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Barnes Group Inc. Reports Third Quarter 2021 Financial Results

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  • B
  • Sales of $325 million, up 21% from last year; Organic Sales up 20%

  • Operating Income of $43.7 million; Adjusted Operating Income of $43.9 million, up 39% from last year

  • Operating Margin of 13.4%; Adjusted Operating Margin of 13.5%, up 180 bps from last year

  • GAAP EPS of $0.55; Adjusted EPS of $0.55, up 83% from last year’s $0.30

  • 2021 Organic Sales Growth Expectation of up 11% to 12%

  • 2021 Adjusted EPS Outlook of $1.83 to $1.93; Up 12% to 18% from 2020 Adjusted EPS
    of $1.64

BRISTOL, Conn., October 29, 2021--(BUSINESS WIRE)--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 2021.

"Barnes Group generated a strong quarter of year-over-year performance with solid organic sales growth, further margin expansion, and increased earnings per share. Sequentially, sales, margin, and earnings likewise improved," said Patrick J. Dempsey, President and Chief Executive Officer of Barnes Group Inc. "Aerospace end markets continue to demonstrate solid recovery with improving flight activity. Industrial end markets, while seeing good customer demand, are experiencing some headwinds as supply chain issues remain a near-term challenge," added Dempsey.

Third Quarter 2021 Highlights

Third quarter 2021 net sales of $325 million were up 21% from $269 million in the prior year period, with organic sales (1) increasing 20%. Each of the Company’s strategic business units generated double digit organic sales growth. Foreign exchange had a positive impact on sales of approximately 1%. On a sequential basis, sales improved 1% from the second quarter of 2021. Operating income was $43.7 million versus $31.2 million a year ago and operating margin was 13.4% versus 11.6% last year. Excluding restructuring charges of $0.2 million this year and $0.3 million in the prior year period, adjusted operating income was up 39% and adjusted operating margin was up 180 bps from a year ago.

Interest expense was $4.0 million, an increase of $0.3 million from the prior year quarter due to a higher average interest rate, offset in part by lower average borrowings.

The Company's effective tax rate for the third quarter of 2021 was 27.6% compared with 44.1% in the third quarter of 2020 and 37.6% for the full year 2020. The decrease in the third quarter 2021 effective tax rate from the full year 2020 rate is primarily due to the absence of tax expense related to the sale of the Seeger business in 2020, a benefit relating to the tax basis of goodwill at Automation, the positive resolution of a foreign tax matter in the current year quarter, and a favorable mix in earnings based on tax jurisdictions. These items were partially offset by a charge relating to UK legislative changes.

Net income for the third quarter was $27.9 million, or $0.55 per diluted share, compared to $15.4 million, or $0.30 per diluted share, a year ago.

Year-to-date 2021 cash provided by operating activities was $127.8 million versus $163.8 million in the prior year period. Free cash flow was $101.1 million compared to $133.7 million last year. Capital expenditures were $26.7 million, down $3.4 million from a year ago.

Segment Performance and End Market Outlook

Industrial

Third quarter sales were $232 million, up 18% from $197 million in the prior year period. Organic sales increased 17% reflecting strong sales performance across each of our businesses. Favorable foreign exchange increased sales by approximately $2 million, or 1%. On a sequential basis, total Industrial sales decreased slightly from the second quarter of 2021.

Operating profit in the third quarter was $30.1 million, up 23% from $24.4 million in the prior year period. The increase in operating profit was driven by the contribution of higher sales volumes, offset in part by higher personnel costs including incentive compensation, higher raw material and freight costs, and costs incurred in support of segment growth initiatives. Operating margin was 13.0%, up 60 bps from a year ago.

Aerospace

Third quarter sales were $94 million, up 30% from $72 million last year, benefitting from an improving aerospace end market. Aerospace original equipment manufacturing ("OEM") sales increased 23%, while aftermarket sales increased 46%. On a sequential basis, Aerospace sales increased 8% from the second quarter of 2021.

Operating profit was $13.6 million, up 100% from $6.8 million in the prior year period. Excluding $0.2 million of restructuring costs this year and $0.3 million in the prior year period, adjusted operating profit was up 95% from a year ago. The increase in adjusted operating profit was driven by the contribution of higher sales volumes and favorable productivity, offset in part by higher compensation costs including incentive compensation. Adjusted operating margin was 14.8%, up 490 bps from 9.9% last year.

Aerospace OEM backlog ended the third quarter at $665 million, down 4% from June 2021. The Company expects to convert approximately 40% of this backlog to revenue over the next 12 months.

Balance Sheet and Liquidity

Barnes Group’s balance sheet and liquidity profile remain well-positioned and supportive of ongoing investments in growth initiatives. The Company has liquidity of $93 million in cash and approximately $477 million available under the revolving credit facility, subject to covenants which would have allowed $283 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 2.6 times at quarter end, down from 2.9 times at the end of the second quarter 2021.

Updated 2021 Outlook

Barnes Group continues to expect 2021 organic sales to be up 11% to 12%. Foreign exchange is anticipated to have an approximate 2% favorable impact on 2021 sales, while divested revenues will have an approximate negative 1% impact. Operating margin is now forecasted to be approximately 12.5%, down from the prior outlook of approximately 13% as raw material and freight costs are forecasted to have an impact on our Industrial business. Adjusted earnings per share are now anticipated to be in the range of $1.83 to $1.93, up 12% to 18% from 2020’s adjusted earnings per share of $1.64 and lower at the top end of our prior range of $1.83 to $1.98. The Company expects capital expenditures of approximately $40 million and an effective tax rate of approximately 29% for 2021. Cash conversion in now expected to be approximately 120% of net income.

Conference Call Information

Barnes Group Inc. will conduct a conference call with investors to discuss third quarter 2021 results at 8:30 a.m. ET today, October 29, 2021. The public may access the conference through a live audio webcast available on the Investor Relations section of Barnes Group’s website at www.BGInc.com. The conference is also available by direct dial at (844) 884-8225 in the U.S. or (647) 689-4194 outside of the U.S.; Conference ID 8123687. 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 29, 2021 until 11:59 p.m. (ET) on Friday, November 5, 2021, by dialing (416) 621-4642; Conference ID 8123687.

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 Group

Barnes Group Inc. (NYSE: B) is a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, automation, healthcare, and packaging. The skilled and dedicated employees of Barnes Group around the globe are committed to the highest performance standards and achieving consistent, sustainable profitable growth. Barnes Group is committed to corporate accountability and furthering environmental, social and governance principles as evidenced by our listing as one of America’s Most Responsible Companies by Newsweek. 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," "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: difficulty maintaining relationships with employees, customers, distributors, suppliers, business partners or governmental entities; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; difficulties leveraging market opportunities; 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; introduction or development of new products or transfer of work; higher risks in global operations and markets; the impact of intense competition; acts of terrorism, cybersecurity attacks or intrusions that could adversely impact our businesses; the continuing impact of the COVID-19 pandemic on our business, including on demand, supply chains, operations and our ability to maintain sufficient liquidity; the failure to achieve anticipated cost savings and benefits associated with workforce reductions and restructuring actions; 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 changes in customer sourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions; government tariffs, trade agreements and trade policies; the impact of new or revised tax laws and regulations; the adoption of laws, directives or regulations that impact the materials processed by our products or their end markets; fluctuations in the pricing, quality or availability of raw materials, supplies, freight, transportation, utilities and other items required by 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 or data security breaches; the continuing impact of prior acquisitions and divestitures; and any other future strategic actions, including acquisitions, divestitures, restructurings, or strategic business realignments, 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 legal, governmental, or regulatory proceedings and contingencies; 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 numerous other matters of a global, regional or national scale, including those of a political, social, economic, business, competitive, environmental, regulatory and public health nature; 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.

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,

2021

2020

% Change

2021

2020

% Change

Net sales

$

325,059

$

269,059

20.8

$

947,846

$

835,266

13.5

Cost of sales

205,079

176,908

15.9

602,943

532,214

13.3

Selling and administrative expenses

76,271

60,908

25.2

230,271

212,380

8.4

281,350

237,816

18.3

833,214

744,594

11.9

Operating income

43,709

31,243

39.9

114,632

90,672

26.4

Operating margin

13.4

%

11.6

%

12.1

%

10.9

%

Interest expense

4,027

3,701

8.8

12,443

11,924

4.4

Other expense (income), net

1,217

47

NM

3,952

2,700

46.4

Income before income taxes

38,465

27,495

39.9

98,237

76,048

29.2

Income taxes

10,602

12,137

(12.6

)

26,501

30,390

(12.8

)

Net income

$

27,863

$

15,358

81.4

$

71,736

$

45,658

57.1

Common dividends

$

8,099

$

8,097

0.0

$

24,293

$

24,302

(0.0

)

Per common share:

Net income:

Basic

$

0.55

$

0.30

83.3

$

1.41

$

0.90

56.7

Diluted

0.55

0.30

83.3

1.40

0.89

57.3

Dividends

0.16

0.16

-

0.48

0.48

-

Weighted average common shares outstanding:

Basic

50,905,202

50,833,157

0.1

50,925,702

50,886,094

0.1

Diluted

51,060,684

50,937,093

0.2

51,085,509

51,123,024

(0.1

)

NM - Not meaningful

BARNES GROUP INC.

OPERATIONS BY REPORTABLE BUSINESS SEGMENT

(Dollars in thousands)

(Unaudited)

Three months ended September 30,

Nine months ended September 30,

2021

2020

% Change

2021

2020

% Change

Net sales

Industrial

$

231,549

$

196,916

17.6

$

686,220

$

561,047

22.3

Aerospace

93,511

72,148

29.6

261,639

274,227

(4.6

)

Intersegment sales

(1

)

(5

)

(13

)

(8

)

Total net sales

$

325,059

$

269,059

20.8

$

947,846

$

835,266

13.5

Operating profit

Industrial

$

30,067

$

24,438

23.0

$

78,635

$

42,063

86.9

Aerospace

13,642

6,805

100.5

35,997

48,609

(25.9

)

Total operating profit

$

43,709

$

31,243

39.9

$

114,632

$

90,672

26.4

Operating margin

Change

Change

Industrial

13.0

%

12.4

%

60

bps.

11.5

%

7.5

%

400

bps.

Aerospace

14.6

%

9.4

%

520

bps.

13.8

%

17.7

%

(390

)

bps.

Total operating margin

13.4

%

11.6

%

180

bps.

12.1

%

10.9

%

120

bps.

BARNES GROUP INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

September 30, 2021

December 31, 2020

Assets

Current assets

Cash and cash equivalents

$

93,475

$

79,145

Accounts receivable

260,146

251,460

Inventories

238,842

238,008

Prepaid expenses and other current assets

79,594

73,732

Total current assets

672,057

642,345

Deferred income taxes

21,153

22,092

Property, plant and equipment, net

347,541

370,947

Goodwill

967,481

1,011,580

Other intangible assets, net

517,324

564,132

Other assets

61,033

65,130

Total assets

$

2,586,589

$

2,676,226

Liabilities and Stockholders' Equity

Current liabilities

Notes and overdrafts payable

$

1,799

$

2,115

Accounts payable

124,603

112,428

Accrued liabilities

179,185

178,560

Long-term debt - current

1,969

2,276

Total current liabilities

307,556

295,379

Long-term debt

628,689

699,868

Accrued retirement benefits

91,685

98,171

Deferred income taxes

73,292

91,668

Long-term tax liability

52,114

59,063

Other liabilities

40,024

49,400

Total stockholders' equity

1,393,229

1,382,677

Total liabilities and stockholders' equity

$

2,586,589

$

2,676,226

BARNES GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

Nine months ended September 30,

2021

2020

Operating activities:

Net income

$

71,736

$

45,658

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

68,004

66,045

Gain on disposition of property, plant and equipment

(414

)

(303

)

Stock compensation expense

9,212

8,094

Seeger divestiture charges

-

6,620

Changes in assets and liabilities, net of the effects of divestitures:

Accounts receivable

(15,649

)

103,161

Inventories

(5,582

)

(11,616

)

Prepaid expenses and other current assets

(7,205

)

(10,168

)

Accounts payable

17,827

(24,476

)

Accrued liabilities

(1,051

)

(7,981

)

Deferred income taxes

(7,052

)

(5,032

)

Long-term retirement benefits

2,308

(2,517

)

Long-term tax liability

(6,949

)

(6,949

)

Other

2,605

3,296

Net cash provided by operating activities

127,790

163,832

Investing activities:

Proceeds from disposition of property, plant and equipment

1,204

580

Proceeds from the sale of businesses, net of cash sold

-

36,879

Capital expenditures

(26,735

)

(30,170

)

Other

2,107

-

Net cash (used) provided by investing activities

(23,424

)

7,289

Financing activities:

Net change in other borrowings

(226

)

6,794

Payments on long-term debt

(73,081

)

(219,279

)

Proceeds from the issuance of long-term debt

25,000

75,000

Proceeds from the issuance of common stock

464

1,661

Common stock repurchases

(5,229

)

(15,550

)

Dividends paid

(24,293

)

(24,302

)

Withholding taxes paid on stock issuances

(1,356

)

(3,177

)

Other

(9,835

)

(2,217

)

Net cash used by financing activities

(88,556

)

(181,070

)

Effect of exchange rate changes on cash flows

(2,923

)

675

Increase (decrease) in cash, cash equivalents and restricted cash

12,887

(9,274

)

Cash, cash equivalents and restricted cash at beginning of period

91,468

93,805

Cash, cash equivalents and restricted cash at end of period

104,355

84,531

Less: Restricted cash, included in Prepaid expenses and other current assets

(6,239

)

-

Less: Restricted cash, included in Other assets

(4,641

)

(7,046

)

Cash and cash equivalents at end of period

$

93,475

$

77,485

BARNES GROUP INC.

RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW

(Dollars in thousands)

(Unaudited)

Nine months ended September 30,

2021

2020

Free cash flow:

Net cash provided by operating activities

$

127,790

$

163,832

Capital expenditures

(26,735

)

(30,170

)

Free cash flow(1)

$

101,055

$

133,662

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 September 30,

Nine months ended September 30,

2021

2020

% Change

2021

2020

% Change

SEGMENT RESULTS

Operating Profit - Industrial Segment (GAAP)

$

30,067

$

24,438

23.0

$

78,635

$

42,063

86.9

Restructuring/reduction in force charges

(59

)

-

246

15,766

Seeger divestiture adjustments

-

-

-

2,409

Operating Profit - Industrial Segment as adjusted (Non-GAAP) (1)

$

30,008

$

24,438

22.8

$

78,881

$

60,238

30.9

Operating Margin - Industrial Segment (GAAP)

13.0

%

12.4

%

60

bps.

11.5

%

7.5

%

400

bps.

Operating Margin - Industrial Segment as adjusted (Non-GAAP) (1)

13.0

%

12.4

%

60

bps.

11.5

%

10.7

%

80

bps.

Operating Profit - Aerospace Segment (GAAP)

$

13,642

$

6,805

100.5

$

35,997

$

48,609

(25.9

)

Restructuring/reduction in force charges

222

304

671

2,243

Operating Profit - Aerospace Segment as adjusted (Non-GAAP) (1)

$

13,864

$

7,109

95.0

$

36,668

$

50,852

(27.9

)

Operating Margin - Aerospace Segment (GAAP)

14.6

%

9.4

%

520

bps.

13.8

%

17.7

%

(390

)

bps.

Operating Margin - Aerospace Segment as adjusted (Non-GAAP) (1)

14.8

%

9.9

%

490

bps.

14.0

%

18.5

%

(450

)

bps.

CONSOLIDATED RESULTS

Operating Income (GAAP)

$

43,709

$

31,243

39.9

$

114,632

$

90,672

26.4

Restructuring/reduction in force charges

163

304

917

18,009

Seeger divestiture adjustments

-

-

-

2,409

Operating Income as adjusted (Non-GAAP) (1)

$

43,872

$

31,547

39.1

$

115,549

$

111,090

4.0

Operating Margin (GAAP)

13.4

%

11.6

%

180

bps.

12.1

%

10.9

%

120

bps.

Operating Margin as adjusted (Non-GAAP) (1)

13.5

%

11.7

%

180

bps.

12.2

%

13.3

%

(110

)

bps.

Diluted Net Income per Share (GAAP)

$

0.55

$

0.30

83.3

$

1.40

$

0.89

57.3

Foreign tax matters

-

-

(0.04

)

-

Restructuring/reduction in force charges

-

-

0.01

0.26

Seeger divestiture adjustments

-

-

-

0.13

Diluted Net Income per Share as adjusted (Non-GAAP) (1)

$

0.55

$

0.30

83.3

$

1.37

$

1.28

7.0

Full-Year 2020

Full-Year 2021 Outlook

Diluted Net Income per Share (GAAP)

$

1.24

$

1.85

to

$

1.95

Seeger divestiture adjustments

0.13

-

Restructuring/reduction in force charges

0.27

0.02

Foreign tax matters

-

(0.04

)

Diluted Net Income per Share as adjusted (Non-GAAP) (1)

$

1.64

$

1.83

to

$

1.93

Notes:

(1) 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 Company has excluded the following from its "as adjusted" financial measurements for 2020: 1) adjustments related to the divestiture of the Seeger business, including $2.5M reflected within the Industrial segment's operating profit ($2.4M through the third quarter of 2020) and $4.2M of tax expense and 2) charges taken in 2020 related to restructuring and workforce reduction actions implemented across its businesses, including $18.2M reflected within operating profit ($18.0M through the third quarter) and $1.0M reflected within other expense (income), net ($0.5M through the third quarter). The tax charges resulting from the divestiture were recorded in the first quarter of 2020 following the completion of the sale. The tax effects of the restructuring actions were calculated based on the respective tax jurisdictions and approximated 20% and 30% for the 2021 and 2020 periods, respectively. 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211029005046/en/

Contacts

Barnes Group Inc.
William Pitts
Director, Investor Relations
860.583.7070