Q4 2019 Earnings Call
This conference is scheduled to begin momentarily until that time your lines will again be placed on musicals. Thank you for your patience.
[noise].
Ladies and gentlemen, as the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on musical. Thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Barnes Group Inc. fourth quarter and full year 2019 earnings conference call and webcast. At this time all participants are in listen only mode. After the speakers presentation. There will be a question answer session to ask a question. During the session you only need to press star one on your telephone please.
So I was at today's conference is being recorded if you acquire any further assistance. Please press star Zero I would now like a hand the conference over to build Pitts Director Investor Relations. Please go ahead.
Thank you Sharon.
Good morning, and thank you for joining us for our fourth quarter in full year 2019 earnings call.
With me with me are Barnes group's President and Chief Executive Officer, Pratt Patrick Dempsey and.
In senior Vice President of financing Chief Financial Officer, Chris Stevens.
If you have not received a copy of our earnings press release, you can find it on the Investor Relations section of our corporate web site at BG I N C Dot com.
During our call we will be referring to the earnings release supplement slides, which are also posted on our website.
Our discussion today includes certain non-GAAP financial measures, which provide additional information we believe it's helpful to investors.
These measures have been reconciled to the related GAAP measures in accordance with FCC regulations.
You will find a reconciliation table on our website as part of our press release ended in the form 8-K submitted to the Securities and Exchange Commission.
Be advised that certain statements, we make on todays call well during the opening remarks and during the question and answer session. Maybe forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
Please consider the risks and uncertainties that are mentioned in today's call and are described in our periodic filings with the Securities and Exchange Commission.
These filings are available through the Investor Relations section of our corporate web site at BG I N C Dot com.
Let me now turn the call little bit of Patrick for opening remarks, then Chris will provide a review of our financial results are twentytwenty outlook and progress on the three year targets, we established in 2017.
After that we'll open up the call for questions Patrick.
Thank you Bill and good morning, everyone.
Barnes group wrapped up 2019 with evidence that the power of our ongoing transformation has indeed change the company for the better.
In a year, where several of our industrial markets, where some excellent performance in Iris base business have Barnes group to deliver record operating profit on total sales that were slightly lower done 20 eighteens record level.
Across the company the Bernstein navigated the Choppiness and delivered adjusted earnings were <unk> among the best achieved in the company's long history.
The results of a testament to our talented management team.
An engaged workforce under Barnes enterprise system, which provides a solid bedrock to our operations.
For the fourth quarter sales decreased 4%, both total I know downtick.
Adjusted operating income increased 8% over last year's results.
Well operating margin improved to 190 basis points to 17.2%.
Adjusted earnings per share were 86 cents up 2% from 84 cents last year.
Looking at the full year sales were down slightly from a year ago with organic sales down 2%.
Adjusted operating income was a record $244 million.
Given the years challenged industrial topline this represents solid performance.
Adjusted operating margin increased 40 basis points to 16.4%.
An adjusted earnings per share were $3.21 ending the year at the midpoint of our previous guidance.
Let's move now to a discussion on the current business environment and the high level view of what Twentytwenty may look like.
And industrial well your 2019 organic sales declined 8%.
Book to Bill was just under one times.
Select end markets remains stubbornly soft given persistent economic and trade uncertainties.
Leading to deferred new program launches by customers in several of our industrial businesses.
At molding solutions 2019 organic sales declined 8%.
And as we've seen for a few quarters now automotive hot runners personal care and packaging end markets have been weak.
Medical molds on the other hand continue to see strong demand.
In fact, our manner business saw record revenues for both the fourth quarter and full year relative to the five years of Barnes ownership.
For Twentytwenty, we anticipate molding solutions organic growth to be up mid single digits, primarily driven by sustained medical molds demand and some stabilization in automotive markets, particularly new program releases in North American.
One word of caution we do anticipate the first quarter being down versus the prior year period with sequential improvement beginning in the second quarter.
At forced motion control organic sales declined 7% in 2019.
As mentioned previously tool and dye product lines, which serve a wide range of metal forming end markets have been down.
While industrial markets have performed better.
For Twentytwenty, we see mid single digit organic growth with Q1 at the run rates over the last couple of quarters.
After that we expect to see incremental improvement and the benefit of favorable comps.
Moving to engineered components organic sales declined 9% driven by lingering weakness in auto production.
2019 saw global auto production decline approximately 6% weve reductions experienced across each of our major geographic regions.
The expectation for global auto production growth from Twentytwenty is flat.
And given what's happening in China at present with the Corona virus outbreak.
Suspect that outlook might deteriorate.
Well in manufacturing PMI is for us in China or above 50 and showed positive momentum exiting 2019.
Europe remains weak.
During the fourth quarter, we announced a divestiture of our Seeger business based in Germany with the transaction closing in early February.
Steger is a leading brand of quality retaining and snap brings primarily serving automotive end markets.
I would like to thank all the employees at Seeger Orbitz for there are many contributions the Barnes group and wish them continued success and growth in the future.
The impact of this divestiture on Twentytwenty sales for our engineered components SB you is about $60 million.
With that we anticipate about 10 cents a foregone EPS contribution.
For engineered components, we expect twentytwenty organic sales to decline mid single digits.
I'd automation.
Reduce robotics demand in Germany, and China, coupled with customers deferring new program launches led to slower than anticipated growth in 2019.
For the long term, we see automation end markets poised for growth as the adoption as the outlook for adoption rates of robotics remains very favorable to Wade further advances in industrial productivity.
For 2020, we anticipate high single digit organic growth driven by.
Geographic expansion.
The build out of adjacent end markets and the leveraging of our molding solutions customer relations.
In Twentytwenty as we continue to execute our vision of being a global leader of highly engineered products.
Differentiated industrial technologies, an innovative solutions, we plan to make incremental investments of approximately $5 million in accelerating and capitalizing on our innovation efforts.
Under the leadership of our Chief Technology Officer past Hurley, we will further advance our engineering development approach by expanding our applied and fundamental research capabilities and scientific resources.
Creating a full spectrum of innovation to exceed our customers' expectations and needs for the future.
Initial focus will be honor industrial businesses and four key technology platforms.
Materials software hardware and sensors.
Each of which will be instrumental to the future success of the company.
These combined technologies will be at the core of the next generation of products and services, we bring to market.
We're excited about these investments and believed they are done next logical step in the execution of our profitable growth strategy.
For Twentytwenty at industrial our sales outlook is for low single digit organic revenue growth.
Operating margin is expected to be around 12% to 14% given the incremental innovation investments.
Before I move onto our aerospace discussion I would like to take a moment to welcome Steve move to Barnes group as President of our industrial segment.
Steve brings extensive experience in driving performance within diversified industrial businesses.
He is a strong leader who has successfully developed high performance teams with an operating system focus.
Steve Skillset, coupled with our Barnes enterprise system, that's up heightened expectations for our industrial segment.
Moving now to our aerospace business.
Aerospace delivered an excellent 2019.
Inclusive of continuing solid performance into fourth quarter with strong OEM and aftermarket sales.
In fact for 14 consecutive quarters quarters, now we've seen year over year sales growth with eight quarters showing double digit increases.
Continuation of this strong performance led to record sales and operating profit in 2019.
For the quarter total aerospace sales were up 8% with OEM and aftermarket both seeing an increase.
Operating margin was once again solid up 230 basis points from a year ago to 22.3%.
As we look to the future certainly the biggest story and commercial aviation.
Is the Boeing 737, Max production stuff and the timing of its return to service.
For us to 737, Max is a good platform, helping to support growth in our OEM business.
That said on a relative basis, it's not our largest program.
And while we previously noted a slowing production line not having the meaning them, meaning both effect on our OEM expectations. The current situation is more impactful.
Our view under 737, Max as you'd expect is not unlike what you've heard from our customers Boeing and GE.
This program will weigh on our OEM growth expectation in Twentytwenty as a return to service is not expected until mid year.
As such we anticipate our shipments on this platform to declined by approximately 50% this year impacting revenues by about $20 million.
The loss contribution of those sales will also serve to dampened earnings growth.
Clearly this is a fluid situation with multiple complexities and the impact of all of this is expected to become more apparent in the coming months.
As the situation is resolved we will be prepared to rebrand as required by our customers.
As to whether the current OEM environment provides some offset in the aftermarket certainly the current fleet is being worked harder and that may provide some aftermarket benefit.
But keep in mind with the heightened utilization.
Of existing aircraft.
Or just not coming out of service for aftermarket support at the level you would expect.
All in.
As we now look to our expectations for Twentytwenty.
We expect OEM sales to be relatively flat compared to 2019 as a result of the 737 Max.
And in the aftermarket we forecast boat MRO and spare parts to be up low to mid single digits.
One final point on aerospace.
Our estimates of OEM sales per aircraft for our major programs are unchanged from our prior view.
Before concluding my remarks.
I'd be remiss not to acknowledge the serious public health concern playing out with respect to the Corona virus outbreak.
Our primary concern relates to the safety and welfare of our associates in China and around the world.
We have temporarily suspended all travel for our entire workforce in and out of China.
And while our manufacturing facilities were closed for an extended period of time, they are slowly coming back online.
At this point, we are monitoring the situation daily.
Our new development and any additional government mandates.
At present, we see potential risk revenue.
Potential revenue risk in the first quarter of $10 million to $15 million.
So in conclusion.
2019 presented us with a number of challenges in our industrial business.
While aerospace experience sustained strength throughout the year.
The Byron steam Adeptly navigated through the choppy environment to improve both operating profits and margin.
By leveraging the Barnes enterprise system to a true our three prong focus on commercial financial and operational excellence, we look forward to another good year and Twentytwenty.
And as always we we remain committed to driving value for our many stakeholders.
Now, let me turn to call over to Chris for a discussion on the financial details.
All right. Thank you Patrick and good morning, everyone.
Let me begin with highlights on our fourth quarter results on slide four of our supplement.
Fourth quarter sales were 370 million down 4% from the prior year period.
With organic sales declining 4%.
Acquisition sales contributed 1%, while FX negatively impacted sales by 1%.
Operating income was 61 million versus $52 million a year ago.
On an adjusted basis.
Operating income was 64 million up 8% from last year's fourth quarter.
Adjusted operating margin increased 190 basis points, reaching 17.2%.
Net income was 41 million or 80 cents per diluted share compared to 39 million or 75 cents per loot per diluted share a year ago.
On adjusted basis net income per share of 86 cents was up 2% from 84 cents a year ago.
Adjusted net income per diluted share in the fourth quarter of 2019 excludes a five cents adjustment related to the finalization of dramatic short term purchase accounting.
An 11 cents noncash impairment charge related to the divestiture of Seger, both in our industrial segment.
Moving now to our 2019 full year highlights on slide four five sorry of our supplement 2019 sales were 1.5 billion down slightly from the prior year as organic sales were down 2%.
Acquisitions provided a 4% sales lift while unfavorable FX was 2%.
Operating income was a record 236 million versus $232 million a year ago.
On an adjusted basis operating income of 244 million versus 240 240 million last year was up 2%.
Adjusted operating margin increased 40 basis points to 16.4%.
For the year interest expense was approximately 21 million an increase of 4 million primarily as a result of increased borrowings partially offset by the impact of lower average interest rates.
Our effective tax rate in 2019 was 23.4% compared with 19.9% a year ago with most of the increased due to the absence of adjustments to certain valuation reserves and final adjustments related to use tax reform.
For 2019, net income was 158 million or $3.07 per diluted share compared to 166 million or $3 in 15 cents per diluted share a year ago.
On an adjusted basis net income per share was $3.21 approximately flat to last year.
Full year cash provided by operating activities was 248 million versus 237 million in 2018.
In the third quarter of 2019, the company made a discretionary $15 million us pension contribution, which reduced full year operating cash flow.
Clearly, we continue to generate solid cash flows from our businesses with working capital goods story in 2019.
Free cash flow was $195 million compared to $180 million last year capital expenditures were 53 million down 4 million from a year ago and adjusted cash conversion of 119% was an excellent result.
With respect to the balance sheet, our debt to EBITDA ratio was 2.4 times down from 2.5 times at the end of the third quarter.
Under our existing debt covenants additional borrowings.
Of approximately 300 million of senior debt would have been allowed at quarter end.
Our full year average diluted shares outstanding was 51.6 million shares we did not repurchase any shares in the fourth quarter for the full year, we reach for the full year, we did repurchase 900000 shares at a cost of 50 million.
The remains 4.1 million shares available for repurchase under the Board's 2019 stock repurchase authorization.
Let's now move to our segment performance beginning with industrial.
For the fourth quarter sales were 231 million down 9% from last year organic sales decreased 10%, primarily due to the softness in certain end markets.
Unfavorable FX decreased sales by 1% while acquisition revenues contributed 2%.
Fourth quarter operating profit was 30 million up 14% from the prior year period.
Excluding a short term purchase accounting true up adjustment for dramatic and a noncash impairment charge related to the Seeger divestiture adjusted operating profit was 32 million versus 33 million a year ago.
Adjusted operating margin was 14, 1.1% up 120 basis points driven by solid productivity gains.
For the full year sales were 939 million down 6% from last year organic sales were down 8% acquisitions contributed 5%, while FX was unfavorable a 3%.
Operating profit of 114 million was down 13%.
And on an adjusted basis operating profit was 122 million down 12% from 2018, adjusted operating margin declined 90 basis points to 13%.
At Aerospace fourth quarter sales were 139 million up 8% OEM sales increased 7%, while aftermarket sales increased 10% with MRO up 12% and spares up 7%.
Operating profit was 31 million up 21%, primarily reflecting the profit impact of higher sales volumes.
Operating margin was 22.3% up 230 basis points.
Full year 2019 sales were a record 553 million up 10%, while operating profit was a record hundred 22 million up 21%.
As a result operating margin improved 200 basis points to 22.2%.
Another great year for aerospace team.
Aerospace OEM backlog ended the year at 801 million.
Down 1% from the end of the third quarter of 29 team.
The company expects to ship approximately 50% of this backlog over the next 12 months.
Turning to our 2020 outlook on slide six of our supplement we expect organic sales to be up 1% to 3% for the year with total revenue down slightly as a result of the Seeger divestiture, which has a 4% impact FX is not expected to have a meaningful impact.
Operating margin is forecasted to be between 16 and 17% adjusted EPS is expected to be in the range of $3.12 and $3.32 down 3% to up 3% from 2019 adjusted earnings of $3.21 per share.
Please keep in mind that the divestiture of the Seeger business innovation investments lower 737, Max deliveries and a $2 million pension headwind have been incorporated into our 2020 expectations.
Also we do see a higher waiting of adjusted EPS in the second half with a 45% first half 55% second half split.
In particular, we see the first quarter of 2020 being approximately five cents lower than last year's first quarter adjusted EPS of 71 cents per share.
A few other outlook items interest expense is anticipated to be approximately 17 million other expense approximately 7 million.
An effective tax rate of 24% to 24.5%, excluding seeger divestiture taxes.
Capex of approximately 60 million.
Average diluted shares of approximately 51 million shares and again this year cash conversion of greater than 100%.
For modeling purposes, one item to note.
We anticipate approximately a $5 million charge related to the Seeger sale, primarily related to taxes, which will occur in the first quarter discharge worth approximately 10 cents will be excluded from our adjusted earnings.
And after tax cash proceeds from the sale will primarily be used to reduce debt.
Lastly, turning now to slide seven lets discuss an update of our three year financial targets introduced at our 2017 Investor day.
Relative to our 2017 view, we've seen a stronger aerospace OEM and aftermarket.
And improved view of the medical molds business benefits of global tax management actions and the benefit of incremental share repurchases.
To the downside automotive end markets remain weak there is a heightened level of uncertainty weighing in on global trade and we see the China economy, and it's in contract and its contribution to our growth slowing.
In addition, a lower production level in 2020 for the 737 Max aircraft will have an impact.
Taken together, our current view, which excludes the impact of our recent acquisitions as well as the U.S tax reform benefit has us generating 2023 organic sales CAGR of flat to up to 1%.
Adjusted operating margins of 16% to 17% and adjusted three year EPS CAGR in the range of 4% to 5%.
Our cash conversion target of greater than 100% remains unchanged, while our us ROI see target is expected to be approximately 9%.
We do plan on hosting and other Investor day. This year on September 24th in New York City details will be forthcoming over the next few months.
So in summary, we delivered overall solid performance in the face of some persistent headwinds in 2019 strong cash flow generation with excellent cash conversion, coupled with a well positioned balance sheet allow for ongoing investments in innovation and growth that will help propel Barnes group forward.
As we execute.
On our value creation strategy.
Sharon, let's open the call for questions if you'd like to ask a question at this time, Please press star and the number one on your telephone keypad. If you would like to withdraw your question press. The pound Keith first question comes from Myles Walton with you.
Thanks. Good morning, just wondering if I could start Melissa precast free cash flow, Chris So the the 195 million in 2019 included that 50 million discretionary contribution as you look to 2020 any reason why.
Operating cash flow can't be as good or better in 2020.
Maybe talk about some of the moving parts on on working capital if any.
Sure. So good question. So we when we look at 2019.
Clearly good strides in working capital reduction.
When you when you kind of net out the pension contribution we don't expect any meaningful pension contribution as we look to 2020 right now so.
Nothing leads us to believe that we wouldn't continue to to work on working capital reduction throughout 2020 and be able to provide meaningful number probably consistent with if not somewhat better than our 19 performance.
Okay, and then on the the investment.
That you're making in the industrial side of 5 million on the basis of of an R&D base. I think is like 15 million today I don't know that 5 million investment you're talking about as all R&D qualified but maybe just talk about the level of sustainability of that investments and what kind of payoff you think from an acceleration of growth that you'll get.
And 21 and beyond.
The bonds this Patrick and add the investment is in line with our ongoing strategy.
With respect to differentiating ourselves clearly from the competition around the products and services that we bring to market.
The the $5 million right now is lying down.
This year in terms of the addition of resources in terms of.
New levels of talent.
From a engineering and scientific standpoint.
The emphasis that were add clearly.
Targeting is materials hardware and software and sensors those four areas of technology, the intent being data as we continue to.
Differentiated our goal is to create a full spectrum of innovation that will both above and beyond meeting our customers' expectations.
We think we're really nicely plays in the market relative to being in a position to truly become a solution to some of the.
Current concerns within the plastics industry on the materials side as an example, we're developing new materials I'm working with people that are developing those materials to process biodegradable polymers as an example, which.
We'll be the next generation of arc friendly polymers.
On the hardware and software side, while we're looking at is how to make Barnes group and our in particular on molding solutions business, even more relevant in terms of the products that we bring to market and thats based around data analytics.
Advanced Darla algorithms.
Artificial intelligence just to name a few.
The investment is a long term investment we expect that.
We'll go into continues to invest in these types of technologies for the coming years.
And.
The the returns are expected to translate into the coming years with the products and services that will bring to market.
Okay, and so just to be clear at this kind of is a step up it's not a onetime investments it's kind of an elevated investment going forward. We should we should think about and then in that context, I guess back at the analyst day, the targeted margin for industrial I think was.
Around 18% to 19%.
Like the low end of that 18% to 19% I guess I'm on a combined basis and now we're looking for 12 to 14 in 2020, obviously a lot has happened, but maybe just to look forward. What is the what's the run rate on this business that we should think about as as you get your putting back Seeger and.
With these investments fully loaded.
Yes. So if you think about our industrial business over the last year, we've been targeting the mid teens and if you look at the innovation that I highlighted in terms of the $5 million and back that out it would put us back in the mid teens as we move forward, we're going to continue to push towards the high teens.
As a goal for industrial businesses and so we have not come off data is an internal goal and one which to teams collectively.
Focused on.
Okay. Thank you.
Yes. Thank you miles next question comes from Pete Skibitski with Alembic Global.
Hey, good morning, guys.
Good morning, Pete.
Nice job.
On the margins and the cash flow again for sure.
Hey, I guess, Patrick just on the Aero OEM backlog as you look forward in 2020, certainly with the Max headwinds, but.
Well the 800 million in backlog in your comment about 50% of that being delivered this year. Just my math indicates it's pretty much all of your OEM revenue 400 million or so so do you have essentially 100% visibility right now in 2020 on the on the Aero OEM Sean.
I think we have add a lot of visibility and the 400 million that you referenced which is half 50% of the 80 800 million backlog is you know and say right ballpark pertaining to all our OEM business. The aspect that has a lot of uncertainty and that is as it.
Mentioned to 737, Max and there you know there are many moving parts.
None more so than the fact that while will happen on the corresponding Airbus.
Athree hundred Twentyneos side of the equation and if that might represent upside. So all in we feel confident in terms of our aerospace OEM business, yes. Unfortunately due to current circumstances with the Max.
See it has been relatively flat for the year.
Okay, and then I didnt want to ask about aftermarket is well and I know you touched on it in your opening remarks, but Tom yes from from the standpoint or the grounding of all these Chinese flight shouldn't and now I hate predicting I think lower airline revenue.
You should have you started to see some headwinds the aftermarket just from.
Fewer plane flying in are you thinking about that at all in into 2020.
It hasn't translated into what we're seeing in terms of incoming orders.
Yes so.
Clear clearly it's another.
New factor that entered into the equation the as I said aircraft utilization around the rest of the globe continues to be pretty robust.
In fact with the with the delays around the Max.
The current fleet continues to stay in the air even longer perhaps than plus and would be the norm. So with all of those and while we continued to.
Watch very closely is incoming orders within our MRO business, which are very short lead time as you know and orders there have continued to be strong.
Okay. That's great. That's great just one last one for me just switching to.
To the divestiture of Seger.
Maybe I missed it but can you give us your rationale for the divestiture, maybe just want to less exposure to automotive production and I'm not sure and.
Margin wise, you know the way I did the math it looked like kind of maybe low double digit type margins there.
And and just maybe how much cash you received for the sale given its close now.
Yeah, So basically and as we continue to execute the strategy is.
We've communicated I think very clearly the emphasis is to continue to transform the portfolio in 2019. Our two major efforts were won on the integration of dramatic and to the divestiture of our Seeger business.
And the Seeger business was a great business overall and.
As we move forward, we felt that it would be better served under a new owner death focused primarily into the end markets that as Seeger service, which is primarily automotive.
Was we continued to support the automotive industry. We are looking continually to differentiate ourselves in terms of our offerings and so.
As we move forward the transformation of the portfolio is something that we are keenly keenly focused on.
Moving towards more intellectual property moving more towards enabling technologies and.
So as we continued to raise the bar will continue to challenge each of our businesses to step up to that new level of performance.
Yes, and P., maybe maybe I'll add what I'll add is on the on the financial side, just and we'll disclose this since we closed in the first quarter, you'll see that in our and our.
Our Q4, the first quarter is roughly that the headline prices around 47 million us for the business, we're going to get after tax cash.
Cash proceeds roughly 36 million that will used to reduce debt. It is from an EBITDA margin point of view relative to the company's average less than our EBITDA margin, but the business is sizable enough not as large the kind of move the needle, but to Patrick's point happy to get the transaction done.
And ill conclude on that and continue to execute on our strategy.
I appreciate the color guys. Thanks, yes. Thanks. Thank you.
Next question comes from Edward Marshall with Sidoti and company.
Morning morning, I want to.
Morning, I wouldn't look.
Looking at the Divesture of Seeger, and and then the mix of business improvement that you anticipate for 2020, even adding back that $5 million of R&D I would've thought the the margin swing would've been a little bit higher than the 12% to 14% teacher.
Got you are guiding and then for the full business you know it looks like you're.
Maybe you can just provide.
Okay operating profit margin an arrow that you anticipate on the same kind of context that you gave us for core industrial.
Yes, so with respect to aerospace will we are targeting.
The 20 122 range.
For the full year again that will add that could improve add depending on the mix between aftermarket and Oems but.
I have ways everything we see at this moment, we think thats a good range on the industrial side.
Clearly the team did a really nice job if you if you look back as.
2019, while we saw was a and a slower start to the year in terms of margins, but with a nice sequential improvement for the first three quarters. So you saw 10 and a half 12.3, 15% AFE for the first three quarters. So.
Well actually and then the forward, Florida Pembina 14, so on an adjusted basis as we.
Look into.
2020, what I would say is that as noted submitted challenges that we're experiencing right now in the first quarter, primarily coming out of Asia is putting some pressure on well put some pressure on margins in the first quarter.
As I highlighted with thinking right now with the best information we have.
About a $10 million to $15 million revenue impact.
Out of our Asian businesses.
And that coupled with.
Basically.
Just a slower start to the year I think what's it going to see is the same trend throughout the year, a sequential improvements in margins quarter to Florida.
But as with the investments, we're making we believe we.
Put a range on data for 12 to 14.
The one area that I think I give the team tremendous credit for last year and I think they're just equally as focused on this year as productivity and that in itself I think through the boss enterprise system continues to offer upside to those.
Those ranges given.
Got it and remind me again the.
Mix of remind me, where you are concentrated in the and in Asia.
I know its Asia auto, but what else might be in there.
And the different business segments, just remind though.
You're talking about.
Business in Asia is about 10% of Barnes group total.
And the primary businesses in there.
Our molding solutions in the form of mold and our automotive hot runners.
And FMC in terms of the tool and die primarily through the nitrogen gas products.
Spring product.
Got it so there is some higher margin stuff in there so really if I step back I just look at it so you're seeing some caution.
Into the first quarter Thats kind of laying off the guidance for for the full year. It doesn't seem like there's been much deterioration if any in the aerospace side.
It's just it's just really around the first quarter caution that you're kind of spelling out here.
That's true and you know the other really bright spot is our medical end market demand.
What I'd knows.
Which I think is also another bright spot from our perspective is that we monitor as you can imagine ahead of orders is the quoting activity and what we saw in quoting activity in personal care packaging and medical malls.
I was a strong fourth quarter and Thats, let heightened level of activity continuing into January so was what we've seen in 2019 is a little bit of a pause in those end markets as a result of pending regulations, but as I highlighted those regulations from.
Our bandage point is something to be embrace because ultimately what it's going to drive is an emphasis on you know newer materials new away of processing those materials and that goes hand in hand, with the innovation Das investment, we're making as I highlighted around.
You know the materials to hardware software, which is the mechanism by which you control the flow of the materials and then sensor technology and as you know we acquired Priamus a couple of years ago and now under our CTO keys.
Even more excited about where we can take that sensor technology.
Got it got him.
I guess it.
Want to know if there's any change in the collection of receivables from your key customer on aerospace have you been able to comment it doesn't seem like there is but I just want to double check.
No no major change said no significant change there.
Got it and then finally I first what's what's a good number for interest expense for with all the debt reduction and so forth. What do you think 2020 looks like.
Rough roughly 17 million is what.
Kind of what we look at four.
Yes for for the full year 2020, Okay got it thanks very much Jeff. Thank you. Thanks. Its next question comes from Michael Ciarmoli with Suntrust.
Hey, good morning, guys are not good morning.
Thank you.
Just on the on the aerospace.
The spares the aftermarket spares growth only 7% year over year was one of the easier comps you had all year I think youre lapping a 12% unity environment is good but I guess, maybe if you saw any changes in the trends Darin and thinking about as we move into this first quarter.
Does that 10 to 15 million revenue headwinds you contemplated does that include any potential.
Aerospace aftermarket disruption from maybe some of the Asian, China carriers, if they are seeing dramatically reduced traffic or if they pull back dramatically on their spending.
The short answer is no relative to the 10 to 15 AD.
Incorporate in anything from the aerospace side of the equation to 10 to 15 is truly what we're seeing relative to our businesses that are located in in China and have been subject to add disclosures that I mentioned and even as we speak are only slowly coming back online.
Okay.
Okay. Okay, and then any color on just the spares a level of a gross anything that you saw a different in the fourth quarter or is it does it still been pretty steady because you've been on an absolute revenue dollar it dipped sequentially there.
Yes.
I think as I mentioned.
So within aerospace right now, we've seen 14 consecutive quarters of year over year growth and what it is is that the IRS fees have been a key part of that.
And they have performed extremely well over the last few years. So each year as we enter and you know we revert back to while we see as they normalize growth race of the shop visits that are driving those spares requirements and that's primarily to cfmfifty six into see us.
Six engine models and so there when we look outward for the CFM, we use a mid single digits AD growth rate as well as is our you know our benchmark if you like Weve, clearly outstrip that and outperformed that over the last.
A couple of years, but.
Again, and the question becomes how many times.
Can you elaborate by double digits, and so we've been somewhat conservative and taken our low to mid single digits outlook. Both for spare parts and then MRO, but as you know it's a very short visibility short lead time business. So and as has been highlighted on this call a number of.
Moving parts in the aftermarket.
No.
Probably tend to have us be a little bit more cautious than bullish.
Bush in our outlook on in terms of percentage growth.
Got it that's helpful. And then just maybe one more on Aero you clearly talked about the Max impacting how much revenue you're taking out there.
What are the thoughts on the 77 reduction I think based on your your most recent deck, it's about $200000 of content. There does that start to show up.
This year or is that going to be more of a 21 impact and then even I guess tying your name with the Max volume reduction and maybe even a 77 does that that complicate anything on driving that working capital down.
It's not necessarily I, we don't necessarily see it as a complication and not meaningful if you like in terms of that they've reduction add that's taken place. So.
We're confident that we can you know with the rest of the mix of everything we have both commercial and on the as defense side that we can make up the any shortfall that my.
You know filter into the system from disseminates Evan.
What the team has continued to do is streamline the whole process of NP I within our aerospace business and to that end. They feel very confident that they have enough new developments, which is you know alternatives to existing.
Manufacturing processes that are being used today, they're very keenly focused on differentiating themselves by employee in newer technologies that can differentiate even on existing platforms and put us in a great place as we continue to move forward. So.
A lot of good things happen there that I think overall add the guidance includes the outlook for to 77 that you highlighted but also note that the seven seven sevenx, which was the spin off to a slow start is also you know forecast the come online sports the ended the year into the New York.
Got it no. That's helpful. And then maybe Chris I'll, just I'll try one here I don't want to put words in your mouth, but I'll try anyway.
[laughter] for the September 17, operating margin target of 18% to 19% if I if I assume you know some sustaining investment maybe that's a 50 50 between has anything in your view structurally changed obviously end markets aside.
Anything that you guys looking at today that would prevent you from from driving those same margins and again, obviously, if it's arrow aftermarket where to roll over or something change, but just as you're looking at the the company. She did a structurally has anything changed in your view to achieve those markets margins no. Yeah. No very good question that I look at.
As we look at 2020 targets and we communicated kind of an update last year, taking a look at this year, we understand the implications of global trade uncertainties. When we identified a couple of called the drivers in terms of the upside and the downside it really for the most part are things that were market driven I'll call. It out of our control somewhat clearly.
The tax actions, we've taken globally and the incremental share repurchase helps but getting back to the margin profile that that was the that was the big driver you had the aerospace upside, which provided a little bit lift to exceed our expectations of what we thought back in 2017, but the bigger drag was the implication.
Ins of industrial specifically global trade uncertainty lately, obviously with China. So as we look to 2020.
You kind of put those decided there was nothing necessarily that leads us to believe that we cannot continue to drive this company to a high high teens operating margin.
We do it as I did mentioned, we do plan on having another investor day in September.
In light of obviously preparation will be be done through that we're going to have our strategic planning reviews with our with our teams in the May June timeframe, leading up to the September view, but.
We're anxiously looking forward to that because we've made a lot of transition with the portfolio over the past a three years and we plan on putting out another three or so.
Those are the main drivers.
Got it perfect. Thanks, guys. Thank you. Thank you.
So again, if you'd like to ask a question. Please press Star then that number one on your telephone keypad question from Tim always with Baird. Please go ahead.
Hey, guys good morning.
Morning Sim ordering.
Maybe just the first one housekeeping question, Chris do you have the SBQ growth rates bye bye for the fourth quarter and for the industrial businesses.
Sure.
So from a fourth quarter point of view overall growth. This is going to be a quarter over quarter look so our engineered components business was down 14%.
Our force in motion control business was down 10% and molding solutions was down.
Was down 11% and.
And I will comment, although we don't have comps because of the timing of when we bought dramatic but as we communicated last quarter that we expected geometric dramatic to hit 55 million in revenue. That's what they were able to achieve in the fourth quarter. So for industrial overall represents a uh huh.
On an absolute basis, not so much organic 9% down.
Okay helpful. Okay, Yeah, Yeah, I know very much. Thank you and then.
Just on the on the automotive programs and some of the new programs that are out there what type of visibility do you have to those.
Happening and I guess 2020, just in terms of.
Timeline to date is it kind of fluid between quarters and the commitments are there for the year. How would you kind of described the visibility there on the molding solutions piece.
So Tim I'd say, it's a combination of all of what you just highlighted which is that there are certain programs and that our you know add moving to the right in terms of being delayed fuss others have been launched and so between our businesses, what they're keeping very close.
Tabs on his communication with the customers around the world because our businesses are such that one of the grade advantages they have.
Is that they can serve as a given customer anywhere in the world. So we have that global footprint in that regard. So while we're doing is what keeping tabs at the headquarters of the o. ease as well as than the local regional areas and was ultimately translates is that.
And any particular program is timed to launch it could launch in one region before another and then flow out and.
So there is an aspect of it's dynamic but overall, we've seen some nice green shoots in terms of North America over 2019, and we expect that to continue we also feel theres a little bit of pent up demand because if you consider all of the factors that are in place.
Hey, with not only existing models, requiring refreshes, which drives demand for our automotive hot runners, but then also as the move to electrification and hybrids. Each of those comes with a new model configuration, which drives the man not only for.
Our molding solutions business, but also then for our FMC. So overall from a an industry standpoint, we think a great step into right direction was the signing of the trade agreement and the first quarter in January between the U.S. in China.
Not so much because it is lifted the tariffs immediately but more because it sent a clear signal of alleviating some of the business uncertainty and that progress has been med and I think that gives you know.
Conferred entity industry that we're moving forward.
Okay. Okay, great. Good luck on a 2020, thanks for the time.
At this time ill turn the call back over to Mr. pets.
Thank you Sharon.
We would like to thank all of you for joining US. This morning, and we look forward to speaking with you next in April with our first quarter Twentytwenty earnings call.
Sharon we will now conclude today's call <unk>.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].