JBT Earnings: AeroTech Sale a Lackluster Deal for Shareholders, Though the Quarter Was As Expected

After reviewing narrow-moat-rated John Bean Technologies’ JBT second-quarter results, we reduce our fair value estimate to $117 per share from $121 previously. Our reduced fair value mostly stems from fully modeling the sale of AeroTech to OshKosh at a discount to our calculated intrinsic value (a negative $5 impact). However, the anticipated carryover benefits to remaining JBT’s operating margins from its announced restructuring actions partially offset this impact with a $1 benefit to valuation.

We don’t like the deal and we think management both mistimed and mispriced this one, particularly since many of the benefits from the commercial aerospace recovery could have accrued to JBT. While many conglomerates generally don’t make sense since investors can diversify their own portfolios, it’s still up to management to unlock the most value for shareholders.

We generally like the benefits of focused portfolios and asset sales allow management teams to recycle capital into attractive organic and mergers and acquisitions opportunities. However, in this instance, we think the haircut to value will more than offset these potential benefits (though the market seemed to punish shares a bit less than our implied figures in the day following the announcement).

Even so, we think the stock mostly trades in line with economic value. After taxes, JBT will have an incremental $650 million it can redeploy into new opportunities. We think it will likely deploy the cash into programmatic acquisitions that can help bolster any holes in its food automation portfolio or add higher-margin, recurring revenue to its coffers. In fact, acquisitions add about $3 worth of intrinsic value to our financial model.

As for the quarter, results were broadly in line with our expectations on a continuing operations basis. We were previously modeling AeroTech in continued operations, but have now fully moved it into discontinued operations, consistent with the company’s reporting from now on.