Continued Strong Aerospace Performance, Industrial Confronting
Headwinds
- Sales of $321 million, similar to the prior year period;
Organic Sales up 5%
- Operating Margin of -8.8%; Adjusted Operating Margin of 12.5%,
up 30 bps from a year ago
- GAAP EPS of -$0.78; Adjusted EPS of $0.56, up 24% versus the
prior year period
- Forecasts 2022 Organic Sales Growth of +5% to +6%
- Expecting 2022 Adjusted EPS of $1.90 to $2.05; Down 2% to Up 6%
from 2021 Adjusted EPS of $1.94
- Records Automation goodwill impairment and Announces Industrial
restructuring actions
Barnes Group Inc. (NYSE: B), a global provider of highly
engineered products, differentiated industrial technologies, and
innovative solutions, today reported financial results for the
second quarter of 2022.
“Our second quarter performance demonstrates continued strength
in the aerospace recovery, driven by robust performance in our
Aerospace Aftermarket business and steady recovery in our OEM
business,” said Thomas J. Hook, President and Chief Executive
Officer of Barnes. “In Industrial, persistent economic headwinds
impeded expected performance improvements. Accordingly, we have
commenced a systematic multi-phased initiative to significantly
reduce costs and integrate our operations, decreasing complexity
and focusing on improved business performance. We will leverage the
high-quality, technology-based product lines within our Industrial
portfolio, and work diligently to drive the value these businesses
are capable of,” added Hook.
Second Quarter 2022 Highlights
Second quarter 2022 net sales of $321 million were flat compared
to the prior year period, with organic sales (1) increasing 5%.
Foreign exchange had a negative impact of 5%. Operating loss was
$28.2 million versus operating income of $38.5 million a year ago,
impacted by a goodwill impairment charge of approximately $68
million in the Industrial Segment. Operating margin was -8.8%.
Excluding the goodwill impairment charge and $0.1 million of
restructuring charges in the current year quarter, adjusted
operating income was $40.1 million, up 2%, and adjusted operating
margin was 12.5%, up 30 bps from a year ago.
Interest expense for the second quarter of 2022 was $3.3
million, a decrease of $1.1 million from the prior year due to the
benefits of a lower average interest rate and lower average
borrowings. Other income was $0.4 million versus last year’s other
expense of $1.3 million, primarily driven by foreign exchange gains
in the current year versus losses in the prior year.
The Company’s effective tax rate in the second quarter was
-27.1%. Excluding the goodwill impairment, the adjusted effective
tax rate for the second quarter was 22.8% compared with 25.3% a
year ago and 21.9% for the full year 2021. The increase in the
second quarter 2022 adjusted effective tax rate from the full year
2021 rate was largely due to 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 loss for the second quarter was $39.6 million, or -$0.78 per
share, compared to net income of $24.5 million, or $0.48 per share,
a year ago. On an adjusted basis, net income per share of $0.56 was
up 24% from $0.45 a year ago. Adjusted net income per share in the
second quarter of 2022 excludes a $1.34 per share goodwill
impairment, while the prior year period excludes $0.01 of
restructuring charges and a net foreign tax benefit of $0.04.
Year-to-date cash provided by operating activities was $8.5
million versus $85.7 million in the prior year primarily due to an
increase in working capital and incentive compensation paid in the
current year. Free cash flow was -$5.0 million compared to $68.2
million last year. Capital expenditures were $13.5 million, down
from $17.6 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 Second quarter sales were $212 million, down
10% from $235 million in the prior year period. Organic sales
decreased 3% while unfavorable foreign exchange lowered sales by
6%. Operating loss was $48.7 million versus operating profit of
$27.3 million in the prior year period. In the second quarter, the
Company performed its assessment of goodwill. In the Automation
reporting unit, weak performance and a worsening economic outlook
leading to a downward revision of its sales and cash flow forecasts
resulted in a non-cash impairment of approximately $68 million.
Automation represents the October 2018 acquisition of Gimatic.
Excluding the goodwill impairment and restructuring charges of $0.1
million in current year and $0.2 million in the prior year,
adjusted operating profit of $19.5 million was down 29% and
adjusted operating margin of 9.2% was down 250 bps. Adjusted
operating profit was impacted by lower sales volume, lower
productivity, in part a result of COVID-19 related absenteeism, and
the net impact of inflation. These factors were partially offset by
lower incentive compensation.
Aerospace Second quarter sales were $109 million, up 26%
from $86 million last year, benefitting from continued recovery in
aerospace end markets. Aerospace original equipment manufacturing
(“OEM”) sales increased 14%, while aftermarket sales increased 55%
compared to the prior year period.
Operating profit was $20.6 million in the second quarter, up 82%
from $11.3 million in the prior year period. Excluding
restructuring charges of $0.1 million in the current year and $0.4
million in the prior year, adjusted operating profit of $20.6
million was up 76% from a year ago. The increase in adjusted
operating profit was driven by the contribution of higher sales
volumes, in particular strong aftermarket sales, offset in part by
unfavorable productivity due to labor availability. Adjusted
operating margin was 18.9%, up 540 bps from 13.5% last year.
Aerospace OEM backlog ended the second quarter at $753 million,
up 5% sequentially from March 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 $521 million available under the revolving credit
facility, subject to covenants which would have allowed $230
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.
Industrial Restructuring
For the Company’s Industrial Segment, operational performance
and the macroeconomic environment have deteriorated from our prior
view. The first half’s headwinds are now expected to persist deeper
into the year and combine with softening European demand due to
impacts of the Russian invasion of Ukraine. As a result, our
performance outlook for the second half has been meaningfully
reduced. Accordingly, the Company is embarking on a restructuring
program to significantly reduce costs and integrate our operations
to improve customer engagement and increase efficiency to drive
performance. The Company forecasts a restructuring charge of
approximately $24 million, with $17 million of the charge in 2022.
Annualized cost savings are forecasted to be $14 million. This
initial restructuring will be broad-based, touching much of our
industrial portfolio.
Updated 2022 Outlook
Barnes now expects 2022 organic sales growth of 5% to 6% and
negative foreign exchange of approximately 3%. Adjusted operating
margin is now forecasted to be in the range of 11% to 12%, down
from our prior view reflecting weaker Industrial performance and
macroeconomic headwinds, offset in part by a more favorable view in
our Aerospace Segment. Adjusted earnings are expected to be in the
range of $1.90 to $2.05 per share, down 2% to up 6% from 2021’s
adjusted earnings of $1.94 per share. 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. The Company forecasts capital expenditures of
between $40 and $45 million and cash conversion of approximately
100% of net income. The adjusted effective tax rate for 2022 is
expected to be between 24% and 25%.
Conference Call Information
Barnes will conduct a conference call with investors to discuss
second quarter 2022 results at 8:30 a.m. ET today, July 29, 2022.
The public may access the conference through a live audio webcast
available on the Investor Relations section of Barnes’ website at
www.barnesgroupinc.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, July 29, 2022, until 11:59
p.m. (ET) on Friday, August 5, 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.barnesgroupinc.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
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; 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
BARNES GROUP INC. CONSOLIDATED STATEMENTS OF (LOSS)
INCOME (Dollars in thousands, except per share data)
(Unaudited) Three months ended June 30, Six
months ended June 30,
2022
2021
% Change
2022
2021
% Change Net sales
$
321,268
$
321,158
0.0
$
633,651
$
622,787
1.7
Cost of sales
212,754
203,168
4.7
419,944
397,864
5.5
Selling and administrative expenses
68,507
79,447
(13.8)
142,587
154,000
(7.4)
Goodwill impairment charge
68,194
-
100.0
68,194
-
100.0
349,455
282,615
23.7
630,725
551,864
14.3
Operating (loss) income
(28,187)
38,543
(173.1)
2,926
70,923
(95.9)
Operating margin
-8.8%
12.0%
0.5%
11.4%
Interest expense
3,325
4,475
(25.7)
6,893
8,416
(18.1)
Other expense (income), net
(403)
1,272
(131.7)
1,226
2,734
(55.2)
(Loss) income before income taxes
(31,109)
32,796
(194.9)
(5,193)
59,773
(108.7)
Income taxes
8,443
8,305
1.7
13,875
15,900
(12.7)
Net (loss) income
$
(39,552)
$
24,491
(261.5)
$
(19,068)
$
43,873
(143.5)
Common dividends
$
8,081
$
8,090
(0.1)
$
16,192
$
16,194
(0.0)
Per common share: Net (loss) income: Basic
$
(0.78)
$
0.48
(262.5)
$
(0.37)
$
0.86
(143.0)
Diluted
(0.78)
0.48
(262.5)
(0.37)
0.86
(143.0)
Dividends
0.16
0.16
-
0.32
0.32
-
Weighted average common shares outstanding: Basic
51,004,375
50,933,222
0.1
51,013,346
50,933,373
0.2
Diluted
51,004,375
51,102,303
(0.2)
51,013,346
51,095,198
(0.2)
BARNES GROUP INC. OPERATIONS BY REPORTABLE BUSINESS
SEGMENT (Dollars in thousands) (Unaudited)
Three months ended June 30, Six months ended June 30,
2022
2021
% Change
2022
2021
% Change Net sales Industrial
$
212,115
$
234,679
(9.6)
$
423,787
$
454,671
(6.8)
Aerospace
109,153
86,485
26.2
209,864
168,127
24.8
Intersegment sales
-
(6)
-
(11)
Total net sales
$
321,268
$
321,158
0.0
$
633,651
$
622,787
1.7
Operating (loss) profit Industrial
$
(48,743)
$
27,273
(278.7)
$
(33,990)
$
48,568
(170.0)
Aerospace
20,556
11,270
82.4
36,916
22,355
65.1
Total operating (loss) profit
$
(28,187)
$
38,543
(173.1)
$
2,926
$
70,923
(95.9)
Operating margin
Change
Change
Industrial
-23.0%
11.6%
(3,460)
bps.
-8.0%
10.7%
(1,870)
bps. Aerospace
18.8%
13.0%
580
bps.
17.6%
13.3%
430
bps. Total operating margin
-8.8%
12.0%
(2,080)
bps.
0.5%
11.4%
(1,090)
bps.
BARNES GROUP INC. CONSOLIDATED BALANCE SHEETS
(Dollars in thousands) (Unaudited)
June 30, 2022 December 31, 2021
Assets Current assets Cash and cash
equivalents
$
72,278
$
102,860
Accounts receivable
281,773
262,257
Inventories
260,633
239,655
Prepaid expenses and other current assets
75,739
75,437
Total current assets
690,423
680,209
Deferred income taxes
18,682
21,976
Property, plant and equipment, net
320,174
341,462
Goodwill
827,131
955,370
Other intangible assets, net
461,161
500,246
Other assets
83,525
77,557
Total assets
$
2,401,096
$
2,576,820
Liabilities and Stockholders' Equity
Current liabilities Notes and overdrafts payable
$
4
$
1,900
Accounts payable
137,561
131,076
Accrued liabilities
145,795
175,583
Long-term debt - current
1,502
1,835
Total current liabilities
284,862
310,394
Long-term debt
582,537
599,932
Accrued retirement benefits
74,309
76,784
Deferred income taxes
60,100
66,704
Long-term tax liability
39,086
52,114
Other liabilities
40,108
42,126
Total stockholders' equity
1,320,094
1,428,766
Total liabilities and stockholders' equity
$
2,401,096
$
2,576,820
BARNES GROUP INC. CONSOLIDATED STATEMENTS OF CASH
FLOWS (Dollars in thousands) (Unaudited)
Six months ended June 30,
2022
2021
Operating activities: Net (loss) income
$
(19,068)
$
43,873
Adjustments to reconcile net (loss) income to net cash provided by
operating activities: Depreciation and amortization
44,861
44,683
Loss (gain) on disposition of property, plant and equipment
47
(76)
Stock compensation expense
6,015
5,632
Non-cash goodwill impairment charge
68,194
-
Changes in assets and liabilities: Accounts receivable
(30,232)
(12,660)
Inventories
(26,671)
89
Prepaid expenses and other current assets
(5,165)
(3,473)
Accounts payable
10,196
13,880
Accrued liabilities
(30,674)
1,721
Deferred income taxes
(1,261)
(5,101)
Long-term retirement benefits
(1,871)
889
Long-term tax liability
(6,949)
(6,949)
Other
1,097
3,213
Net cash provided by operating activities
8,519
85,721
Investing activities: Proceeds from
disposition of property, plant and equipment
92
136
Capital expenditures
(13,523)
(17,567)
Other
(1,645)
2,924
Net cash used by investing activities
(15,076)
(14,507)
Financing activities: Net change in
other borrowings
(1,372)
(2,184)
Payments on long-term debt
(70,369)
(56,502)
Proceeds from the issuance of long-term debt
80,000
25,000
Proceeds from the issuance of common stock
246
210
Common stock repurchases
(6,721)
(5,229)
Dividends paid
(16,192)
(16,194)
Withholding taxes paid on stock issuances
(154)
(191)
Other
(9,825)
(3,477)
Net cash used by financing activities
(24,387)
(58,567)
Effect of exchange rate changes on cash flows
(4,475)
(1,252)
(Decrease) increase in cash, cash equivalents and
restricted cash
(35,419)
11,395
Cash, cash equivalents and restricted cash at
beginning of period
111,909
91,468
Cash, cash equivalents and restricted cash at end of
period
76,490
102,863
Less: Restricted cash, included in Prepaid expenses
and other current assets
(2,122)
(6,970)
Less: Restricted cash, included in Other assets
(2,090)
(4,759)
Cash and cash equivalents at end of period
$
72,278
$
91,134
BARNES GROUP INC. RECONCILIATION OF NET CASH PROVIDED BY
OPERATING ACTIVITIES TO FREE CASH FLOW (Dollars in
thousands) (Unaudited) Six months ended
June 30,
2022
2021
Free cash flow: Net cash provided by operating
activities
$
8,519
$
85,721
Capital expenditures
(13,523)
(17,567)
Free cash flow(1)
$
(5,004)
$
68,154
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,
2022
2021
% Change
2022
2021
% Change SEGMENT RESULTS
Operating (Loss) Profit - Industrial Segment (GAAP)
$
(48,743)
$
27,273
(278.7)
$
(33,990)
$
48,568
(170.0)
Restructuring/reduction in force charges
55
223
359
305
Goodwill impairment charge
68,194
-
68,194
-
Operating Profit - Industrial Segment as adjusted
(Non-GAAP) (1)
$
19,506
$
27,496
(29.1)
$
34,563
$
48,873
(29.3)
Operating Margin - Industrial Segment (GAAP)
-23.0%
11.6%
(3,460)
bps.
-8.0%
10.7%
(1,870)
bps.
Operating Margin - Industrial Segment as adjusted
(Non-GAAP) (1)
9.2%
11.7%
(250)
bps.
8.2%
10.7%
(250)
bps.
Operating Profit - Aerospace Segment (GAAP)
$
20,556
$
11,270
82.4
$
36,916
$
22,355
65.1
Restructuring/reduction in force charges
71
439
425
449
Operating Profit - Aerospace Segment as adjusted
(Non-GAAP) (1)
$
20,627
$
11,709
76.2
$
37,341
$
22,804
63.7
Operating Margin - Aerospace Segment (GAAP)
18.8%
13.0%
580
bps.
17.6%
13.3%
430
bps.
Operating Margin - Aerospace Segment as adjusted (Non-GAAP)
(1)
18.9%
13.5%
540
bps.
17.8%
13.6%
420
bps.
CONSOLIDATED
RESULTS Operating (Loss) Income (GAAP)
$
(28,187)
$
38,543
(173.1)
$
2,926
$
70,923
(95.9)
Restructuring/reduction in force charges
126
662
784
754
Goodwill impairment charge
68,194
-
68,194
-
Operating Income as adjusted (Non-GAAP) (1)
$
40,133
$
39,205
2.4
$
71,904
$
71,677
0.3
Operating Margin (GAAP)
-8.8%
12.0%
(2,080)
bps.
0.5%
11.4%
(1,090)
bps.
Operating Margin as adjusted (Non-GAAP) (1)
12.5%
12.2%
30
bps.
11.3%
11.5%
(20)
bps.
Diluted Net (Loss) Income per Share (GAAP)
$
(0.78)
$
0.48
(262.5)
$
(0.37)
$
0.86
(143.0)
Foreign tax matters
-
(0.04)
-
(0.04)
Restructuring/reduction in force charges
-
0.01
0.01
0.01
Goodwill impairment charge
1.34
-
1.34
-
Diluted Net Income per Share as adjusted (Non-GAAP)
(1)
$
0.56
$
0.45
24.4
$
0.98
$
0.83
18.1
Full-Year 2021 Full-Year 2022 Outlook
Operating Margin (GAAP)
11.9%
4.5%
to
5.5%
Restructuring/reduction in force charges
0.1%
1.2%
Goodwill impairment charge
-
5.3%
Operating Margin as adjusted (Non-GAAP) (1)
12.0%
11.0%
to
12.0%
Diluted Net Income per Share (GAAP)
$
1.96
$
0.30
to
$
0.45
Foreign tax matters
(0.04)
-
Restructuring/reduction in force charges
0.02
0.27
Goodwill impairment charge
-
1.33
Diluted Net Income per Share as adjusted (Non-GAAP)
(1)
$
1.94
$
1.90
to
$
2.05
Notes: (1)
The Company has excluded the following from its "as adjusted"
financial measurements for 2022: 1) charges related to
restructuring actions at certain businesses and 2) the goodwill
impairment charge recorded in the second quarter of 2022 related to
the Automation reporting unit. The Company has excluded the
following from its "as adjusted" financial measurements for 2021:
1) the impact of certain foreign tax matters including a benefit
related to the Italy tax realignment, partially offset by a charge
related to the UK tax rate and 2) charges related to restructuring
actions at certain businesses. The tax effects of the restructuring
actions were calculated based on the respective tax jurisdictions
and ranged from approximately 15% to approximately 30%. The
goodwill impairment charge did not have a tax effect as it is not
deductible for book purposes. 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.
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