- Sales of $269 million, down 28% from last year; Organic
Sales down 26%
- Operating Income of $31.2 million, down 54%
- Operating Margin of 11.6%, down 650 bps
- GAAP EPS of $0.30, down 66% from a Year Ago
- Solid Free Cash Flow, Leverage at 2.8x EBITDA
- Provides Fourth Quarter Expectation
Barnes Group Inc. (NYSE: B), a global provider of highly
engineered products, differentiated industrial technologies, and
innovative solutions, today reported financial results for the
third quarter 2020.
“Barnes Group delivered third quarter financial performance near
the high-end of our July expectations with Industrial seeing
promising signs of recovery in select end markets and Aerospace
effectively managing through the significant pressures of a
challenging business environment. As anticipated, the ongoing
impacts of the global COVID-19 pandemic weighed on our business,
although our sequential improvement and continued solid cash
generation are encouraging,” said Patrick J. Dempsey, President and
Chief Executive Officer of Barnes Group Inc. “Swift proactive
actions taken early in the pandemic have enabled Barnes Group to
remain profitable and to sustain good cash performance, both
clearly evident in the third quarter results,” added Dempsey.
Third Quarter Highlights
Third quarter 2020 net sales of $269 million were down 28% from
$373 million in the prior year period, with organic sales (1)
declining 26% primarily driven by the impact of the global pandemic
on the Company’s end markets. Divested Seeger sales had a negative
impact of 4%, while foreign exchange had a positive impact of 2%.
On a sequential basis, net sales increased 14% from the second
quarter 2020. Operating income was $31.2 million versus $67.6
million a year ago. Operating margin decreased 650 bps to 11.6%. On
an adjusted basis, which excludes $0.3 million of restructuring
charges in the Aerospace Segment, operating income was $31.5
million and adjusted operating margin was 11.7%.
Interest expense was $3.7 million, a decrease of $1.6 million
from the prior year period, due to decreased average borrowings and
the benefit of a lower average interest rate.
Other expense was $47 thousand compared to $2.5 million a year
ago, primarily as a result of a foreign currency gains this year
versus losses last year.
The Company's effective tax rate for the third quarter of 2020
was 44.1% compared with 23.4% in the third quarter of 2019 and
23.4% for the full year 2019. The increase in the third quarter of
2020 effective tax rate from the full year 2019 rate is primarily
due to changes in the forecasted geographic sources of income with
reductions occurring in several low tax jurisdictions and the
impact of the global intangible low-taxed income tax (“GILTI”). Our
full year 2020 tax rate, which includes the recognition of tax
expense related to the Seeger sale, is forecasted to be
approximately 39%.
Net income for the third quarter was $15.4 million, or $0.30 per
diluted share, compared to $45.8 million, or $0.89 per diluted
share, a year ago.
Year-to-date 2020 cash provided by operating activities was
$163.4 million versus $161.3 million in the prior year period. Free
cash flow was $133.2 million compared to $123.6 million last
year-to-date. Capital expenditures year-to-date were $30.2 million,
down $7.6 million from last year-to-date.
Segment Performance and End Market
Outlook
Industrial
Third quarter sales were $196.9 million, down 15% from $231.7
million in the prior year period. Organic sales decreased 12%
primarily related to a significant volume decrease caused by the
continuing impact of the COVID-19 pandemic on automotive and
industrial end markets. Divested Seeger revenues of $14.1 million
had a negative impact of 6%, while favorable foreign exchange
increased sales by $7.2 million, or 3%. On a sequential basis,
total Industrial sales increased 19% from the second quarter
2020.
Operating profit in the third quarter was $24.4 million, down
30% from $34.8 million in the prior year period. Similar to the
second quarter of 2020, the operating profit decrease was driven by
the lower sales volumes partially offset by cost initiatives such
as workforce reductions, temporary compensation cuts, and
discretionary expense curtailments. Operating margin was 12.4%,
down 260 bps from 15.0% last year.
During the third quarter, manufacturing PMI’s in our major
geographic regions have improved and Industrial orders and sales
have followed. Although the global COVID-19 pandemic continues to
weigh upon our expectations for Industrial, we anticipate
sequential improvement in both orders and sales in the fourth
quarter.
Aerospace
Third quarter sales were $72.1 million, down 49% from $140.9
million last year as the COVID-19 pandemic suppressed global
aerospace end markets. Aerospace original equipment manufacturing
(“OEM”) sales decreased 44% while aftermarket sales decreased 58%.
On a sequential basis, Aerospace sales increased 2% from the second
quarter 2020.
Operating profit was $6.8 million, down 79% from $32.7 million
in the prior year period, reflecting the lower sales volumes and
$0.3 million of restructuring charges, partially offset by lower
employee related expenses and other cost containment actions.
Operating margin was 9.4%, down from 23.2% last year. Excluding
third quarter 2020 restructuring charges, adjusted operating profit
was $7.1 million and adjusted operating margin was 9.9%.
Aerospace OEM backlog ended the quarter at $534 million, down 4%
from June 2020. The Company expects to ship approximately 45% of
this backlog over the next 12 months.
In the third quarter, our aerospace end markets continued to be
severely impacted by the global pandemic. In the near-term, we
anticipate our OEM business will see continued softness in demand
for its manufactured components as aircraft production rates at
Boeing and Airbus have been reduced. While our aerospace OEM sales
are expected to increase on a sequential basis in the fourth
quarter, recovery to pre-pandemic levels is anticipated to take
several years. In the aerospace aftermarket, lingering declines in
aircraft utilization and diminished airline profitability will
negatively impact our business. As flight activity resumes, we
anticipate the aftermarket business to gradually improve.
Balance Sheet and
Liquidity
Barnes Group’s balance sheet remains well-positioned with
sufficient liquidity to fund operations. The Company has liquidity
of $77 million in cash and approximately $400 million of available
revolving credit facility, subject to covenants which would have
allowed $256 million under our current credit agreements. With
respect to the balance sheet, our “Debt to EBITDA” ratio, as
defined in our credit agreements, was 2.8 times at the end of
September 2020, up from 2.4 times at the end of June 2020. The
Company is in full compliance with all covenants under its amended
credit agreements.
2020 Fourth Quarter
Outlook
For the fourth quarter of 2020, we will continue to be impacted
by the COVID-19 global pandemic. As such, our current view is for
organic sales to be lower than last year’s fourth quarter by
approximately 20%, though up sequentially from the third quarter of
2020 by approximately 5%. Operating margin is expected to
approximate 11.0%. Adjusted earnings per share are anticipated to
be in the range of $0.27 to $0.35. Our full year 2020 capital
expenditures forecast of $40 million is down slightly from our
prior view.
Conference Call
Information
Barnes Group Inc. will conduct a conference call with investors
to discuss third quarter 2020 results at 8:30 a.m. ET today,
October 23, 2020. 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 7386904. 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, October 23, 2020 until
11:59 p.m. (ET) on Friday, October 30, 2020, by dialing (416)
621-4642; Conference ID 7386904.
Note:
(1) Organic sales decline represents the total reported sales
decrease 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, automation, 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.
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, 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 and avoid
infringing upon 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; the impacts of the COVID-19
pandemic on our business, including on demand, supply chains,
operations and our ability to maintain sufficient liquidity
throughout the unknown duration and severity of the crisis; the
failure to achieve anticipated cost savings and benefits associated
with the workforce reductions and restructuring actions previously
announced by the Company (the “Plan”); the ability to successfully
execute the Plan; the preliminary nature of our cost and savings
estimates related to the Plan, including the timing of such charges
and savings, which are subject to change as the Company makes
decisions and refines estimates over time; timing delays in
implementing the Plan; management and employee distraction
resulting from the Plan; 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; government tariffs, trade agreements and
trade policies; the impact of new or revised tax laws and
regulations; the adoption of laws, directives or regulations that
impact the materials processed by our products or their end
markets; changes in raw material or product prices and
availability; the continuing impact of prior acquisitions and
divestitures; integration of acquired businesses; 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; product
liabilities 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 (including the COVID-19
pandemic); 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 September 30,
Nine months ended September 30,
2020
2019
% Change
2020
2019
% Change
Net sales
$ 269,059
$ 372,587
(27.8)
$ 835,266
$ 1,120,947
(25.5)
Cost of sales
176,908
234,421
(24.5)
532,214
717,370
(25.8)
Selling and administrative expenses
60,908
70,581
(13.7)
212,380
228,385
(7.0)
237,816
305,002
(22.0)
744,594
945,755
(21.3)
Operating income
31,243
67,585
(53.8)
90,672
175,192
(48.2)
Operating margin
11.6%
18.1%
10.9%
15.6%
Interest expense
3,701
5,344
(30.7)
11,924
15,856
(24.8)
Other expense (income), net
47
2,524
(98.1)
2,700
6,043
(55.3)
Income before income taxes
27,495
59,717
(54.0)
76,048
153,293
(50.4)
Income taxes
12,137
13,948
(13.0)
30,390
35,916
(15.4)
Net income
$ 15,358
$ 45,769
(66.4)
$ 45,658
$ 117,377
(61.1)
Common dividends
$ 8,097
$ 8,111
(0.2)
$ 24,302
$ 24,414
(0.5)
Per common share: Net income: Basic
$ 0.30
$ 0.90
(66.7)
$ 0.90
$ 2.29
(60.7)
Diluted
0.30
0.89
(66.3)
0.89
2.27
(60.8)
Dividends
0.16
0.16
-
0.48
0.48
-
Weighted average common shares outstanding: Basic
50,833,157
50,926,521
(0.2)
50,886,094
51,276,801
(0.8)
Diluted
50,937,093
51,230,845
(0.6)
51,123,024
51,718,574
(1.2)
BARNES GROUP INC. OPERATIONS BY REPORTABLE BUSINESS
SEGMENT (Dollars in thousands) (Unaudited)
Three months ended September 30, Nine months ended
September 30,
2020
2019
% Change
2020
2019
% Change
Net sales Industrial
$ 196,916
$ 231,688
(15.0)
$ 561,047
$ 707,594
(20.7)
Aerospace
72,148
140,899
(48.8)
274,227
413,353
(33.7)
Intersegment sales
(5)
-
(8)
-
Total net sales
$ 269,059
$ 372,587
(27.8)
$ 835,266
$ 1,120,947
(25.5)
Operating profit Industrial
$ 24,438
$ 34,836
(29.8)
$ 42,063
$ 83,785
(49.8)
Aerospace
6,805
32,749
(79.2)
48,609
91,407
(46.8)
Total operating profit
$ 31,243
$ 67,585
(53.8)
$ 90,672
$ 175,192
(48.2)
Operating margin
Change Change
Industrial
12.4%
15.0%
(260)
bps.
7.5%
11.8%
(430)
bps. Aerospace
9.4%
23.2%
(1,380)
bps.
17.7%
22.1%
(440)
bps. Total operating margin
11.6%
18.1%
(650)
bps.
10.9%
15.6%
(470)
bps.
BARNES GROUP INC. CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) (Unaudited)
September 30,
2020
December 31,
2019
Assets Current assets Cash and cash equivalents
$ 77,485
$ 93,805
Accounts receivable
248,053
348,974
Inventories
245,968
232,706
Prepaid expenses and other current assets
77,209
67,532
Assets held for sale
-
21,373
Total current assets
648,715
764,390
Deferred income taxes
23,202
21,235
Property, plant and equipment, net
353,264
356,603
Goodwill
969,255
933,022
Other intangible assets, net
560,466
581,116
Other assets
55,214
53,924
Assets held for sale
-
28,045
Total assets
$ 2,610,116
$ 2,738,335
Liabilities and Stockholders' Equity Current
liabilities Notes and overdrafts payable
$ 14,490
$ 7,724
Accounts payable
91,959
118,509
Accrued liabilities
208,948
209,992
Long-term debt - current
1,820
2,034
Liabilities held for sale
-
4,616
Total current liabilities
317,217
342,875
Long-term debt
701,413
825,017
Accrued retirement benefits
90,597
93,358
Deferred income taxes
89,505
88,408
Long-term tax liability
59,063
66,012
Other liabilities
44,665
45,148
Liabilities held for sale
-
6,989
Total stockholders' equity
1,307,656
1,270,528
Total liabilities and stockholders' equity
$ 2,610,116
$ 2,738,335
BARNES GROUP INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS (Dollars in thousands) (Unaudited)
Nine months ended September 30,
2020
2019
Operating activities: Net income
$ 45,658
$ 117,377
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
66,045
75,692
(Gain) loss on disposition of property, plant and equipment
(303)
35
Stock compensation expense
8,094
9,740
Seeger divestiture charges
6,620
-
Changes in assets and liabilities, net of the effects of
divestitures: Accounts receivable
103,161
9,741
Inventories
(11,616)
6,145
Prepaid expenses and other current assets
(10,168)
(12,494)
Accounts payable
(24,476)
(19,541)
Accrued liabilities
(7,981)
(216)
Deferred income taxes
(5,032)
(2,617)
Long-term retirement benefits
(2,517)
(16,862)
Long-term tax liability
(6,949)
(6,949)
Other
2,871
1,298
Net cash provided by operating activities
163,407
161,349
Investing activities: Proceeds from disposition of
property, plant and equipment
580
233
Proceeds from the sale of businesses, net of cash sold
36,879
-
Investment in restricted cash
(6,621)
-
Capital expenditures
(30,170)
(37,722)
Business acquisitions, net of cash acquired
-
(6,061)
Net cash provided (used) by investing activities
668
(43,550)
Financing activities: Net change in other borrowings
6,794
16,415
Payments on long-term debt
(194,279)
(290,593)
Proceeds from the issuance of long-term debt
50,000
230,625
Proceeds from the issuance of common stock
1,661
2,458
Common stock repurchases
(15,550)
(50,347)
Dividends paid
(24,302)
(24,414)
Withholding taxes paid on stock issuances
(3,177)
(5,913)
Other
(2,217)
(13,034)
Net cash used by financing activities
(181,070)
(134,803)
Effect of exchange rate changes on cash flows
675
(3,247)
Decrease in cash and cash equivalents
(16,320)
(20,251)
Cash and cash equivalents at beginning of period
93,805
100,719
Cash and cash equivalents at end of period
$ 77,485
$ 80,468
BARNES GROUP INC. RECONCILIATION OF NET CASH PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW (Dollars in
thousands) (Unaudited) Nine months
ended September 30,
2020
2019
Free cash flow: Net cash provided by operating
activities
$ 163,407
$ 161,349
Capital expenditures
(30,170)
(37,722)
Free cash flow(1)
$ 133,237
$ 123,627
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 September
30, Nine months ended September 30,
2020
2019
% Change
2020
2019
% Change
SEGMENT RESULTS Operating
Profit - Industrial Segment (GAAP)
$ 24,438
$ 34,836
(29.8)
$ 42,063
$ 83,785
(49.8)
Gimatic short-term purchase accounting adjustments
-
-
-
5,373
Restructuring/reduction in force charges
-
-
15,766
-
Seeger divestiture adjustments
-
-
2,409
-
Operating Profit - Industrial Segment as adjusted
(Non-GAAP) (1)
$ 24,438
$ 34,836
(29.8)
$ 60,238
$ 89,158
(32.4)
Operating Margin - Industrial Segment (GAAP)
12.4%
15.0%
(260)
bps.
7.5%
11.8%
(430)
bps.
Operating Margin - Industrial Segment as adjusted
(Non-GAAP) (1)
12.4%
15.0%
(260)
bps.
10.7%
12.6%
(190)
bps.
Operating Profit - Aerospace Segment (GAAP)
$ 6,805
$ 32,749
(79.2)
$ 48,609
$ 91,407
(46.8)
Restructuring/reduction in force charges
304
-
2,243
-
Operating Profit - Aerospace Segment as adjusted
(Non-GAAP) (1)
$ 7,109
$ 32,749
(78.3)
$ 50,852
$ 91,407
(44.4)
Operating Margin - Aerospace Segment (GAAP)
9.4%
23.2%
(1,380)
bps.
17.7%
22.1%
(440)
bps.
Operating Margin - Aerospace Segment as adjusted (Non-GAAP)
(1)
9.9%
23.2%
(1,330)
bps.
18.5%
22.1%
(360)
bps.
CONSOLIDATED
RESULTS Operating Income (GAAP)
$ 31,243
$ 67,585
(53.8)
$ 90,672
$ 175,192
(48.2)
Gimatic short-term purchase accounting adjustments
-
-
-
5,373
Restructuring/reduction in force charges
304
-
18,009
-
Seeger divestiture adjustments
-
-
2,409
-
Operating Income as adjusted (Non-GAAP) (1)
$ 31,547
$ 67,585
(53.3)
$ 111,090
$ 180,565
(38.5)
Operating Margin (GAAP)
11.6%
18.1%
(650)
bps.
10.9%
15.6%
(470)
bps.
Operating Margin as adjusted (Non-GAAP) (1)
11.7%
18.1%
(640)
bps.
13.3%
16.1%
(280)
bps.
Diluted Net Income per Share (GAAP)
$ 0.30
$ 0.89
(66.3)
$ 0.89
$ 2.27
(60.8)
Gimatic short-term purchase accounting adjustments
-
-
-
0.08
Restructuring/reduction in force charges
-
-
0.26
-
Seeger divestiture adjustments
-
-
0.13
-
Diluted Net Income per Share as adjusted (Non-GAAP)
(1)
$ 0.30
$ 0.89
(66.3)
$ 1.28
$ 2.35
(45.5)
Full-Year 2019 Diluted Net Income per Share
(GAAP)
$ 3.07
Gimatic short-term purchase accounting adjustments
0.03
Seeger divestiture non-cash impairment charge
0.11
Diluted Net Income per Share as adjusted (Non-GAAP)
(1)
$ 3.21
Notes:
(1) The Company has excluded the following from its "as
adjusted" financial measurements for 2020: 1) adjustments related
to the divestiture of the Seeger business, including $2.4M
reflected within the Industrial segment's operating profit and
$4.2M of tax expense, and 2) charges taken in 2020 related to
restructuring and workforce reduction actions to be implemented
across its businesses. The Company has excluded short-term purchase
accounting adjustments related to its Gimatic acquisition and the
non-cash impairment charge related to the divestiture of the Seeger
business from its “as adjusted” financial measurements for 2019.
The non-cash impairment charge was recorded pre-tax in 2019 as the
tax charges resulting from the divestiture were recorded in the
first quarter of 2020 following the completion of the sale. The tax
effects of the restructuring actions in 2020 and the short-term
purchase accounting adjustments in 2019 were calculated based on
the respective tax jurisdictions and range from approximately 26%
to 30%. 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201023005026/en/
Barnes Group Inc. William Pitts Director, Investor Relations
860.583.7070
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