JBT Marel Corporation 2026 Q2 Earnings Call

Please go ahead. Thank you, Aaron.

Good morning, everyone, and thank you for joining our second quarter 2026 conference call. With me on the call is our Chief Executive Officer, Brian Deck, President, Arni Sigurdsson, and Chief Financial Officer, Matt Meister. In today's call, we will use forward-looking statements that are subject to the safe harbor language in yesterday's press release and 8-K filing. JBT Marel's periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available on the IR website. Our discussion today includes references to certain non-GAAP financial measures. A reconciliation of these measures to the most comparable GAAP measure can be found on our website. With that, I'll turn the call over to Brian.

Thanks, Marlee, and good morning, all. First and foremost, we were very pleased with the continued robust demand environment in the second quarter. Orders increased 10% year-over-year and marked our third consecutive quarter with orders exceeding $1 billion, reinforcing the strategic benefits of the JBT Marel combination. By bringing together our complementary technologies, we are strengthening our ability to serve customers around the world. Contributing to the gain was double-digit year-over-year growth in our Prepared Food and Beverage Solutions segment, which was led by our value-added prepared foods technology. The strong orders also reflect the success of our synergistic cross-selling initiatives.

It is also clear that investment by the poultry industry remains solid, JBT Marel is uniquely positioned to benefit from investment across the entire poultry value chain, from primary and secondary processing through further processing and end-of-line solutions, allowing us to capture growth wherever our customers are investing. At the same time, we continue to advance our cost synergy initiatives. As we have discussed previously, the majority of our synergy actions in 2026 and 2027 are related to supply chain and footprint optimization projects. As Arni will highlight, we have taken decisive actions to advance our footprint optimization strategy, allowing us to leverage our global scale and simplify our manufacturing and distribution network. As Matt will discuss, we're restructuring our warehouse automation business to optimize the cost structure and take advantage of product standardization to operate more efficiently.

There were temporary and other factors that impacted our second quarter, which Matt will discuss. Absent the net benefits of these factors, results fell short of our expectations in our Prepared Food and Beverage Solutions segment. That said, we remain optimistic about the short and long-term future of that segment. At the same time, we are thrilled with the continued profitable growth of the Protein Solutions segment. Taken together, our backlog visibility, integration efforts, and continuous improvement initiatives gives us confidence in realizing our second half 2026 forecast and achieving our longer-term financial targets, including an adjusted EBITDA margin of 20% in 2028. Now, let me turn the call over to Matt to provide analysis of our second quarter and guidance for the remainder of the year.

Thanks, Brian. Second quarter consolidated revenue was $981 million, an increase of 5% year-over-year, which made up of 3% organic growth and 2% from foreign exchange. At the segment level, strong Protein Solutions revenue of $467 million grew 11% year-over-year, which was 8% organic and 3% from foreign exchange. Prepared Food and Beverage Solutions segment revenue was flat versus Q2 last year, which included an approximate 2% favorable impact from foreign exchange. Equipment revenue in the segment was short of our expectations due to a combination of logistics constraints and production inefficiencies resulting from our efforts to optimize our manufacturing footprint. At the same time, we are quite pleased with the segment's strong order and backlog growth. Second quarter consolidated adjusted EBITDA of $168 million was impacted by the timing of equipment shipments described above and the following discrete items not included in our forecast.

We recognized $17 million of IEPA tariff refunds, which was partially offset by $4 million in higher-than-expected tariff expense associated with prior years and $5 million in accelerated long-term incentive compensation expense. We are operating in a higher inflationary environment as the pace of higher logistics, metals, and other input costs put pressure on our year-over-year margins. That said, we have taken appropriate pricing actions to address these cost pressures. As mentioned, we are investing significant effort in optimizing our manufacturing footprint, primarily impacting the Prepared Food and Beverage Solutions segment. These efforts delayed some revenue recognition in the quarter and correspondingly weighed on margins. We believe this short-term disruption is part of the transition to lower cost operations, which are critical to achieving our 2028 margin targets. At the same time, we took action to restructure our warehouse automation business.

We have made significant progress in advancing our product standardization, enabling us to more efficiently deploy engineering resources and consolidate two facilities into one. These actions are expected to generate approximately $9 million in total annual savings, including approximately $3 million in the second half of 2026. While the Prepared Food and Beverage Solutions segment margins were disappointing, we expect meaningful improvement in the back half of the year, which is supported by our strong backlog visibility, pricing actions, and operational improvement initiatives. Meanwhile, adjusted EBITDA margins in the Protein Solutions segment improved year-over-year, even excluding the benefit from tariff refunds, primarily due to volume leverage in our poultry business, as well as benefits from our synergy and continuous improvement actions across the segment. During the second quarter, we also took a non-cash impairment charge to write off intangibles associated with the 2021 acquisition of Provenio within the Protein Solutions segment.

This impairment is a reflection of a shift in demand from Provenio's value-added antimicrobial offering for poultry to a more commodity-based customer approach. Moving to the balance sheet, we generated $179 million in year-to-date free cash flow, representing a conversion to adjusted EBITDA of 58%. With leverage at the end of the quarter just below 2.5 times, we are pleased that we are now within our target range of 2 to 2.5 times after just 18 months after the close. In terms of guidance, the actions we have taken in our operations are expected to improve production efficiency as we progress through the second half of the year. Therefore, we expect a steeper ramp in the fourth quarter results compared to the third quarter.

For the third quarter, we are guiding to a year-over-year revenue growth of 2%-4% organic, partially offset by 1% FX impact. We expect adjusted EBITDA margins of 17%-17.5%. Given our record backlog, which provides visibility to over 90% of back half equipment revenue, coupled with our resilient aftermarket revenue and operational improvements within the prepared food and beverage segment, we are maintaining our full year 2026 guidance for revenue and adjusted EBITDA. At the midpoint, that reflects consolidated revenue growth of 6% and adjusted EBITDA margin expansion of 145 basis points. Finally, we have refined our adjusted EPS guidance to reflect updated assumptions for depreciation, amortization, and our effective tax rate. With that, let me turn the call over to Arni.

Thank you, Matt. As Brian mentioned earlier, we have made significant progress on cross-selling, allowing us to realize synergy orders of $45 million through the first six months of the year and $75 million over the last 18 months. Many of our opportunities are in prepared foods, where we meaningfully strengthened our integrated offering through the JBT Marel combination. For example, we secured a multi-line order with a leading poultry customer. We leveraged technologies from across the combined portfolio, including forming, coating, frying, and heating for branded fully cooked chicken distributed to the retail channels. This is a testament to the strategic benefits of the combination and to our enhanced value proposition with customers. Additionally, as discussed at the top of the call, we continue to take decisive actions to optimize our operating footprint. To date, we have announced facility consolidations with a total of approximately 1.3 million sq ft.

This includes approximately 1.1 million sq ft of manufacturing and distribution space and 200,000 sq ft of office space and represents in total an approximately 15% reduction of our global footprint. Nearly 80% of the manufacturing space reduction is associated with the prepared food and beverage segment as we focus on that segment's full margin potential and other opportunities do remain. More than just the reduction in square footage, the footprint optimization allows us to take advantage of our scale, reduce complexity, and utilize low-cost operating capacity across our global network, such as in Eastern Europe, Brazil, and India. As a result of these initiatives, we expect to record a cash benefit on the sale of real estate assets in 2027 or 2028.

In terms of the P&L effect, we expect these initiatives will deliver annualized savings of approximately $25 million-$30 million by 2028, well exceeding our original estimated savings of $10 million-$15 million. Of these anticipated annual savings, roughly $4 million-$5 million is embedded into our 2026 forecast. Let me now turn the call back to Brian.