JBT Marel Corporation (JBTM) Q1 2018 Earnings Report, Transcript and Summary

Good morning, and welcome to JBT Corporation's First Quarter 2018 Earnings Conference Call. My name is Jodie, and I will be your operator today. At this time, all lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session [Operator Instructions]. Thank you. I will now turn the call over to JBT's Director of Investor Relations, Mr. Jeff Scipta, to begin today's conference.

Thank you, Jodie. Good morning, everyone. And welcome to our first quarter 2018 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 that 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 Web site. 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 Web site. Now I'd like to turn the call over to Tom.

Thanks, Jeff. And good morning, all. As you read in the earnings release, our view of JBT's outlook in 2018 remains upbeat. With record orders and strong market conditions, we are on track to generate double-digit growth in revenue and adjusted earnings for the year. Our restructuring program with well developed initiatives to significantly enhance our operating efficiency and profitability is underway. Although FoodTech margins fell short of expectations in the first quarter, we are confident in our ability to post significant improvement through the remaining three quarters of the year. Let me turn the call over to Brian to review results for the quarter and the outlook for the year. Then I'll provide some details about restructuring, which will enable JBT to unlock the benefits of our expanded global size and scope as well as an update on our market conditions and the acquisition program. Brian?

Thanks, Tom. And good morning, everyone. JBT's first quarter headline EPS results were within the range of guidance we provided on the year end 2017 conference call. However, the components deviated from expectations on an operating basis and due to the January 1 adoption of the new ASC 606 revenue recognition standard. Generally speaking, JBT appears to be more affected by 606 than most industrials. As a refresher, the revenue recognition rules provide new guidance as to when large project revenues should be recorded at a point in time or on an over time basis, meaning over multiple periods. JBT has elected to present information related to the new standard on a modified retrospective basis. For 2018 and each quarter, we will both pick up and lose revenue compared with legacy GAAP. We will be recognizing some revenues in 2018 that were previously recognized in 2017. We will also have revenue that is either accelerated or deferred within the year from one quarter to another and some that will defer into 2019. First quarter revenue growth was more than twice the 8% we guided to, with 19% year-over-year gain due to $50 million of 606 revenues, about twice expectations. Effectively all of Q1 606 revenue was attributable to FoodTech. Roughly 2/3 of this represented project revenue is previously recognized, with the remaining 1/3 representing the net revenue accelerated or deferred within the period. We expect the net 606 impact on revenue to be less than the second quarter at about $25 million to $30 million, and then turn to net deferral in the second half. Approximately $5 million of 606 revenue in Q2 is expected to be attributable to AeroTech. For the full year, we now expect net revenue associated with 606 of $70 million consisting of an estimated $130 million of previously recognized revenue, offset by $60 million of revenue that is deferred. Estimated operating income and EPS associated with this is between $14 million and $16 million and $0.30 to $0.34, respectively. This compares with the prior estimate of $4 million and $0.09, respectively. These estimates will undoubtedly change as we enter new contracts and apply the new 606 rules. We are committed to providing full transparency on these changes throughout the year. Additionally, in connection with the previously recognized revenue, there were meaningful noncash adjustments to our balance sheet on January 1, 2018. This included an increase in inventory and customer advanced payments and a decrease in AR and booked equity. The balance sheet will normalize over the course of the year with noncash entries. Cash flows are not impacted by 606. With all that in mind, I would like to talk about the underlying business performance. Excluding 606, year-over-year revenue growth was 4% in the first quarter. FoodTech revenue growth, excluding 606, was 4%, consisting of a 4% decline in organic revenue, a 3% pickup from acquisitions and 5% from FX translation benefit. AeroTech showed flat organic revenue performance, 3% from acquisitions and 1% FX translation. As we've said frequently, quarters can be lumpy, reflecting project timing and required customer deliveries, and that effect is magnified in the seasonally lightest first quarter. At the same time, segment margins fell short of expectations. For the first quarter of 2018, margins were 7.2% compared with the 8% to 9% we had guided to. Adjusting for 606, segment margins were about 5%. In addition to the factors we have previously addressed in the fourth quarter call, FoodTech experienced high installation costs, weaker product mix and some locational operational inefficiencies that had an outsized effect on the seasonally low first quarter. Corporate expense was 2.6% of revenue in the first quarter. We also recorded restructuring expense of $12.7 million. More on that from Tom in a moment. Our tax rate of 25% was a little lower than our expected run rate due to a few minor discrete items. As a reminder, in the year-ago first period, the tax line reflected a discrete tax benefit of $5.8 million or $0.19 per share. We are pleased with our strong inbound orders, which is a reflection of continued healthy market conditions and JBT's competitive position. FoodTech's first quarter inbound of $321 million was ahead 1% from an extremely strong year-ago period and hit a new record. AeroTech's healthy inbound orders of $121 million were up 41% year-over-year versus an easier comp. Total backlog expanded 11% year-over-year. With regard to cash flow, excluding $2 million of pension contributions, we show a free cash flow deficit of $12 million, primarily reflective of the lower earnings base for the quarter. While this is disappointing, we still expect full year free cash flow conversion of about 100% of net income, excluding the non-cash income associated with previously recognized revenue. Looking at the full year, we continue to expect organic revenue of 7% to 8%, 2% to 3% from acquisitions, 1% to 2% from FX translation and 4% from 606. That brings us to total top-line growth of 14% to 17%. FoodTech revenues are expected to grow 16% to 20%, of which 5% to 6% represents 606. AeroTech is expected to grow at 10% to 13%, including 2% to 3% from acquisitions and 1% to 2% from 606. Due to the first quarter margin shortfall, we've lowered full year projected segment margin expansion at FoodTech to approximately 75 basis points, with AeroTech improvement maintained at 50 to 75 basis points. Given these changes, along with the expected full year restructuring of about $50 million, we expect GAAP diluted earnings per share from continuing operations of $2.80 to $3 or $3.95 to $4.15 on an adjusted basis. Our new full year adjusted EPS guidance of $4.05 at the midpoint reconciles from our previous forecast midpoint of $3.95 as follows. We expect an incremental 606 benefit of $0.21 to $0.25 per share. We also expect to pick up roughly $0.03 from a slightly lower tax rate of 26% to 27% and about $0.02 pickup from corporate expense control. Offsetting these will be a $0.16 to $0.21 per share impact from lower segment margins. That said, we expect to capture significant margin expansion over the course of 2018. For the second quarter, we expect year-over-year segment margin improvement of some 100 basis points or more than 400 basis points sequentially. On the top-line, we anticipate year-over-year revenue growth of 22% to 24%, including approximately 7% from 606. FoodTech Q2 revenue is expected to grow at about 14% to 16% ex-606, including 3% to 4% from acquisitions; and AeroTech at 18% to 19% ex-606, including 6% to 7% from acquisitions. All this gets us to GAAP EPS from continuing operations of $0.80 to $0.87 guidance for the quarter. Excluding restructuring charges of an estimated $8 million to $10 million, the adjusted EPS range is $1 to $1.07. These ranges include a $0.14 per share discrete tax benefit from accounting rules for stock compensation costs. With all of that, I will turn the call back to Tom.

Thanks, Brian. As we discussed preliminarily on the last call and further in the earnings release, JBT is undertaking restructuring activities of approximately $50 million in 2018. This program outpaces the magnitude of prior restructurings, unlocking the benefit of JBT's increased scale and global footprint We have invested significant energy and resources to complete the preparatory work we began 6 months ago, creating a spend analysis and mapping of cost across the company. Additionally, we completed an assessment of the overall organization, focusing on the number of layers and span of control within the management reporting structure. We have also performed formal in-depth reviews across our larger sites, including a review of operational direct and indirect labor efficiency, engineering processes and back-office SG&A efficiency. In addition, the review included aftermarket service utilization and deployment of these valuable resources. Altogether, the comprehensive plans and associate improvements will make JBT a more responsive and profitable organization. We expect the restructuring program to generate annual run rate savings of about $45 million as of year-end 2019 and add more than 200 basis points of margin enhancement. As I said at the top of the call, we remain encouraged by market conditions and JBT's ability to make the most of these buoyant markets in 2018. For FoodTech, protein is robust across North America and Asia with improving conditions in Europe at liquid foods. Softer U.S. activity, resulting primarily from reduced citrus crops, is being materially offset by Latin America. Liquid foods is experiencing strength in Europe and improving demand in Asia, driven by dairy. In March, JBT exhibited at the Anuga trade show in Cologne, Germany. This is similar to the poultry show in the U.S., only larger and more comprehensive across the food industry. JBT hosted a consolidated booth representing all FoodTech lines, combining protein and liquid foods, along with our recently acquired Avure, Tipper Tie, PLF and Schröder businesses. Our presentation as One JBT showcased our growing ability to deliver comprehensive solutions and resulted in a significantly higher number of leads and quality conversations with prospects. At AeroTech, demand continues to be bolstered by a strong airline equipment replacement cycle and increasing e-commerce activity for our air freight customers. Mobile equipment and bridge activity in North America is promising, while we are seeing an improving equipment market in Europe and Asia. Market reception to JBT's new products continues to be very encouraging. In the quarter, we continued to invest in R&D and our iOPS program to generate a flow of products and services for the future that enhance our competitive position and address our customers' key challenges. On the M&A front, we are pleased to see attractive opportunities that are maturing for protein and liquid foods that complement our offerings and add value to customers. Looking forward, we are very active building out our deal pipeline in support of our M&A program. With that, we'll open the call to your questions. Operator?

[Operator Instructions] Your first question comes from the line of Allison Poliniak of Wells Fargo. Your line is open.

So I want to touch on management capacity here. Some operating issues in the quarter is certainly generating a very high level of growth. I mean, are you coming into issues with management capacity to handle this growth? Any thoughts on that?

Allison, as I look at it, I'm certainly encouraged by the growth for JBT, and we've been investing behind that the last few years with the new products and the market expansion in Asia. So I find that very encouraging. And one of the proactive steps we took last year was to double the senior executive capacity at FoodTech with the addition of two roles reporting directly to me. And we were in front of the need to have the additional capacity. And I would say, through the back half of last year and currently in the first quarter, we have made some significant upgrades in the management capacity below our executive team in those presidents. So I feel we're very much in front of that and aware of that need, and we've done a great job of addressing it.

Okay. And then, I guess, just going back to the mix issues that could you kind of go and set a little bit more? And are we expecting that mix issue to persist based on current orders coming in, any comments there?

Yes. For the mix, it was primarily in protein in North America. And as the quarter unfolded, when we look at the projects and the orders that are in front of us, it's very encouraging. It gives us the confidence to see the margin expansion accelerating in the second and then through the third and fourth quarters. And it really was more around timing of the orders and shipments. And we don't see any structural impediments or something that would tell us that that's going to be a challenge going forward.

Your next question comes from the line of George Godfrey of CL King & Associates. Your line is open.

Tom, I just want to follow up on that last point you just made, the organic growth being minus 3% here in the quarter, but you're still maintaining the 7% to 8% organic growth for the full year. What is it about the timing and the pace of orders that give you the confidence that we're going to have such a dramatic change in the organic growth rate in the next three quarters and the second half of the year? Thanks.

Yes. George, what gives me and the team the confidence to continue to see that strong organic growth through the year for JBT is the visibility we have into the project activity and the customer interactions that we see unfolding through late last year and into the first quarter of this year are very encouraging to us and are expected conversion of those projects. And as we've seen in the past, we're coming off a very strong comp of prior year activity, strong backlog. And we were able to increase our backlog 11% for JBT, and then we see the project activity with our customers in the pipeline. And then we put those two pieces together, it gives us strong conviction about our ability to deliver on the growth. And I'm looking forward to that -- delivering that to our customers and making that happen this year. And we're feeling really good about it.

And then just one follow-up. I believe last quarter, perhaps in Q1, you had to do some consultancy work on equipment that had already been installed at the customer, and that obviously raised the cost on labor there. Has the work on site been done such that the machines are now being shipped from the factory as they should be? Thanks.

Yes. As we talked about on the last call, that very much unfolded as we expected. And so from our perspective, although we didn't like the way -- we worked our way through that, we were able to close it out efficiently and make that happen, and not see any downside from that. And just generally speaking for JBT, fourth quarter, we ship a lot of equipment, and we complete a lot of installations in the first quarter. And as we saw it, we had a couple of projects, specifically in liquid foods, on installations, where we had some challenges. And we've completed those installations. So from our perspective, those are behind us. There were some learnings that we took away to make sure that we don't repeat those challenges going forward. And we've made sure we put corrective actions in place to do that, but the installations are complete now that we've referenced. And we're moving forward into the second quarter, and expect the margins to improve because we have those behind us.

Your next question comes from the line of Larry De Maria of William Blair. Your line is open.

Could you give some more color on these installation issues? I don't know if material costs were an issue, and you can maybe discuss that a little bit more broadly. But it seemed like there's more than one issue. And what's going on here? And how do we get comfortable that we don't have operational execution issues every quarter, given the last 2 quarters, we had some issues and, moving forward, you want to obviously capitalize on this growth? So how do investors get comfortable that these issues are behind us? And what specifically is going on with the installations?

Sure. So yes, so on the installation front, we completed some projects in the first quarter in our liquid foods business. And we had some very specific issues, Larry, related to the nature of those projects. They weren't systematic or widespread across JBT. And we feel we've gotten the root cause and the challenges we've had around those. And it was really around not clearly defining some of the scope and elements with our customers and having to, for JBT to incur some of those costs. But then I take you up a level and just kind of remind everyone. We did have a very strong end to last year, and had very solid margins. And we're expecting to improve on those a bit this year as we go forward. So we see the increased volume. Some of the activity we have taken on pricing and supply chain being benefits to that and giving us the confidence on the conversion as we look at that. So from JBT's perspective, I would tell you that we've gone to root cause on these. We've put corrective actions in place, and we feel that the installation issues we experienced in the first quarter were very much distinct activities that we don't see repeating themselves going forward.

Okay. And remind us, on material costs, you generally lock in when you book an order. So is that kind of, is there any risk to materials throughout the year?

Well, sure. The way I think about it, Larry, is that, in general, you're correct. So we generally look at our current material prices at a time we're finalizing the quote, which is generally pretty close to the time at which we receive the orders. So that gives us an ability to capture the economics or the pressures we may have on input costs. Secondarily, on our aftermarket, that's very much a similar activity, where we're constantly able to update our pricing and look at that. We don't do annuals. We have much more frequent pricing activities, so that we can capture any pressures we see there. The third leg is in our AeroTech business, where the mobile equipment behaves very much the same way. And then our jet bridge business, which is about 5% to 10% of our revenues, where we do have longer-term contracts, where we do have to lock in some of the material costs and our prices, and what we have done is, where it is reasonable, we've provided for extended pricing and some commitments from our suppliers and give us some protection. And then we work our supply chain and our productivity to help offset any inflationary pressures. So generally speaking, JBT has a good degree of flexibility and ability to deal with increasing input prices. And the dislocation is generally in the 30- to 60-day time frame before we can capture any of those pressures or have any challenges. So it's a very short-term window as a result.

Okay. And then I'll just ask my final questions and let you guys move on. Just to be clear on the guidance adjustments moving up on a net basis, but were moving higher for the accounting, but moving lower for the first quarter, yes, EBIT miss on FoodTech. And 2Q through 4Q, are they relatively unchanged from prior? That's question one. And then secondly, we get a lot of calls and questions about the sustainability of the protein cycle when you're looking at some of the large protein companies maybe having CapEx down from high levels. In your discussions with these companies and your outlook with projects, et cetera, do you see any change in what they're spending on the value-add side, which is what you guys participate in or is it more on the kind of primary processing? So I'll leave it there. And thank you.

Thanks, Larry. This is Brian. I'll answer the first question on the guidance for the year. So you're correct that the impact -- the negative impact on the first quarter will really flow through for the full year, but we're still expecting the ramp-up in Q2 through Q4, as we've previously guided to. So effectively, you have the short-term impacts that Tom mentioned really flowing through it and not being recovered through the year. But we still expect the normal ramp-up that we've previously guided to.

And as it relates to the protein customers, Larry, the way I see it is there has been some fairly significant investments the last few years and some greenfield activity that's coming to be kind of more on the primary side. And for us, as you know, and have indicated, it's value-add. And our base of business is much broader, and we continue to see strength with our customers, investments in support of our business. And I would say even as, including most recently, we're starting to actually see even the frozen foods market, which has had some challenges for a number of years starting to turn to a positive. So for JBT, I'd say the market still feels very buoyant and strong, and our interactions with our customers indicate a willingness to continue to invest behind their businesses. I would also mention that the new tax law is a net-net positive for us. Our customers are seeing some benefits to making these capital investments in North America, where we're particularly strong. And that's an additional tailwind or support for us in terms of our order activity.

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

Maybe I want to -- I want to follow up maybe on Larry's point here. One of the things that I've been sort of scratching my head a little bit, when I'm looking at orders over the last three quarters really, and we're trying to adjust them for acquisitions, and I'm talking about the FoodTech segment here, I have had a difficult time seeing a whole lot of organic growth. So ex-acquisition embedded in these orders. And I'm wondering sort of what your perspective is here and how you're thinking about the rest of the year. Is this predominantly a timing issue? Is it that maybe I'm not understanding the numbers properly? Really any color helps.

Sure. I would indicate we had organic strength in our orders throughout last year. And we indicated that, Mig, and we had a very strong end to last year. We had a good backlog going into the year. We're able to convert on in '17. And as we head into '18, we continue to see a strong backlog. And when we look at the projects and the activity that's in front of us, that's what gives us the confidence. And you should expect us to deliver on that. And our thinking is that we'll see that order activity flow throughout the year in support of our requirements in both new equipment and the aftermarket, and where we've been working hard investing also. So we still feel very much that the arrows are pointing in the right direction. And that's what gives us the confidence and conviction to continue to see the strong growth at JBT, along with the investments in growth, which I'd like to remind you of, which is the new products and the market expansion to Asia, where we've continued to highlight JBT is seeing significant strength that might be a little unusual in terms of what's happening in business in general. Our activity in Asia has been very strong, and we continue to see that playing out through the year.

I see. Well, and I understand that, quarter-on-quarter, things change. But when I'm looking at your guidance back-of-the-envelope math, it seems to me that excluding all the noise from maybe FX, 606, you still need to deliver, call it, on average, for the rest of the year about $340 million, $350 million worth of core revenues per quarter in your FoodTech business. To me, that would imply a sequential uptick, a pretty meaningful sequential uptick in inbound orders from current levels from Q1. It's fair to say that based on your visibility, you'd think that this is feasible and tangible and can occur here in Q2, Q3, right?

Yes, sir. We do expect a reasonably high uptick in the revenues as well as the orders to support that for the remainder of the year. And as Tom said, with the underlying activity that we have, the aftermarket and the equipment projects, that's how we see it unfolding for the remainder of the year.

Perfect. Then lastly for me. Again, thinking through margins here. I understand the Q1 issues, and you've discussed them at length. But as I look in the subsequent quarters, like take, for instance, Q2, you're talking about guiding the FoodTech margin up 100 basis points on a year-over-year basis. But if I remember in a prior-year quarter, the margins were impacted to a tune of 140 basis points by acquisitions. So now that, obviously, we don't have the same kind of headwinds here, what are you doing from an operating standpoint to essentially get real profit traction, if you would, on a core basis?

Sure. So as we talked about, Mig, JBT has a number of activities underway. We continue to work our customer value proposition, which is an important element of that. Our supply chain activity, which is underway, we still expect that to be a net benefit to us in spite of some of the inflationary pressures that people are seeing on the raw materials. We have our RCI program, where we work on productivity and lean. And then the last element of it is we do have a fairly large fixed cost, and we get great leverage from the volume. We certainly have an expanded ethics base significantly in the current year. So as the volume starts to ramp up in Q2, 3 and 4, we get really nice leverage and drop-through on that production and those revenues.

Your next question comes from the line of Walter Liptak of Seaport Global. Your line is open.

I want to ask about FoodTech. Orders look like they were organically down at a low single-digit level. And I understand that, if I'm hearing you guys right, the funnel of projects out there is still strong from your customers. But was there anything in the first quarter where you saw orders that you thought were going to go slip a little bit and push out into the year?

Yes. Good morning, Walt. We always have orders that slip out. But what I would tell you is when you look at the organic order expansion year-over-year, it is slightly down just a touch year-over-year off of our all-time best quarter of inbound in Q1 of 2017. If you look relative to an average quarter over the last four quarters, this is quite a strong quarter organically, no matter how you look at it. And it is very supportive of the activity we see going from here.

If I could switch gears to the restructuring program. This is a much bigger one than you guys have done in the past. I wonder, any thoughts on why this one's so big? And maybe if we could think a little bit about, have you started to take costs out? What region is this focused in, is it people, is it plants? Just a little bit more detail on the program.

Yes. Thanks for asking. For me, Walt, this is an important activity for JBT. We started it much earlier than this year. We were well at this last year, late into last year. And we see this as about transforming the company to be a -- to take advantage of our global scale, to be much more responsive and competitive while, at the same time, improving our profitability. So I really see a two-part benefit here. I mean, it's great that we're able to improve our profitability, but it's equally about improving our processes, our efficiencies, reducing our lead times, making us a more efficient organization and unlocking the benefits of the scale that we've built over the last few years. And we've been gearing up to make this happen, and we're excited about what this does to JBT and how it makes us a better company. The costs that we're going to benefit from, there are some reductions in workforce significantly that benefit JBT, and then there's a lot of process reengineering. The way we go about our quoting, our engineering, our direct labor contributions on the shop floor, the way we run our aftermarket businesses, we've studied all of those, as I've mentioned in our prepared comments. And those are all areas where we can make significant improvements, make JBT a better company and, at the same time, improve our profitability. So from my perspective, I'm very excited to see this moving forward. We've put some significant energy behind it, and we think it does a great job of putting us in a very advantageous position against our Elevate framework as we exit 2019. So altogether from my perspective, a very important activity and one that we're encouraged to see unfolding.

Is it -- just to try and drill down a little bit more. Is there a plant consolidation somewhere that's going to happen?

There are some smaller offices, et cetera, that we're looking to consolidate, Walt. But the real benefits come from the operational efficiencies that we're talking about. And working between our businesses and generating that scale that we haven't had the ability to do in the past and makes JBT a better company. So the costs come out. And there are direct costs out that we're signing up for materially from the improved processes and the much more efficient way of operating our business collectively that we haven't had an opportunity to really take advantage of in the past.

The $45 million benefits that you're expecting by the end of 2019, I wonder if, just to clarify, does that mean that we'll start to see benefits in the fourth quarter of 2019 or we're going to get the full $45 million in benefits during 2019?

No. What we meant by that was you'll see the full run rate of the benefits as you exit 2019, so meaning you'll see the full benefit in 2020. So you get some benefits, some small benefits in 2019. And as we start to get into these individual projects, we'll provide more guidance in the future as how that outlays through 2019. But you should really expect the full 200 basis points expansion for 2020.

Just to be clear, so of the $45 million, maybe 10% of that or something hits as a benefit in 2019, and then the full run rate comes in 2020?

We'll schedule it out as we head into 2019, Walt, as we see the projects unfolding, and that's the way we're committing to do it. But this process reengineering here that takes a little time, we want to make sure that we can continue our growth and develop, deliver on our other important initiatives while, at the same time, making the company better. So we're going to be thoughtful about that and make sure that we get these actions in place, make sure they're executed in a very thorough and thoughtful way. And that's why we're indicating we'll schedule that out, but we don't want to put time pressure on these for 3 months one way or the other as we move through the period. But we're quite confident that we'll exit 2019 with the benefits. And as we indicated that, bringing it together, it's 200 basis points for JBT, which is a real game-changer in terms of our profitability.

And if I can just do one more. AeroTech margins were a little bit light, and I'm not sure I heard why that is. Is it a price cost or mix issue?

Yes. AeroTech was just slightly below our expectations for the quarter. Largely, we had expected a decline in the military shipments in the first quarter. And that unfolded as expected, just slightly off the range that we expected. But overall, AeroTech for the quarter and for the year is performing as expected.

Your next question comes from the line of David Stratton of Great Lakes Review. Your line is open.

When we look at the recurring revenue, can you break out what that looked like in the quarter?

It was slightly up year-over-year organically.

And was that impacted at all by the new revenue recognition standard? And I'm just kind of trying to parse out that…

No, no, it was not. The revenue recognition standard really applies to our project business.

And then when we look at the new product launch and efficiencies, was that geographically oriented around a certain product or more broad-based?

No, it was very focused in North America. And as we've said, what we had expected, Dave, played out. So from my perspective, once we got our arms around it, we're able to control it. And from my perspective, I feel that, that was very much behind us.

And then, I guess, if you have a minute to talk about what you're seeing in your iOPS acceptance and what your customers are thinking about that as they move to adopt or what you're seeing on the uptick there.

Yes. One of the things we're seeing out there is for our customers, there's a continuing pressure on not just labor costs, but labor availability, and that's creating quite a few opportunities for JBT, in our automation products and our equipment, certainly a big benefit in food and our AGVs and to some extent in Aero, where we have some automation. But iOPS certainly plays a role in that, right? So their ability to operate our equipment more efficiently, be able to track it, make sure it's maintained properly, that they're getting good returns on that, iOPS plays centrally into that and automates it, where maybe historically they had to pay people and commit labor to doing that. So the interest continues to be high. We continue to offer and develop our solution. We're still early in the journey. But as we've interacted with some of our large customers, both in the U.S. and in Europe, the interest and acceptance is very high. And we're being very thoughtful about how we apply it and move forward. But I would say that all the indications are positive and as we expected, with maybe a bit of more tailwind just seeing the pressures that we are on labor than when we started the journey.

Your next question comes from the line of Patrick Baumann of JPMorgan. Your line is open.

Just had a -- I want to follow up on pretax margins. So my back-of-the-envelope math shows the margin in the first quarter there ex-606 were kind of like 3.5%. And I guess, I'm just trying to understand, within that magnitude of the nonrecurring costs or product launch and efficiencies or what have you, just trying to get a more appropriate baseline there for the first quarter. And really, this is just along the lines of helping us walk to the second half expectations, which are up at like 15%, I think. And maybe if you could help us with that, too, and just give us a sense of your visibility to that walk versus what was a previous peak last fourth quarter at about 14% for the margins in FoodTech?

Right. So a couple of things. So relative to expectations, we were on that 4% or so range versus about 8% for FoodTech. And then, obviously, we had -- included in the original guidance was the impact of the product launch. So collectively, that had several hundred basis points impact on the quarter. And those four pieces collectively, they're in that range of $2 million or so each, a little bit plus, a little bit minus on each of them. So really, as those abate in the second quarter, you should see that really big uplift going into the quarter. And then when you look at the 15 or so percent margins that you referenced in the back half for FoodTech, the way we think of it in large part is looking at where we exited 2017 at about 14% margins. And then from there, you add the impact that we're seeing on the strategic sourcing, some of our lean initiatives, the pricing and a little bit of benefit -- a touch of benefit on the restructuring. And that's going to unfold, along with the operating leverage that we're going to get because if you look at the revenue forecast for the third and fourth quarter, both of those are higher than what we had in the fourth quarter of last year. So those combination of items is what gives us the confidence on how the back half is going to unfold.

Got it. Helpful. And then maybe just to put a finer point on the free cash expectation for this year, just an absolute number would be helpful. Because I know you mentioned conversion, and then you said of greater than 100%, you said ex, I think, yes, maybe the 606 profits or something like that. Maybe just give us some help on kind of the absolute level that you expect for free cash flow for the year now.

Right. So the general way to think of it from a free cash flow perspective is starting with GAAP EPS, right, which is that approximately $3 or so a share, 32 million shares. That's about somewhere between $90 million and $95 million. But that does include some non-cash income from the rev rec previously recognized items. We mentioned that's $15 million tax affected, call it, $10 million or so. So you should be something north of $80 million. And we could get some potential pickup on the restructuring expenses if all of them don't get spent in the year. So certainly $80 million-plus, right, potentially $90 million-plus.

Okay. And then last one for me. Maybe I missed it earlier, but I wasn't, did you guys update your acquisition accretion forecast at all or just give any sense on how the deals that you did pre-2018 are tracking?

We didn't provide specific information on this call, but what we did say in the last call is that there was accretion in, for the year in that $0.40 to $0.45 range. That's still tracking as planned. And the revenue increase of 2% to 3%, we did spell out this year. And that's mainly data, that is fully from the acquisitions incurred in the back half of last year. And then we had the small Schröder acquisition in the first quarter of this year.

And the pipeline, I mean, how's the pipeline looking for you guys?

Yes. As I had mentioned in my comments, I would tell you that the pipeline is strengthening. We see, I'd say more than just the pipeline, we have some activities underway that are really starting to mature. Certainly, until you get those activities closed out, you can't call them closed, but we're encouraged by what's maturing in our deal activity. I would mention that we had a nice size opportunity that we have fully expected to close in the quarter, that we were unable to transact because of a minority ownership position that did end up buying the deal that we hoped to get done. That was a nice size deal that didn't happen. And it really wasn't anything to do with JBT. It was just about a minority owner that exercised their right to buy. So the activity has been material at JBT. We just haven't seen it show up in our results yet. And we would expect that through the year that JBT continues to mature these opportunities. And we're very much committed to our M&A program and making something happen there, but within the discipline of good strategic fits and solid results on our investments. And we see the opportunity continue to do that going forward.

[Operator Instructions] There are no further questions at this time. I'd turn the call back over to Tom Giacomini for closing remarks.

We are moving strongly forward to leverage robust market conditions, address the operating challenges experienced in the first quarter and capture the benefits of our comprehensive restructuring. Thanks again for joining us this morning, and I'm very much looking forward to seeing many of you at the upcoming Wells Fargo Conference in May and the William Blair Conference in June.

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