John Bean Technologies Corporation

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 4/5

JBT provides solutions and technology, products, and services to the food and beverage processing and transportation industries, worldwide.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

JBT operates through 2 major segments: FoodTech and AeroTech. The company provides end-to-end food processing solutions, including portioning, cooking, frying, freezing, filling, sealing, and packaging. The company also offers automated guided vehicle systems, sterilization, robotics, and software. In their AeroTech segment, they design and manufacture airport equipment such as loaders and deicers.

Business Analysis:

  • Revenue Distribution: JBT’s revenue is derived from two main segments: FoodTech, which accounts for roughly 82% of its revenue, and AeroTech, accounting for 18%. Revenue in FoodTech is primarily derived from equipment sales and maintenance, whereas AeroTech derives its revenue mostly from selling equipment and services.

  • Industry Trends: The food processing industry is driven by global food consumption growth, increasing demand for food safety and quality, and automation for efficiency. The aerospace industry is driven by air travel demand, airport expansions, and government regulations. The pace of technological adoption is increasing and companies are competing to provide better performing, sustainable solutions.

  • Competitive Landscape: JBT faces competition from large, diversified equipment companies that can also provide end-to-end solutions, and from smaller specialized niche players that are focused on niche areas of food and beverage processing.
  • FoodTech: The industry is large and highly fragmented, but no one player with considerable market share, which allows competition to persist.

  • AeroTech: This has relatively less intense competition. The industry tends to be more oligopolistic with few companies dominating the market. Companies like JBT offer a diversified range of products for the industry, creating more stability.

  • What makes JBT different? JBT offers a full suite of solutions to customers, from equipment to software and services. JBT’s strategy is based on strong customer relationships with global capabilities and extensive support network. Additionally, JBT provides value-added services that are very important to its customers.

Key points about JBT’s approach:

  • It focuses on its core business areas, providing more customized solutions and providing significant help to customer’s value chains.
  • It aims to expand its aftermarket operations.
  • It invests heavily in research and development.
  • It seeks to improve the management’s ability to create a world class company.
  • It has expanded through strategic acquisitions.

Moat Analysis

The concept of an economic moat refers to the ability of a company to maintain a competitive advantage over its rivals and protect long-term profits. It is a very important concept to use as an investor. JBT’s moat is not strong and is not readily discernible. While they have a good market position and are a large player in their industry, this does not translate to a very wide moat. The sources of JBT’s moat are listed below:

  1. Intangible assets: JBT has numerous proprietary products with patents. These create some differentiation, but their sustainability is questionable, as competitors are likely to have their own differentiated product portfolios. Further, this can erode due to changes in technology.
  2. Switching costs: If a company’s existing assets are heavily integrated into their customers’ business processes (e.g., their software is integrated into their production line) then they are likely to incur high customer switching costs when they move to a new vendor. There is some evidence of lock-in, primarily with their software solutions and servicing contracts, but it is not an overwhelmingly strong factor in their favor.
  3. Cost Advantages: JBT is a large player in the market and has some economies of scale advantages in their production process, but not more than most other companies, and it’s not a source of a strong competitive edge.
  4. Network effects: JBT has an extensive network of distribution partners which enables them to provide quick and reliable services to their clients. The larger and more diverse the network gets, the more valuable it becomes and hard to replicate, providing a potential positive feedback loop. However, it is questionable if this is enough to create a wide moat.

Moat Rating: 2 / 5

  • JBT has some signs of a moat but is not strong, sustainable enough to consider it a wide moat company. The major source of moat for the company is its large distribution network, with some support from its patented products and customer lock-in with their softwares, and services. However, this is a fragmented industry, and competition is high. The risk from competitors eroding those moats is real and relevant.

Risks and Resilience

  • Macroeconomic risks: As a capital expenditure company, JBT’s revenue is very sensitive to economic downturns and customers tightening their budgets. The economy and the global nature of JBT’s sales makes them susceptible to global uncertainty, trade wars and tariffs, and other external effects.
  • Competitive risks: Competitors may copy, reverse-engineer, or develop alternatives that offer similar or better functionality, price, or convenience. This could erode the company’s market share and profitability. This is an ongoing threat, as seen by their current earnings.
  • Technology risks: The company operates in industries that are prone to technological disruptions, such as automated processings, robotics and software integrations, and they could fall behind if they don’t keep innovating. Also, changes in customer preferences can lead to disruption.
  • Supply chain risks: JBT relies on many suppliers to provide them parts. Disruption in supply chain will hurt the business, particularly in the short term, given long manufacturing lead times and high transportation costs of their products, which may lead to decreased profitability. As seen lately, shortages in semiconductors have had a negative impact on the business.

Business Resilience: JBT is resilient in that it has a diversified portfolio. JBT provides its clients with solutions, services, and aftermarket revenue that may serve as sources of stability to the company. The food and beverage industry is also less volatile than many other sectors, providing some stability to the company’s cash flows. Despite the company’s resilience to macro-economic effects, the high capital intensity and competition in its industries may cause it to lose out to competitors, even if things recover for them as well.

Financial Analysis

  • Revenues: JBT’s revenues grew consistently from 2004 to 2019 before falling during COVID. Recent results have seen revenues slowly climbing up, from $1.76 billion in 2021 to $1.89 billion in 2022 and $1.98 billion in 2023, due to increased sales in the FoodTech segment and acquisitions. The projections for revenues are slightly higher than the 2018 and 2019 performance, and continue to show a positive trend.

  • Margins: The gross margin for the company has been consistently between 25 and 30%. JBT has very stable operating expenses. Operating margins were around 9 to 11% before jumping to nearly 14% in 2023 because of decreased cost of goods sold.

  • Return on Capital: JBT’s ROIC has fluctuated a little. For 2022, it was 16.1%, while it was 11.1% in 2021 and 9.3% in 2020. The decrease was due to supply chain issues and the pandemic, so this number has rebounded quite nicely. They have a higher than average return on invested capital, and therefore the business is profitable enough at the current levels.

  • Cash Flows: Free cash flow (FCF) has been quite volatile, ranging from $40 million to $120 million in the last 5 years, with it sitting at $100 million for 2023. Their profitability has led them to be able to consistently generate strong cash flows in their operations.

  • Capital Structure: JBT’s capital structure is a mix of debt and equity. Their Debt to Equity ratio as of Dec 31st, 2022 is around 1.13. But when accounting for total invested capital, this number increases to 2.3. This shows that it uses a high amount of leverage. Its interest coverage ratio of over 8 also indicates that it is able to pay off debt obligations.

  • Financial Health Rating: 4 / 5

  • JBT’s balance sheet is relatively healthy, as evidenced by their recent performance and ability to take on short-term debts. The company’s high degree of leverage might be a problem, especially during a downturn. However, their profits seem strong, their liabilities well managed, their current ratio is stable, and they do not have any financial debt in their operations. Overall, the business is financially stable.

Understandability Rating: 2 / 5

JBT’s operations are somewhat complex, requiring an understanding of food processing, and aerospace industries, which can be complex. Their accounting can also be complex. All of this requires a considerable effort to analyze and understand their reports and earnings calls. Additionally, they have some debt financing issues, as well. Therefore, a detailed understanding is somewhat difficult.

Recent Issues

  • During the 2021 and 2022 Earnings calls, the company mentioned that the biggest problems they were facing were regarding the supply chain, due to the global chip shortage and labor constraints.
  • Recent earnings reports have confirmed their issues with the supply chain. But the management has also highlighted increased orders and higher volume growth.

  • A general economic downturn and high interest rates is also negatively affecting customer orders.

    What management thinks about it: The company has had a strong order growth and has taken initiatives to streamline the supply chain, so they are likely to be well-equipped for the future. Furthermore, they believe the long-term demand is going to help the company. They have also mentioned the problems with the recent acquisition, showing that the company does try and act responsibly and look to improve the situation. Despite the supply chain problems, the company has also been generating positive financial metrics.

  • However, management has acknowledged a decline in the second half of 2023 and expects it to continue throughout the year, while also expecting the underlying business to improve.