Barnes Group Inc. Reports Second Quarter 2017 Financial Results

•Operating Margin of 15.7%; Adjusted Operating Margin of 15.6%, down 40 bps

--Diluted EPS of $0.82, up 34%; Up 29% to $0.81 on an Adjusted Basis

--2017 Expected Sales Growth of 14% to 15%; Organic Sales Growth of 9% to 10%

•2017 Expected Adjusted Net Income of $2.80 to $2.90 per Diluted Share; up 11% to 15% from 2016 Adjusted Net Income of $2.53 per Diluted Share

Barnes Group Inc. (B), a global industrial and aerospace manufacturer and service provider, today reported financial results for the second quarter 2017.

Second quarter 2017 net sales of $364 million were up 19% from $307 million in the prior year period driven by strong organic sales growth (1) of 11% and acquisition sales of 8%. Foreign exchange unfavorably impacted sales by approximately 1%. Net income for the second quarter was $45.0 million, or $0.82 per diluted share, compared to $33.2 million, or $0.61 per diluted share, a year ago. During the quarter, the Company merged several Swiss legal entities which generated a net tax benefit of approximately $6.3 million, or $0.12 per diluted share. On an adjusted basis, net income was $0.81 per diluted share, up 29% from $0.63 last year. Adjusted diluted net income per share in the second quarter of 2017 excludes restructuring actions which provided a net benefit of $0.03 and FOBOHA short-term purchase accounting adjustments of $0.02 in our Industrial Segment. Second quarter 2016 adjusted diluted net income per share excludes costs related to a contract termination dispute of $0.02 in our Aerospace Segment.

A table reconciling 2017 and 2016 non-GAAP adjusted results presented in this release to the Company’s GAAP results is included at the end of this press release.

"As a result of growth investments made during the ongoing transformation of our business, Barnes Group continues to deliver strong organic sales," said Patrick J. Dempsey, President and Chief Executive Officer of Barnes Group Inc. "The portfolio reshaping allows us to take advantage of current favorable end markets. While accelerated growth can occasionally dampen near term margins, the business is well situated to continue its upward trend of long term profitability," added Dempsey.

Industrial

• Second quarter 2017 sales were $251.8 million, up 23% from $204.5 million in the prior year period. Organic sales increased by 12%, primarily driven by continuing strength in our Nitrogen Gas Products and Molding Solutions businesses. Unfavorable foreign exchange reduced sales by approximately $1.8 million, or 1%, while the FOBOHA and Gammaflux businesses collectively contributed $24.7 million, or 12%, in acquisition sales.

• Operating profit in the second quarter was $37.4 million, up 7% from $34.8 million in the prior year period, benefitting from the profit impact of increased organic sales volumes, partially offset by higher costs incurred on certain programs within Engineered Components. The second quarter of 2017 includes restructuring actions related to two plant consolidations which provided a net benefit of $1.7 million and FOBOHA short-term purchase accounting adjustments of $1.2 million. Excluding these items, adjusted operating profit of $36.9 million was up 6% from $34.8 million a year ago. Adjusted operating margin was 14.7%, down 230 bps, driven by lower productivity from Engineered Components and a low margin contribution from the FOBOHA business.

Aerospace

• Second quarter 2017 sales were $112.7 million, up 10% from $102.2 million in the same period last year. Aerospace original equipment manufacturing ("OEM") sales increased due to the continuing ramp of new engine programs. In the aftermarket business, maintenance, repair and overhaul ("MRO") sales and spare parts sales were both up significantly as compared to a year ago.

• Operating profit was $19.7 million for the second quarter of 2017, compared to $12.6 million in the prior year period, reflecting the profit impact from higher sales volumes, productivity benefits and the absence of contract termination dispute charges of $1.6 million taken last year, partially offset by price deflation and increased employee related expenses. Excluding the contract termination dispute costs last year, adjusted operating profit was up 39% from $14.2 million a year ago. Operating margin of 17.5% was up 360 bps from an adjusted 13.9% a year ago.

• Aerospace backlog was $683 million at the end of the second quarter of 2017, up 4% compared to a year ago and down 1% sequentially from the first quarter of 2017.

Additional Information

• Interest expense increased $0.7 million to $3.5 million in the second quarter of 2017 primarily as a result of a higher average effective interest rate versus a year ago.

• The Company’s effective tax rate for the second quarter was 15.4% compared with 27.0% in the second quarter of 2016 and 25.7% for the full year 2016. The primary driver of the second quarter’s lower tax rate is the result of merging several legal entities in Switzerland. This allowed the Company to adjust the valuation allowance on previously reserved net operating losses that would have otherwise expired. The impact related to this change is a discrete benefit of approximately $6.3 million in the quarter.

2017 Updated Outlook

Barnes Group now expects 2017 total revenue growth of 14% to 15% with organic revenue growth of 9% to 10% and 5% from acquisition revenues. Foreign exchange is not anticipated to have a meaningful impact for the year. Adjusted operating margins are forecasted to be in the range of 15.5% to 16.0%. Adjusted earnings from continuing operations are expected to be in the range of $2.80 to $2.90 per diluted share, up 11% to 15% from 2016’s adjusted diluted earnings per share of $2.53. Further, the Company anticipates capital expenditures of approximately $55 million and cash conversion greater than 90% of net income. For 2017, the effective tax rate is expected to be approximately 24%.

Conference Call Information

Barnes Group Inc. will conduct a conference call with investors to discuss second quarter 2017 results at 8:30 a.m. ET today, July 28, 2017. 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 (877) 201-0168 in the U.S. or (647) 788-4901 outside of the U.S.; Conference ID 18435286. 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, July 28, 2017 until 11:59 p.m. (ET) on Friday, August 4, 2017, by dialing (416) 621-4642; Conference ID 18435286.

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. (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, healthcare, and packaging. Barnes Group’s skilled and dedicated employees around the globe are committed to the highest performance standards and achieving consistent, sustainable profitable growth. 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," 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, including unionized 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 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; 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; changes in raw material or product prices and availability; integration of acquired businesses; restructuring costs or savings; 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 outcome of pending and future legal, governmental, or regulatory proceedings and contingencies 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, 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.

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.

Notes: (1) The Company has excluded short-term purchase accounting adjustments related to its FOBOHA acquisition and the net gain from restructuring actions related to the closure and consolidation of two manufacturing facilities within the Industrial segment from its "as adjusted" financial measurements for 2017. The Company has excluded the following from its "as adjusted" financial measurements for 2016: 1) transaction costs related to its FOBOHA acquisition, 2) short-term purchase accounting adjustments related to its FOBOHA acquisition, 3) charges related to the contract termination dispute and 4) operating income related to the contract termination arbitration award and the non-operating interest income awarded. The tax effects of these items were calculated based on the respective tax jurisdiction of each item and range from approximately 21% to 37%. 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.

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SOURCE: Barnes Group Inc.