Q3 2020 Barnes Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Barnes Group Inc. third quarter 2020 earnings conference call and webcast at this.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session baskets question. During the session you'll need to press star one on your telephone. Please be advised that todays conference is being recorded if you're part of any further assistance. Please press star zero.
I'd now like to hand, the conference over to Mr. Bill Pitts Director of Investor Relations. Please go ahead.
Thank you Sharon.
Good morning, and thank you for joining us for our third quarter Twentytwenty earnings call.
With me are Barnes groups, President and Chief Executive Officer, Patrick Dempsey and.
And senior Vice President of Finance, and 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 website at Beachy, our Yancey 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 is 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 and in the form 8-K submitted to the Securities and Exchange Commission.
Be advised that certain statements we make on today's call. Both during the opening remarks and during the question and answer session may be forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
These forward looking statements are subject to risks and uncertainties 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 FCC.
These filings are available through the Investor Relations section of our corporate website at BG I N C Dot com.
Let me now turn the call over to Patrick for his opening remarks, then Chris will provide a review of our financial results.
After that we will open up the call for questions Patrick.
Thank you Bill and good morning, everyone.
For the third quarter Barnes group delivered respectable financial performance as we continued to manage through the challenging environment presented by the ongoing global COVID-19 pandemic.
We generated earnings per share towards the high end of our July outlook, and our cash generation continues to be good.
We also saw incremental sales growth in both of our operating segments over the second quarter.
Promising signs of recovery in our industrial business.
Moving on from what we believe was the second quarter revenue trough in our aerospace business.
Clearly there remains a lot of uncertainty.
Well, we can see signs of a path to recovery with more clarity.
Given our strong management team and cultural actions, we expect to drive profitable performance throughout this challenging period well.
While maintaining a sharp focus on accelerating our key strategic initiatives to position the business for future growth.
For the third quarter total sales decreased 28% over the prior year period with organic sales down 26% driven by lower volumes given the pandemics impact on our end markets.
On a positive note total sales did improved 14% sequentially from the second quarter.
Primarily driven by the performance of our industrial segment.
Adjusted operating income decreased 53% compared to a year ago.
While adjusted operating margin declined 640 basis points to 11.7%.
Earnings per share were 30 cents down 66% from last year.
Obviously significant declines from a year ago, but somewhat better than expectations, we laid out in July.
More importantly, total sales improved sequentially through the quarter.
At the same time cash performance was once again solid and our leverage continues to remain manageable.
On going cost management and further working capital improvements in the quarter also helped to mitigate some of the impact of lower demand.
Moving now to a discussion of our business segments and then markets.
At industrial we're seeing some of our end markets exhibit in positive signs of recovery.
Coincide with what has been a rapid increase of manufacturing PMI.
US and European mice have risen substantially from the second quarter lows and.
And China has strengthened its already favorable reading.
Exiting the third quarter, all had solid PMI readings of 53 or better.
Overall segment book to Bill was slightly better than one times, an orders grew 24% sequentially from the second quarter.
You know molding solutions business sales of medical molds and hot runners remain solid.
And for the second consecutive quarter, we saw nice year over year pickup in both packaging and personal care orders, reflecting the release of previously deferred projects.
Correspondingly, we generated a sequential sales increase in both of these end markets in the quarter.
In our automotive hot runner business, well sales were relatively flat to the second quarter order saw sequential bump as a few postpone projects were released.
We're seeing this market slowly ramping in part driven by the influence of new electric vehicles.
You know for some motion control business sheet metal forming market saw a modest sequential improvement in orders and sales well.
Well, the general industrial orders and sales likewise trended positively.
At engineered components General industrial end markets experienced a meaningful sequential bump in orders and sales.
Another positive signal and fully aligned with the trended manufacturing PMI is.
Our global automotive production markets saw the most sequential improvement, which was foreshadowed by deposit of auto production forecasts trend, we highlighted last quarter.
While global automotive production is still anticipated to be meaningfully down in Twentytwenty next year's growth is projected to be up in the mid teens.
In our automation business, we saw a solid quarter of performance with both year over year and sequential improvement in orders and sales.
Demand for our end of arm tooling solutions in various automotive applications saw nice bounce well precision grippers from medical and pharma applications also remained a bright spot.
For the segment, we continue to forecast sequential orders and sales improvement into the fourth quarter as the recovery progresses, albeit at a measured pace.
Moving now to our aerospace business.
In the third quarter total Barnes aerospace sales were down nearly 50%.
With OEM down, 44%, an aftermarket down 58%.
Commercial aviation remain significantly disrupted by the global pandemic, yes, yes passenger traffic has improved from the lows of April.
In the short term, we expect our OEM business to see softer demand for its manufactured components as aircraft production rates at both Boeing and Airbus have been lower.
Although we expect our OEM sales to improve sequentially in the fourth quarter get.
Getting back to pre pandemic level. This is forecasted to take several years.
In the aftermarket lower aircraft utilization and weakened airline profitability will no doubt result in a slow recovery as less maintenance is required and or gets deferred.
However, as commercial flights return with domestic traveling traveled happening sooner than international demand we until.
We anticipate volumes in our aftermarket business gradually pick up.
For the fourth quarter, we forecast flattish sequential aftermarket sales.
Despite a second consecutive quarter of 50% down sales aerospace delivered adjusted operating margin of close to 10% a tribute to the quality of the team.
Also while addressing the substantial day to day challenges of the current environment.
Barnes aerospace improved its position by securing a long term agreement with GE aviation for the manufacture of existing and additional components on the leap engine program.
With this agreement will employ our expertise and technology in the machining and assembly of complex Hot section engine components.
The agreement approved the agreement provides for an increase of production share for select parts on leap engine programs.
Extends the term of previous agreements by 10 years for select parts and it.
And expands our portfolio of components on leap engines.
Inclusive of the contract extension benefit the estimated sales is over 700 million true 2032.
Just before I close today I'd like to take a few minutes to talk about another very important aspect of our business, which is environmental social and governance or ESG matters.
And to highlight the progress we are making.
At Barnes group, we are committed to being an exemplary corporate citizen and we take.
And we take that responsibility very seriously.
In doing so over the last several years, we've worked to further our SG progress and.
And have recently published their six.
SG corporate corporate social responsibility report.
You can find out report and a summary of our U.S.G. efforts on our company website under about BG I.
At Barnes, we began to realize Ci journey several years ago by educating ourselves on the global standards for measuring and reporting sustainability progress.
Barnes group see its SG efforts are currently focused on aligning our sustainability actions around the global reporting initiative or G. alright.
Gee O'reilly as a common language used by organizations to report on their sustainability impacts in a consistent and credible way.
Our teams are engaged in several projects that will illustrate to our varied stakeholders. How we are striving to meet those sustainability standards.
I'm also proud to report that we have recently established environmental targets for 2025 as a.
As a company we will work to reduce the energy we used in our factories as measured in carbon dioxide equivalents by 15%.
Reduced the amount of water, we use by 20% and reduce the amount of industrial process, where we generate from our manufacturing operations by 15%.
These efforts are a testament to our Barnes enterprise system.
Reducing all types of waste and inefficiencies to achieve operational excellence is a hallmark of our operating system and.
Demonstrates our commitment to running sustainable businesses to conserve natural resources, while minimizing the impact of our footprint on the environment.
So to conclude.
We continue to effectively manage our business as we deal with the disruptive effects of the pandemic on our end markets.
Across the company, we've been focused on the safety of our employees protecting profitability and driving cash performance at the.
At the same time, we are pursuing various opportunities for growth like the recent GE deal to better position Barnes group to leverage the speed of which we exit the current downturn.
As difficult as the last couple of quarters have been I am very proud of the Barnes team and encouraged by the direction of our progress and.
And while the level of uncertainty remains elevated I am very optimistic that our end markets have begun to recovery and that the future looks promising.
Now, let me turn the call over to Chris for a discussion on the financial details.
Thank you Patrick and good morning, everyone let.
Let me begin with highlights of our 2023rd quarter results.
Third quarter sales were 269 million down 28% from the prior year period, where they're going.
With organic sales declining 26%.
As you'd expect the severe demand disruption brought on by the global pandemic continues to impact many of our end markets.
As we previously mentioned, we view the second quarter as the sales low point.
With modest recovery commencing in Q3 led by industrial which is indeed what were seeing.
We saw a 14% sequential improvement in sales relative to the second quarter. However, on a year over year basis, the pandemic impact remains significant.
Also influencing our sales results and the divestiture of Seger had a negative impact on sales of 4%, while FX had a positive impact 2%.
Operating income was 31.2 million as compared to $67.6 million in last years third quarter.
Operating margin was 11.6% down 650 basis points.
Interest expense of 3.7 million decreased 1.6 million from the prior year period due to lower average borrowings and a lower average interest rate.
Other expense decreased by $2.5 million from a year ago as a result of favorable FX.
The company's effective tax rate for the third quarter of 2020 was approximately 44% as compared to 23.4% for the full year 2019.
The increase in the third quarter's tax rate over last years is primarily due to a change in the forecasted geography sources or the geographic sources of income with reductions incurring in several low tax jurisdictions and the impact of global intangible low tax income commonly referred to as guilty.
Our current expectation for the full year 2020 tax rate is approximately 39%, which includes the recognition of tax expense related to the seeger sale that occurred in the first quarter.
As we look out to next year, given where things stand today, we expect our 2021 tax rate to be in the range of.
Of approximately 27% to 29%.
Net income for the third quarter was 30 cents per diluted share compared to 89 cents a year ago.
Let me now move to our segment performance beginning with industrial.
Third quarter sales were $197 million down 15% from a year ago.
Organic sales decreased 12% Seeger divested revenues had a negative impact of 6% while favorable FX increased sales by 3%.
On the positive side of the Ledger total industrial sales increased 19% sequentially from the second quarter.
Industrial's operating profit for the third quarter was 24.4 million versus $34.8 million last year likely.
Like last quarter. The primary driver is lower sales volume offset in part by our cost mitigation efforts, which included the previously announced workforce related actions and the curtailing of discretionary spending.
Operating margin was 12.4%.
260 basis points.
I'll close my industrial discussion with quarterly organics, the orders and sales relative to last year.
Molding solutions organic orders and sales were down approximately 10% for.
For some motion control organic orders were down mid teens and sales down approximately 20%.
Engineered components organic orders were up 8% with sales down approximately 10%.
And automation organic orders were up high teens with sales up low single digits.
Moving to aerospace clearly the business remains under considerable pressure sales were 72 million down 49% from last year operate.
Operating profit was $6.8 million down approximately 80, 80%, reflecting the lower sales volume and partially offset by cost actions operating margin was 9.4% as compared to 23.2% a year ago.
On an adjusted basis, excluding 300000 in restructuring charges operating margin was 9.9%.
Between the volume impact on factory absorption and the unfavorable aftermarket mix the aerospace team did a nice job to protect profitability.
Aerospace OEM backlog ended the quarter at $534 million down 4% from June 2020, and we expect to ship approximately 45% of this backlog over the next 12 months.
Year to date cash provided by operating activities was $163 million, an increase of approximately 2 million over last year to date, driven by ongoing working capital improvements.
We continue to have good receivable collections and we'd be and we began to see reductions in inventory levels.
Year to date free cash flow was $133 million versus $124 million last year.
And year to date, Capex was $30 million down approximately $8 million from a year ago.
With respect to our balance sheet, our debt to EBITDA ratio as defined by our credit agreement was 2.8 times at quarter end up from 2.4 times at the end.
At the end of June the come.
The company is in full compliance with all covenants of our credit agreements and maintain sufficient liquidity to fund operations.
As we announced last week the company has amended on a temporary basis the debt limits allowed under our credit agreements for the next four quarters, our senior debt Covenant maximum our most restrictive covenant has increased from 3.25 times EBITDA as defined to 3.75 times.
Given the level of uncertainty in several several of our end markets, we believe that as a prudent risk mitigation action.
Our third quarter average diluted shares outstanding was 50.9 million shares our share repurchase activity remains suspended.
For the fourth quarter, we expect organic sales will be lower than last year by approximately 20%.
Though up approximately 5% sequentially from the third quarter operating margin is forecasted to be approximately 11%. While adjusted earnings per share are anticipated to be in the range of 27 cents to 35 cents.
Forecasted 2020, Capex is approximately $40 million a bit lower than our prior view.
So to close while significant challenges remain in the current business environment. We're focused on managing those items that we can control whether they be growth opportunities cost actions or cash management all.
All things considered our financial performance demonstrates that focus.
As Patrick mentioned the sentiment is that were starting to turn the corner on a recovery and.
And while much work still to be done our efforts on positioning the company to best leverage and improving environment continues.
Operator, we'll now open the call to questions.
At this time, if you'd like to ask a question. Please press Star then the number one on your telephone keypad, if youd like to withdraw your question press the pound key.
First question comes from Christopher Glynn with Oppenheimer.
Hi, Thanks, Good morning, guys morning, Chris Good morning.
Yes, just.
Curious so I'd say.
You mentioned automation orders up high teens, if I heard you correctly.
I take that to kind of reflect Jim dramatic first and foremost so curious if.
That's a concentrated kind of bulk water dynamic or you're seeing kind of a ground swell in the robotics automation secular themes kinda reasserting.
First Chris you are correct that is dramatic and it is a overall growth across a range of different customers and product lines. So it's been a nice positive up tick in terms of the quarter and also on a year over year basis.
Up a slot in Lowe's their sales were up low single digits orders were up in the high teens.
Great and.
A question about the taxes I think the fourth quarter implies a similar kind of guilty impacts may be in the fortys for the tax rate and then you mentioned high Twentys, but next year is the bridge just aero aftermarket moving off the bottoms such that if aftermarket stays like the second half.
20 does that actually puts puts your tax rate.
Much higher just want to understand this kind.
Thousands of basis point swings a little bit better yeah, no. It's a.
To your point, Chris it's pretty significant change. So yes. It is it is driven by lower income on those lower tax jurisdictions, but I would I would also want to identify as I made my remarks, just the application of guilty given our dynamic globally. It is negatively impacting us we went into the year thinking guilty was going to be about two.
2 million dollar headwind in our tax rate, we're now looking at roughly $5 million. So how that plays itself out into 2021 were going through the planning period now, but we as I mentioned, we would expect our our effective tax rate for 2021 to be in this 27 to.
To 29%.
Okay and last one from me last quarter for both ahead.
Really strong orders I believe just wondering.
If that backlog conversion is.
How that's going to that hit home Threeq, you or is it a little more fourth quarter and beyond where for both.
Backlog in orders take hold and sales.
Yeah football is a little bit longer lead time because of the mold side of the equation. So a typical mould order when its received could take from three to.
Three to six months to ship so a minimal.
Minimal impact in the media quarter, it's more Dave the following quarters, Chris where the impact.
Order will convert to an actual sales.
Great. Thank you.
Thanks, Chris Thanks.
Next question comes from Pete Skibitski with Alembic Global.
Hey, good morning, guys thought that was a nice quarter all things considered.
Thank you thank you Pete.
Hey, Patrick you're up people are talking about a cold spike again over there and you guys. Obviously have a big presence. So I'm just wondering to what degree does that make you nervous about your expectation of sequential improvement in the industrial segment in particular well.
Well I'd say, Pete the COVID-19 situation.
Since all nervous at the high level of what our teams have done is an outstanding job in terms of anticipating different scenarios and so what we're doing at the moment is ensuring that the businesses are taken every precaution necessary that is within our control to ensure.
For continued operations without any disruptions of course, so could be.
A wildcard to that in terms of a governmental mandate.
Of one form of another but in general you know we.
We saw nice recovery across our industrial markets, we saw a nice recovery within our AR.
Positive uptick in terms of our personal care and packaging into quarter, all of which are European.
Centric.
And so in general.
I think theres always going to be a concern with the unknown and the uncertainty of the current pandemic, but I want to highlight the great job. Our team has been doing with regards to manage and control and everything within there.
Within their control. We're also doing scenario planning just in the event that.
If a particular business was to be impacted for any reason how we.
Leverage our overall global footprint. So we're doing scenario planning in that respect to to try and minimize any potential.
Impact.
In the event of a an outbreak of.
Significant proportion.
Okay, but generally you just see industrial strength manufacturing wise. Despite the fact that you now.
We could have that uptick in cases over there. It's just it's not holding back the markets in other words I don't see if you look at the PMI is even for Europe up.
At 53 for the quarter I think sentiment in general continues to be positive.
You know, we're seeing that flow through in our results and in the third quarter Thats great is it two or I mean, you guys are.
Quarter's deep into this downturn, you're talking about already having hit the trough in the second quarter.
Is there a reason to be excited about 21.
Probably have a tough call.
Tough quarter in the first quarter with aerospace, but it seems like you're setting up for some pretty easy comps for most of the year next year and already seeing some green shoots so is that.
Is it fair to say it could be a pretty nice year next year given all that.
I think as you said first quarter will be under pressure because we will have.
The the comps compared to the prior year and we had is we had within aerospace we had our strongest first quarter.
Through the cycle in the first quarter of 2020, so that clearly sets up a tough set of comps in the first quarter as we move on through the year, what we remain.
Encouraged by is that.
Passenger traffic was it's not anywhere.
Anywhere close to what we would all want it is showing consistent.
Consistent signs of improvement, albeit a pause there in September September.
At the same time, you know for those that have done a little travel you will see that the airports are picking back up in terms of traffic.
With that said as we move into 2021, we remain optimistic that generally our industrial businesses will continue to improve as the year progresses as.
As far as our medical end markets. It has just been consistently strong throughout the pandemic and in fact, I would say somewhat benefiting with the fact that our capabilities have solicited more inbound inquiries from our customers as to how we might help them.
And ramping to the needs of the.
The medical community as this pandemic.
Continues to unfold so all in industrial we're looking at.
Positively to 2021 aerospace is going to be a slower recovery.
All dependent on.
The OEM side, the rate of which production settles on the aftermarket sales.
Totally dependent on the amount of passenger traffic and people feel uncomfortable getting back on planes.
Understood. Thanks for the color guys. Thank.
Thank you and thanks. Thanks.
Next question comes from Michael Ciarmoli with <unk> Securities.
Hey, good morning, guys. Thanks for taking the questions.
Nice results here given the morning issues.
Morning.
Hey, Chris just on.
Fourth quarter margins are forecasted to be down first this quarter anything.
Specific there as to why we wouldn't get any shouldn't expect any margin lift if we're going to get to the sequential increase in sales.
Yes.
Mainly driven by just our view of aftermarket.
We are looking at sequential yes, it's mainly aftermarket so the higher margin piece of the aftermarket but sequentially. We are seeing growth we expect growth in.
In each of our businesses the wildcard for US is how does the aftermarket.
Reflect in Q4 relative to Q3.
So thats why were a little bit on the lower side, but also I would I would put it more flattish in terms of the aftermarket also.
Also it's playing out in sequential improvement for us in aerospace is the OEM business is expected to have a nice small increase which is lower margin so ending ending this quarter at roughly 10% for arrow and then looking at roughly 9% for Q4 is what were is what we're thinking at this stage.
Got it.
Good segue I guess, just looking at your slide deck, you talk about the variables for Fourq, you kind of call out deepening aerospace aftermarket declined.
Can you give us any any color as to what you are seeing from engine shop visits inductions orders I mean or is there just I know you said you expect flat revenues.
In aftermarket for next quarter, but maybe just other color you are seeing from.
Your big engine.
Customers and relationship there that gives you sort of more reason for concern that you could see that that aftermarket decline.
Well I think.
Like what we saw was the decline in terms of the aftermarket from Q2 to Q3. So was we reference that we saw the revenue trough for aerospace in Q2.
It actually is comprised of a.
An increase in terms of Oems from Q2 to Q3, but a decline of the aftermarket.
So if you look at six.
Sequentially.
Our OEM business from Q2 to Q3 was up 17% was the aftermarket was down 22.
And so they did trough as we referred to in total revenue was Q2.
But you know we did hit a lower point in aftermarket in Q3, so with that we're looking at Q3 as you know.
Being the bottom.
You know with respect to aftermarket and then the question is how long we will move.
Move forward at this level, we don't necessarily expect it to.
Deteriorate.
The question is how fast might has improved so.
So from the businesses and from the team what were hearing relative to shop visit rates is that you know the narrow body engines are really did drive or at the moment and have we seen a significant fall off in wide body engine inductions.
The the volume that we are assuming scene is been generated from narrow body and particularly narrow body in Asia, particularly China. So the.
Overhaul shops in China continue to be.
So the the engine at the moment that's pushing.
Volume true back into our shops.
Got it that's helpful. And then just just one more on the OEM, what's sort of driving that that sequential uptick we're seeing other suppliers talk about still ongoing levels of de stocking.
Production rate cuts still seemingly making their way through the system certainly some of the wide bodies and I don't know where the Max rate is for you guys, but what's driving what did you see drove that that sequential pickup in OEM any specific platforms ranking points.
I think I wouldn't necessarily point to any particular platform per se as much as I would highlight that a tremendous amount of uncertainty in Q2, a tremendous amount of de bookings.
A significant amount of disruption in terms of what was accepted involved was declined.
Relative to shipments from our dock to the customer so well for us as we move in from Q3 to Q4, we have a nice are you know we have feel we have a nice or line of sight to what the customer is willing to accept.
Your commentary around de stocking and were not immune to it. So there is that aspects of uncertainty even as we move into 2021 as to how much.
While we have within our schedules will actually flow and be allowed to flow direct.
The customer versus the.
The fact that there may be some lumpiness from quarter to quarter. If they have you know appetite.
A particular amount of inventory that they're looking to bleed down and so they're manage in that entire supply chain right now and I do think it's going to create some lumpiness into 21, but nonetheless.
The gradual improvement as it pertains to.
The OEM side of the business.
Got it that's good color. Thanks, a lot guys I'll jump back. Thank you. Thanks, Mike.
Next question comes from Myles Walton with DBS.
Hi, good morning, Thanks, so much for taking the question maybe I'll just.
Put another one in Mike's questions there so.
Sequential decline in aftermarket I think was about 5 million sequential decline and.
EBIT from Aerospace was also 5 million so I'm just curious.
Pretty pretty steep decline was there a shift in mix of your aftermarket as well away from RSP sequentially and maybe that explains some of that.
That's fair what it was is that in the in the quarter.
[music].
What we saw was the OEM side of the business was down 44% aftermarket was down 58%.
Incited that 58% and MRO was down 50.
And our recipes were down 69% got it okay. So the mix is the driver with the more profitable spares being down.
Affected more than MRO.
Yes, Okay that makes sense and then you.
You talked about OEM sequentially growing do you also expect the OEM backlog from here to start to.
Tick higher and I guess, the Airbus News this morning about potentially moving to freight 47 in the second half of next year is that something that's already started to show higher signals to you from what the current pull rate is on that platform. It.
It has I don't know that we are sitting here is seen any impact to our backlog in terms of you know that that positive news I think it definitely is good news.
From our standpoint at the same time as.
As we move forward I think the earlier comment around de stocking and days supply chain clear in what has been built up is going to have a direct influence on backlog and so.
Whether we've hit the bottom in terms about backlog I think is unclear.
Unclear, but at the same time.
Things consistently start to improve I think we'll start to see a build as we move into 2021.
Okay and in terms of that $700 million.
Contracts that you had announced part of its obviously extension on existing work part of its incremental is airway Patrick free to size how much of that is incremental share gain on work effort as opposed to just an extension of time on what you're currently doing yes.
Yes, I think the easy way to think about it is it's the 700 million was approximately half and half of what was extension and incremental share on existing work and that which was new incremental work and new products that we secured so.
Within the extent within the.
Existing work the extension of that the 50%. It was X extended was approximately three quarters extended existing contracts and the other two.
25% was incremental share that we secured on existing more okay.
Okay, Great and one last one you mentioned.
TV driving some of the automotive molding solutions revenue or order rates.
I actually don't know, what's the mix of that business in terms of platforms that delivers to from the navy or hybrid versus ICEE, and perhaps had been trending over the last year or two.
Well, what we looked at relative to electric vehicles come.
Conversions is that all in all overall is a beneficial.
You know aspect of the industry for our automotive molding side of the business.
Because again, what the electric vehicles are bringing his new model changes new configurations, new in new launches all of which drives demand for our hot runner business that said I would say electric vehicle is a early in its.
Impact on our business, it's something that we we continue to look positively on because we think it will continue to drive more demand for our automotive hot runner.
Systems, Yes, I would say we're in the early stages. So it's a small percentage at this juncture.
Okay, and sorry, one last one which is for Chris on working capital.
It looks like more of a neutral this quarter should we think about it as neutral from here on out into next year.
Yeah, it'll it'll depend on how we're doing a good job in terms of the receivable. So most of the reduction that we've seen in working capital is just basically collecting what we previously sold in terms of those higher higher sales at the beginning of the year, specifically the first quarter.
So we feel good about keeping past dues down our receivables are opportunity and where we were spending all of the focus is on the inventory side, what can we achieve both in aerospace and industrial on inventory reduction we still feel there is an opportunity primarily in aerospace given now that we've got stability in the order pattern in terms.
The the actions that you know the Airbus and Boeing have made relative to their production rates.
And then you know it.
Then we also are very conscious that if industrial continues its sequential improvements we don't want to be caught not having enough. So so I want to say our opportunity isn't inventory thats, where the focus is but it's not without being able to deliver if if and when and and we're seeing it in the industrial side and improve.
And payables, we continue to do a good job trying to.
Try to we just work the terms with our supply base given this given this downturn. So we want them to participate in the pain. If you will a little bit on helping us from a cash flow point of view, but overall very very strong cash flow performance and we continue to drive it.
Okay. Thanks, guys. Thank you. Thank you.
Next question comes from Matt Summerville with da Davidson.
Thank you a couple of questions first on the molding solutions business I think in your prepared remarks, you mentioned orders and sales down 10% I was hoping maybe to get a little bit more end market granularity around those numbers a little more specificity in terms of what you actually saw in medical how much that business was up what you saw in Peru.
Anil care packaging auto et cetera. Please.
Yes, so within molding solutions.
As we mentioned orders on sales were down approximately 10% on a year over year basis within that molding solutions as you know, it's the multi cavity and the.
Automotive hot runners business or to to larger pieces within.
Within the mall.
The mold side of things what we've seen is continued.
Strength within the medical end market, and then improvement as I said year over year and for the second quarter as it pertains to personal care and packaging.
The.
With respect to the mall business, though I will highlight that it is and I think we've mentioned this previously it is a little lumpy. So what happens is if we're expecting a larger order and it slips by a few days from one quarter to the other it can have a.
And it.
Significant percentage wise.
Impact in terms of the comps that.
That said, we continue to see.
We remain very bullish on it was a bit a lumpiness in orders in.
Q3 pertaining to the medical side in other words timing wise, we saw.
A lot of activity in quoting add didnt get the same conversion, we would have expected in the quarter on the malls on the medical side, but again remain very bullish on the in terms of the business overall just to put it in context the book to Bill on the automotive Hot runners was.
Just under 1.2 times was on the.
Multi cavity side, we saw us down.
Down asset sales.
Slightly point, just proximately 0.8 times.
And then Patrick could you also maybe provide just on the automotive hot runner.
Yes.
Can you provide a little geographic color in terms of what you're seeing sequentially in year over year in China versus Europe versus North America. Please yeah.
Yeah, its strength that we're seeing at the moment is in North America predominantly with.
With the.
The.
Again, I think it's a number of programs that we've been working for a while that a dock costs in a you know at the firm.
Deferral type situation that are now releasing within Europe. It has been pretty consistent potentially flat and then in.
In China in particular.
The automotive industry in general continues to.
Show.
Strength in China, with some fluctuations, but for our business. It's held its own in totality as I said, we were flat.
You know sequentially, but.
But orders saw that.
Southern saw a nice uptick in terms of orders.
And which was came from all three regions in the quarter.
When you look globally at 21 in terms of new model launches are major model Redesigns, what's sort of.
Step function if any change in activity do you anticipate.
We'd expect to see continued improvement as we March into 2021.
The the model change side of the equation has gotten cost over the last couple of years in term caught in this.
Caught in this whole mix of what was initially the tyra floor that was going on and yet thats all fade into the background with the onset of the pandemic.
That said you know what it both factors contributed to was a deferral of the launch of projects due to the uncertainty that exists that.
We remain positive that that is going to.
Is going to continue to break free as we go into 2021, so I don't see a.
Significant step up as it you know, but more a gradual improvement as we see those projects continuing to release and.
You know, we feel we're well positioned.
Relative to the.
Thanks, Patrick.
Thank you.
Next question comes from Tim bullish with Baird.
Hey, guys good morning.
Okay.
On the four side of the business I've got two questions just the first on on the four side of the business is there anything.
Straining that business at all I guess I would have thought maybe you would have seen a little bit a little stronger orders kind of exiting the quarter just given the PMI uptake. So just wondering if there is any sort of kind of inventory, that's still being stocks within that business.
Can can you read which business on the.
On the force business.
For some motions okay. Okay for some motion control business, sorry, Tim we're looking at each other trying to interpret what you. What you just said [laughter] forced motion control got it no issue, yes. So on the fourth of motion control side of the business as you know that business is approximately 60% sheet metal form.
In which is the tool and die and then 40% General industrial what we saw was a a nice.
Nice.
Sequential improvement in terms of the general industrial and a little bit more subdued in terms of the sheet metal forming.
So in.
In terms of you know well what we highlighted was that orders on a year over year basis, we're still impacted being down mid teens.
Mid teens, while sales on a.
On a year over year basis were down approximately 20%.
Well, we're we're more focused on now is obviously the sequential improvement of what we're seeing in the business and there you know was.
While we saw a modest uptick in terms of sheet metal, forming we saw a more positive uptick in terms of general industrial again in alignment with what we are seeing flowing through in the PMI is.
Okay. Okay. That's helpful and then there's the other quick.
The other question I had was just on the restructuring benefits as we think.
As we think of kind of 21.
How would you kind of frame that net restructuring benefits kind of thinking that some of the temporary cost measures might also come back.
Sure So Tim as we mentioned last quarter of the restructuring charge. The 80 million that we actually took in the second quarter. We expect it to 30 million in cost savings on an annualized basis, and we've talked about the timing of that being roughly $4 million to $6 million in the second half of the year and we are absolutely on track to achieve that.
We were actually close to almost $5 million for the quarter. Both at a b in terms of the combination of VI industrial as well as aerospace contributing so that benefit is going to continue into the fourth quarter. So we're on track for those restructuring savings.
Relative to things that actions, we've taken furloughs salary reductions et cetera that will slowly change overtime as as our business recovers, we'll continue to take those short term.
Necessary actions, although although I'll call painful in terms of having to go through them. We're doing what we can to preserve margin in both of our in both of our segments, but we are on the message to you is really we are on track to continue to experience the savings as a result of that restructuring and we're on track to achieve.
What we said last quarter.
Great.
Thanks for the time good luck on the rest of your guys.
Thank you thanks, Tim.
And at this time I will turn the call over to Mr. Pitts.
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 February with our fourth quarter and full year 2020 earnings call.
Operator, we will now conclude today's call.
This concludes today's conference call you may now disconnect.
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