- Revenue: $382 million, up 13% reported and 5% organic.
- Adjusted EBITDA: $76 million, up 14%.
- Adjusted EBITDA Margin: 20%, up 20 basis points.
- Adjusted Operating Income: $48 million, up 9%.
- Adjusted Operating Margin: 12.4%, down 40 basis points.
- Adjusted Net Income per Share: $0.37 compared to $0.58 a year ago.
- Interest Expense: $21 million versus $7 million a year ago.
- Adjusted Tax Rate: 31%.
- Aerospace Sales: $218 million, up 79% reported and 8% organic.
- OEM Organic Sales: Increased 1%.
- Aftermarket Organic Sales: Increased 19%.
- Adjusted Operating Profit (Aerospace): $32 million, up 56%.
- Adjusted Operating Margin (Aerospace): 14.8%, down 220 basis points.
- Adjusted EBITDA (Aerospace): $50 million, up 64%.
- Adjusted EBITDA Margin (Aerospace): 23.1% versus 25.2% a year ago.
- OEM Book-to-Bill: 1.3 times.
- OEM Backlog: $1.5 billion, up 3% from March 2024.
- Industrial Sales: $164 million, down 24% reported; up 3% organic.
- Adjusted Operating Profit (Industrial): $15 million, down 33%.
- Adjusted Operating Margin (Industrial): 9.3%, down 120 basis points.
- Adjusted EBITDA (Industrial): $25 million, down 28%.
- Adjusted EBITDA Margin (Industrial): 15.3%, down 70 basis points.
- Free Cash Flow: Negative $14.5 million.
- Net Debt-to-EBITDA Ratio: 3.48 times at quarter end.
- Liquidity: $485 million, including $66 million in cash on hand.
- Full Year Sales Growth Guidance: 10% to 12%.
- Full Year Organic Sales Growth Guidance: 4% to 6%.
- Full Year Adjusted Operating Margin Guidance: 12% to 14%.
- Full Year Adjusted EBITDA Margin Guidance: 20% to 22%.
- Full Year Adjusted EPS Guidance: $1.55 to $1.75.
Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Barnes Group Inc (B, Financial) reported a 13% increase in revenue for the second quarter, reaching $382 million.
- Adjusted EBITDA grew by 14% to $76 million, with an adjusted EBITDA margin up by 20 basis points.
- The acquisition of MB Aerospace has significantly scaled the aerospace segment, now contributing two-thirds of the company's adjusted EBITDA.
- The company has identified $18 million in cost synergies from the MB Aerospace acquisition, with $15 million already actioned.
- Barnes Group Inc (B) has rationalized, closed, or divested facilities, reducing over 500,000 square feet of commercial office and manufacturing space, which has helped in cost reduction and complexity.
Negative Points
- Adjusted net income per share decreased to $0.37 from $0.58 a year ago.
- OEM growth was lower than expected due to external supply chain challenges and labor efficiency issues.
- The company experienced a significant increase in interest expense, rising to $21 million from $7 million a year ago, due to higher borrowings and interest rates.
- Year-to-date cash provided by operating activities was significantly lower at $3.1 million compared to $42.5 million a year ago.
- Barnes Group Inc (B) has reduced its annual guidance for total sales growth from 13%-16% to 10%-12% due to a challenging market backdrop and OEM production delays.
Q & A Highlights
Q: Can you explain the aero margins in 2Q, given the mix dynamics?
A: Despite a robust aftermarket sales profile, OEM productivity challenges due to demand fluctuations impacted margins. Inefficiencies arose from starting and stopping lines and maintaining employment to meet customer needs. (Julie Streich, CFO)
Q: How do you view cash conversion for 2025, given this year's below 100% conversion?
A: The lower free cash flow this year is due to increased working capital, mainly inventory from OEM disruptions. We expect to return to normal free cash conversion going forward. (Julie Streich, CFO)
Q: How much of the OEM outlook change is due to internal issues versus market conditions? Are there material procurement issues?
A: Internal productivity issues have been addressed. Current labor efficiency issues stem from maintaining workforce despite lower short-term rates. Supply chain constraints, particularly in castings and forgings, are the main external factors. (Thomas Hook, CEO)
Q: Can you discuss the strategic thinking on the business and potential portfolio shaping?
A: We are actively evaluating strategic options to drive enterprise value, including operational and strategic transformations. While no updates are available now, more information will be shared as we progress. (Thomas Hook, CEO)
Q: What gives you confidence in maintaining the industrial guide for the year?
A: New management teams and streamlined strategies are in place across industrial segments. Despite tough market conditions, we see positive momentum and expect to meet our expectations. (Thomas Hook, CEO)
Q: What rates are you producing for Boeing and Airbus?
A: The rates are dynamic and subject to change. We are maintaining overcapacity and labor efficiency to stay synchronized with OEM customers, despite short-term pain. (Thomas Hook, CEO)
Q: Are you a rate-limiting factor in the aero OEM industry?
A: No, we have the capacity and capability to meet demand. The current imbalance is due to supply chain constraints in castings and forgings, which we expect to normalize over time. (Thomas Hook, CEO)
Q: How does the mix shift impact aero margins in the second half versus the second quarter?
A: We can mitigate labor inefficiency by rationalizing workforce and shifting talent to the aftermarket side. This will gradually improve margins despite the OEM impact. (Thomas Hook, CEO)
Q: Can you capture aftermarket demand given your expansions?
A: Yes, we have expanded capacity in multiple locations and are well-positioned to meet aftermarket demand. We see strong market potential and are investing accordingly. (Thomas Hook, CEO)
Q: How do you view the strategic transformation of Barnes?
A: We are focused on executing our three-pillar strategy to drive growth, profitability, and returns. We are committed to optimizing our business and unlocking the full value of the company. (Thomas Hook, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
