Barnes Group Inc. Reports Second Quarter 2013 Financial Results

Barnes Group Inc. (NYSE: B), an international aerospace and industrial manufacturer and service provider, today reported financial results for the second quarter of 2013. Net sales from continuing operations increased 24% to $267.4 million from $215.3 million in the second quarter of 2012, driven largely by the sales contribution of the Synventive business. Income from continuing operations in the current quarter included a tax charge of $16.6 million, or $0.30 per diluted share, associated with the April 16, 2013 U.S. Tax Court’s unfavorable decision arising out of an IRS audit for the tax years 2000 through 2002. Including this tax item, income from continuing operations for the second quarter was $9.2 million, or $0.17 per diluted share. Excluding the impact of the U.S. Tax Court’s decision, adjusted diluted earnings per share from continuing operations for the second quarter of 2013 was $0.47, up 34% from $0.35 per diluted share a year ago. A table reconciling the non-GAAP adjusted results presented in this release to our GAAP results is included at the end of this press release.

On April 22, 2013, the Company completed the sale of its Barnes Distribution North America (BDNA) business to MSC Industrial Direct Co., Inc. for the purchase price of $550 million and received cash of $540 million, net of working capital adjustments and transaction costs. In the second quarter of 2013, the Company recorded a gain on sale of $194 million, net of tax, representing the sales price less the asset value of BDNA and net of transaction-related costs. For the second quarter of 2013, the Company’s income from discontinued operations was $200 million, which includes both the gain on sale of BDNA, and net operating results for BDNA during the period.

“Sustained execution of our growth strategy allowed us to increase sales and expand operating margins during the quarter,” said Patrick J. Dempsey, President and Chief Executive Officer of Barnes Group Inc. “Despite some challenging end-markets, our Industrial segment delivered solid organic growth and improved margin performance.” Dempsey continued, “In our Aerospace segment, backlogs are strong, commercial end-markets remain favorable, and the aftermarket showed signs of improvement from the prior quarter.”
($ millions; except per share data)     Three months ended June 30,       Six months ended June 30,
Unaudited 2013     2012     Change 2013     2012     Change
Net Sales $267.4 $215.3 $52.1     24.2 % $530.9 $438.1 $92.8     21.2 %
Operating Income $36.1 $25.8 $10.4 40.3 % $61.1 $50.4 $10.7 21.3 %
% of Sales 13.5 % 12.0 % 1.5 pts. 11.5 % 11.5 % 0.0 pts.
Income from Continuing Operations $9.2 $19.5 ($10.3) (52.8) % $24.6 $37.1 ($12.4) (33.6) %
Net Income $209.3 $24.8 $184.5 NM $222.8 $47.0 $175.8 NM
 
Income from Continuing Operations Per Diluted Share $0.17 $0.35 ($0.18) (51.4) % $0.45 $0.67 ($0.22) (32.8) %
 
Income from Discontinued Operations Per Diluted Share $3.65 $0.10 $3.55 NM $3.59 $0.18 $3.41 NM
 
Net Income Per Diluted Share     $3.82       $0.45       $3.37     NM         $4.04       $0.85       $3.19     NM  

NM = Not Meaningful
 

Aerospace
  • Second quarter 2013 sales were $96.8 million, up 3% from $93.8 million in the same period last year. A sales increase in original equipment manufacturing (“OEM”) was partially offset by lower sales in the aftermarket business. Within the aftermarket business, repair and overhaul sales were down while spare part sales were essentially flat to last year.
  • Operating profit of $15.2 million for the second quarter of 2013 was up 17% from the prior year period of $13.0 million. Operating profit benefited from the impact of higher OEM sales and better productivity, partially offset by a lower profit contribution from the aftermarket business given lower sales.

Industrial
  • Second quarter 2013 sales were $170.6 million, up 40% from $121.5 million in the same period last year. The increase was driven by the Synventive acquisition’s sales contribution and organic sales growth of 5%, inclusive of favorable pricing, offset by unfavorable foreign exchange of $0.5 million.
  • Operating profit of $20.9 million for the second quarter of 2013 was up 64% from the prior year period of $12.7 million driven by the profit contribution of Synventive and the profit impact of higher organic sales.

Additional Information
  • Interest expense increased to $3.2 million, up from $2.4 million last year primarily as a result of a higher average borrowing rate in the current quarter. During the second quarter of 2013, borrowings were substantially reduced as proceeds from the BDNA sale were used to reduce debt.
  • The Company’s effective tax rate from continuing operations for the second quarter of 2013 is 71.6% and was adversely impacted by a tax charge of $16.6 million associated with the April 16, 2013 U.S. Tax Court Decision. Absent that item, the Company’s effective tax rate from continuing operations for the second quarter of 2013 was 20.5% compared to 16.3% in the second quarter of 2012 and 13.5% for the full year 2012. The remaining effective tax rate increase in the second quarter 2013 versus the full year 2012 rate was mainly due to several discrete foreign tax related items in 2012, an increase in the Company’s effective tax rate in Sweden, and a projected mix of earnings attributable to higher-taxing jurisdictions.
  • On July 23, 2013, the Company’s Board of Directors increased the quarterly cash dividend 10 percent to $0.11 per share of common stock. The dividend increase will raise the annualized dividend payout to $0.44 per share of common stock.

Updated 2013 Outlook

Barnes Group now expects 2013 revenue from continuing operations to grow 17% to 19% from 2012. Excluding $10.5 million pre-tax of non-recurring costs associated with the Company’s CEO transition recorded in the first quarter, adjusted operating margins are expected to be in the range of 13.5% to 14% for 2013. GAAP earnings per diluted share from continuing operations are anticipated to be in the range of $1.43 to $1.53.

Full-Year 2013 adjusted earnings per diluted share from continuing operations are anticipated to be in the range of $1.85 to $1.95, up 22% to 28% from 2012’s adjusted diluted earnings per share from continuing operations of $1.52. Adjusted earnings per share from continuing operations exclude the non-recurring CEO transition costs ($0.12 per share) and the tax charge as a result of the U.S. Tax Court’s unfavorable ruling ($0.30 per share).

As a result of the Tax Court decision, the Company expects cash flows to be negatively impacted by approximately $13 million by the end of 2013. Excluding this item and the impact from the sale of BDNA, 2013 cash conversion is anticipated to be approximately 100% of net income.

Conference Call

Barnes Group Inc. will conduct a conference call with investors to discuss second quarter 2013 results at 8:30 a.m. EDT today, July 26, 2013. A webcast of the live call and an archived replay will be available on the Barnes Group investor relations link at www.BGInc.com. The conference is also available by direct dial at (888) 713-4215 in the U.S. or (617) 213-4867 outside of the U.S. (request the Barnes Group Earnings Call), Participant Code: 78035580.

In addition, the call will be recorded and available for playback beginning at 12:00 p.m. (EDT) on Friday, July 26, 2013 by dialing (617) 801-6888, Passcode: 31040519.

About Barnes Group

Founded in 1857, Barnes Group Inc. (NYSE: B) is an international aerospace and industrial manufacturer and service provider, serving a wide range of end markets and customers. The products and services provided by Barnes Group are used in far-reaching applications that provide transportation, communication, manufacturing and technology to the world. Barnes Group’s approximately 3,800 dedicated employees, at more than 60 locations worldwide, are committed to achieving consistent and sustainable profitable growth. For more information, visit www.BGInc.com.

Forward-Looking Statements

This press release contains certain forward-looking statements as defined in the Private Securities Litigation 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 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, but are not limited to: difficulty maintaining relationships with employees, customers, distributors, suppliers, business partners or governmental entities; the success of integration strategy implementation; the ability to recruit and retain key personnel and execute effective executive transitions; difficulties leveraging market opportunities; difficulties providing solutions that meet the needs of customers; rapid technological and market change; the ability to protect intellectual property rights; higher risks in international operations and markets; the impact of increased competition; currency fluctuations; litigation; and other risks and uncertainties described more fully in documents filed with or furnished to the Securities and Exchange Commission by the Company, including the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings with the Securities and Exchange Commission. The risks and uncertainties described in our periodic filings with the Securities and Exchange Commission include, among others, uncertainties arising from the current or worsening conditions in financial markets; future financial performance of the industries or customers that we serve; changes in market demand for our products and services; inability to realize expected sales or profits from existing backlog due to a range of factors, including insourcing decisions, material changes as well as production schedules and volumes of specific programs; integration of acquired businesses; restructuring costs or savings; the impact of the divestiture in 2013 of the Barnes Distribution North America business to MSC Industrial Direct Co., Inc.; the impact of the acquisition in 2012 of the Synventive Molding Solutions business; the impact of the divestiture in 2011 of our Barnes Distribution Europe businesses; and any other future strategic actions, including acquisitions, joint ventures, divestitures, restructurings, or strategic business realignments, and our ability to achieve the financial and operational targets set in connection with any such actions; introduction or development of new products or transfer of work; changes in raw material or product prices and availability; foreign currency exposure; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; the impacts of the U.S. Tax Court's April 16, 2013 decision and any related appeal; the outcome of pending and future claims or litigation or governmental, regulatory proceedings, investigations, inquiries, and audits; uninsured claims and litigation; outcome of contingencies; future repurchases of common stock; future levels of indebtedness; and numerous other matters of global, regional or national scale, including those of a political, economic, business, competitive, environmental, 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 June 30, Six months ended June 30,
2013

2012(1)
% Change 2013

2012(1)
% Change
 
Net sales $ 267,394 $ 215,310 24.2 $ 530,940 $ 438,104 21.2
 
Cost of sales 177,411 152,367 16.4 355,127 312,788 13.5
Selling and administrative expenses   53,834     37,183   44.8   114,708     74,938   53.1
 
  231,245     189,550   22.0   469,835     387,726   21.2
 
Operating income 36,149 25,760 40.3 61,105 50,378 21.3
 
Operating margin 13.5 % 12.0 % 11.5 % 11.5 %
 
Interest expense 3,241 2,435 33.1 7,598 4,803 58.2
Other expense (income), net   495     55   NM   1,462     914   60.0
 
Income from continuing operations before income taxes 32,413 23,270 39.3 52,045 44,661 16.5
 
Income taxes   23,218     3,783   NM   27,417     7,584   NM
 
Income from continuing operations 9,195 19,487 (52.8 ) 24,628 37,077 (33.6 )
 
Income from discontinued operations, net of income taxes 200,132 5,344 NM 198,171 9,961 NM
       
Net income $ 209,327   $ 24,831   NM $ 222,799   $ 47,038   NM
 
Common dividends $ 5,277   $ 5,383   (2.0 ) $ 10,720   $ 10,842   (1.1 )
 
Per common share:
 
Basic:
Income from continuing operations $ 0.18 $ 0.36 (50.0 ) $ 0.46 $ 0.68 (32.4 )
Income from discontinued operations, net of income taxes   3.72     0.10   NM   3.65     0.18   NM
Net income $ 3.90   $ 0.46   NM $ 4.11   $ 0.86   NM
 
Diluted:
Income from continuing operations $ 0.17 $ 0.35 (51.4 ) $ 0.45 $ 0.67 (32.8 )
Income from discontinued operations, net of income taxes   3.65     0.10   NM   3.59     0.18   NM
Net income $ 3.82   $ 0.45   NM $ 4.04   $ 0.85   NM
 
Dividends 0.10 0.10 - 0.20 0.20 -
 
Weighted average common shares outstanding:
Basic 53,738,051 54,543,098 (1.5 ) 54,230,272 54,674,366 (0.8 )
Diluted 54,809,896 55,150,806 (0.6 ) 55,135,892 55,303,192 (0.3 )
 
NM - Not Meaningful
 

Notes:
(1) Results for 2012 have been adjusted on a retrospective basis to reflect the BDNA discontinued operations.
 
BARNES GROUP INC.
OPERATIONS BY REPORTABLE BUSINESS SEGMENT
(Dollars in thousands)
(Unaudited)
               
Three months ended June 30,   Six months ended June 30,  
2013

2012(1)
% Change   2013

2012(1)
% Change  
Net sales
 
Aerospace $ 96,834 $ 93,770 3.3 $ 194,878 $ 191,020 2.0
 
Industrial 170,560 121,540 40.3 336,062 247,085 36.0
 
Intersegment sales   -     -   -   -     (1 ) NM
 
Total net sales $ 267,394   $ 215,310   24.2 $ 530,940   $ 438,104   21.2
 
Operating profit
 
Aerospace $ 15,226 $ 13,023 16.9 $ 25,573 $ 25,677 (0.4 )
 
Industrial   20,923     12,737   64.3   35,532     24,701   43.8
 
Total operating profit $ 36,149   $ 25,760   40.3 $ 61,105   $ 50,378   21.3
 
Operating margin Change   Change  
 
Aerospace 15.7 % 13.9 % 180 bps. 13.1 % 13.4 % (30 )

bps.
 
Industrial   12.3 %   10.5 % 180 bps.   10.6 %   10.0 % 60 bps.
 
Total operating margin 13.5 % 12.0 % 150 bps. 11.5 % 11.5 % - bps.
 
NM - Not Meaningful
 

Notes:

(1) Results for 2012 have been adjusted on a retrospective basis to reflect the impact of the BDNA discontinued operations,including a reallocation of corporate overhead expenses, and the segment realignment.
 
BARNES GROUP INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
   

June 30,2013

December 31,2012
Assets
Current assets
Cash and cash equivalents $ 197,398 $ 86,356
Accounts receivable 229,934 253,202
Inventories 186,224 226,220
Deferred income taxes 23,331 33,906
Prepaid expenses and other current assets   15,756   18,856
 
Total current assets 652,643 618,540
 
 
Deferred income taxes 37,318 29,961
Property, plant and equipment, net 214,735 233,097
Goodwill 439,447 579,905
Other intangible assets, net 370,645 383,972
Other assets   20,182   23,121
 
Total assets $ 1,734,970 $ 1,868,596
 
Liabilities and Stockholders' Equity
Current liabilities
Notes and overdrafts payable $ 12,899 $ 3,795
Accounts payable 92,469 99,037
Accrued liabilities 227,191 96,364
Long-term debt - current   54,241   699
 
Total current liabilities 386,800 199,895
 
Long-term debt 177,242 642,119
Accrued retirement benefits 133,562 159,103
Deferred income taxes 47,222 48,707
Other liabilities 15,154 18,654
 
Total stockholders' equity   974,990   800,118
 
Total liabilities and stockholders' equity $ 1,734,970 $ 1,868,596
 
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
     
Six months ended June 30,
2013 2012
Operating activities:
Net income $ 222,799 $ 47,038
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 31,110 25,912
Amortization of convertible debt discount 1,173 1,083
Loss (gain) on disposition of property, plant and equipment 56 (62 )
Stock compensation expense 14,348 4,286
Withholding taxes paid on stock issuances (753 ) (727 )
(Gain) loss on the sale of businesses (194,438 ) 734
Changes in assets and liabilities, net of the effects of divestitures:
Accounts receivable (17,951 ) (8,893 )
Inventories (8,026 ) (852 )
Prepaid expenses and other current assets 250 (1,290 )
Accounts payable 7,620 (621 )
Accrued liabilities 14,066 (15,830 )
Deferred income taxes (10,066 ) 789
Long-term retirement benefits (166 ) (18,770 )
Other   6,061     837  
 
Net cash provided by operating activities 66,083 33,634
 
Investing activities:
Proceeds from disposition of property, plant and equipment 160 222
Proceeds from (payments for) the sale of businesses, net 540,435 (318 )
Capital expenditures (20,419 ) (15,658 )
Other   (1,748 )   (2,476 )
 
Net cash provided (used) by investing activities 518,428 (18,230 )
 
Financing activities:
Net change in other borrowings 9,092 (10,535 )
Payments on long-term debt (478,005 ) (17,770 )
Proceeds from the issuance of long-term debt 65,500 67,000
Proceeds from the issuance of common stock 3,763 4,080
Common stock repurchases (61,432 ) (19,037 )
Dividends paid (10,720 ) (10,842 )
Excess tax benefit on stock awards 632 1,331
Other   (111 )   (120 )
 
Net cash (used) provided by financing activities (471,281 ) 14,107
 
Effect of exchange rate changes on cash flows   (2,188 )   (1,038 )
 
Increase in cash and cash equivalents 111,042 28,473
 
Cash and cash equivalents at beginning of period   86,356     62,505  
 
Cash and cash equivalents at end of period $ 197,398   $ 90,978  
 
BARNES GROUP INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(Dollars in thousands)
(Unaudited)
   
 
Six months ended June 30,
2013 2012
Free cash flow:
 
Net cash provided by operating activities $ 66,083 $ 33,634
Capital expenditures   (20,419 )   (15,658 )
 
Free cash flow(1) $ 45,664   $ 17,976  

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,
2013

2012 (1)
% Change 2013

2012 (1)
% Change

SEGMENT RESULTS
Operating Profit - Aerospace Segment (GAAP) $ 15,226 $ 13,023 16.9 $ 25,573 $ 25,677 (0.4 )
 
CEO transition costs   -     -     3,903     -  
 
Operating Profit - Aerospace Segment as adjusted (Non-GAAP) (2) $ 15,226   $ 13,023   16.9 $ 29,476   $ 25,677   14.8
 
Operating Margin - Aerospace Segment (GAAP) 15.7 % 13.9 % 180 bps. 13.1 % 13.4 % (30 )

bps.
Operating Margin - Aerospace Segment as adjusted (Non-GAAP) (2) 15.7 % 13.9 % 180 bps. 15.1 % 13.4 % 170

bps.
 
Operating Profit - Industrial Segment (GAAP) $ 20,923 $ 12,737 64.3 $ 35,532 $ 24,701 43.8
 
CEO transition costs   -     -     6,589     -  
 
Operating Profit - Industrial Segment as adjusted (Non-GAAP) (2) $ 20,923   $ 12,737   64.3 $ 42,121   $ 24,701   70.5
 
Operating Margin - Industrial Segment (GAAP) 12.3 % 10.5 % 180 bps. 10.6 % 10.0 % 60

bps.
Operating Margin - Industrial Segment as adjusted (Non-GAAP) (2)     12.3 %     10.5 %     180   bps.   12.5 %     10.0 %   250  

bps.
 

CONSOLIDATED RESULTS
Operating Income (GAAP) $ 36,149 $ 25,760 40.3 $ 61,105 $ 50,378 21.3
 
CEO transition costs   -     -     10,492     -  
 
Operating Income as adjusted (Non-GAAP) (2) $ 36,149   $ 25,760   40.3 $ 71,597   $ 50,378   42.1
 
Operating Margin (GAAP) 13.5 % 12.0 % 150 bps. 11.5 % 11.5 % -

bps.
Operating Margin as adjusted (Non-GAAP) (2)     13.5 %     12.0 %     150   bps.   13.5 %     11.5 %   200  

bps.
 
Diluted Income from Continuing Operations per Share (GAAP) $ 0.17 $ 0.35 (51.4 ) $ 0.45 $ 0.67 (32.8 )
 
CEO transition costs - - 0.12 -
April 2013 tax court decision   0.30     -     0.30     -  
 
Diluted Income from Continuing Operations per Share as adjusted (Non-GAAP) (2) $ 0.47   $ 0.35   34.3 $ 0.87   $ 0.67   29.9
 
                           
 
Full-Year 2012 (1) Full-Year 2013 Outlook
Diluted Income from Continuing Operations per Share (GAAP) $ 1.44 $ 1.43 to $ 1.53
 
Synventive short-term purchase accounting adjustments 0.07 -
Synventive acquisition transaction costs 0.01 -
CEO transition costs - 0.12
April 2013 tax court decision   -     0.30  
 
Diluted Income from Continuing Operations per Share as adjusted (Non-GAAP) (2) $ 1.52   $ 1.85   to $ 1.95  

Notes:
(1) Results for 2012 have been adjusted on a retrospective basis to reflect the impact of the BDNA discontinued operations, including a reallocation of corporate overhead expenses, and the segment realignment.
 
(2) The Company has excluded short-term purchase accounting adjustments and transaction costs related to its Synventive acquisition in 2012 and CEO transition costs associated with the modification of outstanding equity awards and the tax charge associated with the April 2013 tax court decision in 2013 from its "as adjusted" financial measurements. 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.

Copyright Business Wire 2010

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