Barnes Reports Fourth Quarter and Full Year 2023 Financial Results

Results Reflect Execution of Portfolio Optimization and Focus on Long-term Profitable Growth Strategy

Comparisons are year-over-year unless noted otherwise

Fourth Quarter 2023:

• Sales of $416 million, up 33%; Organic Sales up 2%
• Operating Margin of 7.1%; Adjusted Operating Margin of 11.5%, up 30 bps
• Adjusted EBITDA Margin of 18.8%, up 50 bps
• GAAP EPS of $0.14; Adjusted EPS of $0.41, down 21% on acquisition-related interest

Full Year 2023:

• Sales of $1,451 million, up 15% ; Organic Sales up 5%
• Operating Margin of 6.1%; Adjusted Operating Margin of 11.5%, down 10 bps
• Adjusted EBITDA Margin of 18.6%, up 20 bps
• GAAP EPS of $0.31; Adjusted EPS of $1.65, down 17% on acquisition-related interest

2024 Outlook:

• Sales Growth of 12% to 16%; Organic Sales Growth of 4% to 8%
• Adjusted EBITDA Margin of 20% to 22%
• GAAP EPS of $0.94 to $1.19; Adjusted EPS of $1.55 to $1.80

Financial Disclosure Update

• The Company is introducing Adjusted EBITDA metrics to its reporting and outlook, which management believes are useful measures to evaluate the operating performance and cash generation of the overall business and segments following the MB Aerospace acquisition⁽¹⁾

Barnes Group Inc. (NYSE:B), a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, today reported financial results for the fourth quarter and full year 2023.

"Barnes has made meaningful progress executing our business transformation and long-term profitable growth strategy. We delivered full year organic sales growth in our Aerospace business, and the acquisition of MB Aerospace further enhances our capabilities and scale as we deepen and broaden our customer relationships," said Thomas J. Hook, President and Chief Executive Officer of Barnes. "With the recent announcement of the divestiture of our Associated Spring™ and Hänggi™ businesses, we continue to shift our portfolio to a high growth, high margin, and value-driven business. As we enter 2024, I am confident in our ability to position Barnes for sustainable, profitable growth and create value for all our stakeholders."

Fourth Quarter 2023 Highlights

Comparisons are year-over-year unless noted otherwise

Sales of $416 million were up 33% compared to the prior year, supported by organic growth⁽²⁾ of 2%, acquisition-related growth of 28%, and favorable foreign exchange of 2%. Operating income of $29.7 million was up 23%, and operating margin of 7.1% was down 60 bps.

Adjusted operating income of $47.7 million was up 36% and adjusted operating margin of 11.5% was up 30 bps. Adjustments excluded restructuring charges of $4.8 million, acquisition and divestiture expenses of $2.0 million, and MB Aerospace short-term purchase accounting adjustments of $11.2 million. Adjusted EBITDA was $78.2 million, up 36% from a year ago and adjusted EBITDA margin was 18.8%, up 50 bps.

Interest expense was $23.6 million versus $4.4 million primarily due to higher average borrowings from the purchase of MB Aerospace and a higher average interest rate given the recapitalization of the Company's debt structure.

The Company's annual effective tax rate was 52% compared with 65% last year. During the quarter, the Company completed an intercompany transaction between related entities in several tax jurisdictions which, based on the tax law in those jurisdictions, provided a favorable tax benefit.

Net income was $7.2 million, or $0.14 per share, compared to $15.6 million, or $0.30 per share. On an adjusted basis, net income per share of $0.41 was down 21% from $0.52. Adjusted net income per share excludes $0.07 of restructuring charges, acquisition and divestiture expenses of $0.03, and MB Aerospace short-term purchase accounting adjustments of $0.17.

Full Year 2023 Highlights

Comparisons are year-over-year unless noted otherwise

Sales of $1,451 million, were up 15% compared to 2022, supported by organic growth of 5%, acquisition-related growth of 9%, and favorable foreign exchange of 1%. Operating income of $89.0 million was up 56%, and operating margin increased 160 bps to 6.1%.

Adjusted operating profit of $167.3 million was up 15% and adjusted operating margin of 11.5% was down 10 bps. Full year adjusted operating profit excludes restructuring charges of $45.8 million, acquisition and divestiture expenses of $13.3 million, and MB Aerospace short-term purchase accounting adjustments of $19.2 million. Adjusted EBITDA was $270.2 million, up 16% from a year ago and adjusted EBITDA margin was 18.6%, up 20 bps.

Interest expense was $58.2 million versus $14.6 million, primarily due to higher average borrowings from the purchase of MB Aerospace and a higher average interest rate. Full year interest expense also includes one-time bridge financing fees of $9.6 million from the MB Aerospace acquisition.

Other Income was $2.4 million versus last year's expense of $4.3 million, primarily driven by a reduction in non-operating pension expense.

The Company's effective tax rate was 52% compared with 65% last year. The 2023 effective tax rate reflects the non-deductibility of a portion of our interest expense, transaction costs associated with the MB Aerospace acquisition that are capitalized for tax, and a change in the geographic mix of earnings.

Net income was $16.0 million, or $0.31 per share, compared to $13.5 million, or $0.26 per share. On an adjusted basis, net income per share of $1.65 was down 17% and excludes $0.66 of restructuring charges, acquisition and divestiture expenses of $0.39, and MB Aerospace short-term purchase accounting adjustments of $0.29.

Full year cash provided by operating activities was $112.4 million versus $75.6 million. The increase from the prior year was due to a lower increase in working capital. Capital expenditures of $55.7 million increased $20.7 million over the prior year, driven by investments related to the Company's restructuring program and tied to productivity improvement. Free cash flow increased $16.2 million to $56.7 million.

Segment Performance

Comparisons are year-over-year unless noted otherwise

Aerospace

Fourth quarter sales were $213 million, up 96%. Organic sales increased 15% and acquisition-related sales added 81%. Aerospace total original equipment manufacturing ("OEM") sales increased 109% and aftermarket sales increased 77%. On an organic basis, OEM sales increased 17% and aftermarket sales increased 12%. Operating profit was $14.0 million, down 22%. Adjusted operating profit of $27.2 million was up 53%, while adjusted operating margin declined 360 bps to 12.8%. Adjustments to operating profit exclude restructuring and transformation-related charges of $1.3 million, acquisition transaction costs of $0.8 million, and MB Aerospace short-term purchase accounting adjustments of $11.2 million. Adjusted operating profit benefited from the contribution of higher organic sales volumes, inclusive of pricing, and the contribution of MB Aerospace sales, partially offset by the amortization of long term acquired intangibles for the MB Aerospace acquisition, lower productivity, and unfavorable OEM mix. Aerospace adjusted EBITDA was $45.7 million, up 69%, and adjusted EBITDA margin was 21.5% versus 24.9% a year ago.

Full year 2023 sales were $608 million, up 42%. Organic sales increased by 15% and acquisition-related sales added 27%. Operating profit was $53.0 million, down 30%, while operating margin was 8.7% versus 17.7% a year ago. Operating profit includes approximately $8.2 million of long-term purchase accounting adjustments related to the MB Aerospace acquisition. Adjusted operating profit was $91.9 million, up 21%, and adjusted operating margin was 15.1%, down 260 bps. Adjusted operating profit excludes restructuring and transformation charges of $7.6 million, acquisition transaction costs of $12.2 million, and short-term purchase accounting adjustments of $19.2 million. Adjusted EBITDA was $142.8 million, up 19%, and adjusted EBITDA margin was 23.5% versus 27.9% a year ago.

Aerospace OEM backlog ended the year at $1.23 billion, down 1% sequentially from September 2023. The Company expects to convert approximately 50% of this backlog to revenue over the next 12 months.

Industrial

Fourth quarter sales were $203 million, down 1%. Organic sales decreased 4%, which was partly offset by favorable foreign exchange rates of 3%. Operating profit was $15.7 million versus $6.1 million in the prior year. Adjusted operating profit was $20.4 million, up 19% and adjusted operating margin was 10.1%, up 170 bps. Adjusted operating profit reflects lower organic sales volumes and unfavorable mix, partially offset by positive pricing and favorable productivity. Adjusted operating profit excludes restructuring charges of $3.5 million and divestiture-related costs of $1.2 million. Adjusted EBITDA was $32.5 million, up 4% from a year ago, and adjusted EBITDA margin was 16.0%, up 80 bps.

Full year 2023 sales were $843 million, up 1%. Organic sales were flat while favorable foreign exchange had a positive impact of 1%. Full year operating profit was $36.0 million versus operating loss of $19.1 million last year. Adjusted operating profit was $75.5 million, up 8% and adjusted operating margin was 9.0%, up 60 bps. Adjusted operating profit excludes restructuring charges of $38.3 million and divestiture-related costs of $1.2 million. Adjusted EBITDA was $126.1 million, up 9%, and adjusted EBITDA margin was 15.0% versus 13.8% a year ago.

Balance Sheet and Liquidity

As of December 31, 2023, the Company had $90 million in cash and $357 million available capacity under its revolving credit facility. The "Net Debt to EBITDA" ratio, as defined in our credit agreements, was approximately 3.64, down from 3.77 times at the end of third quarter. Barnes remains committed to achieving a leverage ratio of 3.0x or lower by the end of 2024 and reaffirms its long-term leverage goal of 2.5x by 2025.

"In 2022, we set a strategic course to reposition Barnes for long-term value creation and we made considerable progress during 2023. For 2024, we stay focused on profitable growth and disciplined cost management to drive margin expansion and cash flow, which will support our commitment to reduce debt," said Julie K. Streich, Senior Vice President, Finance and Chief Financial Officer, Barnes.

2024 Full Year Outlook

The Company is providing full year 2024 guidance as follows:

The Company's 2024 Adjusted EPS guidance excludes $0.17 related to restructuring and transformation activities, $0.06 of MB Aerospace short-term purchase accounting adjustments, and $0.38 of estimated divestiture impacts related to the pending sale of the Associated Spring™ and Hänggi™ businesses.

The Company's outlook assumes that the announced divestiture of the Associated Spring™ and Hänggi™ businesses closes at the end of the first quarter (Link). Accordingly, the outlook includes three months of financial performance forecasted for these businesses.

Conference Call Information

Barnes will conduct a conference call with investors to discuss the fourth quarter and full year 2023 results at 8:30 a.m. ET today, February 16, 2024. The public may access the conference through a live audio webcast available on the Investor Relations section of Barnes' website at www.onebarnes.com.

The conference is also available by direct dial at (888) 510-2379 in the U.S. or (646) 960-0691 outside of the U.S.; Conference ID 1137078. 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, February 16, 2024, until 11:59 p.m. (ET) on Friday, February 23, 2024, by dialing (647) 362-9199; Conference ID 1137078.

Notes:

⁽¹⁾ While Barnes reports financial results in accordance with U.S. generally accepted accounting principles (GAAP), beginning with this earnings release, the Company will provide additional information with respect to a non-GAAP measure, "Adjusted Earnings Before Interest, Income Tax, Depreciation and Amortization" (Adjusted EBITDA). With the acquisition of MB Aerospace, the largest transaction in Barnes' history, the Company incurred related expenses, including acquired intangible assets and additional interest expense from the debt-funded acquisition. Accordingly, the Company uses Adjusted EBITDA, among other measures, to monitor our business performance. While EBITDA is not a U.S. GAAP measure, nor is it a substitute for a U.S. GAAP measure, we believe it provides helpful information to investors in understanding the ongoing operating performance of the Company. Investors should consider non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with U.S. GAAP. Tables reconciling non-GAAP to GAAP financial measures, including forward looking outlook information, are presented at the end of this press release.

⁽²⁾ Organic sales growth represents the total reported sales increase within the Company's ongoing business less the impact of foreign currency translation and acquisition and divestitures completed in the preceding twelve months.

About Barnes

Barnes Group Inc. (NYSE:B) leverages world-class manufacturing capabilities and market-leading engineering to develop advanced processes, automation solutions, and applied technologies for industries ranging from aerospace and medical & personal care to mobility and packaging. With a celebrated legacy of pioneering excellence, Barnes delivers exceptional value to customers through advanced manufacturing capabilities and cutting-edge industrial technologies. Barnes Aerospace specializes in the production and servicing of intricate fabricated and precision-machined components for both commercial and military turbine engines, nacelles, and airframes. Barnes Industrial excels in advancing the processing, control, and sustainability of engineered plastics and delivering innovative, custom-tailored solutions for industrial automation and metal forming applications. Established in 1857 and headquartered in Bristol, Connecticut, USA, the Company has manufacturing and support operations around the globe. For more information, visit please visit www.onebarnes.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 risks and uncertainties include, among others: the Company's ability to manage economic, business and geopolitical conditions, including rising interest rates, global price inflation and shortages impacting the availability of materials; the duration and severity of unforeseen events such as an epidemic or a pandemic, including their impacts across our business on demand, supply chains, operations and liquidity; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; 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; challenges associated with the introduction or development of new products or transfer of work; higher risks in global operations and markets; the impact of intense competition; the physical and operational risks from natural disasters, severe weather events, and climate change which may limit accessibility to sufficient water resources, outbreaks of contagious diseases and other adverse public health developments; acts of war, terrorism and other international conflicts; the failure to achieve anticipated cost savings and benefits associated with workforce reductions and restructuring actions; currency fluctuations and foreign currency exposure; impacts from goodwill impairment and related charges; 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; our ability to successfully integrate and achieve anticipated synergies associated with recently announced and future acquisitions, including the acquisition of MB Aerospace; government-imposed sanctions, tariffs, trade agreements and trade policies; changes or uncertainties in laws, regulations, rates, policies or interpretations that impact the Company's business operations or tax status, including those that address climate change, environmental, health and safety matters, and the materials processed by our products or their end markets; fluctuations in the pricing or availability of raw materials, freight, transportation, energy, utilities and other items required by our 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 attacks or data security breaches; the ability to hire and retain senior management and qualified personnel; the continuing impact of prior acquisitions and divestitures, and any ongoing and future strategic actions, 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 litigation and governmental proceedings; 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; the impact of shareholder activism; 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.

Category: Earnings

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