Barnes Reports Third Quarter 2022 Financial Results

Robust Aerospace Aftermarket Offset by Continuing Industrial Pressure

• Sales of $315 million, down 3% from last year; Organic Sales up 2%
• Operating Margin of 9.5%; Adjusted Operating Margin of 12.4%, down 110 bps from a year ago
• GAAP EPS of $0.33; Adjusted EPS of $0.49, down 11% versus the prior year period
• Forecasts 2022 Organic Sales Growth of +5% to +6%
• Expecting 2022 Adjusted EPS of $1.90 to $2.00; Down 2% to Up 3% from 2021 Adjusted EPS of $1.94

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 of 2022.

“In the third quarter, Aerospace continued to deliver excellent performance driven by robust year-over-year growth in the Aftermarket business. At Industrial, performance remains challenged as persistent economic headwinds and operational challenges impact our results,” said Thomas J. Hook, President and Chief Executive Officer of Barnes. “To address Industrial’s performance, our ongoing, multi-phased, restructuring efforts are targeting core business execution, systematically integrating our business portfolio, rationalizing cost, and advancing an action-oriented culture across the enterprise. Our objective is to return to, and eventually surpass, Industrial’s pre-pandemic margin performance,” added Hook.

Third Quarter 2022 Highlights

Third quarter 2022 net sales of $315 million were down 3% compared to the prior year period, with organic sales ⁽¹⁾ increasing 2%. Foreign exchange had a negative impact of 6%. Operating income was $30.0 million versus $43.7 million a year ago. Operating margin was 9.5%. Excluding restructuring charges, adjusted operating income was $39.0 million, down 11%, and adjusted operating margin was 12.4%, down 110 bps from a year ago.

Interest expense for the third quarter of 2022 was $3.4 million, a decrease of $0.7 million from the prior year due to the benefits of lower average borrowings and a lower average interest rate. Other expense was $2.4 million versus last year’s $1.2 million, primarily driven by incremental pension expense from restructuring actions.

The Company’s effective tax rate in the third quarter was 30.0%. Excluding the restructuring charges taken this quarter, the adjusted effective tax rate for the third quarter was 27.6%. For the first nine months of 2022, the effective tax rate was 111.0% compared with 27.0% a year ago and 21.9% for the full year 2021. The increase in the 2022 year to date effective tax rate from the full year 2021 rate was driven by this year’s goodwill impairment charge, which is not tax deductible, and last year’s benefits related to a realignment of Italian tax basis goodwill & intangibles and foreign audit adjustments. These items were partially offset by a change in the mix of earnings between high and low tax jurisdictions.

Net income for the third quarter was $17.0 million, or $0.33 per share, compared to $27.9 million, or $0.55 per share, a year ago. On an adjusted basis, net income per share of $0.49 was down 11% from $0.55 a year ago. Adjusted net income per share in the third quarter of 2022 excludes $0.16 of restructuring charges.

Year-to-date cash provided by operating activities was $43.5 million versus $127.8 million a year ago primarily due to an increase in working capital and prior year incentive compensation paid in the current year. Free cash flow was $21.8 million compared to $101.1 million last year. Capital expenditures were $21.7 million, down from $26.7 million a year ago.

A table reconciling non-GAAP to GAAP financial measures, including forward looking outlook information, is presented at the end of this press release.

Segment Performance

Industrial

Third quarter sales were $204 million, down 12% from $232 million in the prior year period. Organic sales decreased 4% while unfavorable foreign exchange lowered sales by 8%. Operating profit was $8.8 million versus $30.1 million in the prior year period. Excluding restructuring charges of $9.4 million, adjusted operating profit of $18.3 million was down 39% and adjusted operating margin of 8.9% was down 410 bps. Adjusted operating profit was impacted by lower sales volume, lower productivity in part affected by supply chain challenges, and the net impacts of inflation.

Aerospace

Third quarter sales were $111 million, up 18% from $94 million last year. Aerospace original equipment manufacturing (“OEM”) sales increased 2%, while aftermarket sales increased 55% compared to the prior year period. Operating profit was $21.2 million in the third quarter, up 56% from $13.6 million in the prior year period. Excluding a favorable restructuring adjustment of $0.4 million, adjusted operating profit of $20.8 million was up 50% from a year ago. The increase in adjusted operating profit was driven by the contribution of higher sales volumes within the Aftermarket business, offset in part by unfavorable productivity due to labor and supply chain challenges. Adjusted operating margin was 18.8%, up 400 bps from 14.8% last year.

Aerospace OEM backlog ended the third quarter at $729 million, down 3% sequentially from June 2022. The Company expects to convert approximately 45% of this backlog to revenue over the next 12 months.

Balance Sheet and Liquidity

Barnes’ balance sheet and liquidity profile remain well-positioned. The Company has liquidity of $72 million in cash and approximately $547 million available under the revolving credit facility, subject to covenants which would have allowed $245 million under our current credit agreements. With respect to the balance sheet, our “Debt to EBITDA” ratio, as defined in our credit agreements, was approximately 2.3 times at quarter end.

Updated 2022 Outlook

Barnes expects organic sales growth of 5% to 6% for the current year with negative foreign exchange of approximately 4%. Adjusted operating margin is now forecasted to be in the range of 11.5% to 12%, up modestly on the low end of our previous range due to the strong Aerospace Aftermarket. Adjusted earnings are expected to be in the range of $1.90 to $2.00 per share, down 2% to up 3% from 2021’s adjusted earnings of $1.94 per share. The adjusted earnings outlook reflects a reduction of $0.05 from the high end of our previous range primarily due to geopolitical and economic uncertainty and ongoing challenges within our Industrial Segment. 2022 adjusted earnings per share are anticipated to exclude a $0.27 impact related to restructuring activities and a $1.33 impact for the goodwill impairment charge taken in the second quarter. The Company forecasts capital expenditures of approximately $35 million and cash conversion of approximately 90% of net income. The adjusted effective tax rate for 2022 is expected to be approximately 24.5%.

Conference Call Information

Barnes will conduct a conference call with investors to discuss third quarter 2022 results at 8:30 a.m. ET today, October 28, 2022. The public may access the conference through a live audio webcast available on the Investor Relations section of Barnes’ website at www.onebarnes.com.

The conference is also available by direct dial at (888) 510-2379 in the U.S. or (646) 960-0691 outside of the U.S.; Conference ID 1137078. 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 28, 2022, until 11:59 p.m. (ET) on Friday, November 4, 2022, by dialing (647) 362-9199; Conference ID 1137078.

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

Barnes Group Inc. (NYSE: B) pioneers technologies to help change the world. Leveraging world-class manufacturing capabilities and market-leading engineering, we develop advanced processes, automation solutions and applied technologies for industries ranging from medical and personal care to mobility, packaging and aerospace. Customers benefit from our integrated hardware and software capabilities focused on improving the processing, control, service and sustainability of engineered plastics, factory automation technologies and precision components. For more information, please visit www.onebarnes.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," "continue," "will," "should," "may," 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: the Company’s ability to manage economic, business and geopolitical conditions, including rising interest rates, global price inflation, and shortages impacting the availability of materials; the duration and severity of the COVID-19 pandemic, and governments’ responses to the pandemic such as regional lockdowns, including their impacts across our business on demand, supply chains, operations and liquidity; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; 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; challenges associated with the introduction or development of new products or transfer of work; higher risks in global operations and markets; the impact of intense competition; the physical and operational risks from natural disasters, severe weather events, climate change which may limit accessibility to sufficient water resources, outbreaks of contagious diseases and other adverse public health developments; acts of war, terrorism and other international conflicts; the failure to achieve anticipated cost savings and benefits associated with workforce reductions and restructuring actions; currency fluctuations and foreign currency exposure; impacts from goodwill impairment and related charges; 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-imposed sanctions, tariffs, trade agreements and trade policies; changes or uncertainties in laws, regulations, rates, policies or interpretations that impact the Company’s business operations or tax status, including those that address climate change, environmental, health and safety matters, and the materials processed by our products or their end markets; fluctuations in the pricing or availability of raw materials, freight, transportation, energy, utilities and other items required by our operations; labor shortages or other business interruptions at transportation centers, shipping ports, our suppliers’ facilities or our facilities; disruptions in information technology systems, including as a result of cybersecurity attacks or data security breaches; the ability to hire and retain senior management and qualified personnel; the continuing impact of prior acquisitions and divestitures, and any other future strategic actions, and our ability to achieve the financial and operational targets set in connection with any such actions; the ability to achieve social and environmental performance goals; the outcome of pending and future litigation and governmental proceedings; the impact of actual, potential or alleged defects or failures of our products or third-party products within which our products are integrated, including product liabilities, product recall costs and uninsured claims; future repurchases of common stock; future levels of indebtedness; the impact of shareholder activism; 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.

Category: Earnings

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