Barnes Group (B) Beats Q2 Earnings & Sales, Raises '17 View

Barnes Group Inc. B kept its earnings steak alive in second-quarter 2017, with earnings of 81 cents per share exceeding the Zacks Consensus Estimate of 69 cents by 17.39%. Also, the bottom-line increased 28.6% from the year-ago quarter’s tally of 63 cents.

The bottom-line improvement was driven by healthy businesses in the Industrial and Aerospace segments. However, positive impact from sales growth was partially offset by higher cost of sales and operating expenses.

Net sales grew 18.8% year over year to $364.5 million and exceeded the Zacks Consensus Estimate of $338 million by 7.90%. Organic sales grew roughly 11% while acquired assets added 8% to sales growth. However, adverse foreign currency translation had a negative 1% impact.  

Segmental Revenues

Barnes Group classifies its revenue results under two segments. A brief snapshot of segmental sales has been provided below:

Revenues generated from the Industrial segment were up 23.1% year over year to $251.8 million. Growth in Nitrogen Gas Products and Molding Solutions businesses contributed 12% to sales growth while acquired assets (FOBOHA and Gammaflux businesses) added 12%. However, forex woes adversely impacted sales by 1%.

Aerospace segment’s revenues increased 10.3% year over year to $112.7 million. Higher sales from Aerospace original equipment manufacturing, maintenance, repair and overhaul and spare parts businesses drove the segmental results.

Margins

In the quarter, Barnes Group’s margin profile suffered from roughly 19.9% year-over-year rise in cost of sales and nearly 14.2% increase in selling, general and administrative (SG&A) expenses. As a percentage of net sales, cost of sales was 64.9% and SG&A expenses were 19.4%.

Adjusted operating margin slipped 40 basis points to 15.6%.

Balance Sheet & Cash Flow

Exiting the second quarter, Barnes Group had cash and cash equivalents of $104.8 million, up from $88.3 million in the preceding quarter. Long-term debt inched up 0.6% sequentially to $494.2 million.

In first-half 2017, the company generated net cash of $102.4 million from its operating activities, higher than $97 million in the year-ago period. Cash used for purchase of property, plant and equipment totaled $27.3 million, above $23 million in the first half of 2016.

During the period, the company paid approximately $14.5 million as dividend and repurchased shares worth $5.4 million.

Outlook

For 2017, Barnes Group increased its earnings guidance to $2.80−$2.90 per share from the prior projection of $2.68−$2.78. Revenues are now projected to grow 14−15% (including organic growth of 9−10%) versus 8−9% (including organic growth of 5−6%) expected earlier. Acquired assets will contribute 5% to sales growth, higher than 4% predicted earlier.

Adjusted operating margin will be within the 15.5−16% range, capital expenditures will likely total $55 million and cash conversion will be higher than 90% of net income. Tax rate will likely be 24%.

Barnes Group, Inc. Price and Consensus

Barnes Group, Inc. Price and Consensus | Barnes Group, Inc. Quote

Zacks Rank & Key Picks

With a market capitalization of approximately $3.2 billion, Barnes Group currently sports a Zacks Rank #1 (Strong Buy). Other stocks worth considering in the industry include Altra Industrial Motion Corporation AIMC, DXP Enterprises, Inc. DXPE and Colfax Corporation CFX. While Altra Industrial Motion sports a Zacks Rank #1, both DXP Enterprises and Colfax carry a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion’s financial performance was impressive, with an average positive earnings surprise of 16.95% for the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

DXP Enterprises pulled off an average positive earnings surprise of 223.74% over the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.

Colfax delivered an average positive earnings surprise of 8.16% in the trailing four quarters. Also, bottom-line expectations for 2017 and 2018 improved over the past 60 days.

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