JBT Marel Corporation (JBTM) Q2 2017 Earnings Report, Transcript and Summary

Welcome to JBT Corporation's Second Quarter 2017 Earnings Conference Call. My name is Maryama and I will be your conference operator today. [Operator Instructions]. I will now turn the call over to JBT's Director of Investor Relations, Mr. Jeff Scipta.

Thank you, Maryama. Good morning, everyone and welcome to our second quarter 2017 conference call. With me on the call are our Chairman, President and CEO, Tom Giacomini; and our Executive Vice President and CFO, Brian Deck. Before we begin, I would like to remind everyone the forward-looking statements in today's call are subject to the Safe Harbor language in yesterday's press release and 8-K filing. JBT's periodic SEC filings also contain information regarding certain risk factors that may have an impact on our results. These documents are available on our Investor Relations website. Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found on our Investor Relations website. Now I'd like to turn the call over to Tom.

Thanks, Jeff. JBT delivered solid performance in the second quarter. For the year, we remain confident in our growth outlook, with double-digit gains in sales and earnings. Inbound orders are healthy at FoodTech, both organically and from acquisitions. As expected, AeroTech orders accelerated nicely from the first quarter. Additionally we closed two acquisitions in July and are maintaining our full year 2017 earnings guidance while absorbing $0.06 of additional acquisition-related dilution. I'll let Brian provide color on our second quarter performance and update our guidance for 2017. Brian?

Thanks, Tom and good morning, everyone. JBT posted revenue growth of 17% in the second quarter, composed of 4% organic growth and 13% from acquisitions. On a segment basis, FoodTech posted revenue growth of 22%, including 3.5% organic and 19% from acquisitions. AeroTech posted revenue growth of 7%, all organic. Q2's segment operating profit was essentially flat year-over-year, while segment margins declined approximately 200 basis points, including a 120-basis-point impact from acquisitions and 80 basis points from mix. On a sequential basis versus the first quarter of 2017, segment margins expanded about 200 basis points. This includes the benefit of both gross margin gains and improved leverage of our SG&A expense. At the FoodTech level, margins declined 230 basis points year-over-year to 11.2%. Acquisitions contributed $44 million of revenue with 3% EBIT margins which had a 140 basis impact. As it relates to mix, last year, we had heavy shipments of strong margin, high-capacity continuous sterilization equipment that we've seen less of in 2017. For perspective, adjusted for acquisitions, FoodTech margins were 12.6% in Q2 versus full year 2016 margins of 12.2%. At AeroTech, margins reflect higher fixed equipment and lower military and mobile equipment shipments versus a year ago. Overall business conditions and demand remained healthy. Inbound orders were up 36% versus the second quarter of 2016. FoodTech's 41% increase reflected both strong organic and acquisition-driven gains. AeroTech's orders expanded 26%. Cash flow was negative in the quarter due to normal seasonal inventory build in advance of the second half. Cash flow was also impacted by the timing of receivables, with strong shipments at the end of the quarter. For the year, we remain confident that 90% of our net income will convert to cash, excluding any contributions to our frozen U.S. pension plan which we currently estimate at $10 million. Looking at the full year 2017, we expect revenue growth of 19% to 20% versus prior guidance of 16%. Breaking that down, we see 6% to 7% organic growth compared with previous forecast of 4% to 6%. We raised our expected contributions from acquisitions to a 13% growth rate versus prior guidance of 11%. This includes an incremental 1.5% year-over-year revenue impact from AMSS and PLF. On the margin side, we now see year-over-year segment margins that are flat to up 25 basis points in 2017. Excluding the acquisitions, we expect segment margin expansion of about 75 basis points for the year. Full year 2017 revenue for acquisitions is expected at about $210 million, with EBIT margins of 5% to 6%, with significantly higher margin expected in subsequent years. With these refinements, we're holding our earnings per share guidance range to $2.95 to $3.10 for 2017 while absorbing a $0.06 unfavorable impact collectively from the PLF and AMSS acquisitions. On an adjusted EBITDA basis, we expect to generate $190 million to $200 million in 2017 versus $154 million in 2016. At the midpoint, that represents an increase of 26% and a margin improvement of 50 to 75 basis points, inclusive of the impact of acquisitions. We believe EBITDA is a good proxy for cash earnings and margin progress as it eliminates the noncash amortization charges associated with the acquisitions. As for the third quarter of 2017, we anticipate GAAP EPS of $0.76 to $0.79. In the third quarter, we will absorb most of the dilution from AMSS and PLF. Two additional things before I turn it back to Tom. On July 1, we launched the upgraded ERP system at our first major business unit. We had some learning issues that we fixed and overall, we consider the launch quite successful. As we roll out to other locations, not only will it help the individual business, but it will assist in decision-making and make our shared service model more efficient as it will reduce the number of platforms in which we operate. Second, effective January 1, 2018, public companies will be subject to FASB standard, ASC 606 which provides new guidance on revenue recognition. Approximately 1/3 of JBT's revenue is subject to a change and treatment due to the duration of large projects. Specifically, the new standard requires these contracts to be recorded over a period of time as the equipment is being built as opposed to recording revenue at the time of shipment or installation as we do today. We expect the new accounting to better reflect the manner in which JBT creates value for its customers and to reduce some of the lumpiness we see today in recognizing revenue for these projects. We're in the process of reviewing the standard and we'll have more color on our next earnings call. It is important to note, this is simply an accounting change and it will not affect JBT's business model nor cash flow. With that, I'll turn the call back to Tom.

Thanks, Brian. As part of our Elevate strategy, we remain committed to a disciplined acquisition program that strengthens the offering JBT delivers to customers. At the same time, we have validated the acquisitions by leveraging JBT's global sales and customer care resources to expand the geographic reach aftermarket opportunities available to the acquired businesses. Yesterday, we announced the acquisition of PLF International, a provider of filling systems for the food and beverage markets. PLF is a company we have known and worked with for many years. Together, we can combine PLF fillers and JBT closers into an integrated solution for high-growth markets, including infant formula and nutraceuticals. With JBT's global resources, we plan to expand PLF's geographic reach, specifically in Asia and North America. On July 3, we completed the acquisition of AMSS, a U.K.-based manufacturer of military aviation equipment. The combination enhances our military offerings in the U.S. and significantly expands access to foreign military customers. We have already received our first order for an AMSS military loader from a U.S. customer. Our first quarter acquisition of Avure Technologies is on track, with a 30% expansion of sales pipeline by leveraging JBT's customer relationships and global presence. Let me update you on JBT's Internet of things initiative which we branded iOPS. While our customers have the capability to view realtime operating data directly at the machine, we're taking the technology a step further, enabling access and analyzes data. Our iOPS capability was one of the reasons JBT recently won a large competitive order for protein equipment. We believe our technology will develop into another market advantage for JBT. Finally, with respect to market conditions, on the FoodTech side, North America activity remains robust, with strong organic order activity at liquid foods. Protein demand is continued at high levels, although we have seen a temporary slowdown on orders from a few major poultry customers. We expect our order activity with them to pick up later in the year. In Europe, we're seeing good activity for liquid foods and protein. In the Asia Pacific region, demand is up across all major countries. South America, specifically Brazil, is soft. At AeroTech, North America remains strong. A higher airline profitability and airport investment has increased demand for passenger boarding bridges. We have seen some spots -- soft spots in Asia and the Middle East due to a combination of economic factors. Overall, AeroTech booked near-record inbound orders in the second quarter of 2017. While we have a lot of work ahead in the second half of the year to achieve our full year guidance, robust backlog and inbound order transpose to our confidence in JBT's ability to achieve double-digit top and bottom line growth in 2017. With that, we'll open the call to your questions. Operator?

[Operator Instructions]. Your first question today comes from the line of Larry De Maria of William Blair.

Well, just first on one of the last comments you made about temporary, I guess, slowdown in poultry CapEx. And the push back from investors is that next year poultry CapEx is looking down and then you spoke about some softness now. And obviously, it looks like one of your competitor is going to cost order. So can you just flush out what's going on poultry CapEx this year? Why it's slow? And why you have confidence that maybe the cycle can continue next year or that you'd be concerned about some of the CapEx plans from your customers?

Sure, Larry, if you look at our orders in protein, they were really quite strong, both organically and with acquisitions. So at the headline level, I'd say we're in great shape as JBT moves forward into the back half of the year and we start to think about the next year. We do have a few customers that are going through changes that are very specific to their organization. Leadership change and just some issues coming out of Brazil. And from our perspective, as we see the activity with those customers and the projects we're working on, the confidence is building around some of that coming back. So from my perspective, seeing those customers improve in the back half of the year is quite likely based on their product plans. And for JBT, it will just be a bit of additional tailwind, really all inclusive of the great and strong bookings we're enjoying so far this year.

Okay. And then just really about next year, obviously, we're not [indiscernible] in the guidance. I'm not asking for that. But the CapEx plans within the large poultry producers, at this stage, might be looking a little bit down. Just curious how you would think about that broadly, given you're a bit of mixed into them and maybe their CapEx plans aren't in exact direction for you guys. But can you have confidence that it can continue to grow in the next few years based -- even though their plans might be looking down a little bit right now?

Sure, Larry. And I think the thing that I'd like to point out for JBT is we participate in a higher value-added segments of protein and liquid foods, where our customers enjoy the highest margins in their product portfolio. So from our perspective, we're aware of some of the capital plans and what we're seeing out there. But when we talk to the customers directly and think about the true diversity of our protein offerings and the direction in which the customers are heading in terms of improving their profitability, increasing their offerings with the natural and organics and prepared-s being higher margins, those all are trends that play very well into JBT's advantage. And we continue to see a strong pipeline developing in terms of the activity and that predates the order. So from our perspective, as Brian had mentioned, our confidence is gaining in the way our business trends are developing. And from a JBT perspective, we're very encouraged about the way the orders are developing. And we think it's representative of where we position ourselves in the market and not just being in the true capacity in the food, but the value-added where our customers see their highest profitability and want to invest.

Makes sense. Perfect. Can I just ask one last question? I'll jump back in the queue. So you beat by $0.07 versus your guidance. You're absorbing $0.06 dilution and you're raising the revenue guide, but not raising your EPS. So what are the offsets? Obviously, there are more offsets than the dilution. Can you just kind of hash out some of the offsets and I'll leave it there?

Yes, sure, Larry. This is Brian. Specifically, we did pull back some of the organic margin expansion in the back half of the year. Just looking at the way the order book has played out and the order trends and what we see, we did pull back the organic a little bit on top of some of the impact from the acquisitions that pulled back the margins in the back half.

Overall, I would want to point out and we're really pleased with the margin expansion. We saw sequentially, Larry, from Q1 to Q2 and also the fact that we continue to expect those margins to expand as our business develops through the year. So for JBT, I think that's important to know. And Brian pointed out, if you look at the FoodTech performance without acquisitions this quarter, the margins were really pretty much strong as you compared to last year. And you start to think through how this year develops, it's a positive trend just as you think about the organic margins we'll deliver through year-end. It's just the heavy weight and the materiality of the acquisitions that JBT closed last year and early this year working their way through our financials.

Right and just to further add, despite the change in the outlook, we're still looking at 75-basis-point margin expansion at the segment level, ex acquisitions. Plus when you conclude the leverage we're getting out of our corporate expense, there's another 30 basis points or so there.

Your next question comes from the line of John Joyner of BMO.

So you continue to report solid results, but I would say, they're being overshadowed at times by your capital deployment strategy. So is there a reason that you wouldn't present pro forma accounting to avoid having kind of these quarterly stumbles, simply because of the effect from acquisitions?

Yes, I mean, I would say, we're really pleased. If you step back and just look at it collectively, it's double-digit revenue growth and double-digit profit improvement for JBT for the year, inclusive of the acquisition program. And we feel it's integral to JBT. So the insights we're providing now are just to help people understand the short term impacts of the acquisition program. So Brian pointed to the EBITDA the improvements we're seeing there, both on total EBITDA and on EBITDA margins which are very strong. And then we're also giving insights into -- for the year or for the front half, back half, that those headwinds we see from the acquisitions. But overall, I think it's just really important to step back and just see the very strong trajectory JBT's on, with the strong top line growth, the strong profit improvement and the very disciplined acquisition program which has been very much online around proteins and liquid foods, where we're building an ever-stronger offering with the higher value-added elements of the business and creating a much more and stronger value proposition for our customers in the food markets.

Your next question comes from the line of Chris McGinnis of Sidoti & Company.

I guess just touching on the acquisitions and I think you mentioned Avure was, I think, a 30% increase. Can you maybe just talk a little bit about, I think that's 11 acquisitions now that you've made and maybe just how much that's adding to your organic, I guess, when you look back at the acquired companies you have in over a year now? How much of that is driving as you bring them into your network? And maybe just discuss that a little bit.

Yes, absolutely. We're seeing benefits, not just in our ability to grow the top line for the acquisitions. As we mentioned with Avure, what I was pointing out there is we do track the sales pipeline which is the projects and customer activity we're working on. And we've seen from Avure's measures, as we work with them, a 30% -- roughly 30% increase in the activity which is an indicator of the benefits that JBT's global sales and service people out there touching a much broader set of customers and that's a very strong one. But you mentioned an extra important point, we do see crossover sales. So while we're in talking to a customer about a HPP machine, there's also opportunities to talk about sterilization equipment, fillers, additional protein processing equipment in front of that, Chris. And I can tell you that not a week goes by where we're not talking about a project that has come our way or potentially come our way for our core businesses that we might not have had insights into because of our expanded offering. That pause is just becoming a more important supplier to our customers, right? As we continue to increase our offering, we're getting more visibility to the customers and having more top-to-top meetings with management, where they recognize JBT can be a strategic partner to them and create value for our customers in their business plans and open up discussions. So clearly, the acquisition program has benefits that are driving our core organic elements of our business that wouldn't have happened without us having the strong program.

Your next question comes from the line of Mig Dobre of RW Baird.

It's Joe Grabowski on for Mig this morning. So now that we have Q3 EPS guidance, we can kind of back into Q4 guidance at the midpoint of the full year. And the way our model is kind of shaking out, it looks like that the segment margin guidance for Q4 could be north of 14% which would be more than 100 basis points higher than any other quarter you've ever had. So I guess the question, is that kind of the way you're thinking about it? And where does that upside come from in the margins?

Right. That's about right as we calculated as well. We do expect a very strong fourth quarter. There's a couple of things going on there. We do see some good margin projects untapped here as we finish out the year. As you've seen, we have hit some fairly good quarters, north of 13% in the past. So it's not outside of our range. The other thing to mention is we're getting really good operating leverage in the back half of the year, in particular, the fourth quarter. We expect some very good expense control and leveraging of our SG&A expenses in the fourth quarter. So that is providing a fair amount of the upside, relative to the trends in the first half.

Right. And the last material impact would be the acquisitions contributing at a much higher level in the back half of the year as we get through the purchase accounting. So you put those 3 pieces together and it starts to really build that margin base.

Right. We mentioned in the first half, if you do the math, the acquisitions contributed about 1% to 2% in the first half, 5% to 6% for the full year. So that implies 8% to 9% in the back half. So that's what really is helping on top of the organic activity.

Got it. Okay, great. That makes sense. Last question for me. Your thoughts on doing your first deal in AeroTech and what that implies for, perhaps, future AeroTech deals?

Yes. From our perspective, we've always orientated around the fact that our focus remains on food. But that we see AeroTech as a very strong business and one where we saw opportunities to purchase technologies or very specific businesses that strengthen our core business, we would pursue those. And AMSS certainly met that test. It was economically a very strong deal for JBT, if you look at the purchase price versus the benefits that accrue to us. And secondly, we like our military business and AMSS strengthens our position in military loaders in the U.S. And equally importantly, they have some great relationships with foreign militaries that can help us accelerate in some of the higher-technology JASE equipment we produce in North America into those. So it's a very strong and value-creating deal. And we just see it as strengthening our core position there and a very disciplined acquisition in terms of the financial. So we felt it was a prudent investment to make, given our desire to keep that a strong business. But as a return, as I started the commentary, very much focused on food and you should expect the lion's share of the capital allocation to continue there and no change in our strategy.

Your next question comes from the line of Allison Poliniak of Wells Fargo.

Just want to go back to an earlier question around some of the acquisitions rolling in the quarter and what that means, just in terms of are you seeing the incremental growth outside of the market? And I don't on how to quantify it. Maybe, do you feel like you're outpacing the market? And is that due to some of these transactions that you've done plus your organic investment? Any way to help us understand that?

Yes. What Tom was trying to say is that as we bring these acquisitions into the fold, not only we have greater reach geographically, but we also have the aftermarket resources that we can apply. And that allows us to really go deeper into their installed base and provide more services. So we do get -- we typically see a nice impact on the aftermarket. But also just being able to offer their product line elsewhere throughout the world has been -- we've seen some nice expansion on that.

Right. And the organic pieces, as Brian mentioned, aftermarket, we saw solid mid to high single-digit growth this quarter. Organically, we had a strong first quarter. And the new product development that we've also been invested in are all benefits that are accruing to us, along with the additional resources in Asia, the additional selling and servicing and technical center resources in Asia. We mentioned the market conditions, our markets were strong in all the major countries in Asia. So you put those pieces together, Allison and I do believe JBT is performing well relative to the markets and we're expanding our offering and growing that aftermarket, et cetera, that's driving the strong bookings.

Great. And then, Brian, you mentioned a pullback in organic margins. Is that mix related when you were talking about sort of the full year guide?

Yes, it is.

Okay. And then just lastly, segment margin guide, I think last quarter you were looking for 100 basis points sequentially. You clearly outperformed that. Was that better leverage? Was there a change in mix? I need help in understanding outperformance.

Yes. So it's about 100 basis points higher than we had guided. It really was a little bit on our leverage, but it was more so on mix. I'd say about 2/3, margins -- to gross margins and 1/3 or so, mix -- sorry, leverage. And the aftermarket performed well as well.

Your next question comes from Walter Liptak with Seaport Global.

I wanted to ask you a couple of questions about margins. And maybe to start off, just -- I didn't catch Brian's comments about second quarter FoodTech margins ex purchase accounting. I wonder if you could repeat that one.

Yes. What we said was, in the second quarter, we had $44 million of acquisition revenue, contributed about 3%. And if you exclude that -- on the FoodTech side, if you exclude that activity, we had 12.6% FoodTech margins for the quarter which is a pretty good margin for us, generally speaking, if you compare to where we've been in the past, ex acquisitions. So 12.2% was our full year last year. So we're just trying to point out that 12.6% is a decent number to be working off of.

Yes, that's great. And maybe, Tom, for you, just kind of along those lines, how are you thinking about the back half of the year in pricing and mix? And maybe even more important than that, the factory floor improvement, because a big part of our thesis is that, over time, you'll be able to get to kind of food equipment sector operating margins, the kind of margins we see at other companies that are in the food equipment sector. And so how are you thinking about the factory process that you're making or factory operating process changes that you're making? And anything to highlight during the quarter that will give us some confidence that we can see higher operating margins in the future?

Yes, sure, Walt. For us, we're expecting a strong back half of the year, both revenue and margins wise. And what I'd say underlies that are a couple of major developments as we see playing out in the year. We got a really strong backlog that we're working off and our book-to-bill is there, but very manageable. So that gives us a courage to say and the strength and conviction around the back half performance -- back half of the year performance. But as it relates to improvements JBT is making, we continue to see progress on our supply chain activity and Lean. I would tell you that the metals markets have move around a bit lately with some of the discussions in Washington and all that. So we've been managing our way through that. But overall, we're seeing improvements in our supply chain activity driving margins. We continue to look at the value proposition. We look at it as we offer our customers and how we work with them on the economics around our systems. And Brian mentioned some of the sales that didn't occur in the front half of the year versus the last half of the year. We're starting to see that meter in as we exit the year. So that certainly helps with the margins, too. So when we put the pieces together, we have a clear line of sight on what we have to get done. It's more around just working with our customers, making sure that our schedules are in alignment with them. And as you know, fourth quarter is a big-shipment quarter and particularly, late in the quarter because of our customer's downtime and our ability to get in their facilities on the food side and then in aero, heavy on deicers. But as we look at the year, that's coming together. Longer term, Walt, we're absolutely putting our energies behind the RCI and the supply chain improvements. And I did comment on the Elevate strategy and a big part of the margin enhancement and the benefits that come to that are expected. And we remain committed to those. And you should expect to see us continue to develop margins. That said, the 75 basis points is real and the reason we're not seeing it in the financials is because we're way ahead on where we expect it to be on Elevate strategy on the acquisitions, right? The additional progress we've made on that has created some margin headwinds. And that's why we're spending time talking about it, because we do feel that maybe people are missing a bit of a point here that the margins are enhancing at JBT when you look at the full year around the 75 basis points level. And it's just being consumed, so to speak, by the acquisition accounting and we wanted to point that out. So if you look through that, the trajectory is very encouraging and we'll continue to deliver on that. As we said, it's part of the Elevate. So we're right on track in terms of our thinking around margins. And we're ahead on acquisitions and the organic growth is encouraging. So from our perspective, if you think about the 3 key commitments on Elevate, we're performing very well against those as we see the year ending.

Okay. Great. And Brian, I wonder if you can help us just along those lines with the purchase accounting, do you have a ballpark for what the number might be for the third quarter? And it sounds like there might be a little bit in the fourth quarter as well.

Yes. What I could tell you is that we mentioned $0.06 hit for the year. About $0.01 hit the second quarter and most of that, if not all, the other $0.05 is going to hit in the third quarter. So you can kind of back into that. That includes interest expense impact as well as, so you see some EBIT impact and interest expense impact. But the lion's share of the -- it's transaction expenses and integration costs really hit us significantly in Q3.

And then the fourth [indiscernible] okay. And then I wanted to ask a second question, too, because it looks like the organic orders were very strong during the quarter. And you didn't mention the meat part of the business. I wonder how that is trending. And also in liquid foods, I think this is an inflection point where liquid foods is doing better again after maybe a prior slow period. What's changed in the liquid foods market?

Sure, Walt. Protein and liquid foods are both very strong in the quarter. But I would agree with you that it was more of the strength continuing in protein and a bit of a pickup when we think about it in liquid foods. And I would tell you that some of the projects we have been working on and talking about and giving us some conviction around liquid foods are starting to come home and materialize into orders. So it's converting that pipeline. And it's simply to do with the development of our customer investments cycles and their new product rollouts, et cetera. So from our perspective, we were very encouraged by the strength of our orders, both organically and with the acquisitions in food. And also pleased, as we had indicated on the last call, that AeroTech, we expected the strength to pick up in the second quarter and we very much saw that with the near-record levels at Aero also.

Your next question comes from George Godfrey with CL King & Associates.

Just two questions. I mean, most of the questions have been asked. I just wanted to get a sense on -- again, playing the margin theme. I think you said -- and by the way, Brian, thank you very much for that margin parsing. That was really helpful. The full year of $210 million from acquisition revenue of 5% to 6% EBIT margin, in general, after you complete an acquisition, how long does it take to get the acquisition margins up to your corporate or segment average?

Yes. To get the full impact over a year, some of the bigger things go away after about 6 to 8 months. But really that second full year is when you really see the full impact. Now it's always going to be pulled down generally because of the amortization which is really permanent. But the integration costs, the transaction costs, the inventory step of all those things takes 6, 7, 8 months to get through. And that's why you'll see a continued progression. I mentioned the $210 million. Each quarter progressively has better margins to get to that 5% to 6% for the year. And then as we get into next year, we should see that same revenue contribute pretty close to the FoodTech margins that we would normally see.

Right. One of the things that I would want to point out, George and it is important to note, is that we talked about our disciplined acquisition program. And if you look at the relative investment versus the accretion you're seeing on these deals, I think that JBT has done a very good job of acquiring companies at prices that are very much competitive or better than, so to speak, what we hear going on in the market today. And part of that is we're buying companies that we work on for multiple years to get where we want to be in terms of top line performance and margins. And part of that is multiyear program around cost improvements, integration with the back office, our selling efforts, et cetera. So that's why we do give kind of the current year, generally and then the following 2 years of full year guidance. And you can kind of see the ramp. And that's not all just the, so to speak, the acquisition accounting. There's activity going on at JBT to generate that value for our business beyond just the actual purchase. So I think it's important not to lose sight of that. And if you look at the EPS that we talked about, usually in the second full year and the revenue, kind of approximate revenue guide, that gives you an idea where we're going in terms of our runway and margins. And in general, the protein deals have been -- the C.A.T. and Tipper deals were generally pretty strong on margins and Avure, being a high growth company, a little bit lower. So it's a bit of a portfolio blending. But overall, it's just a program that has good economic discipline and creates value over the long run for our shareholders. So we have work to do beyond the initial purchase in the Year 1, Year two, getting that value unlocked.

Got it. And then my second question organic revenue growth targets are raised. And I think you said, in the FoodTech organic growth was 3.5% this quarter. So based on the improved organic outlook and order strength, safe to say that, that has the potential to accelerate as we move into the second half of this year?

Well, it's certainly going to be a little bit stronger in the second half than we had previously guided to, yes.

Your next question comes from David Stratton with Great Lakes Review.

Most have been answered, so I just have one. And when we look at the acquisitions kind of obscuring margin performance and then view that through the lens of the ERP integration that you're currently undergoing, you mentioned it was successful, but maybe a few hiccups or learning opportunities. Was there any impact to margins that could can be called out, specifically in relation to the ERP launch? And just what were the hiccups? And what do you see going forward?

Yes. In terms of the hiccups itself, it was really just having our development model and our test model in sync and integrating better with the third-party applications like our accounts payable, our payroll and some of the other applications and having set aside enough time for the testing of those. So that was really the hiccup that added some little bit of delay on the implementation. In terms of the overall cost impact, most of this -- a decent amount of this gets capitalized in any case. But there was a few $100,000 of additional costs for the quarter but not enough to move the needle on the earnings.

Your next question comes from Steve Tusa with JP Morgan.

This is Rajat on for Steve. Just a quick question on your steel costs. I mean, how much -- can you give us a sense of how much steel you procure as a percentage of your COGS annually? And how much of that do you typically hedge? The reason I'm asking, a lot of companies have seen some pressure from steel inflation this quarter. I'm wondering like if that had any impact to your margins in the quarter. And does this also have any impact to the change in your organic margin guide for the year?

So we think about that in, really, 1 ways. In our food business, we tend to have some pretty good insight into the commitments in the way the business develops and they tend to be within a finite period of time. So we haven't, historically, taken hedges against that material, given our pricing programs, et cetera. Although we do have, generally, some discussions with the customers about flexibility if the material prices march up during the period. On the aero side, where we do have longer-lead projects, our fixed which is basically our boarding bridge business where these can tend to be 12, 18, 24 months out project, we don't take hedges per se, but we do try to lock in economics and with our suppliers, both on the steel and for purchase components and generally, try to cover somewhere around 50% to 60% of our cost and fixing it out. And then the rest, we like to keep variable as the materials move up and down. And from our perspective, through the year, we definitely ramped up our awareness around this and continue to work with our suppliers and also work with our customers to make sure we're adequately protected and it's been a much more major effort this year. And I'd say the biggest issue really hasn't been core material costs as it relates to JBT and that's been pretty reasonable. It's just been around some of the rhetoric around, particularly, some potential trade restrictions on steel coming out of Washington that threw some noise in the system. And we've just been working with our customers and our suppliers to make sure that we're looking at the long term there and protecting ourselves.

Got it. So no impact to this year's margins versus your prior expectations from any inflation. It's just mix?

Yes, I would say, just very minor impact on margins this year.

Your next question comes from Larry De Maria from William Blair.

Just a follow-up on a couple of things while we have you guys. The order of magnitude organic FoodTech orders, I know you guys don't like to give specific about numbers, but say, up double digits or more so than that? Can you give us some color around the magnitude? And secondly, just your overarching thought on Amazon and Whole Foods and how that might impact your business going forward?

Sure, Larry, I would tell you that organic orders were strong and from our perspective, we're very pleased. And if you just kind of look at the magnitude, the revenues we got with the acquisition and annualize it, that will give you some insight into it. But I would tell you that it was strong organic order activity. And if you look at the way the front half of the year has developed, we're pleased. As it relates to Amazon and Whole Foods, one of the things I always like to point out for JBT is we're upstream of where the decision is made by consumers, whether they eat in a restaurant, a grocery store, cafeteria at work or et cetera. So from our perspective, we're much more working to get in front of trends around the value-added foods that people want to eat, the fresh foods, the organics, the clean labels, those investments we've made, like Avure, Wolf-tec, et cetera, that position us to be a player, independent of where customers eat. And that's why we generally aren't too sensitized as a business to that kind of a development, right? So for example, if the lion's share of what we sold went into grocery stores or QSRs, then that would be a factor. But given the diversity of where JBT's customers ship food that runs across our equipment, generally, that's not something that we have to be concerned with. And I would say that ready meals, in general, is an interesting one and we're seeing activity with our customers. So once again, our customer is taking a protein and combining it with vegetables and maybe cooking partially, et cetera, it's just another trend of that whole value-added. And they talk about Amazon's ability, maybe to leverage Whole Foods to do more ready meals, et cetera and its impact on others and that's interesting to us not because we're commenting on the specificity of the deal, but once again, you're just seeing consumers out there, if you read the press, they're just looking to have more prepared foods and beverages brought their way, right, as opposed to cooking from scratch and doing shopping for basic foodstuffs. And those are all trends, once again, that we're positioning the company in front of.

Okay. That's good. And then just one final question. Obviously, there's a larger one out there that one of your competitors got with Costco. Just curious, from your perspective if that was something that you guys really wanted and maybe was an acceptable margin. And you talked about iOPS being a differentiator. Just curious why that went one way or the other and if maybe there's other large orders out there.

We don't generally comment on particular customer projects, but I could tell you that JBT is participating in a number of projects. And although I wouldn't give you the insights or we don't generally talk about specific customer activity, the large investment is, on the primary side of that investment for Costco, in producing chickens and the value-added piece I would expect JBT to participate in, absolutely.

There are no further questions at this time. I will now turn the call back over to Tom Giacomini with closing remarks.

JBT posted solid results through the first half of 2017. We're very encouraged about our business prospects and the progress we're making, delivering on the Elevate strategy. Thanks again for joining us in the morning -- this morning.

This concludes today's conference call. You may now disconnect.