Market Overview

Barnes Group Inc. Reports Second Quarter 2018 Financial Results

Share:
  • Sales of $375 million, up 3%; Organic Sales up 1%
  • Operating Margin of 17.0%; Up 120 bps from Last Year's Adjusted
    Operating Margin of 15.8%
  • Diluted EPS of $0.93, up 13% from the Prior Year Period; On an
    Adjusted Basis, Up 11% to $0.90
  • 2018 Expected Sales Growth of 5% to 6%; Organic Sales Growth of 4%
    to 5%
  • 2018 Adjusted Net Income of $3.18 to $3.28 per Share; Up 10% to 14%
    from 2017 Adjusted Net Income of $2.88 per Share

Barnes Group Inc. (NYSE:B), a global provider of highly engineered
products and differentiated industrial technologies, today reported
financial results for the second quarter 2018. Net sales of $375 million
were up 3% from $364 million in the prior year period driven by organic
sales growth (1) of 1% and favorable foreign exchange of 2%.
Net income for the second quarter was $49.4 million, or $0.93 per
diluted share, compared to net income of $45.0 million, or $0.82 per
diluted share, a year ago. On an adjusted basis, net income was $0.90
per diluted share, up 11% from $0.81 last year. Second quarter 2018
adjusted diluted net income excludes a benefit of $0.03 related to U.S.
Tax Reform while adjusted diluted net income per share in the second
quarter of 2017 excludes restructuring actions which provided a net
benefit of $0.03 and short-term purchase accounting adjustments of $0.02
related to the FOBOHA acquisition in our Industrial Segment.

A table reconciling 2018 and 2017 non-GAAP adjusted results presented in
this release to the Company's GAAP results is included at the end of
this press release.

"Barnes delivered an excellent second quarter of financial performance
on continued strength of our Aerospace business and further improvement
in our Industrial business," said Patrick J. Dempsey, President and
Chief Executive Officer of Barnes Group Inc. "Operating income
increased, operating margin expanded, and total backlog reached another
record level. Given the solid performance delivered in the first half,
and with a positive expectation for the remainder of the year, we have
again raised our outlook for 2018," added Dempsey.

Industrial

  • Second quarter 2018 sales were $249.6 million, down 1% from $251.8
    million in the prior year period. Organic sales decreased by 4%, while
    favorable foreign exchange increased sales by $7.1 million, or 3%.
  • Operating profit in the second quarter was $38.3 million, up 1% from
    an adjusted $37.9 million in the prior year period. Operating profit
    benefited from favorable productivity, which was offset in part by the
    profit impact of lower organic sales. Operating margin was 15.4%, up
    40 bps from last year's adjusted 15.0%.

Aerospace

  • Second quarter 2018 sales were $125.7 million, up 12% from $112.7
    million in the same period last year. Aerospace original equipment
    manufacturing ("OEM") sales increased 7% while aftermarket sales
    increased 21% from continuing growth in maintenance, repair and
    overhaul, and spare parts sales.
  • Operating profit was $25.6 million for the second quarter of 2018, up
    29% as compared to $19.9 million in the prior year period, reflecting
    the profit impact from higher sales volumes offset in part by
    scheduled price deflation. Operating margin of 20.3% was up 270 bps
    from 17.6% a year ago, benefitting from the higher aftermarket
    contribution.
  • Aerospace OEM backlog ended the second quarter 2018 at a record $818
    million, up 22% compared to a year ago and up 12% sequentially from
    the first quarter of 2018. The Company expects to ship approximately
    45% of this backlog over the next 12 months.

Additional Information

  • Second quarter interest expense increased $0.6 million to $4.1 million
    as a result of a higher average effective interest rate versus a year
    ago.
  • Other expense, net for the quarter was $0.9 million versus income of
    $6.0 million in the prior year period. The second quarter of 2017
    included a pre-tax pension curtailment gain of $7.4 million as a
    result of restructuring actions recorded in the quarter.
  • The Company's effective tax rate was 15.9% in the second quarter of
    2018 compared with 15.4% in the second quarter of 2017. For the second
    quarter of 2018, the Company benefited from the reversal of certain
    tax valuation allowances, a discrete item worth approximately $0.08
    per share. In addition, adjustments related to U.S. tax reform
    legislation, worth approximately $0.03 per share, benefited the
    quarter and have been excluded from adjusted income. The primary
    driver of last year's lower tax rate was the merging of several legal
    entities in Switzerland which allowed the Company to adjust the
    valuation allowance on previously reserved net operating losses that
    would have otherwise expired which provided a discrete benefit of
    approximately $0.12 per share.

    For the full year 2017, the
    Company's effective tax rate was 69.6%. Excluding the impact of
    discrete tax expense related to the Tax Cuts and Jobs Act, the
    effective tax rate for 2017 would have been 20.2%.

Updated 2018 Outlook

Barnes Group expects 2018 total revenue growth of 5% to 6%, with organic
sales growth of 4% to 5%. Foreign exchange and acquisition revenues are
each anticipated to benefit revenues by approximately 1% for the year.
Operating margin is forecast in the range of 16.0% to 16.5%. Earnings
per share are expected to be in the range of $3.21 to $3.31, with
adjusted earnings per share of $3.18 to $3.28, up 10% to 14% from 2017's
adjusted $2.88. Further, the Company continues to anticipate capital
expenditures of between $60 to $65 million and cash conversion of
greater than 100% of net income. Based upon our forecasted geographic
mix of earnings, the effective tax rate for 2018 is expected to be
approximately 24%, excluding the second quarter adjustment for U.S. tax
reform.

Conference Call Information

Barnes Group Inc. will conduct a conference call with investors to
discuss second quarter 2018 results at 8:30 a.m. ET today, July 27,
2018. 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 (844) 884-8225 in the
U.S. or (647) 689-4194 outside of the U.S.; Conference ID 1985174.
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 27, 2018 until 11:59 p.m. (ET) on
Friday, August 3, 2018, by dialing (416) 621-4642; Conference ID 1985174.

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; the impact of new or revised
tax laws and regulations; 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; product liabilities; 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; government tariffs, trade agreements and trade policies;
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,
2018

2017 (1)

%
Change

2018

2017 (1)

%
Change

 
Net sales $ 375,315 $ 364,493 3.0 $ 741,975 $ 706,295 5.1
 
Cost of sales 237,608 242,538 (2.0 ) 474,742 462,087 2.7
Selling and administrative expenses   73,828     71,196   3.7   146,721     137,171   7.0
 
  311,436     313,734   (0.7 )   621,463     599,258   3.7
 
Operating income 63,879 50,759 25.8 120,512 107,037 12.6
 
Operating margin 17.0 % 13.9 % 16.2 % 15.2 %
 
Interest expense 4,133 3,541 16.7 8,025 6,890 16.5
Other expense (income), net   947     (5,987 ) NM   2,710     (5,434 ) NM
 
Income before income taxes 58,799 53,205 10.5 109,777 105,581 4.0
 
Income taxes   9,370     8,178   14.6   21,530     22,251   (3.2 )
 
Net income $ 49,429   $ 45,027   9.8 $ 88,247   $ 83,330   5.9
 
Common dividends $ 8,342   $ 7,527   10.8 $ 15,795   $ 14,524   8.8
 
Per common share:
 
Net income:
Basic $ 0.94 $ 0.83 13.3 $ 1.66 $ 1.54 7.8
Diluted 0.93 0.82 13.4 1.65 1.52 8.6
Dividends 0.16 0.14 14.3 0.30 0.27 11.1
 
Weighted average common shares outstanding:
Basic 52,581,804 54,177,251 (2.9 ) 53,055,980 54,178,185 (2.1 )
Diluted 53,135,742 54,722,211 (2.9 ) 53,608,447 54,686,172 (2.0 )
 
NM - Not Meaningful
 

Notes:
(1) Results for 2017
have been adjusted on a retrospective basis to reflect the impact of the
adoption of revised guidance for the presentation of pension and other
postretirement benefit costs in the first quarter of 2018.

 
BARNES GROUP INC.
OPERATIONS BY REPORTABLE BUSINESS SEGMENT
(Dollars in thousands)
(Unaudited)
                         
Three months ended June 30, Six months ended June 30,
2018

2017 (1)

%
Change

2018

2017 (1)

%
Change

Net sales
 
Industrial $ 249,577 $ 251,845 (0.9 ) $ 495,544 $ 479,185 3.4
 
Aerospace 125,739 112,662 11.6 246,437 227,132 8.5
 
Intersegment sales   (1 )   (14 )   (6 )   (22 )
 
Total net sales $ 375,315   $ 364,493   3.0 $ 741,975   $ 706,295   5.1
 
Operating profit
 
Industrial $ 38,316 $ 30,883 24.1 $ 70,694 $ 64,785 9.1
 
Aerospace   25,563     19,876   28.6   49,818     42,252   17.9
 
Total operating profit $ 63,879   $ 50,759   25.8 $ 120,512   $ 107,037   12.6
 
Operating margin Change Change
 
Industrial 15.4 % 12.3 % 310 bps. 14.3 % 13.5 % 80 bps.
 
Aerospace   20.3 %   17.6 % 270 bps.   20.2 %   18.6 % 160 bps.
 
Total operating margin 17.0 % 13.9 % 310 bps. 16.2 % 15.2 % 100 bps.
 

Notes:
(1) Results for 2017
have been adjusted on a retrospective basis to reflect the impact of the
adoption of revised guidance for the presentation of pension and other
postretirement benefit costs in the first quarter of 2018.

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

June 30,
2018

December 31,
2017

Assets
Current assets
Cash and cash equivalents $ 120,462 $ 145,290
Accounts receivable 378,790 348,943
Inventories 251,047 241,962
Prepaid expenses and other current assets   55,943   32,526
 
Total current assets 806,242 768,721
 
 
Deferred income taxes 14,857 12,161
Property, plant and equipment, net 353,302 359,298
Goodwill 671,926 690,223
Other intangible assets, net 485,528 507,042
Other assets   31,045   28,271
 
Total assets $ 2,362,900 $ 2,365,716
 
Liabilities and Stockholders' Equity
Current liabilities
Notes and overdrafts payable $ 22,400 $ 5,669
Accounts payable 130,849 127,521
Accrued liabilities 202,209 181,241
Long-term debt - current   2,662   1,330
 
Total current liabilities 358,120 315,761
 
Long-term debt 565,193 525,597
Accrued retirement benefits 84,652 89,000
Deferred income taxes 70,296 73,505
Long-term tax liability 72,305 79,770
Other liabilities 19,171 21,762
 
Total stockholders' equity   1,193,163   1,260,321
 
Total liabilities and stockholders' equity $ 2,362,900 $ 2,365,716
 
 
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
       
 
Six months ended June 30,
2018 2017
Operating activities:
Net income $ 88,247 $ 83,330
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 47,070 45,488
Loss (gain) on disposition of property, plant and equipment 52 (24 )
Stock compensation expense 5,469 5,494
Changes in assets and liabilities, net of the effects of
acquisitions:
Accounts receivable (22,623 ) (18,304 )
Inventories (23,057 ) (10,743 )
Prepaid expenses and other current assets (9,905 ) (642 )
Accounts payable 5,282 15,717
Accrued liabilities 12,595 8,517
Deferred income taxes (6,492 ) (14,569 )
Long-term retirement benefits (725 ) (12,533 )
Long-term tax liability (7,465 ) -
Other   133     663  
 
Net cash provided by operating activities 88,581 102,394
 
Investing activities:
Proceeds from disposition of property, plant and equipment 478 205
Capital expenditures (24,335 ) (27,325 )
Business acquisitions, net of cash acquired - (8,811 )
Revenue sharing program payments (5,800 ) -
Other   (1,000 )   (3,000 )
 
Net cash used by investing activities (30,657 ) (38,931 )
 
Financing activities:
Net change in other borrowings 16,795 (20,925 )
Payments on long-term debt (313,512 ) (49,311 )
Proceeds from the issuance of long-term debt 353,089 74,716
Proceeds from the issuance of common stock 435 1,148
Common stock repurchases (118,115 ) (5,383 )
Dividends paid (15,795 ) (14,524 )
Withholding taxes paid on stock issuances (175 ) (240 )
Other   (2,550 )   (14,451 )
 
Net cash used by financing activities (79,828 ) (28,970 )
 
Effect of exchange rate changes on cash flows   (2,924 )   3,865  
 
(Decrease) increase in cash and cash equivalents (24,828 ) 38,358
 
Cash and cash equivalents at beginning of period   145,290     66,447  
 
Cash and cash equivalents at end of period $ 120,462   $ 104,805  
 
 
BARNES GROUP INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO
FREE CASH FLOW
(Dollars in thousands)
(Unaudited)
       
 
Six months ended June 30,
2018 2017
Free cash flow:
 
Net cash provided by operating activities $ 88,581 $ 102,394
Capital expenditures   (24,335 )   (27,325 )
 
Free cash flow(1) $ 64,246   $ 75,069  
 

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,
2018

2017 (2)

% Change

2018

2017 (2)

% Change

SEGMENT RESULTS

Operating Profit - Industrial Segment (GAAP) $ 38,316 $ 30,883 24.1 $ 70,694 $ 64,785 9.1
 
FOBOHA short-term purchase accounting adjustments - 1,193 - 1,793
Restructuring actions   -     5,795     -     5,795  
 
Operating Profit - Industrial Segment as adjusted (Non-GAAP) (1) $ 38,316   $ 37,871   1.2 $ 70,694   $ 72,373   (2.3 )
 
Operating Margin - Industrial Segment (GAAP) 15.4 % 12.3 % 310 bps. 14.3 % 13.5 % 80 bps.
Operating Margin - Industrial Segment as adjusted (Non-GAAP) (1) 15.4 % 15.0 % 40 bps. 14.3 % 15.1 % (80 ) bps.
 
                                             
 

CONSOLIDATED RESULTS

Operating Income (GAAP) $ 63,879 $ 50,759 25.8 $ 120,512 $ 107,037 12.6
 
FOBOHA short-term purchase accounting adjustments - 1,193 - 1,793
Restructuring actions   -     5,795     -     5,795  
 
Operating Income as adjusted (Non-GAAP) (1) $ 63,879   $ 57,747   10.6 $ 120,512   $ 114,625   5.1
 
Operating Margin (GAAP) 17.0 % 13.9 % 310 bps. 16.2 % 15.2 % 100 bps.
Operating Margin as adjusted (Non-GAAP) (1)       17.0 %       15.8 %         120 bps.       16.2 %       16.2 %       -   bps.
 
Diluted Net Income per Share (GAAP) $ 0.93 $ 0.82 13.4 $ 1.65 $ 1.52 8.6
 
FOBOHA short-term purchase accounting adjustments - 0.02 - 0.02
Effects of U.S. tax reform (0.03 ) - (0.03 ) -
Restructuring actions   -     (0.03 )   -     (0.03 )
 
Diluted Net Income per Share as adjusted (Non-GAAP) (1) $ 0.90   $ 0.81   11.1 $ 1.62   $ 1.51   7.3
                                             
 
Full-Year 2017 Full-Year 2018 Outlook
Diluted Net Income per Share (GAAP) $ 1.09 $ 3.21 to $ 3.31
 
Effects of U.S. tax reform 1.77 (0.03 )
FOBOHA short-term purchase accounting adjustments 0.03
Restructuring actions   (0.01 )    
 
Diluted Net Income per Share as adjusted (Non-GAAP) (1) $ 2.88   $ 3.18 to $ 3.28  
 
                                             
 

Notes:
(1) The Company has
excluded adjustments of $1,522 made in the second quarter of 2018 to
reduce the tax expense recorded in December 2017 related to the U.S. tax
reform (commonly referred to as the Tax Cuts and Jobs Act) from its "as
adjusted" financial measurements for 2018. The Company has excluded the
following from its "as adjusted" financial measurements for 2017: 1) the
effects of U.S. tax reform ($96,700), 2) short-term purchase accounting
adjustments related to its FOBOHA acquisition, 3) charges from
restructuring actions related to the closure and consolidation of two
manufacturing facilities within the Industrial segment and 4) the
related pension curtailment and settlement gains included in
non-operating income.  The tax effects of these items, excluding the
effects of U.S. tax reform which impacted tax expense directly, 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.
(2) Results for 2017 have been adjusted on a
retrospective basis to reflect the impact of the adoption of revised
guidance for the presentation of pension and other postretirement
benefit costs in the first quarter of 2018.

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