Q1 2021 Barnes Group Inc Earnings Call
One on your telephone.
And require any further assistance, please press star zero and.
And I'd like to hand, the conference over to your Speaker today, Bill Pitts Director of Investor Relations. Please go ahead. Thank you Megan.
Good morning, everyone and thank you for joining us for the first quarter 'twenty to 'twenty one earnings call.
With me are Barnes group's president and Chief Executive Officer, Patrick Dempsey.
And Vice President controller, and interim Chief Financial Officer Marian Acker.
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 <unk> 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 our investors.
These measures have been reconciled to the related GAAP measures in accordance with SEC 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. Maybe forward looking statements as defined in the private Securities Litigation Reform Act of $19 95.
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 SEC.
These filings are available through the Investor Relations section of our corporate website at <unk> Dot com.
Let me now turn the call over to Patrick for his opening remarks, then Marion will provide a review of our financial results and details of our updated outlook for 2021.
After that we'll open up the call for questions Patrick.
Thank you Bill and good morning, everyone.
Barnes group delivered a very good quarter to begin 2021 with the recovery we had anticipated to occur later in the year, starting a little earlier than expected.
Strong order intake continuing sequential revenue growth now for the third consecutive quarter and.
And better than expected earnings performance add confidence to our view that the second half of the year will show meaningful recovery progress.
For the first quarter organic sales were down 10% compared to a year ago as a result of lower volumes at aerospace how.
However, our industrial segment generated high single digit organic growth, which was better than our February expectation given solid orders and sales in March.
While we previously envision business improving as the year progressed now with the stronger momentum exiting the first quarter, we have increased our outlook for the year.
Earnings per share were <unk> 38 down 46% from last years adjusted <unk> 71.
So firmly exceeding the high end of our February expectation.
Moving now to a discussion of and market dynamics, beginning with industrial.
Our industrial segment had a strong first quarter with each of our SP use generating year over year organic sales and revenue growth.
For this segment orders were up 25% organically with a book to Bill of approximately one one times.
Sequential orders were up 7% further exemplifying the momentum we're seeing.
On a macro level manufacturing PMI and the U S and eurozone remains particularly robust.
<unk>, while a bit softer remains and expansion territory.
And despite the semiconductor issue that's impacting automotive sales.
Chess still predicts 2021 global production to be up 12% over last year.
Within the segment, our molding solutions business had strong orders across all brands up 35% organically.
Our larger end markets automotive medical and packaging and personal care.
<unk> saw an excess of 25% orders growth.
And well above that.
Sequentially orders improved high single digits, marking the fourth quarter and a row of sequential growth.
Organic sales were up mid single digits, while sequential sales were up low single digits.
Book to Bill was approximately one one times.
Backlog, which is predominantly our longer cycle mold systems grew by approximately 25% year over year and low double digits from the fourth quarter was 2020.
There is definitely a lot to like about the activity of molding solutions.
And the business has been recently, adding more talent to the sales and marketing team.
And a clear focus on driving long term growth and margin expansion.
While near term investments and such talent, coupled with our innovation and digital initiatives that I discussed last quarter will hinder short term margins, we expect long term performance to benefit.
Our 2021 expectation for molding solutions has improved as we now forecast organic sales growth to be in the low teens.
Moving to force and motion control.
Organic orders were up low double digits with organic sales up high single digits.
C V is cheap metal, forming and market is seeing the benefit of its automotive customers pushed to electric and hybrid vehicles.
Year over year orders are up across each of our primary geographic markets North America, Europe and China.
Likewise, we're seeing good demand and our general industrial end markets, particularly heavy duty truck and industrial equipment.
Our FMC sales growth expectation has likewise increased.
As we now anticipate organic sales to be up and the mid teens for 2021.
Engineered components generated organic orders growth in excess of 25% and organic revenue growth and the low double digits.
Sequentially, we saw modest growth and orders and sales constrained somewhat by the automotive semiconductor concern.
As a result of this issue we estimate a first quarter impact of approximately $1 million with the second quarter impact likely to be in the range of $4 million to $5 million before recovering in the second half.
General industrial markets remain very healthy.
Our 2021 outlook has increased for this business as well with organic sales now forecast to be up mid teens.
Moving to automation.
We continue to see sequential performance and both orders and sales.
Low teens and high single digits, respectively.
On a year over year basis organic sales were up high single digits and organic revenues up mid teens.
A very good quarter of growth and execution from the automation team.
Demand for our end of arm tooling solutions, and automotive medical and pharma and industrial automation.
Applications remained good.
As has been the trend now for a few quarters.
We now expect 2021 to deliver total growth of 20% with organic growth in the mid teens again better than our February expectation.
Overall for the industrial segment, we see 2021 on organic growth and the mid teens with operating margins of approximately 13%.
Moving now to aerospace.
Our aerospace business experience.
<unk> and impacts from the pandemic as OEM sales were down 32% from the prior year and aftermarket sales were down 48% non.
Not surprising as commercial aviation remains significantly disrupted.
However, we still believe that the bottom is behind us and that we're slowly recovering.
Case in point for the third quarter and the role we have seen total aerospace sequential sales improve.
And the first quarter the sequential improvement was driven by our MRO business.
Our expectations for the aerospace industry overall have not changed.
We continue to believe that OEM production levels for narrow bodies will show modest improvement.
While wide bodies will remain pressured.
We did see a second consecutive quarter of good orders and OEM book to Bill was approximately one five times.
And the aftermarket industry challenges of lower aircraft utilization weakened airline profitability and government imposed travel restrictions all remain.
Recovery will depend on the pace and effectiveness of vaccinations.
Domestic travel activity will precede any improvement and international travel.
We continue to expect aftermarket activity to gradually improve beginning in the second half of 2021.
In the meantime, the aerospace team continues to execute on several items to best position our business for recovery.
For example, and the first few months of the year, we completed and extension of our Westchester, Ohio facility and expanding our capabilities.
Received supplier recognitions from Boeing and Rolls Royce.
And announced a significant b two bomber exhaust system contract award from Northrop Grumman.
Our 2021 expectation as for OEM sales to be up mid single digits over 2020, and spare parts down and the mid teens, both unchanged from our prior view.
Our forecast for MRO is slightly improved now down low single digits versus our prior view of being down mid single digits.
Segment operating margin is on and is anticipated to be approximately 13%.
Before concluding.
As you may have seen with yesterday's press release I am happy to announce the appointment of Julie strike to the position of senior Vice President and Chief Financial Officer.
Julie is a proven leader with significant experience, leading the financial operations of global businesses.
Her extensive background and proven strategic leadership, and corporate finance financial planning and analysis mergers and acquisitions and risk management will help us advance our long term profitable growth strategy.
At the same time I want to acknowledge Marion for her tremendous leadership during this transition period.
In closing we're off to a good start in 2021.
<unk> and macroeconomic indicators and our solid orders and generation provide us with a high degree of confidence and our improved outlook for the year.
However, that's not to say there are challenges that remain so our teams are proactively implementing risk mitigation plans.
As we move forward, we'll continue to add the necessary talent and skill sets to enable us to drive growth and improve profitability.
Those efforts will be supported by our organic investments and innovation digitalization and strategic marketing.
Our focus remains squarely on controlling our own destiny and positioning the company to prosper as global markets recover.
Now, let me turn the call over to Marion for a discussion on the financial details.
Thank you Patrick and good morning, everyone let.
Let me begin with highlights from our first quarter results on slide four of our supplement.
First quarter sales were $302 million down 9% from the prior year period with organic sales declining, 10% and ongoing impacts from the pandemic offset our aerospace and markets.
The divested Seeger business had a negative impact of 2% on sales.
While FX had a positive impact of 3%.
Operating income was $32 4 million versus $49 3 million a year ago.
Compared to last year's adjusted operating income and $51 7 million. The first quarter was down 37% and operating margin of 10, 7% decreased 490 bps from last year's adjusted 15, 6%.
It's important to keep in mind that this result was not unexpected the first quarter of last year on aerospace aftermarket performance saw record aerospace aftermarket performance, which generated very strong margins.
Interest expense was $3 9 million a decrease of 400000 as a result of lower average borrowings offset in part by a higher average interest rates.
For the quarter, our effective tax rate was 28, 1% lower than last year's 31, 5% tax rate the.
The decrease is largely due to the absence of tax expense related to the completed sale of the Seeger business and a reduction of the statutory tax rate at one of our international operations, both of which occurred in the first quarter of 2020.
Offsetting these items is the impact of the global intangible low taxed income tax or guilty tax on foreign earnings and the first quarter of 2021.
Net income was $19 4 million or <unk> 38 per diluted share compared to $29 7 million on 58 per diluted share a year ago.
And on an adjusted basis net income per share was down 46% from last year's <unk> 71.
Last year's first quarter adjusted net income per diluted share, excluding <unk> 13, a secret divestiture adjustments.
Turning to our segment performance beginning with industrial.
First quarter sales were $220 million up 10% from a year ago organic sales increased 8%.
<unk> sales from the secret divestiture had a negative impact on 3%, while favorable FX, primarily driven by the euro to U S. Dollar exchange increased sales by 5%.
Relative to the fourth quarter of 2020 sequential sales were up 5%. So good news on the revenue front with three sequential quarters of improvement and a positive year over year result.
Industrials operating profit for the first quarter was $21 3 million versus $17 9 million and the prior year period.
Operating profit increased from the contribution of higher volumes and productivity improvements.
These were offset in part by higher personnel costs, including incentive compensation.
Last year, we saw a reduction in the quarter for incentive comp. This year sees an uptick based on performance expectations for 2021.
And on an adjusted basis, which excludes $2 4 million of secret divestiture adjustments last year first quarter operating income was up 5% from last year's $23 million.
Compared to a year ago adjusted operating margin was down 50 bps from 10, 2% one.
And one of the contributing factors is the additional investments being borne by the industrial segment as Patrick mentioned these investments squarely put a focus on our long term growth strategy.
While our end markets and businesses within industrial and showing are showing signs of a solid recovery. There are some supply chain concerns related to raw material availability and inflation as well as increased freight costs.
With respect to raw materials, we've seen instances, where certain customers have extended the time horizons that their order commitments.
Looking to ensure availability of supply and acknowledging the longer lead times required for some materials.
And the first quarter, we experienced approximately $1 million of combined freight and material inflation in the industrial segment for the full year, we expect and impact of about $6 million, which is built into our outlook.
Our teams are working these issues looking to decrease the risk exposure and to take actions to offset the inflation where appropriate.
Moving to aerospace sales were $82 million for the first quarter down 38% from last year operating profit of $11 1 million was down 65%, primarily driven by the lower sales volume opt.
Operating margin was 13, 6% versus a strong 23, 9% a year ago, you may recall last year's margin with a high watermark driven by the contributions of the aftermarket aftermarket.
Aerospace OEM backlog ended the quarter at $600 million up 5% from the fourth quarter and we expect to ship 45% of this backlog over the next 12 months.
First quarter cash provided by operating activities was $36 million, a decrease of $12 million versus the year ago free.
And free cash flow was $28 million versus $35 million last year and capital expenditures of $8 million were down about $4 million from a year ago.
Regarding the balance sheet, our debt to EBITDA ratio as defined by our credit agreement was three one times at quarter and essentially flat to the prior quarter result.
The company is in full compliance with all covenants of our credit agreements and maintains adequate liquidity to fund operations.
While we anticipated the leverage ratio to peak with our first quarter 2021 result, we performed better than expected with a stronger financial results of the first quarter.
We see leverage further declining from this point absent any acquisition activity.
Our first quarter average diluted shares outstanding was 51 million shares we now expect to resume some share repurchase activity to offset equity compensation dilution.
With respect to incremental share repurchases that will depend on a number of factors related to capital deployment and growth opportunities that are available to us.
Turning to slide five of our supplement.
Let's discuss our updated financial outlook for 2021.
And we now expect organic sales to be up 10% to 12% for the year and increase from our prior view of up 6% to 8% driven by stronger industrial growth.
FX is expected to have at 2% and favorable impact on sales, while divested revenue divested Seeger revenues will have a small negative impact.
Operating margin is forecasted to be approximately 13%.
At this point, we're not anticipating significant residual restructuring charges to come through so no forecasted adjustments to 2021 net income.
EPS is expected to be and the range of $1 78 to $1 98 up 9% to 21% from 2000 Twenty's adjusted earnings of $1 64.
And that expectation is an increase from our prior view of $1 65 to $1 90.
And we expect the first half of the year to contribute approximately 43% of 2020 one's earnings.
A few other outlook items interest expense is anticipated to be approximately $16 million. While other expense is forecasted at $8 million, both a bit better than our prior view.
We now expect capex to be approximately 50.
$50 million down $5 million.
Average diluted shares of $51 million and cash conversion of over 100% are consistent with our prior outlook.
And lastly, we forecast our full year tax rate of approximately 30%. However, we continue to analyze potential tax planning strategies to manage and reduce our overall tax cost.
To close a very good start to 2021 supported by healthy orders for both segments with our focus on driving growth across the organization, we will continue to invest and the business through capital expenditures and the funding of key strategic initiatives.
And we believe that these investments will help us accelerate the recovery and our financial performance.
Leverage remains very manageable and should improve from this point so the balance sheet can accommodate our approach.
Operator, we will now open the call for questions.
Certainly at this time I would like to take any questions. You may have a question. Please press star one on your telephone keypad.
Your first question is from Christopher Glynn with Oppenheimer. Your line is open.
Thank you good morning, and want to current growth.
Okay.
A little deleverage industrial margins sequentially, probably restoration.
Incentive comp I guess, but.
Aerospace had almost two ex sequential.
Leverage just curious with the kind of moving pieces sequentially are and the aerospace margin.
Chris.
Between the two businesses as you saw we had.
On continue and nice improvement.
Sequentially, it was a little bit more subdued and the arrow and.
Nice high single digit growth in industrial and the margin side of the equation.
Effectively both businesses have taken significant actions and the last year with a view to manage in the.
And the costs of the business at the same time, we've continued to make very key strategic investments with a view to the longer term and a key.
We are focused on returning to organic growth so with respect to industrial it has taken on a little bit more of the costs of the innovation efforts that we are experiencing.
And as well as.
Has beefed up.
<unk>.
Go to market strategy with a view to adding additional talent to the sales and marketing organization with that on the aerospace side.
The team has done an outstanding job I would say in terms of managing costs very judiciously throughout the last year and now as they move forward.
They are going to continue to be very disciplined and that approach. There is a slight shift also.
With respect to.
Allocations from a total sales perspective, and so with one segment down and the other up.
There was a small shift there as well.
Okay, Thanks for that and.
Nice job holding leverages, the first quarter rolls off and you hinted at capital flexibility curious what kind of multiples you are seeing and entertaining and the acquisition pipeline.
Well one thing we haven't done for the whole year of the pandemic has had.
As we have not taken our eye off the ball relative to M&A and so we've been very aggressively continuing to.
And.
And look at opportunities continuing to be diligent in terms of our research and yet I would say that and some of the end markets. They have gotten a little frothy in terms of <unk>.
Evaluations and.
And so we've.
And we've said disciplined in terms of.
And our position on expectations for returns for any potential acquisition, we might do the team is.
One thing that has changed I think even more significantly and the last year versus the enthusiasm of each one of the businesses too.
Become even more aggressive if you like in terms of and looking at opportunities and their end markets. We have made significant investments over the last year in terms of our organic opportunities and we announced as an example, the launch of our vacuum technology, our molding solutions.
<unk> business right now has expanded significantly and to a new sector of the medical market and.
And.
Those and so our focus continues to be organic growth and the short term, but M&A.
And Keith.
Front and center, just watch and carefully in terms of.
The dynamics of that market.
Thanks, Patrick.
Chris.
Your next question is from Pete COVID-19 with.
Your line is open hey.
Good morning, Patrick and Marion and Bill and nice quarter guys. Thanks, Pete and thank you.
Hey, just a follow up to Chris's question on on the margin and particularly the aerospace margin. So it sounds like Youre, saying cost takeout benefited the first quarter and aerospace and maybe some corporate allocation shift.
The guidance implies youre going to kind of be flat to down the balance of the year margin wise on aerospace so is there.
I would say mixed shift will be better for you. The rest of the year, but is there something I'm missing as to why it would be kind of flat to down the balance of the year.
No I think and.
In general.
Aerospace team are continuing to look at every opportunity to expand margins are.
Our guidance at 13% for aerospace could.
Could shift significantly dependent on the recovery of aftermarket.
As indicated we do expect that as vaccinations sales.
Hold and passenger traffic improves that aftermarket will be the first to benefit.
That said we are.
And our.
Probably prudently being a little conservative with respect to the rate of which the aftermarket come back comes back is is uncertain, but as you know aftermarket is a big driver of profitability and to the aerospace business.
Whilst at the same time.
Where.
Optimistic that we have a good line of sight to the OEM side of the business for the full year because the orders there have started to stabilize and as.
As you saw we just.
<unk> announced a new win with respect to the.
The defense side of our business with the B two bomber from Northrop Grumman. So team is doing a really nice job.
We're guiding to the 13% in terms of margin but.
Dependent on how the year progresses.
Be upside there, but I think we're prudent and while we're guiding towards.
Okay and I appreciate the color and then let me let me ask a top level question about Europe I feel like maybe a lot of people have been worried about your presence in Europe with industrial because of COVID-19 seems to be kind of lingering over there.
So are you guys just not experiencing really any work for issues in Europe with regard to COVID-19 or any.
Any other kind of COVID-19 related manufacturing delays or customer issues.
Maybe I guess better than maybe.
People might think.
But it's a great point paid and what I would highlight is that the team in Europe, particularly and across all of Barnes group right from the onset of this pandemic first and foremost while we put on at the sensor was top priority the safety of our employees and.
And I think that discipline has remained throughout so as you know and we all know Europe has had its fair share of challenges no different and the rest of the world, but the teams we've remained operational throughout the entire pandemic.
And our European operations, and nowhere has that been more.
Complementary then to Italy with the pressure that it came on there initially at the onset of the pandemic and the team there did a magnificent job managing and protecting our employees, while keeping the operations moving forward. We have Europe has been a little bit of a bright spot.
For us in the context of orders and Youll see our orders come in through <unk>.
Strong and the industrial business and Europe is being.
Our European businesses have been a big driver of that.
That's great and I appreciate it last one from me.
I think I might have asked you. This on the last call, but I continue to be kind of.
Kind of fascinated with.
The downturn on the historic downturn and aerospace has gone through and I think you'll continue to see business models kind of disrupted or at least alternate and a lot of different cases.
And whether it be OEM or particularly aftermarket I think are you guys seeing any ability.
To really kind of step into good opportunities there to gain share because of the disruptions that we've seen.
And as it's still too early or just I'm just.
And I was wondering if I can give some color on how youre seeing the industry and and the opportunities out there post downturn.
Another great point, and I would say that one thing I give our aerospace team credit for is that throughout this pandemic on this.
Brutal as it has been in terms of a downturn on the industry. Our team has not sat on their hands. They have actually looked at it from a really proactive perspective with a view to looking for where those opportunities might be.
In terms of position and for the future. We just had a grand opening of an extension on our West Chester, Ohio facility, which is primarily aftermarket related.
On the expansion was connected to <unk>.
<unk> was.
And focused squarely on expanding our capabilities and being ready for the return of the industry.
The team is also as I mentioned day.
We had a great announcement of a $30 million plus order for.
On the B, two bomber, which is a.
And gain a think exemplifies the unique capabilities that the aerospace team have in terms of superplastic, forming hog farming cold forming on the fabrication business and.
So what theyre doing is picking their spots been very deliberate.
We are one position we took throughout this entire crisis was holger customers closer than ever because in a crisis, there will always be opportunity and so those dialogues continue daily and as we sit here today, we remain optimistic that we will come out.
<unk> and gain share and particular areas.
Okay. Thanks, so much guys.
Thank you Dave.
Your next question is from Matt Summerville with D. A Davidson your line is open.
Thanks, Kevin.
<unk> first on the molding solutions business can we maybe go a layer deeper can you delineate what you saw on the op runner side of the business versus the mold side in terms of organic revenue and orders on the quarter. Please.
So within molding solutions.
The organic.
Orders overall were.
35% and then as I look at the breakdown of that.
Software owners.
Again as split between both our mall business and our.
Automotive and markets and the mall business being primarily against personal care packaging and medical.
With respect to the I don't have exact breakdowns relative to malls versus hot runners, but I do.
I cannot indicate that.
You were into 'twenty, and we were into 25% plus range of organic orders against each of those end markets. I, just mentioned, which is a combination of molds and hot runners in terms of medical personal care and packaging automotive is predominantly hardware.
Yeah.
Got it and then can you maybe speak to the order cadence you experienced and industrial it sounded like March was markedly better than January and February can you maybe put a finer point on that.
Yes, we did see a nice.
A stronger March them I think we had anticipated and that's with that it's been a key.
Enabler to us on giving us confidence in terms of up and our guidance for the year.
The team has done and.
Two things are happening and I believe in terms of our and.
Industrial business and general one is that the team has taken a much stronger position in terms of its go to market strategy and then also of course markets a rebound and I'd like to think that obviously, we're benefiting from a stronger set of end markets, but more.
And importantly, I think our the efforts and the focus that has gone into the sales and marketing initiatives all of which have emanated from the enterprise system or enterprise system in terms of commercial excellence and so.
Steve mobile on the industrial side has been driving a very significant focus around.
Driving growth driving funnel creation driving.
Our penetration into certain markets and looking at adjacent markets to where we can expand our capabilities.
There is a multitude of factors, but in general.
And we entered into 2021 in January with some nice momentum after strong orders.
In industrial in Q4, and we've just built on that coming into Q1 with each.
Each month demonstrate and.
Further improvement with March being the strongest.
And then just lastly, and I think I may have missed it in the prepared remarks did you make a comment around what you see as the first half second half earnings sort of cadence or splits and the company. Please yes, we met and limited.
Reference to the fact that $43 57 split now between the first half and the second half.
In terms of EPS.
Great. Thank you Patrick.
You bet.
Your next question is from Michael ceremony, and with Great Securities. Your line is open.
Good morning. This is cheat osterlund on from my Thanks for taking my question.
Good morning on enrollment.
On raw material costs are there any specific materials you can call out that's driving the cost inflation and just in general to what extent are you able to pass raw material costs through and pricing.
Yes, it's an area that has been a key focus.
And for us in the first quarter and the and actually in 2020, we anticipated through the playbook that we we usually execute against in terms of any downturn.
And what it is that are going to be the first things to raise as issues and a.
Rebound and material phrase are always there front and center so.
The.
Material and particular W have seen.
A pressure on in terms of inflation has been steel.
And into some of our manufacturing facilities. There what we saw is twofold one is inflate.
Inflationary pressures, but secondly, then.
And expansion of lead times and so the teams are addressing that on both ends relative to your question about pass through them to our end customers I think that has been addressed very proactively by the team on a case by case basis, it's not by any means a 100% pass through.
But the teams are working every day with a view to wherever there's an opener and a particular contract on weather.
It's a po to Po and then.
It allows itself to greater flexibility.
Thanks, and then on the aerospace could you provide some color on what youre seeing from customers in the engine and aftermarket business.
And what are you seeing in terms of shop visits and our order activity and as demand and theyre trending any better than what you would expect that as of last quarter.
Well.
One the one area that's relative to our aerospace business.
A glimmer of hope relative to a continued improvement on.
Our sequential sales for aerospace was up 2%.
<unk>.
From quarter to quarter Q4 to Q1 within that 2%. The primary driver was MRO, which was up low double digits. So that's a positive and yet something that I would say has been somewhat sporadic. So it hasn't been linear and 90 ship and as a result.
We remain cautiously optimistic of course as I mentioned the driver will continue to be the.
And adoption rate of vaccinations.
I travelled myself this week and I will tell you that I was pleasantly surprised just from the volume is going through the airports and.
And so that again I think remains positive.
People are enthusiastic to get back traveling and so again yi.
Looking out to the second half of the year, we are optimistic that the aftermarket.
Take hold a little stronger recognize that our aftermarket business, particularly our spare parts and our CRP programs.
And our narrow body for the most part driven and so as activity picks up domestically most of that activity is coming off of narrow body aircraft, which in turn benefits our spares program on our repair programs.
Alright, Thanks, a lot that's all for me thank.
Thank you.
Your next question is from Myles Walton with UBS. Your line is open.
Good morning, Luca Rossetto on for Myles Tower, Uva, Patrick Marion and Bill are good.
Thank you <unk>.
Excellent.
So let me share I guess industrial growth you saw it come this fall and make sure.
The range for the year it seems like it was greater than the the outperformance from the first quarter. So is that just I think what you talked up Unfortunately, the trends into March and maybe continuing into April is it based on orders and then how are you hedging because it doesn't sound like a whole lot from some of this slow and as you'd expect and the first and second quarter within ESG and Youre kind of expecting.
And so I'll just come back and the second half I guess.
Yes.
Our enthusiasm.
Enthusiasm relative to the first quarter was that we had expected a slower start to the year and then we had always anticipated gradual improvement each quarter as the year progressed.
While we saw was a stronger start out of the gate and Q1 than even we had expected I would argue back in February and so to that and.
We.
The other in guidance for the full year was a combination of.
The beat in Q1 with.
Some additional <unk>.
Outlook.
For the full year in terms of the strength, we've seen and.
And some of our end markets also would highlight the strength and the orders that we.
And received in Q1.
And our apps are.
True performance and the quarter was solid but more and.
And importantly, I think is the order strength and we've seen the building, which built up backlog as well went into some of our higher margin businesses.
Okay, great. Thank you and then just on cash flow I guess, I know again above a 100%.
That leaves a big range I guess realistically. So do you see possibility for cash to be up year over year on.
I don't know how much opportunity additional opportunity you have and working capital. So just curious your thoughts there.
So this is Mary and so.
We're always looking at opportunity and working capital.
Talked a little bit about the longer lead time and the supply chain matters. We're addressing so that's a little bit more pressure on the inventory, but yes, we continue to focus on working capital as far as the cash conversion and we're looking at over 100% is where we are guiding to come out.
Okay, great. Thank you very much.
Thanks, Robert Thanks, Luke.
Your final question is from Christopher Glynn with Oppenheimer. Your line is open.
Your line is open.
Sorry, I was on mute.
And just industrial margins second and fourth quarter, it looks like youre going to pull about 14% margin for the rest of the year.
400 basis points above the first quarter.
You talked about a lot of pluses and minuses and the different or mainly plusses and the different businesses, but was first quarter mix, particularly adverse and industrial too.
And that step up.
I would say from first quarter was.
It was a strong quarter in terms of industrial.
<unk>, but there was some mix in there which damped.
Dampened it a little below what we might have.
And I expected that said, we did make some.
We've been making some large investments into the industrial business, primarily if you recall, Chris last year, we announced the launch of our innovation hub and the innovation hubs projects are predominantly and the resources. We've added there are to the benefit of.
Trail into short term.
Of course, we will see that day will benefit aerospace as well over the longer term, but and the short term it's.
Those resources are all allocated to industrial.
We also as I mentioned.
<unk> referenced two we've added resources in terms of sales and marketing and Q1, which we expect to benefit as the year.
To receive the benefit as the year progresses.
Team is squarely focused on margin expansion throughout the year. So you are in.
And categorization of it is and is right on the Mark we do expect to see industrial improve each quarter as the year progresses.
Okay I'll follow up offline. Thanks.
Great. Thanks.
We have no further questions at this time I'll turn the call back to Bill Pitts.
Closing remarks.
Thank you Megan and.
We'd like to thank all of you for joining US. This morning, and we look forward to speaking with you next on July 30, and with our second quarter 2021 earnings call.
Operator, we will now conclude today's call.
This concludes today's conference call you may now disconnect.
And.
And.
And.
Yes.
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