Barnes Group Inc. Reports Third Quarter 2021 Financial Results

• 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

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.

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