JBT should benefit from consumer preference for environmentally friendly packaging options

Business Strategy and Outlook

Both of JBT’s segments will benefit from growth in the global middle class. The middle class will approximately double by 2030, and the Asia-Pacific region will be a significant contributor to that growth. This helps JBT FoodTech because per capita meat consumption in APAC has traditionally and significantly lagged that of Europe and North America. North America’s per capital meat consumption is about three and a half times that of APAC, but the gap narrows during the five-year explicit forecast. Overall global meat consumption is also on the rise, as people have become more conscious of protein intake in their diet. The ready-to-eat market will safely grow in the high single digits over the medium term. Young consumers prize this type of food for convenience and as an easy alternative to everyday and conventional three-meal dining. Offsets to protein technology forecast include a rising prevalence of livestock disease. Furthermore, not all APAC countries, like India, will converge toward Western dietary trends. Nevertheless, China will remain the single-biggest market and should account for nearly 30% of incremental demand.

Liquid foods packaging trends should benefit from advancements in packaging standards, escalating demand for packaged foods generally, increased e-commerce, as well as high demand for eco-friendly and lightweight packaging. JBT should benefit from consumer preference for environmentally friendly packaging options since its solutions can cut down on waste, among other interventions. Additionally, the air cargo growth will be a strong driver for JBT’s airport equipment, along with general infrastructure spending for aging equipment. Also, the ecommerce market’s size will greatly increase over the medium term and that will boost air cargo demand. Finally, getting passengers on board safely has garnered increased attention among airport authorities in recent years. This trend will resume as global air travel continues to recover

Financial Strength

JBT is on decent financial footing and once again assigned the firm a moderate credit risk rating. As of the end of 2021, net debt/EBITDA was nearly 2.5 times, in line with multi-industry peers, but elevated relative to historical levels. That said, the firm has relatively low capital expenditures requirements (nearly 3% of sales), and free cash flow conversion sits at about 150% after a paltry mid-60s in 2019. It is not expected a repeat of 2020 levels, strong free cash flow conversion over the long term, with greater linearity in the conversion rate. The conversion will dip below 100% in 2022. As of the end of 2021, the interest coverage ratio (EBIT/interest expense) remains over 18 times, and JBT can service its financial obligations over the long run. As of the end of 2021, the firm’s pension fund was underfunded by $56 million, which reduces the fair value estimate by $2 per share. Long-term debt was nearly $675 million as of the end of 2021 (the firm has no short-term debt), versus cash on hand of nearly $80 million, of which about 75% is unrestricted and not needed to operate the business.

Bulls Say’s

JBT will benefit from the consumer preference for value- added foods, including clean labels and organics.
The market fails to appreciate the positive impact from the commercial aerospace recovery and the ensuing operating leverage JBT will enjoy from a return of volume.

After taking a pause during the uncertainty of the pandemic, JBT will likely look to deploy capital in M&A once again.

Company Profile

JBT is a mid-cap diversified industrial conglomerate that spun out of FMC Technologies in August 2008. Over half of JBT’s sales are made in the United States. The firm operates through two segments: JBT Foodtech and JBT Aerotech. Foodtech provides both customized and turnkey industrial solutions for the food and beverage industry, including a large variety of protein processing and packaging solutions, as well as fruit and juice extraction and ready-to-eat solutions. Aerotech sells solutions to airport authorities, passenger airlines, airfreight firms, and defence contractors, among others. These solutions include gate equipment, as well as commercial and military cargo loading, aircraft dicing, and aircraft ground power and cooling system products

(Source: MorningStar)

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