Barnes Group Inc. Reports Third Quarter 2013 Financial Results

Barnes Group Inc. (NYSE: B), an international aerospace and industrial manufacturer and service provider, today reported financial results for the third quarter of 2013. Net sales from continuing operations increased 16% to $269.5 million from $232.5 million in the third quarter of 2012, driven by the sales contribution of the Synventive business and organic sales growth of 5%.

Income from continuing operations for the third quarter was $21.4 million, or $0.39 per diluted share, up 30% from $0.30 in the prior year period. On an adjusted basis, income from continuing operations was up 8% from $0.36 per diluted share a year ago. Last year’s adjusted diluted earnings from continuing operations excluded the impact of $5.1 million pre-tax, or $0.06 per diluted share, of short-term purchase accounting adjustments and transaction costs related to the acquisition of Synventive. A table reconciling the 2012 non-GAAP adjusted results presented in this release to our GAAP results is included at the end of this press release. In the current quarter, income from continuing operations includes an $8.6 million pre-tax inventory valuation charge related to exchange engine parts within the Aerospace repair and overhaul business.

On October 1, 2013 the Company announced it had entered into a definitive agreement to acquire privately held Männer, a leader in high precision mold-making, valve gate hot runner systems, and system solutions for the medical/pharmaceutical, packaging, and personal care/health care industries. The acquisition is anticipated to close on October 31, 2013. Following the closing, Männer will operate as a business unit within Barnes Group’s Industrial Segment.

“During the third quarter we continued to execute our growth strategy of focusing on differentiated products and processes. We announced the pending acquisition of Männer, a recognized brand name and premium supplier of complex, highly-engineered molds and hot runner systems. Männer’s end markets are a good complement to those of our existing industrial businesses” said Patrick J. Dempsey, President and Chief Executive Officer of Barnes Group Inc. “Additionally, we delivered strong performance in our Industrial segment and solid sales growth in our Aerospace OEM business, while our results in the Aerospace aftermarket did not meet our expectations,” continued Dempsey.
($ millions; except per share data)     Three months ended September 30,     Nine months ended September 30,
Unaudited 2013     2012     Change 2013     2012     Change
Net Sales $269.5 $232.5 $37.0     15.9 % $800.4 $670.6 $129.9     19.4 %
Operating Income $28.0 $22.5 $5.5 24.7 % $89.1 $72.9 $16.3 22.3 %
% of Sales 10.4 % 9.7 % 0.7 pts. 11.1 % 10.9 % 0.2 pts.
Income from Continuing Operations $21.4 $16.0 $5.4 33.4 % $46.0 $53.1 ($7.1) (13.4) %
Net Income $20.9 $18.5 $2.4 13.1 % $243.7 $65.5 $178.2 NM
 
Income from Continuing Operations Per Diluted Share $0.39 $0.30 $0.09 30.0 % $0.84 $0.97 ($0.13) (13.4) %
 
(Loss) Income from Discontinued Operations Per Diluted Share ($0.01) $0.04 ($0.05) NM $3.60 $0.22 $3.38 NM
 
Net Income Per Diluted Share     $0.38       $0.34       $0.04     11.8 %     $4.44       $1.19       $3.25     NM  
NM = Not Meaningful

Aerospace
  • Third quarter 2013 sales were $101.7 million, up 3% from $98.4 million in the same period last year. A sales increase in original equipment manufacturing (“OEM”) was partially offset by declines in aftermarket repair and overhaul and spare parts sales.
  • Operating profit of $7.2 million for the third quarter of 2013 was down 49% from the prior year period of $14.1 million. Operating profit benefited from the impact of higher OEM sales and lower employee related costs, offset by an $8.6 million inventory valuation charge related to exchange engine parts within the aftermarket repair and overhaul business, lower aftermarket sales, and higher new product introduction costs to support future growth programs.

Industrial
  • Third quarter 2013 sales were $167.7 million, up 25% from $134.1 million in the same period last year. The increase was driven by Synventive’s sales contribution, organic sales growth of 6%, and favorable foreign exchange of $0.5 million.
  • Operating profit of $20.9 million for the third quarter of 2013 was up $12.5 million from the prior year period driven by the profit contribution of Synventive, the profit impact of higher organic sales, and productivity improvements. During the 2012 period, operating profit was negatively impacted by $5.1 million of short-term purchase accounting adjustments and transaction costs related to the acquisition of Synventive.

Additional Information
  • Interest expense decreased to $2.4 million, down from $3.2 million in the prior year period primarily as a result of lower average borrowings in the current quarter as a portion of the proceeds from the Barnes Distribution North America sale were used to reduce debt.
  • The Company’s effective tax rate from continuing operations for the third quarter of 2013 was 15.8% compared with 12.7% in the third quarter of 2012 and 13.5% for full year 2012. The effective tax rate increase in the third quarter 2013 versus the full year 2012 rate was mainly due to several discrete foreign tax related items in 2012 and an increase in the Company’s effective tax rate in Sweden, partially offset by a projected change in earnings attributable to higher-taxing jurisdictions.

Updated 2013 Outlook

Barnes Group is updating its 2013 guidance, which excludes the future impact of the announced Männer acquisition. The Company now expects 2013 revenue from continuing operations to grow approximately 16% 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 12.5% to 13.0% for 2013. GAAP earnings per diluted share from continuing operations are anticipated to be in the range of $1.33 to $1.38.

Full-Year 2013 adjusted earnings per diluted share from continuing operations are anticipated to be in the range of $1.75 to $1.80, up 15% to 18% 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 in the fourth quarter of 2013. Excluding this item and the impact from the sale of BDNA, 2013 adjusted cash conversion is anticipated to be greater than 100% of net income.

Conference Call

Barnes Group Inc. will conduct a conference call with investors to discuss third quarter 2013 results at 8:30 a.m. EDT today, October 25, 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) 713-4213 in the U.S. or (617) 213-4865 outside of the U.S. (request the Barnes Group Earnings Call), Participant Code: 22589800.

In addition, the call will be recorded and available for playback beginning at 12:00 p.m. (EDT) on Friday, October 25, 2013 by dialing (617) 801-6888, Passcode: 26282633.

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 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," "strategy," "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, customers, distributors, suppliers, business partners or governmental entities; 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 international operations and markets; the impact of intense competition; 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 risks and uncertainties described in our periodic filings with the SEC include, among others, 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 insourcing decisions, material changes, production schedules and volumes of specific programs; any potential adverse effects associated with a U.S. government shutdown; 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 our pending acquisition of Männer 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; the impacts of the U.S. Tax Court's April 16, 2013 decision and any related appeal; the outcome of pending and future legal, governmental, or regulatory proceedings and contingencies; uninsured claims; 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 September 30, Nine months ended September 30,
2013

2012 (1)

%

Change
2013

2012 (1)

%

Change
 
Net sales $ 269,491 $ 232,476 15.9 $ 800,430 $ 670,580 19.4
 
Cost of sales 189,488 170,349 11.2 544,615 483,138 12.7
Selling and administrative expenses   51,972     39,641   31.1   166,679     114,578   45.5
 
  241,460     209,990   15.0   711,294     597,716   19.0
 
Operating income 28,031 22,486 24.7 89,136 72,864 22.3
 
Operating margin 10.4 % 9.7 % 11.1 % 10.9 %
 
Interest expense 2,401 3,243 (26.0 ) 10,000 8,046 24.3
Other expense (income), net   241     873   (72.4 )   1,702     1,787   (4.8 )
 
Income from continuing operations before income taxes 25,389 18,370 38.2 77,434 63,031 22.9
 
Income taxes   4,008     2,342   71.1   31,426     9,926   NM
 
Income from continuing operations 21,381 16,028 33.4 46,008 53,105 (13.4 )
 
(Loss) income from discontinued operations, net of income taxes (476 ) 2,453 NM 197,696 12,414 NM
       
Net income $ 20,905   $ 18,481   13.1 $ 243,704   $ 65,519   NM
 
Common dividends $ 5,775   $ 5,403   6.9 $ 16,495   $ 16,245   1.5
 
Per common share:
 
Basic:
Income from continuing operations $ 0.40 $ 0.30 33.3 $ 0.86 $ 0.97 (11.3 )
(Loss) income from discontinued operations, net of income taxes   (0.01 )   0.04   NM   3.67     0.23   NM
Net income $ 0.39   $ 0.34   14.7 $ 4.53   $ 1.20   NM
 
Diluted:
Income from continuing operations $ 0.39 $ 0.30 30.0 $ 0.84 $ 0.97 (13.4 )
(Loss) income from discontinued operations, net of income taxes   (0.01 )   0.04   NM   3.60     0.22   NM
Net income $ 0.38   $ 0.34   11.8 $ 4.44   $ 1.19   NM
 
Dividends 0.11 0.10 10.0 0.31 0.30 3.3
 
Weighted average common shares outstanding:
Basic 53,009,720 54,508,387 (2.7 ) 53,818,950 54,618,636 (1.5 )
Diluted 54,304,990 55,098,263 (1.4 ) 54,854,456 55,234,478 (0.7 )
 
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 September 30, Nine months ended September 30,
2013

2012 (1)

%

Change
2013

2012 (1)

%

Change
Net sales
 
Aerospace $ 101,744 $ 98,370 3.4 $ 296,622 $ 289,391 2.5
 
Industrial 167,747 134,107 25.1 503,809 381,191 32.2
 
Intersegment sales   -     (1 ) NM   (1 )   (2 ) 50.0
 
Total net sales $ 269,491   $ 232,476   15.9 $ 800,430   $ 670,580   19.4
 
Operating profit
 
Aerospace $ 7,157 $ 14,122 (49.3 ) $ 32,730 $ 39,798 (17.8 )
 
Industrial   20,874     8,364   NM   56,406     33,066   70.6
 
Total operating profit $ 28,031   $ 22,486   24.7 $ 89,136   $ 72,864   22.3
 
Operating margin Change Change
 
Aerospace 7.0 % 14.4 % (740 ) bps. 11.0 % 13.8 % (280 ) bps.
 
Industrial   12.4 %   6.2 % 620 bps.   11.2 %   8.7 % 250 bps.
 
Total operating margin 10.4 % 9.7 % 70 bps. 11.1 % 10.9 % 20 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)
 
 

September 30,

2013

December 31,

2012

Assets
Current assets
Cash and cash equivalents $ 230,285 $ 86,356
Accounts receivable 230,167 253,202
Inventories 179,963 226,220
Deferred income taxes 26,301 33,906
Prepaid expenses and other current assets   16,747   18,856
 
Total current assets 683,463 618,540
 
 
Deferred income taxes 29,523 29,961
Property, plant and equipment, net 224,411 233,097
Goodwill 452,935 579,905
Other intangible assets, net 366,979 383,972
Other assets   21,863   23,121
 
Total assets $ 1,779,174 $ 1,868,596
 

Liabilities and Stockholders' Equity
Current liabilities
Notes and overdrafts payable $ 7,700 $ 3,795
Accounts payable 92,580 99,037
Accrued liabilities 127,768 96,364
Long-term debt - current   54,833   699
 
Total current liabilities 282,881 199,895
 
Long-term debt 285,600 642,119
Accrued retirement benefits 130,190 159,103
Deferred income taxes 48,498 48,707
Other liabilities 15,459 18,654
 
Total stockholders' equity   1,016,546   800,118
 
Total liabilities and stockholders' equity $ 1,779,174 $ 1,868,596

 
       
BARNES GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
 
Nine months ended September 30,
2013 2012

Operating activities:
Net income $ 243,704 $ 65,519
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 44,957 40,190
Amortization of convertible debt discount 1,776 1,641
Gain on disposition of property, plant and equipment (632 ) (214 )
Stock compensation expense 16,092 6,564
Withholding taxes paid on stock issuances (2,045 ) (1,123 )
(Gain) loss on the sale of businesses (313,471 ) 788
Changes in assets and liabilities, net of the effects of acquisitions/divestitures:
Accounts receivable (11,694 ) (12,317 )
Inventories (405 ) 981
Prepaid expenses and other current assets (815 ) (5,683 )
Accounts payable 8,988 2,756
Accrued liabilities 27,784 (4,295 )
Deferred income taxes (6,603 ) 1,470
Long-term retirement benefits 238 (17,967 )
Other   4,700     (1,009 )
 
Net cash provided by operating activities 12,574 77,301
 
Investing activities:
Proceeds from disposition of property, plant and equipment 895 556
Proceeds from (payments for) the sale of businesses 539,116 (339 )
Change in restricted cash - 4,900
Capital expenditures (33,799 ) (22,923 )
Business acquisitions, net of cash acquired - (296,717 )
Other   (1,901 )   (3,013 )
 
Net cash provided (used) by investing activities 504,311 (317,536 )
 
Financing activities:
Net change in other borrowings 3,887 (4,558 )
Payments on long-term debt (482,158 ) (78,065 )
Proceeds from the issuance of long-term debt 178,000 376,000
Proceeds from the issuance of common stock 10,873 5,630
Common stock repurchases (68,608 ) (19,037 )
Dividends paid (16,495 ) (16,245 )
Excess tax benefit on stock awards 3,312 1,659
Other   (1,320 )   (1,184 )
 
Net cash (used) provided by financing activities (372,509 ) 264,200
 
Effect of exchange rate changes on cash flows   (447 )   884  
 
Increase in cash and cash equivalents 143,929 24,849
 
Cash and cash equivalents at beginning of period   86,356     62,505  
 
Cash and cash equivalents at end of period $ 230,285   $ 87,354  

 
       
BARNES GROUP INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(Dollars in thousands)
(Unaudited)
 
 
Nine months ended September 30,
2013 2012
Free cash flow:
 
Net cash provided by operating activities $ 12,574 $ 77,301
Capital expenditures   (33,799 )   (22,923 )
 

Free cash flow(1)
$ (21,225 ) $ 54,378  
 

Free cash flow to net income cash conversion ratio (as adjusted):
 
Free cash flow (from above) $ (21,225 ) $ 54,378
Income tax payments related to the gain on the sale of BDNA   95,714     -  

Free cash flow (as adjusted)(2)
74,489 54,378
 
Net income 243,704 65,519
Gain on the sale of BDNA, net of income taxes (194,417 ) -
April 2013 tax court decision   16,388     -  
Net income (as adjusted)(2) $ 65,675   $ 65,519  
 
Free cash flow to net income cash conversion ratio (as adjusted)(2) 113 % 83 %
 

Notes:
(1) The Company defines free cash flow as net cash provided by operating activities less capital expenditures. In 2013, net cash provided by operating activities is negatively impacted by $95.7 million of income tax payments related to the gain on the sale of BDNA. The proceeds from the sale are reflected in investing activities. 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.
 
 
(2) For the purpose of calculating the cash conversion ratio, the Company has excluded the income tax payments related to the gain on the sale of BDNA made during the nine months ended September 30, 2013 from free cash flow and the gain on the sale of BDNA and the tax charge associated with the April 2013 tax court decision from net income.

 
                           
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,
2013

2012 (1)
% Change 2013

2012 (1)
% Change

SEGMENT RESULTS
Operating Profit - Aerospace Segment (GAAP) $ 7,157 $ 14,122 (49.3 ) $ 32,730 $ 39,798 (17.8 )
 
CEO transition costs   -     -     3,903     -  
 

Operating Profit - Aerospace Segment as adjusted (Non-GAAP) (2)
$ 7,157   $ 14,122   (49.3 ) $ 36,633   $ 39,798   (8.0 )
 
Operating Margin - Aerospace Segment (GAAP) 7.0 % 14.4 % (740 ) bps. 11.0 % 13.8 % (280 ) bps.
Operating Margin - Aerospace Segment as adjusted (Non-GAAP) (2) 7.0 % 14.4 % (740 ) bps. 12.4 % 13.8 % (140 ) bps.
 
Operating Profit - Industrial Segment (GAAP) $ 20,874 $ 8,364 NM $ 56,406 $ 33,066 70.6
 
Synventive short-term purchase accounting adjustments - 4,212 - 4,212
Synventive acquisition transaction costs - 909 - 909
CEO transition costs   -     -     6,589     -  
 
Operating Profit - Industrial Segment as adjusted (Non-GAAP) (2) $ 20,874   $ 13,485   54.8 $ 62,995   $ 38,187   65.0
 
Operating Margin - Industrial Segment (GAAP) 12.4 % 6.2 % 620 bps. 11.2 % 8.7 % 250 bps.
Operating Margin - Industrial Segment as adjusted (Non-GAAP) (2)       12.4 %       10.1 %       230     bps.     12.5 %       10.0 %       250     bps.
 

CONSOLIDATED RESULTS
Operating Income (GAAP) $ 28,031

$
22,486 24.7 $ 89,136 $ 72,864 22.3
 
Synventive short-term purchase accounting adjustments - 4,212 - 4,212
Synventive acquisition transaction costs - 909 - 909
CEO transition costs   -     -     10,492     -  
 
Operating Income as adjusted (Non-GAAP) (2) $ 28,031   $ 27,607   1.5 $ 99,628   $ 77,985   27.8
 
Operating Margin (GAAP) 10.4 % 9.7 % 70 bps. 11.1 % 10.9 % 20 bps.
Operating Margin as adjusted (Non-GAAP) (2)       10.4 %       11.9 %       (150 )   bps.     12.4 %       11.6 %       80     bps.
 
Diluted Income from Continuing Operations per Share (GAAP) $ 0.39 $ 0.30 30.0 $ 0.84 $ 0.97 (13.4 )
 
Synventive short-term purchase accounting adjustments - 0.05 - 0.05
Synventive acquisition transaction costs - 0.01 - 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) $ 0.39   $ 0.36   8.3 $ 1.26   $ 1.03   22.3
 
                                             
 
Full-Year 2012 (1) Full-Year 2013 Outlook (3)
Diluted Income from Continuing Operations per Share (GAAP) $ 1.44 $ 1.33 to $ 1.38
 
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   $ 1.75   to $ 1.80  
 
                                             
 

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.
 

(3) Barnes Group's Full-Year 2013 Outlook excludes the impact of the announced Männer acquisition.

Copyright Business Wire 2010

More from Press Releases

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

NFL Pushes for Regulation Following Supreme Court's Sports Gambling Ruling

21st Century Fox Scoops Up Local News Stations

21st Century Fox Scoops Up Local News Stations

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Walmart CEO: 'We Are Transforming Globally' With Flipkart

Three-Part FREE Webinar Series

Three-Part FREE Webinar Series

March 24 Full-Day Course Offering: Professional Approach to Trading SPX

March 24 Full-Day Course Offering: Professional Approach to Trading SPX