Barnes Group Reports Second Quarter 2016 Financial Results

7/31/16

BRISTOL, Conn.--(BUSINESS WIRE)--Barnes Group Inc. (NYSE: B), an international industrial and aerospace manufacturer and service provider, today reported financial results for the second quarter of 2016. Net sales of $307 million were down 3% from $315 million in the prior year period and organic sales (1) decreased 6%. Foreign exchange negatively impacted sales by 1%, while the Thermoplay and Priamus acquisitions collectively contributed 4%. Net income for the second quarter was $33.2 million, or $0.61 per diluted share, compared to $34.2 million, or $0.61 per diluted share, a year ago. On an adjusted basis, net income was $0.63 per diluted share, up 2% from $0.62 last year. Adjusted diluted net income in the second quarter of 2016 excludes costs related to a contract termination dispute of $0.02 per share, while last year’s second quarter excludes the impact of Männer short-term purchase accounting adjustments of $0.01 per share.

A table reconciling 2016 and 2015 non-GAAP adjusted results presented in this release to the Company’s GAAP results is included at the end of this press release.

“Overall, Barnes Group achieved solid sequential progress over the first quarter, as orders were up substantially and sales improved across both segments,” said Patrick J. Dempsey, President and Chief Executive Officer of Barnes Group Inc. “Our industrial business in China saw robust orders improvement in the quarter, and the benefits of the Barnes Enterprise System were readily apparent in the strong operating margins achieved in the Industrial Segment,” added Dempsey. “Our Aerospace business continues to transition from legacy programs to new, ramping programs whose strong order intake lifted Aerospace backlog to a record level.”

On July 12, 2016 the Company announced it had entered into a definitive agreement to acquire Adval Tech’s molds business (“FOBOHA”), focused on the development and manufacture of complex plastic injection molds for packaging, medical, consumer, and automotive applications. The acquisition is anticipated to close in the third quarter of 2016. Following the closing, FOBOHA will operate as a business within the Molding Solutions strategic business unit of Barnes Group’s Industrial Segment.

“In the second quarter we continued to drive our growth strategy of focusing on differentiated industrial technologies and innovative products. FOBOHA’s proprietary cube mold technology enhances our position as a leader in complex molding systems,” said Dempsey.

Industrial

  • Second quarter 2016 sales were $204.5 million, up 1% from $202.6 million in the same period last year. Organic sales decreased by 4% in the quarter, primarily driven by continued softness in tool & die end-markets in Asia and general industrial end-markets in North America. Unfavorable foreign exchange reduced sales by approximately $2.3 million, or 1%. For the quarter, the recently acquired Thermoplay and Priamus businesses together contributed $11.4 million in sales.
  • Operating profit in the second quarter was $34.8 million, up 16% from $30.0 million in the prior year period. The increase in operating profit was driven by favorable productivity, offset in part by the profit impact of reduced organic sales volumes. Excluding Männer short-term purchase accounting adjustments last year, operating profit was up 14% from an adjusted $30.6 million a year ago. Adjusted operating margin was 17.0%, up 190 bps.

Aerospace

  • Second quarter 2016 sales were $102.2 million, down 9% from $112.4 million in the same period last year. The decline was primarily driven by lower Aerospace original equipment manufacturing (“OEM”) and aftermarket spare parts sales.
  • Operating profit was $12.6 million for the second quarter of 2016, compared to $20.7 million in the prior year period. The operating profit decrease was primarily due to lower profit on reduced OEM and higher-margin spare part sales volumes, lower pricing, and unfavorable productivity. Included in the quarter was $1.6 million in costs related to a contract termination dispute. Excluding the contract dispute costs, adjusted operating profit was $14.2 million, down 31% from a year ago. Adjusted operating margin was 13.9%, down 450 bps.
  • Aerospace backlog was $657 million at the end of the second quarter of 2016, up 23% year-over-year and up 11% sequentially from the first quarter of 2016 reflecting strong orders on new commercial engine programs.

Additional Information

  • Interest expense increased $0.2 million to $2.8 million in the quarter primarily as a result of a higher average interest rate versus a year ago.
  • The Company's effective tax rate for the second quarter of 2016 was 27.0% compared with 28.4% in the second quarter of 2015 and 23.2% for the full year 2015. The increase in the second quarter of 2016 effective tax rate from the full year 2015 rate is primarily due to the expiration of certain tax holidays, the absence of the 2015 refund of withholding taxes and the projected change in the mix of earnings attributable to higher-taxing jurisdictions, partially offset by a decrease in planned repatriation of a portion of current year foreign earnings to the U.S.

Updated 2016 Outlook

Barnes Group now expects 2016 organic revenue growth of Flat to 2% with total revenue growth of approximately 3% to 4% after consideration of 1% unfavorable foreign exchange and 3% from acquisition revenues. Adjusted operating margin is forecasted to be in the range of 16.0% to 16.5%, consistent with the Company’s prior outlook. Barnes Group now expects adjusted earnings in the range of $2.46 to $2.56 per diluted share, up 3% to 8% from $2.38 in 2015. Further, the Company continues to anticipate capital expenditures of approximately $50 million and cash conversion to approximate 100% of net income. For 2016, the effective tax rate expectation continues to be in the range of 26% to 27%.

Our 2016 full-year outlook does not include the financial impact of the recently announced FOBOHA transaction which is expected to close in the third quarter.

About Barnes Group

Founded in 1857, Barnes Group Inc. (NYSE: B) is an international industrial and aerospace manufacturer and service provider, serving a wide range of end markets and customers. The highly engineered products, differentiated industrial technologies, and innovative solutions delivered by Barnes Group are used in far-reaching applications that provide transportation, manufacturing, healthcare, and technology to the world. Barnes Group’s skilled and dedicated employees around the globe are committed to achieving consistent and sustainable profitable growth. For more information, visitwww.BGInc.com.