John Bean Technologies: Full Steam Ahead

Summary

• John Bean Technologies saw its share price move up about 40% since my previous article, and I fear the train has left the station.
• Looking back at 2020, JBT performed pretty well despite the circumstances.
• The net debt is decreasing fast thanks to the robust cash flows and monetizing some of its working capital positions.
• I will keep an eye on the share price performance this year and I will just have to pay a higher price than what I had in mind.
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Photo by Monty Rakusen/Cultura via Getty Images

Introduction

It’s been almost five months since I had a closer look at John Bean Technologies (NYSE:JBT) here on Seeking Alpha. I liked the company for its exposure to the food industry and the food safety sector but I wasn’t too keen on the company when it was trading at almost $100/share. Turns out I was too conservative with my approach and the share price is currently trading approximately 40% higher than where it was at in November. A missed opportunity or is the stock now overvalued?

Data by YCharts

Robust and resilient are the key words at John Bean Technologies

The company has an excellent history of outperforming the benchmark index, and as you can see on the image below, John Bean has consistently outperformed both the S&P Smallcap 600 as well as the Russell 2000 index. The performance below does not take an additional 25% share price increase since Dec. 31 into account.

Source: annual report

It wasn’t exactly a surprise to see John Bean’s full year revenue decrease but the drop remained relatively limited to just over 10% as JBT ended the year with just under $1.5B in revenue from selling products while the service revenue contributed an additional $229.5M. The total revenue from both divisions came in at $1.73B. All things considered, this was a good result.

Of course it wasn’t just the revenue that decreased. John Bean also was able to reduce its operating expenses and despite recording a $218M decrease in total revenue, the impact on the operating income remained limited to just $15M despite the company having quite a few "fixed" operating expenses. The operating income in FY2020 came in at $163M.

Source: annual report

The net income in 2020 was approximately $109M, which works out to be $3.40/share. This means that the company was trading at about 30 times its earnings when I wrote the previous article in November, and the full-year results confirm the rich valuation of John Bean.

The previous article also zoomed in on the cash flow generated by John Bean. In FY 2020, John Bean generated $252M in operating cash flow, but this also included a few changes in the working capital position as about $44M worth of inventory was sold during 2020 whereas the previous years included a small build-up of the inventory levels.

After adjusting the reported operating cash flow for these changes in the working capital, we end up with an adjusted operating cash flow of $202.9M. Still a very respectable result, and it compares quite well with the adjusted operating cash flow of just under $240M in 2019.

Source: annual report

The total capex in 2020 was just $34.3M (which is about half of the total amount of depreciation and amortization expenses), resulting in a free cash flow result of around $168M. Thanks to this quite sizable difference between depreciation and amortization expenses and the capex, the free cash flow result of John Bean is substantially higher than its reported net income. Perhaps we should also deduct the $9.8M contribution from deferred taxes in which case the adjusted free cash flow of John Bean comes in at $158M. Divided over 31.73 million shares outstanding, the free cash flow result represents approximately $4.98 per share.

The balance sheet: Improving fast

John Bean Technologies only pays a small dividend and the majority of its cash was added back to the balance sheet. JBT’s net debt increased in 2019 due to a large acquisition, and I’m glad to see the company is considering debt reduction to be one of its main priorities.

As of the end of December, JBT had almost $48M in cash on the balance sheet, $2.4M in short-term debt and about $522.5M in longer-term debt. This means the total net debt position of the company was approximately $477M, down from almost $660M as of the end of 2019.

Source: annual report

With an FY2020 EBITDA result of around $235M, John Bean’s debt ratio is just around 2, which is very reasonable. As we can expect the EBITDA to increase in 2021, while the incoming free cash flow will undoubtedly further reduce the net debt, I expect the debt ratio to fall further this year.

Investment thesis

Looking at the analyst projections for the next few years, I may have made the wrong call to pass on making an investment in John Bean Technologies in November. The consensus estimate is calling for an EBITDA of $315M in FY2022 while the free cash flow result will likely come in at around $200M, or around $6.3/share. While that still doesn’t make the company extremely cheap at the current levels, I will just have to pay up for this quality company.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.