, JBT now sits in a far better financial position where they would very well expand their current operations and potentially drive more revenue growth in the coming years. I think that the direction the company now is in is far easier to expand upon. Previously, the two segments of the company were quite far apart from each other. With the additional $800 million, the company would have a net debt of around $100 million. Comparing that to the TTM EBITDA of $286 million, the ratio is just 0.34. This is of course using the numbers before the transaction, but even after the ratio will be far below 3 which is where I have a line drawn for investing in a company.
Valuation & Wrap Up
JBT has managed to recently close out the transaction for their AeroTech business valued at $800 million. This is making JBT a pure-play food and beverage company right now and in my opinion, operations will be more efficient going forward and the potential for margin expansion has increased.
However, with the company trading above the p/s where I would be comfortable buying I can't suggest anything higher than a hold right now, unfortunately. The company has a sound balance sheet that will get further deleveraged as the $800 million enters the business. This should open up the possibility of operational expansion in the medium term at least. For now, though, I would be worried about buying, and I find it better to wait for the p/e to fall to around 18 - 20x before jumping in, or adding to a position.
For further details see:
John Bean Technologies Corporation: Following Completed Deal, The Valuation Remains Unappealing