B Barnes Group Inc

Barnes Group Inc. (NYSE: B), a diversified global manufacturer and logistical services company, today reported financial results for the third quarter 2011. Net sales grew 12 percent to $325.4 million, up from $289.9 million in the third quarter of 2010. Excluding the favorable impact of foreign exchange, net sales were up 10 percent. Net income for the third quarter grew 54 percent to $23.2 million, or $0.41 per diluted share, from $15.1 million, or $0.27 per diluted share, a year earlier.

($ millions; except

 

Three months ended September 30,

 

Nine months ended September 30,

per share data)

 

2011

   

2010

 

Change

 

2011

   

2010

 

Change

Net Sales $ 325.4 $ 289.9 $ 35.5   12.2 % $ 972.1 $ 849.9 $ 122.2   14.4 % Operating Income $ 32.9 $ 24.8 $ 8.1 32.7 % $ 95.9 $ 68.2 $ 27.7 40.7 % % of Sales 10.1 % 8.6 % 1.5 pts. 9.9 % 8.0 % 1.9 pts. Net Income $ 23.2 $ 15.1 $ 8.1 53.9 % $ 64.6 $ 41.8 $ 22.9 54.8 % % of Sales 7.1 % 5.2 % 1.9 pts. 6.7 % 4.9 % 1.8 pts.

Net Income Per Diluted

 

Share $ 0.41 $ 0.27 $ 0.14 51.9 % $ 1.15 $ 0.75 $ 0.40 53.3 %

“Barnes Group generated double-digit sales growth during the third quarter as our end-markets continued their recovery,” said Gregory F. Milzcik, Barnes Group Inc. President and Chief Executive Officer. “And, as a result of our on-going focus on profitable growth and improved productivity, we delivered a 54 percent increase in net income over last year’s third quarter.”

Logistics and Manufacturing Services

• Barnes Group Inc.’s Logistics and Manufacturing Services segment recorded sales of $151.6 million in the third quarter of 2011, up $12.7 million or 9 percent from last year’s third quarter. This segment achieved $10.5 million of organic sales growth from its aerospace aftermarket and North American distribution businesses. Foreign currency translation positively affected third quarter 2011 net sales by approximately $2.2 million.
• Operating profit at Logistics and Manufacturing Services increased 49 percent to $16.0 million, from $10.8 million in the third quarter of 2010. The increase in profitability was positively impacted by higher sales and further productivity improvements in the North American distribution businesses. The aerospace aftermarket business likewise benefited from volume leverage on higher sales. Operating profit increases for the segment were partially offset by costs associated with strategic initiatives and higher management fees related to our Revenue Sharing Programs.

Precision Components

• Barnes Group Inc.’s Precision Components segment recorded sales of $176.6 million in the third quarter of 2011, up $22.6 million, a 15 percent increase from last year’s third quarter. Organic sales grew $17.9 million in the quarter primarily as a result of increases in the segment’s North American and European industrial manufacturing businesses and from better performance in the transportation industry, including automotive. Net sales in the segment’s aerospace OEM business also achieved double-digit growth. Foreign currency translation positively affected third quarter 2011 net sales by approximately $4.7 million.
• Operating profit at Precision Components was $16.9 million, an increase of 21 percent. The operating profit improvement resulted from the beneficial impact of higher sales levels combined with productivity gains and lean initiatives. These improvements were offset in part by added costs for strategic and productivity initiatives and increased costs related to outsourcing certain manufacturing processes.

Additional Information

• The Company’s interest expense was $1.9 million, a decrease of $3.3 million from last year’s third quarter. The reduction in interest expense was a result of a lower average interest rate and the non-recurrence of debt discount amortization related to the 3.75% Convertible Notes. The lower average interest rate reflects the shift to a higher percentage of variable rate debt due to the retirement of the 7.80% Notes, the redemption of the 3.75% Convertible Notes, which were funded with the variable rate credit facility, and the expiration of the interest rate swap agreements.
• The Company’s effective tax rate for the third quarter of 2011 was 26.1 percent, compared to 20.0 percent in the third quarter of last year. The increase in the effective tax rate was primarily driven by a projected shift in the mix of earnings attributable to higher-taxing jurisdictions, and the effect of an increase in the repatriation of a portion of current year earnings to the U.S.

Revised 2011 Outlook

Barnes Group Inc. now expects 2011 revenue to grow about 13 percent from 2010, and earnings per diluted share to be in the range of $1.43 to $1.48, up 51 to 56 percent from 2010. Said Milzcik, “The positive trends of improving sales and enhanced profitability is anticipated to carry through to the fourth quarter of this year and we’re now expecting to deliver performance that is at the high end of or better than our previous guidance.”

This updated outlook does not include any impact from the potential sale of the Barnes Distribution Europe (“BDE”) business, comprised of the businesses that operate as Kent, BD France and Toolcom, in response to a binding offer from Berner SE. The offer was received in the third quarter 2011 and is subject to customary conditions and approvals. Where required by local law, including in France, Barnes Group has initiated a consultation on the proposed transaction with its relevant works councils, trade unions and other employee organizations. Upon completion of these consultations, the transaction will be subject to consideration and approval by Barnes Group’s Board of Directors.

Barnes Group’s BDE businesses are currently reported within the Company’s Logistics and Manufacturing Services segment and had 2010 revenues of approximately $105 million. If Barnes Group accepts the offer following the consultation processes, it would expect to report its BDE businesses as Discontinued Operations and to record a pretax loss of about $20 million, inclusive of non-cash impairments of long-lived assets and subject to change for various factors, such as foreign currency translation, transaction costs and closing adjustments. The Company expects that EPS reported on a Continuing Operations basis would improve by approximately $0.10 per diluted share if the BDE businesses were to be reported as Discontinued Operations at December 31, 2011.

Conference Call

Barnes Group Inc. will conduct a conference call with investors to discuss third quarter 2011 results at 8:30 a.m. EST today, October 28, 2011. 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 call is also available by direct dial at (888) 679-8034 in the U.S. or (617) 213-4847 outside of the U.S. (request the Barnes Group Earnings Call); Participant Code: 59843412.

About Barnes Group

Founded in 1857, Barnes Group Inc. (NYSE:B) is a diversified global manufacturer and logistical services company focused on providing precision component manufacturing and operating service support. The Barnes Group’s more than 4,800 dedicated employees, at more than 60 locations worldwide, are committed to achieving consistent and sustainable profitable growth. For more information, visit www.BGInc.com. Barnes Group, the Critical Components People.

Forward-Looking Statements

This release may contain certain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based upon management's good faith expectations and beliefs concerning future developments and their potential effect upon the Company and can be identified by the use of words such as "anticipated," "believe," "expect," "plans," "strategy," "estimate," "project," and other words of similar meaning in connection with a discussion of future operating or financial performance. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. The risks and uncertainties, including whether the transaction proposed by Berner SE will be consummated and others described in our periodic filings with the Securities and Exchange Commission, include, among others, uncertainties arising from the current or worsening disruptions in financial markets; future financial performance of the industries or customers that we serve; changes in market demand for our products and services; integration of acquired businesses; restructuring costs or savings; the impact of the proposed acquisition of the BDE businesses by Berner SE 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; introduction or development of new products or transfer of work; changes in raw material or product prices and availability; foreign currency exposure; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; the outcome of pending and future claims or litigation or governmental, regulatory proceedings, investigations, inquiries, and audits; uninsured claims and litigation; outcome of contingencies; 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,   2011     2010   % Change   2011     2010   % Change   Net sales $ 325,394 $ 289,901 12.2 $ 972,098 $ 849,930 14.4   Cost of sales 210,864 184,989 14.0 621,401 540,833 14.9 Selling and administrative expenses   81,586     80,079   1.9   254,782     240,915   5.8     292,450     265,068   10.3   876,183     781,748   12.1   Operating income 32,944 24,833 32.7 95,915 68,182 40.7   Operating margin 10.1 % 8.6 % 9.9 % 8.0 %   Interest expense 1,917 5,177 (63.0 ) 7,950 15,273 (47.9 ) Other expense (income), net   (425 )   773   NM   378     2,161   (82.5 )   Income before income taxes 31,452 18,883 66.6 87,587 50,748 72.6   Income taxes   8,207     3,779   NM   22,938     8,992   NM   Net income $ 23,245   $ 15,104   53.9 $ 64,649   $ 41,756   54.8   Common dividends $ 4,432   $ 4,373   1.3 $ 13,197   $ 13,159   0.3   Per common share: Net income: Basic $ 0.42 $ 0.27 55.6 $ 1.17 $ 0.75 56.0 Diluted 0.41 0.27 51.9 1.15 0.75 53.3 Dividends 0.08 0.08 - 0.24 0.24 -   Weighted average common shares outstanding: Basic 55,834,038 55,346,517 0.9 55,325,541 55,428,865 (0.2 ) Diluted 56,380,585 55,839,970 1.0 56,095,069 56,048,170 0.1 BARNES GROUP INC. OPERATIONS BY REPORTABLE BUSINESS SEGMENT (Dollars in thousands) Unaudited             Three months ended September 30, Nine months ended September 30,   2011     2010   % Change   2011     2010   % Change Net sales   Logistics and Manufacturing Services $ 151,600 $ 138,937 9.1 $ 456,910 $ 412,679 10.7   Precision Components 176,598 154,012 14.7 523,974 446,397 17.4   Intersegment sales   (2,804 )   (3,048 ) 8.0   (8,786 )   (9,146 ) 3.9   Total net sales $ 325,394   $ 289,901   12.2 $ 972,098   $ 849,930   14.4   Operating profit   Logistics and Manufacturing Services $ 16,034 $ 10,799 48.5 $ 45,837 $ 29,296 56.5   Precision Components   16,910     14,034   20.5   50,078     38,886   28.8   Total operating profit 32,944 24,833 32.7 95,915 68,182 40.7   Interest expense 1,917 5,177 (63.0 ) 7,950 15,273 (47.9 )   Other expense (income), net   (425 )   773   NM   378     2,161   (82.5 )   Income before income taxes $ 31,452   $ 18,883   66.6 $ 87,587   $ 50,748   72.6 BARNES GROUP INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands) Unaudited        

September 30,2011

December 31,2010

Assets Current assets Cash and cash equivalents $ 38,843 $ 13,450 Accounts receivable 225,676 197,715 Inventories 227,463 216,382 Deferred income taxes 31,469 10,449 Prepaid expenses and other current assets   12,179   12,212   Total current assets 535,630 450,208     Deferred income taxes 24,147 42,722 Property, plant and equipment, net 216,263 218,434 Goodwill 389,972 384,241 Other intangible assets, net 281,282 290,798 Other assets   19,323   16,854   Total assets $ 1,466,617 $ 1,403,257   Liabilities and Stockholders' Equity Current liabilities Notes and overdrafts payable $ 8,144 $ 4,930 Accounts payable 101,322 98,191 Accrued liabilities 103,566 86,602 Long-term debt - current   769   93,141   Total current liabilities 213,801 282,864   Long-term debt 338,828 259,647 Accrued retirement benefits 94,473 112,886 Other liabilities 35,968 35,741   Total stockholders' equity   783,547   712,119   Total liabilities and stockholders' equity $ 1,466,617 $ 1,403,257 BARNES GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) Unaudited         Nine months ended September 30,   2011     2010   Operating activities: Net income $ 64,649 $ 41,756 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 43,855 38,988 Amortization of convertible debt discount 1,633 4,251 (Gain) loss on disposition of property, plant and equipment (400 ) 253 Stock compensation expense 5,866 5,619 Withholding taxes paid on stock issuances (1,089 ) (287 ) Changes in assets and liabilities: Accounts receivable (27,462 ) (27,671 ) Inventories (11,385 ) (19,492 ) Prepaid expenses and other current assets (1,457 ) (5,420 ) Accounts payable 4,867 11,359 Accrued liabilities 14,119 5,906 Deferred income taxes 1,968 4,469 Long-term retirement benefits (16,784 ) (12,155 ) Other   95     (579 )   Net cash provided by operating activities 78,475 46,997   Investing activities: Proceeds from disposition of property, plant and equipment 3,352 1,384 Capital expenditures (25,169 ) (22,463 ) Business acquisitions, net of cash acquired (3,495 ) - Other   (3,424 )   (2,393 )   Net cash used by investing activities (28,736 ) (23,472 )   Financing activities: Net change in other borrowings 3,023 3,384 Payments on long-term debt (354,167 ) (243,658 ) Proceeds from the issuance of long-term debt 339,290 241,667 Premium paid on convertible debt redemption (9,803 ) - Proceeds from the issuance of common stock 26,829 3,871 Common stock repurchases (22,369 ) (9,014 ) Dividends paid (13,197 ) (13,159 ) Excess tax benefit on stock awards 8,607 - Other   (2,098 )   (160 )   Net cash used by financing activities (23,885 ) (17,069 )   Effect of exchange rate changes on cash flows   (461 )   (159 )   Increase in cash and cash equivalents 25,393 6,297   Cash and cash equivalents at beginning of period   13,450     17,427     Cash and cash equivalents at end of period $ 38,843   $ 23,724   BARNES GROUP INC. RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW (Dollars in thousands) Unaudited         Nine months ended September 30,   2011     2010   Free cash flow:   Net cash provided by operating activities $ 78,475 $ 46,997 Capital expenditures   (25,169 )   (22,463 )   Free cash flow $ 53,306   $ 24,534    

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.