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William E. Pitts, CPA

Director, Investor Relations

Barnes Group Inc. Reports Second Quarter 2017 Financial Results

07/28/2017
  • Sales of $364 million, up 19%; Organic Sales up 11%
  • Operating Margin of 15.7%; Adjusted Operating Margin of 15.6%, down 40 bps
  • Diluted EPS of $0.82, up 34%; Up 29% to $0.81 on an Adjusted Basis
  • 2017 Expected Sales Growth of 14% to 15%; Organic Sales Growth of 9% to 10%
  • 2017 Expected Adjusted Net Income of $2.80 to $2.90 per Diluted Share; up 11% to 15% from 2016 Adjusted Net Income of $2.53 per Diluted Share

BRISTOL, Conn.--(BUSINESS WIRE)-- Barnes Group Inc. (NYSE: B), a global industrial and aerospace manufacturer and service provider, today reported financial results for the second quarter 2017.

Second quarter 2017 net sales of $364 million were up 19% from $307 million in the prior year period driven by strong organic sales growth (1) of 11% and acquisition sales of 8%. Foreign exchange unfavorably impacted sales by approximately 1%. Net income for the second quarter was $45.0 million, or $0.82 per diluted share, compared to $33.2 million, or $0.61 per diluted share, a year ago. During the quarter, the Company merged several Swiss legal entities which generated a net tax benefit of approximately $6.3 million, or $0.12 per diluted share. On an adjusted basis, net income was $0.81 per diluted share, up 29% from $0.63 last year. Adjusted diluted net income per share in the second quarter of 2017 excludes restructuring actions which provided a net benefit of $0.03 and FOBOHA short-term purchase accounting adjustments of $0.02 in our Industrial Segment. Second quarter 2016 adjusted diluted net income per share excludes costs related to a contract termination dispute of $0.02 in our Aerospace Segment.

A table reconciling 2017 and 2016 non-GAAP adjusted results presented in this release to the Company’s GAAP results is included at the end of this press release.

“As a result of growth investments made during the ongoing transformation of our business, Barnes Group continues to deliver strong organic sales,” said Patrick J. Dempsey, President and Chief Executive Officer of Barnes Group Inc. “The portfolio reshaping allows us to take advantage of current favorable end markets. While accelerated growth can occasionally dampen near term margins, the business is well situated to continue its upward trend of long term profitability,” added Dempsey.

Industrial

  • Second quarter 2017 sales were $251.8 million, up 23% from $204.5 million in the prior year period. Organic sales increased by 12%, primarily driven by continuing strength in our Nitrogen Gas Products and Molding Solutions businesses. Unfavorable foreign exchange reduced sales by approximately $1.8 million, or 1%, while the FOBOHA and Gammaflux businesses collectively contributed $24.7 million, or 12%, in acquisition sales.
  • Operating profit in the second quarter was $37.4 million, up 7% from $34.8 million in the prior year period, benefitting from the profit impact of increased organic sales volumes, partially offset by higher costs incurred on certain programs within Engineered Components. The second quarter of 2017 includes restructuring actions related to two plant consolidations which provided a net benefit of $1.7 million and FOBOHA short-term purchase accounting adjustments of $1.2 million. Excluding these items, adjusted operating profit of $36.9 million was up 6% from $34.8 million a year ago. Adjusted operating margin was 14.7%, down 230 bps, driven by lower productivity from Engineered Components and a low margin contribution from the FOBOHA business.

Aerospace

  • Second quarter 2017 sales were $112.7 million, up 10% from $102.2 million in the same period last year. Aerospace original equipment manufacturing (“OEM”) sales increased due to the continuing ramp of new engine programs. In the aftermarket business, maintenance, repair and overhaul (“MRO”) sales and spare parts sales were both up significantly as compared to a year ago.
  • Operating profit was $19.7 million for the second quarter of 2017, compared to $12.6 million in the prior year period, reflecting the profit impact from higher sales volumes, productivity benefits and the absence of contract termination dispute charges of $1.6 million taken last year, partially offset by price deflation and increased employee related expenses. Excluding the contract termination dispute costs last year, adjusted operating profit was up 39% from $14.2 million a year ago. Operating margin of 17.5% was up 360 bps from an adjusted 13.9% a year ago.
  • Aerospace backlog was $683 million at the end of the second quarter of 2017, up 4% compared to a year ago and down 1% sequentially from the first quarter of 2017.

Additional Information

  • Interest expense increased $0.7 million to $3.5 million in the second quarter of 2017 primarily as a result of a higher average effective interest rate versus a year ago.
  • The Company’s effective tax rate for the second quarter was 15.4% compared with 27.0% in the second quarter of 2016 and 25.7% for the full year 2016. The primary driver of the second quarter’s lower tax rate is the result of merging several legal entities in Switzerland. This allowed the Company to adjust the valuation allowance on previously reserved net operating losses that would have otherwise expired. The impact related to this change is a discrete benefit of approximately $6.3 million in the quarter.

2017 Updated Outlook

Barnes Group now expects 2017 total revenue growth of 14% to 15% with organic revenue growth of 9% to 10% and 5% from acquisition revenues. Foreign exchange is not anticipated to have a meaningful impact for the year. Adjusted operating margins are forecasted to be in the range of 15.5% to 16.0%. Adjusted earnings from continuing operations are expected to be in the range of $2.80 to $2.90 per diluted share, up 11% to 15% from 2016’s adjusted diluted earnings per share of $2.53. Further, the Company anticipates capital expenditures of approximately $55 million and cash conversion greater than 90% of net income. For 2017, the effective tax rate is expected to be approximately 24%.

Conference Call Information

Barnes Group Inc. will conduct a conference call with investors to discuss second quarter 2017 results at 8:30 a.m. ET today, July 28, 2017. The public may access the conference through a live audio webcast available on the Investor Relations section of Barnes Group’s website at www.BGInc.com. The conference is also available by direct dial at (877) 201-0168 in the U.S. or (647) 788-4901 outside of the U.S.; Conference ID 18435286. Supplemental materials will be posted to the Investor Relations section of the Company's website prior to the conference call.

In addition, the call will be recorded and available for playback from 12:00 p.m. (ET) on Friday, July 28, 2017 until 11:59 p.m. (ET) on Friday, August 4, 2017, by dialing (416) 621-4642; Conference ID 18435286.

Note:
(1) Organic sales growth represents the total reported sales increase within the Company’s ongoing businesses less the impact of foreign currency translation and acquisition and divestitures completed in the preceding twelve months.

About Barnes Group
Barnes Group Inc. (NYSE: B) is a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, healthcare, and packaging. Barnes Group’s skilled and dedicated employees around the globe are committed to the highest performance standards and achieving consistent, sustainable profitable growth. For more information, visit www.BGInc.com.

Forward-Looking Statements
This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements often address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "estimate," "project," and similar terms. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These include, among others: difficulty maintaining relationships with employees, including unionized employees, customers, distributors, suppliers, business partners or governmental entities; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; difficulties leveraging market opportunities; changes in market demand for our products and services; rapid technological and market change; the ability to protect intellectual property rights; introduction or development of new products or transfer of work; higher risks in global operations and markets; the impact of intense competition; acts of terrorism, cybersecurity attacks or intrusions that could adversely impact our businesses; uncertainties relating to conditions in financial markets; currency fluctuations and foreign currency exposure; future financial performance of the industries or customers that we serve; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; inability to realize expected sales or profits from existing backlog due to a range of factors, including changes in customer sourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions; changes in raw material or product prices and availability; integration of acquired businesses; restructuring costs or savings; the continuing impact of prior acquisitions and divestitures; and any other future strategic actions, including acquisitions, divestitures, restructurings, or strategic business realignments, and our ability to achieve the financial and operational targets set in connection with any such actions; the outcome of pending and future legal, governmental, or regulatory proceedings and contingencies and uninsured claims; future repurchases of common stock; future levels of indebtedness; and numerous other matters of a global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature; and other risks and uncertainties described in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by the Company, including, among others, those in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings. The Company assumes no obligation to update its forward-looking statements.

 

             
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
 
Three months ended June 30, Six months ended June 30,

2017

2016

%
Change

2017

2016

%
Change

 
Net sales $ 364,493 $ 306,693 18.8 $ 706,295 $ 595,025 18.7
 
Cost of sales 236,506 197,173 19.9 456,339 383,428 19.0
Selling and administrative expenses   70,847     62,060   14.2   137,069     122,610   11.8
 
  307,353     259,233   18.6   593,408     506,038   17.3
 
Operating income 57,140 47,460 20.4 112,887 88,987 26.9
 
Operating margin 15.7 % 15.5 % 16.0 % 15.0 %
 
Interest expense 3,541 2,815 25.8 6,890 5,806 18.7
Other expense (income), net   394     (824 ) NM   416     (597 ) NM
 
Income before income taxes 53,205 45,469 17.0 105,581 83,778 26.0
 
Income taxes   8,178     12,257   (33.3 )   22,251     21,718   2.5
 
Net income $ 45,027   $ 33,212   35.6 $ 83,330   $ 62,060   34.3
 
Common dividends $ 7,527   $ 6,982   7.8 $ 14,524   $ 13,450   8.0
 
Per common share:
 
Net income:
Basic $ 0.83 $ 0.61 36.1 $ 1.54 $ 1.14 35.1
Diluted 0.82 0.61 34.4 1.52 1.14 33.3
Dividends 0.14 0.13 7.7 0.27 0.25 8.0
 
Weighted average common shares outstanding:
Basic 54,177,251 54,168,562 0.0 54,178,185 54,207,145 (0.1 )
Diluted 54,722,211 54,642,071 0.1 54,686,172 54,662,389 0.0
 
NM - Not Meaningful
 

 

             
BARNES GROUP INC.
OPERATIONS BY REPORTABLE BUSINESS SEGMENT
(Dollars in thousands)
(Unaudited)
 
Three months ended June 30, Six months ended June 30,
2017 2016

%
Change

2017 2016

%
Change

Net sales
 
Industrial $ 251,845 $ 204,540 23.1 $ 479,185 $ 399,786 19.9
 
Aerospace 112,662 102,153 10.3 227,132 195,240 16.3
 
Intersegment sales   (14 )   -     (22 )   (1 )
 
Total net sales $ 364,493   $ 306,693   18.8 $ 706,295   $ 595,025   18.7
 
Operating profit
 
Industrial $ 37,395 $ 34,843 7.3 $ 70,850 $ 64,487 9.9
 
Aerospace   19,745     12,617   56.5   42,037     24,500   71.6
 
Total operating profit $ 57,140   $ 47,460   20.4 $ 112,887   $ 88,987   26.9
 
Operating margin Change Change
 
Industrial 14.8 % 17.0 % (220 ) bps. 14.8 % 16.1 % (130 ) bps.
 
Aerospace   17.5 %   12.4 % 510 bps.   18.5 %   12.5 % 600 bps.
 
Total operating margin 15.7 % 15.5 % 20 bps. 16.0 % 15.0 % 100 bps.
 

 

     
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
 
 

June 30,
2017

 

December 31,
2016

Assets
Current assets
Cash and cash equivalents $ 104,805 $ 66,447
Accounts receivable 313,491 287,123
Inventories 248,370 227,759
Prepaid expenses and other current assets   28,483   27,163
 
Total current assets 695,149 608,492
 
 
Deferred income taxes 31,496 25,433
Property, plant and equipment, net 348,539 334,489
Goodwill 674,785 633,436
Other intangible assets, net 520,061 522,258
Other assets   16,345   13,431
 
Total assets $ 2,286,375 $ 2,137,539
 
Liabilities and Stockholders' Equity
Current liabilities
Notes and overdrafts payable $ 10,000 $ 30,825
Accounts payable 127,393 112,024
Accrued liabilities 168,362 156,967
Long-term debt - current   1,887   2,067
 
Total current liabilities 307,642 301,883
 
Long-term debt 494,222 468,062
Accrued retirement benefits 94,263 109,350
Deferred income taxes 64,770 66,446
Other liabilities 26,206 23,440
 
Total stockholders' equity   1,299,272   1,168,358
 
Total liabilities and stockholders' equity $ 2,286,375 $ 2,137,539
 
     
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
 
Six months ended June 30,

2017

2016

Operating activities:
Net income $ 83,330 $ 62,060
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 45,488 38,639
Gain on disposition of property, plant and equipment (24 ) (286 )
Stock compensation expense 5,494 5,947
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable (18,304 ) (11,036 )
Inventories (10,743 ) 4,755
Prepaid expenses and other current assets (642 ) (2,378 )
Accounts payable 15,717 8,014
Accrued liabilities 8,517 8,512
Deferred income taxes (14,569 ) (536 )
Long-term retirement benefits (12,533 ) (16,199 )
Other   663     (459 )
 
Net cash provided by operating activities 102,394 97,033
 
Investing activities:
Proceeds from disposition of property, plant and equipment 205 439
Capital expenditures (27,325 ) (22,987 )
Business acquisitions, net of cash acquired (8,811 ) (1,546 )
Component Repair Program payments - (900 )
Other   (3,000 )   -  
 
Net cash used by investing activities (38,931 ) (24,994 )
 
Financing activities:
Net change in other borrowings (20,925 ) (2,349 )
Payments on long-term debt (49,311 ) (127,484 )
Proceeds from the issuance of long-term debt 74,716 99,022
Proceeds from the issuance of common stock 1,148 311
Common stock repurchases (5,383 ) (8,000 )
Dividends paid (14,524 ) (13,450 )
Withholding taxes paid on stock issuances (240 ) (465 )
Other   (14,451 )   (2,876 )
 
Net cash used by financing activities (28,970 ) (55,291 )
 
Effect of exchange rate changes on cash flows   3,865     652  
 
Increase in cash and cash equivalents 38,358 17,400
 
Cash and cash equivalents at beginning of period   66,447     83,926  
 
Cash and cash equivalents at end of period $ 104,805   $ 101,326  
 

 

     
BARNES GROUP INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(Dollars in thousands)
(Unaudited)
 
 
Six months ended June 30,

2017

2016

Free cash flow:
 
Net cash provided by operating activities $ 102,394 $ 97,033
Capital expenditures   (27,325 )   (22,987 )
 
Free cash flow(1) $ 75,069   $ 74,046  
 

Notes:

(1) The Company defines free cash flow as net cash provided by operating activities less capital expenditures. The Company believes that the free cash flow metric is useful to investors and management as a measure of cash generated by business operations that can be used to invest in future growth, pay dividends, repurchase stock and reduce debt. This metric can also be used to evaluate the Company's ability to generate cash flow from business operations and the impact that this cash flow has on the Company's liquidity.

 

         
BARNES GROUP INC.
NON-GAAP FINANCIAL MEASURE RECONCILIATION
(Dollars in thousands, except per share data)
(Unaudited)
 
Three months ended June 30, Six months ended June 30,
2017 2016 % Change 2017 2016 % Change
SEGMENT RESULTS
Operating Profit - Industrial Segment (GAAP) $ 37,395 $ 34,843 7.3 $ 70,850 $ 64,487 9.9
 
FOBOHA short-term purchase accounting adjustments 1,193 - 1,793 -
Restructuring actions   (1,652 )   -     (1,652 )   -  
 
Operating Profit - Industrial Segment as adjusted (Non-GAAP) (1) $ 36,936   $ 34,843   6.0 $ 70,991   $ 64,487   10.1
 
Operating Margin - Industrial Segment (GAAP) 14.8 % 17.0 % (220 ) bps. 14.8 % 16.1 % (130 ) bps.
Operating Margin - Industrial Segment as adjusted (Non-GAAP) (1) 14.7 % 17.0 % (230 ) bps. 14.8 % 16.1 % (130 ) bps.
 
Operating Profit - Aerospace Segment (GAAP) $ 19,745 $ 12,617 56.5 $ 42,037 $ 24,500 71.6
 
Contract termination dispute charges   -     1,570     -     2,386  
 
Operating Profit - Aerospace Segment as adjusted (Non-GAAP) (1) $ 19,745   $ 14,187   39.2 $ 42,037   $ 26,886   56.4
 
Operating Margin - Aerospace Segment (GAAP) 17.5 % 12.4 % 510 bps. 18.5 % 12.5 % 600 bps.
Operating Margin - Aerospace Segment as adjusted (Non-GAAP) (1)       17.5 %     13.9 %     360   bps.     18.5 %     13.8 %   470   bps.
 
CONSOLIDATED RESULTS
Operating Income (GAAP) $ 57,140 $ 47,460 20.4 $ 112,887 $ 88,987 26.9
 
FOBOHA short-term purchase accounting adjustments 1,193 - 1,793 -
Contract termination dispute charges - 1,570 - 2,386
Restructuring actions   (1,652 )   -     (1,652 )   -  
 
Operating Income as adjusted (Non-GAAP) (1) $ 56,681   $ 49,030   15.6 $ 113,028   $ 91,373   23.7
 
Operating Margin (GAAP) 15.7 % 15.5 % 20 bps. 16.0 % 15.0 % 100 bps.
Operating Margin as adjusted (Non-GAAP) (1)       15.6 %     16.0 %     (40 ) bps.     16.0 %     15.4 %   60   bps.
 
Diluted Net Income per Share (GAAP) $ 0.82 $ 0.61 34.4 $ 1.52 $ 1.14 33.3
 
FOBOHA short-term purchase accounting adjustments 0.02 - 0.02 -
Contract termination dispute charges - 0.02 - 0.03
Restructuring actions   (0.03 )   -     (0.03 )   -  
 
Diluted Net Income per Share as adjusted (Non-GAAP) (1) $ 0.81   $ 0.63   28.6 $ 1.51   $ 1.17   29.1
                               
 
Full-Year 2016 Full-Year 2017 Outlook
Diluted Net Income per Share (GAAP) $ 2.48 $ 2.77 to $ 2.87
 
Acquisition transaction costs 0.02
FOBOHA short-term purchase accounting adjustments 0.03 0.03
Contract termination dispute charges 0.03
Contract termination arbitration award (0.03 )
Restructuring actions   -     -  
 
Diluted Net Income per Share as adjusted (Non-GAAP) (1) $ 2.53   $ 2.80   to $ 2.90  
 
                               
 

Notes:
(1) The Company has excluded short-term purchase accounting adjustments related to its FOBOHA acquisition and the net gain from restructuring actions related to the closure and consolidation of two manufacturing facilities within the Industrial segment from its "as adjusted" financial measurements for 2017. The Company has excluded the following from its "as adjusted" financial measurements for 2016: 1) transaction costs related to its FOBOHA acquisition, 2) short-term purchase accounting adjustments related to its FOBOHA acquisition, 3) charges related to the contract termination dispute and 4) operating income related to the contract termination arbitration award and the non-operating interest income awarded. The tax effects of these items were calculated based on the respective tax jurisdiction of each item and range from approximately 21% to 37%. Management believes that these adjustments provide the Company and its investors with an indication of our baseline performance excluding items that are not considered to be reflective of our ongoing results. Management does not intend results excluding the adjustments to represent results as defined by GAAP, and the reader should not consider it as an alternative measurement calculated in accordance with GAAP, or as an indicator of the Company's performance. Accordingly, the measurements have limitations depending on their use.

Source: Barnes Group Inc.

Barnes Group Inc.

William Pitts

Director, Investor Relations

860.583.7070

Upcoming Event

October 27, 2017
Q3 2017 Barnes Group Earnings Conference Call & Webcast
Remind Me Email:  
 

NOTIFICATION: The information provided on this website is for general information only and is subject to the Terms of Use . Some of the content of this website may contain certain forward-looking statements, as defined in the Private Securities Litigation and Reform Act of 1995, about the Company’s financial and operating performance, business plans and prospects. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from the expectations and projections contained in the statements. Investors are encouraged to consider these risks and uncertainties as described within the Company's periodic filings with the Securities and Exchange Commission, which can be accessed here or at www.sec.gov. The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments. In addition, some of the content within this website is provided to Barnes Group Inc. from third parties. As such, Barnes Group Inc. makes no representations or endorsements of the accuracy, completeness or timeliness of that third party information.

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