-- Quarterly net sales rise 8% to a record $388.6 million
-- Net income increases 21% to a record $33.4 million
-- First quarter diluted EPS increases 20% to $0.60
-- 2008 full-year guidance raised to $2.30 to $2.39 per diluted
share
BRISTOL, Conn.--(BUSINESS WIRE)--May 2, 2008--Barnes Group Inc.
(NYSE: B), a leading aerospace and industrial components manufacturer
and distributor, today reported first quarter 2008 net income growth
of 21 percent to $33.4 million, or $0.60 per diluted share, compared
to the prior year first quarter. The increase in net income reflects 8
percent revenue growth driven primarily by strong demand in the
international industrial and aerospace manufacturing and aftermarket
businesses. Operating income improved 16 percent over the prior year
first quarter and operating margin increased 0.8 percentage points to
12.8 percent. First quarter improvements were driven primarily by
record operating profit in Barnes Aerospace, continued strength in
Barnes Industrial, and improved contributions from Barnes Distribution
due to the positive impact of organizational and operational
initiatives.
"Companies that have embraced globalization, like Barnes Group,
are well positioned for success through these uncertain economic
times," said Gregory F. Milzcik, President and Chief Executive
Officer, Barnes Group Inc. "Our record first quarter results
demonstrate the success we are achieving in executing our strategies.
We will continue to make progress in delivering on our growth
strategies and remain diligent in taking the necessary and deliberate
steps for achieving consistent, sustainable, and predictable results,"
continued Milzcik.
"Once again Barnes Group's operations provided solid overall
financial performance," said William C. Denninger, Senior Vice
President, Finance and Chief Financial Officer, Barnes Group Inc. "We
believe we are well positioned in this business environment, given our
international reach in the aerospace and industrial markets as well as
our ongoing transformation of Barnes Distribution. As a result, we
expect to continue to realize sales and earnings growth while
prudently investing in our future. The Company's targeted earnings for
full year 2008, based on current market conditions, have increased to
$2.30 to $2.39 per diluted share from $2.20 to $2.30 per diluted
share, reflecting an anticipated increase over 2007 reported results
of 31 percent to 36 percent," continued Denninger.
(millions; except per share data) Three months ended March 31,
------------------------------
2008 2007 Change
------- ------- --------------
Net Sales $388.6 $360.7 $27.9 7.7%
Operating Income $49.9 $43.2 $6.7 15.6%
Operating Margin 12.8% 12.0% - 0.8pts.
Net Income $33.4 $27.7 $5.7 20.9%
Net Income Margin 8.6% 7.7% - 0.9pts.
Net Income Per Diluted Share $0.60 $0.50 $0.10 20.0%
On February 19, 2008, the Company sold the net assets of Spectrum
Plastics Molding Resources, Inc., a business of Barnes Industrial, for
approximately $6.4 million. The transaction loss of $1.2 million, or
$0.8 million after-tax ($0.01 per diluted earnings per share), was
recorded in the first quarter of 2008. Spectrum Plastics sales in 2007
were approximately $13.0 million.
As previously reported, Barnes Group realigned its reportable
business segments during 2007 by transferring the stock spring catalog
and custom solutions business from Barnes Distribution to Barnes
Industrial, whose Engineered Springs business manufactures many of the
spring products sold by this business. Segment information has been
adjusted on a retrospective basis to reflect this change.
Barnes Aerospace
Three months ended March 31,
-----------------------------
(millions) 2008 2007 Change
------- ------ --------------
Sales $112.3 $91.2 $21.1 23.2%
Operating profit $22.3 $16.8 $5.5 32.5%
Operating margin 19.9% 18.5% - 1.4pts.
Through the first quarter of 2008, Barnes Aerospace continued to
achieve sales and operating profit success. Barnes Aerospace generated
sales of $112.3 million in the first quarter of 2008, an increase of
23 percent over the first quarter of 2007. The first quarter 2008
sales increase reflects growth of 26 percent in aftermarket sales.
Contributing to aftermarket sales growth was the positive impact of
additional Revenue Sharing Programs (RSPs) since the first quarter of
2007, strong industry fundamentals, and continued benefits from
long-term maintenance and repair contracts.
Manufacturing sales increased 22 percent for the quarter on the
strength of the sales order backlog. The total order backlog at Barnes
Aerospace at the end of the first quarter of 2008 was $465.6 million,
down slightly from a record $472.6 million at December 31, 2007. This
total includes adjustments for delays in Boeing's 787 airplane
delivery schedule as well as raw material horizon changes.
Approximately 61 percent of the backlog at March 31, 2008 is expected
to be shipped within the next 12 months. Barnes Aerospace is focused
on meeting increased sales volume in its manufacturing and aftermarket
businesses by adding capacity in Singapore, Ogden, Utah, West Chester,
Ohio and through rigorous lean enterprise activities. Costs related to
the new Ogden, Utah facility are estimated at approximately $2.0
million for full year 2008, with approximately $0.2 million incurred
in the first quarter of 2008. This new state-of-the-art manufacturing
facility will enable Barnes Aerospace to take advantage of the growth
opportunities for a wide range of aircraft engine and airframe
applications, particularly the GEnx and Trent 1000 engines.
Barnes Aerospace's first quarter 2008 operating profit was a
record $22.3 million, an increase of 33 percent from the 2007 period.
Barnes Aerospace has generated quarter-over-quarter growth in
operating profit for 17 consecutive quarters. Operating profit for the
first quarter of 2008 was positively impacted by profit contribution
from aftermarket RSPs as well as a sales volume increase in the
manufacturing business, and operational improvements. This was
partially offset by increased expenditures in its maintenance, repair,
and overhaul (MRO) business to increase production capacity for
current and expected future demand.
Barnes Distribution
Three months ended March 31,
-----------------------------
(millions) 2008 2007 Change
------- ------- -------------
Sales $141.0 $139.8 $1.2 0.9%
Operating profit $7.0 $6.2 $0.8 11.8%
Operating margin 4.9% 4.5% - 0.4pts.
Barnes Distribution's 2007 Project Catalyst organizational and
operational initiatives have begun to generate improvement during the
first quarter of 2008. The goals of Project Catalyst are to accelerate
the efficiency and effectiveness of customer service by leveraging
Barnes Distribution's expertise with the vendor-managed inventory
(VMI) model, and focus the business on growing profitable organic
sales and achieving improved operating margins. To that end, we
believe we have established a firm foundation for consistent,
sustainable, and predictable results.
Barnes Distribution achieved sales of $141.0 million in the first
quarter of 2008, an increase of approximately 1 percent over the first
quarter of 2007. Barnes Distribution's organic sales decreased $5.1
million, or approximately 4 percent. The lower organic sales were due
to softness in certain markets in North America, primarily the
transportation-related and certain manufacturing segments, and sales
force disruption in the United States and the United Kingdom. A
decrease in the number of U.S. sales personnel was anticipated as a
result of various Project Catalyst initiatives. Sales in Europe and
Canada, as reported in U.S. dollars, were favorably impacted by the
strength of the local currencies, increasing sales by approximately
$6.3 million in the first quarter of 2008.
Barnes Distribution's operating profit for the first quarter of
2008 increased approximately 12 percent to $7.0 million and resulted
in an operating margin improvement of 0.4 percentage points to 4.9
percent. This improvement is attributable to the favorable impact of
Project Catalyst initiatives in North America. These initiatives are
improving value pricing and sales productivity, and contributed to a
net reduction in distribution costs. The positive impact on operating
profit in North America was partially offset by the profit impact of
lower organic sales and lower profit levels in Europe.
Barnes Distribution's North American business made substantial
year-over-year progress, and achieved the highest quarterly margin
since 1998. Improvements have been made through a rigorous attention
to servicing customers, sales of globally sourced items over higher
cost domestic product, and the market segmentation strategy.
Activities in North America are focused on executing the fundamentals
and fully effecting the market segmentation strategy. Driving the
business forward and taking advantage of the momentum realized in the
first quarter are imperatives for success during the remainder of
2008.
Barnes Distribution's overall results, while positive,
underperformed expectations as the European business did not realize
the necessary operational improvement during the first quarter. A
number of steps were undertaken to stabilize and begin to advance the
business in Europe. First, a new leader with international experience
has established a new European management team with increased focus on
profits and operational inefficiencies. Second, lean enterprise
experts have been deployed to accelerate the improvement. With the
global sourcing processes and procedures firmly established for the
North American operations, the European business will now have the
opportunity to leverage the full complement of global sourcing
activities.
Improved profit levels in the first quarter and our continuing
commitment to superior customer service warrant our confidence that we
can realize improvement throughout the year. However, with slowing
economic growth anticipated for the United States and disruption in
our European business, the expectation for Barnes Distribution's
full-year operating margin is now in the 6 percent to 8 percent range.
Barnes Industrial
Three months ended March 31,
------------------------------
(millions) 2008 2007 Change
------- ------- --------------
Sales $135.6 $129.9 $5.7 4.3%
Operating profit $20.6 $20.1 $0.5 2.5%
Operating margin 15.2% 15.5% - (0.3)pts.
Barnes Industrial continues to provide improved, consistent and
sustainable results. The strength of Barnes Industrial's global
diversification strategy positively impacted results for the first
quarter of 2008, including both strong sales and orders growth.
Investments and activities throughout the quarter and the rest of the
year are focused on profitable sales growth, productivity and process
improvements, and positioning Barnes Industrial's diverse businesses
for long-term success.
Sales at Barnes Industrial for the first quarter of 2008 were
$135.6 million, an increase of approximately 4 percent over the first
quarter of 2007. Sales, primarily in Europe, as reported in U.S.
dollars, were favorably impacted by the strength of local currencies,
increasing sales by approximately $8.8 million. The sale of Spectrum
Plastics resulted in a reduction in sales of approximately $2.4
million as compared to the 2007 period.
The general global industrial end markets, including tool-and-die
and energy, continued to perform well during the quarter. On a
regional basis, European and Asian businesses generated strong revenue
growth as the economies remained healthy during the first quarter.
Conversely, North American-centric businesses continued to face
organic growth challenges, particularly in the transportation and
consumer home products end markets. As a result, based on current
market conditions, the slowing U.S. economy could have an adverse
impact on Barnes Industrial's global growth.
Barnes Industrial's first quarter 2008 operating profit of $20.6
million increased approximately 3 percent from the prior year quarter.
First quarter 2008 operating profit was positively impacted by
increased sales within the European and Asian businesses, as well as
business-wide productivity improvements from lean enterprise
activities. Results were partially offset by higher employee-related
costs and a quarter-over-quarter decline in operating profits at
Spectrum Plastics which was sold in the first quarter of 2008. Barnes
Industrial continues to actively manage its exposure to raw material
prices and potential supply constraints to help ensure future
availability of raw materials at favorable prices.
Total Company
Revenues - The Company reported net sales of $388.6 million in the
first quarter of 2008, an increase of $27.9 million or approximately 8
percent, over the first quarter of 2007. The sales increase reflected
approximately $15.2 million of organic sales growth primarily at
Barnes Aerospace. International sales were favorably impacted by the
strength of local currencies, which translated into reported U.S.
dollar sales of an additional $15.1 million in 2007. The sale of
Spectrum Plastics resulted in a reduction in sales of $2.4 million as
compared to the 2007 period.
Revenues
-----------------------------------------------
Three months ended March 31, 2008
-------------------------------------
Three
months
ended Acquisition/ Foreign
March 31, Organic (Divestiture) Exchange
(millions) 2007 Growth Revenues Impact Total
--------- ------- ------------- -------- ------
Barnes Aerospace $91.2 $21.1 - - $112.3
Barnes Distribution $139.8 ($5.1) - $6.3 $141.0
Barnes Industrial $129.9 ($0.8) ($2.4) $8.8 $135.6
Intersegment ($0.3) - - - ($0.3)
--------- ------- ------------- -------- ------
Total $360.7 $15.2 ($2.4) $15.1 $388.6
Cost of Sales and Selling and Administrative Expenses - Cost of
sales increased approximately 9 percent in the first quarter of 2008
compared with the same period in 2007, primarily as a result of higher
sales levels. The increase in cost of sales was slightly higher than
the percentage increase in sales and resulted in a slight reduction in
gross margin, to approximately 38 percent. The decrease in gross
margin was driven in large part by the shift in the overall sales mix
from the higher gross margin distribution business to the lower gross
margin aerospace business.
Selling and administrative expenses increased approximately 2
percent in the first quarter of 2008 and at 25.4 percent of sales,
decreased by 1.4 percentage points from the same period of 2007. This
decrease was due primarily to productivity improvements through lean
enterprise activities in all three business segments and most
significantly at Barnes Aerospace.
Operating Income - Operating income of $49.9 million in the first
quarter of 2008 increased $6.7 million. All three business groups
contributed to the increase in operating income, with Barnes Aerospace
being the greatest contributor due to a significant improvement in
results, driven by higher sales. Operating income margin for the
quarter increased to 12.8 percent from 12.0 percent a year ago,
primarily due to improvements within Barnes Aerospace and at Barnes
Distribution, which realized a considerable improvement in results
within North America.
Other Income/Interest Expense - Other expenses, net of other
income, increased $1.5 million in the first quarter of 2008, compared
to the same period in 2007, primarily as a result of the transaction
loss of $1.2 million on the sale of Spectrum Plastics. Interest
expense decreased $1.7 million to $5.3 million in the first quarter of
2008. The interest expense reduction was principally due to a lower
average interest rate, driven in large part by a higher percentage of
lower fixed-rate debt in the 2008 period compared to higher variable
rate debt in the 2007 period, as well as a decline in variable debt
interest rates.
Income Taxes - The Company's effective tax rate for the first
quarter of 2008 was 22.2 percent, compared with 23.4 percent in the
first quarter of 2007 and 20.3 percent for the full year 2007. The
increase in the effective tax rate from the full year 2007 rate was
driven by improving Barnes Distribution results in North America,
partially offset by additional earnings from the RSPs in Singapore, a
lower-tax jurisdiction. The tax rate for the full year 2008 is
projected to be in line with the first quarter rate which is lower
than the initial estimate of 23% to 25% due to stronger growth in
lower-tax jurisdictions.
Net Income - Net income for the first quarter was a record at
$33.4 million, an increase of 21 percent over last year with diluted
EPS of $0.60, an increase of 20 percent. Diluted EPS growth was
adversely affected by an increase of approximately 2 percent in
average diluted shares to 56.1 million.
The weighted average diluted share count for the full year 2008 is
projected to be in the range of 60 to 61 million. The Company's
convertible notes affect the total diluted share count depending on
the Company's stock price. The chart below details the impact the
convertible notes have on total diluted shares for a given 2008 stock
price as compared to the fourth quarter 2007 level. The basis for
calculating the dilutive effect of convertible notes is the average
closing stock price of the last 30 trading days of the quarter; as of
December 31, 2007, that price was $31.45. The average closing stock
price for Barnes Group Inc.'s shares during the last 30 trading days
of the first quarter of 2008 was $22.79. Included in the projected
full-year diluted share count is approximately 2.2 million shares from
the estimated dilutive effect of the convertible notes.
Number of Shares (in millions)
-----------------------------------------------
Convertible Convertible
Notes Notes Diluted Changes In
Diluted Share Share Effect Convertible
Notes
2008 Stock Price Effect As of 4Q 2007 Effect
--------------------- ----------------- ---------------- ------------
$20.00 0.0 1.9 (1.9)
$22.79 0.4 1.9 (1.5)
$25.00 0.8 1.9 (1.1)
$30.00 1.6 1.9 (0.3)
$31.45 1.9 1.9 -
$35.00 2.6 1.9 0.7
$40.00 3.3 1.9 1.4
Balance Sheet / Cash Flow - Cash was $22.2 million at the end of
the quarter. The debt-to-capitalization ratio was approximately 41
percent, at the low end of the Company's targeted range of 40 to 45
percent. The debt-to-EBITDA ratio was 2.37 times versus a total debt
covenant of 4.0 times, and allows for additional borrowings of $341.0
million.
Operating activities used $10.5 million of cash flow in the first
three months of 2008 compared to providing approximately $0.7 million
in 2007. Compared to the 2007 period, operating cash flows in the 2008
period were lower due to the higher working capital needs resulting
from higher sales.
Capital expenditures for the first quarter were approximately
$12.1 million. Depreciation and amortization for first quarter of 2008
were $13.1 million.
Projections for 2008 - Based on current market conditions,
management's projections for 2008 are as follows:
-- EPS - $2.30 to $2.39 per diluted share; a 31% to 36% increase
over reported 2007 results.
-- Diluted shares - in the range of 60 to 61 million.
-- Barnes Aerospace operating margin - 20.0% to 21.0%, up from
18.9% in 2007 and including approximately $2.0 million of
expenses related to the Ogden facility expansion. Recently
announced delays of the Boeing 787 have been considered in
Barnes Aerospace's 2008 outlook.
-- Barnes Distribution operating margin - 6.0% to 8.0%; up from
1.8% in 2007.
-- Barnes Industrial operating margin - approximately 14.0%, in
line with the 2007 level.
-- Tax rate - approximately 22% to 23%.
-- Debt-to-capitalization ratio - in the 40% to 45% range.
-- Capital expenditures - $45 to $50 million, primarily related
to investments needed to increase capacity and improve
operational efficiency.
-- Depreciation and amortization - approximately $50 to $54
million.
Barnes Group will conduct a conference call with investors to
discuss first quarter results at 8:30 a.m. EDT today, May 2, 2008. The
conference call will consist of brief opening remarks followed by a
question and answer session. A webcast of the live call and an
archived replay will be available on the Barnes Group investor
relations link at www.barnesgroupinc.com.
Barnes Group Inc. (NYSE:B) is an international aerospace and
industrial components manufacturer and full-service distribution
company focused on achieving consistent, sustainable, and predictable
results. Founded in 1857, Barnes Group consists of three businesses:
Barnes Aerospace, Barnes Distribution and Barnes Industrial. More than
6,400 dedicated employees at more than 70 locations worldwide
contribute to Barnes Group Inc.'s success. For more information, visit
www.barnesgroupinc.com.
This release may contain certain forward-looking statements as
defined in the Private Securities Litigation and Reform Act of 1995.
Forward-looking statements are made based upon management's good faith
expectations and beliefs concerning future developments and their
potential effect upon the Company and can be identified by the use of
words such as "anticipated," "believe," "expect," "plans," "strategy,"
"estimate," project," and other words of similar meaning in connection
with a discussion of future operating or financial performance. These
forward-looking statements are subject to risks and uncertainties that
may cause actual results to differ materially from those expressed in
the forward-looking statements. The risks and uncertainties, which are
described in our periodic filings with the Securities and Exchange
Commission, include, among others, uncertainties arising from the
behavior of financial markets; future financial performance of the
industries or customers that we serve; changes in market demand for
our products and services; integration of acquired businesses; changes
in raw material prices and availability; our dependence upon revenues
and earnings from a small number of significant customers; uninsured
claims; and numerous other matters of global, regional or national
scale, including those of a political, economic, business,
competitive, regulatory and public health nature. The Company assumes
no obligation to update our forward-looking statements.
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended March 31,
---------------------------------
%
2008 2007 Change
----------- ----------- -------
Net sales $ 388,568 $ 360,650 7.7
Cost of sales 239,826 220,917 8.6
Selling and administrative expenses 98,842 96,565 2.4
----------- -----------
338,668 317,482 6.7
----------- -----------
Operating income 49,900 43,168 15.6
Operating margin 12.8% 12.0%
Other income 199 242 (17.8)
Interest expense 5,298 6,972 (24.0)
Other expenses (see note) 1,836 340 NM
----------- -----------
Income before income taxes 42,965 36,098 19.0
Income taxes 9,534 8,443 12.9
----------- -----------
Net income $ 33,431 $ 27,655 20.9
=========== ===========
Per common share:
Net income:
Basic $ .62 $ .53 17.0
Diluted .60 .50 20.0
Dividends .140 .125 12.0
Average common shares outstanding:
Basic 54,127,598 52,574,503 3.0
Diluted 56,087,125 55,188,112 1.6
Note: First quarter 2008 Other expenses includes a $1,215 ($830
after-tax, or $.01 diluted EPS) transaction loss on sale of Spectrum
Plastics.
NM Not meaningful
BARNES GROUP INC.
OPERATIONS BY REPORTABLE BUSINESS SEGMENT
(Dollars in thousands)
(Unaudited)
Three months ended March 31,
----------------------------
%
2008 2007 Change
--------- -------- ------
Note 1
Net Sales
Barnes Aerospace $112,308 $ 91,192 23.2
Barnes Distribution 140,973 139,767 0.9
Barnes Industrial 135,585 129,949 4.3
Inter-segment sales (298) (258) (15.3)
-------- --------
Total net sales $388,568 $360,650 7.7
======== ========
Operating profit
Barnes Aerospace $ 22,311 $ 16,842 32.5
Barnes Distribution 6,967 6,231 11.8
Barnes Industrial 20,624 20,122 2.5
-------- --------
Total operating profit 49,902 43,195 15.5
Interest income 189 188 0.5
Interest expense (5,298) (6,972) (24.0)
Other income (expense), net (note 2) (1,828) (313) NM
-------- --------
Income before income taxes $ 42,965 $ 36,098 19.0
======== ========
Notes:
1) Segment information has been adjusted on a retrospective bases
to reflect the transfer of the Raymond business from Barnes
Distribution to Barnes Industrial.
2) Other income (expense) for the three months ended March 31,
2008 includes $1,215 transaction loss on the sale of Spectrum
Plastics.
NM Not meaningful
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, March 31,
2008 2007
----------- ------------
Assets
Current assets
Cash and cash equivalents $ 22,233 $ 25,032
Accounts receivable 242,742 216,260
Inventories 252,865 199,993
Deferred income taxes 24,639 21,148
Prepaid expenses 19,573 16,095
---------- ----------
Total current assets 562,052 478,528
Deferred income taxes 15,127 22,669
Property, plant and equipment, net 239,797 213,241
Goodwill 398,866 358,044
Other intangible assets, net 327,755 270,617
Other assets 62,964 50,557
---------- ----------
Total assets $1,606,561 $1,393,656
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Notes and overdrafts payable $ 12,656 $ - -
Accounts payable 142,916 163,454
Accrued liabilities 93,868 93,574
Long-term debt-current 35,605 52,048
---------- ----------
Total current liabilities 285,045 309,076
Long-term debt 450,008 396,989
Accrued retirement benefits 109,170 114,161
Other liabilities 47,380 29,994
Stockholders' equity 714,958 543,436
---------- ----------
Total liabilities and stockholders'
equity $1,606,561 $1,393,656
========== ==========
CONTACT: Barnes Group Inc.
Brian D. Koppy, 860-973-2126
SOURCE: Barnes Group Inc.
