Q4 2023 Barnes Group Inc Earnings Call
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw your question again press Star one. Thank you I would now like to turn the conference.
Over to you Bill Pitts, Vice President of Investor Relations you May begin your conference.
Thank you Krista good.
Good morning, and thank you for joining us for our fourth quarter and full year 2023 earnings call.
With me are Barnes, President and Chief Executive Officer, Thomas Hook.
Senior Vice President Finance, and Chief Financial Officer, Julie strike.
And Ian reason President of Barnes Aerospace.
You can access all earnings related materials on the Investor relation relations section of our corporate website at one Barnes dotcom.
That's O N E P. A R E S dot com.
During our call, we will be referring to the earnings supplement presentation.
Okay.
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 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.
Of note as we announced in today's earnings press release, following the acquisition of MB Aerospace. The company is introducing adjusted EBITDA metrics to its reporting and outlook, which Julie will discuss in greater detail.
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 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 SEC.
Which are available on the Investor Relations section on one Barnes dotcom.
I'll now turn the call over to Tom for his opening remarks, then Ann will comment on our aerospace business and progress on the M. B Aerospace acquisition.
After that Julie will provide a review of our financial performance and details of our initial 2020 for outlook.
Then we'll open up the call for questions Tom.
Of the Barnes aerospace business.
As we transform our portfolio toward a majority contribution from the attractive aerospace market and in an effort to continually provide transparency into our business.
It's important to hear directly from our operational leaders periodically.
Ian will provide an update on the integration of that'd be aerospace.
Expected synergies and the operational and commercial benefits we are already experiencing.
First let me provide an overview of 2023 to highlight our considerable achievements as a team.
Please turn to slide five.
I am pleased with the noteworthy progress made in the execution of Barnes business transformation strategy encompassing our three pillars.
Core business execution.
Gail aerospace.
And integrate consolidate and rationalize industrial.
Across the company, we are committed to unlocking Barnes full potential and increasing value.
For the full year, we turned in a solid performance revenue of $1.45 billion grew 15% reported and 5% organic adjusted.
Adjusted EBITDA margin improved to nearly 19% reflecting benefits from our cost savings efforts.
We also improved cash flow significantly due to disciplined cost management.
And our focus on working capital, while still investing in our business for long term growth.
Our restructuring program continues to progress we.
We delivered $25 million in savings in 'twenty, three above our previously communicated $22 million target.
These savings are partially mitigating higher material and labor costs.
An isolated productivity challenges importantly, we are seeing costs abate somewhat and supply chain health improve.
Despite more work ahead I'm proud of our team accomplishments in the short period of time, we've been at it we delivered meaningfully on our key strategic priorities during the year and are gaining momentum.
Please turn to slide six and our first strategic pillar core business execution.
As I have said before we are focused on topline bottomline and pipeline growth across the company.
We continue to identify opportunities to strengthen our direct collection with customers for topline growth.
And leverage these opportunities through commercial excellence combined with operational productivity to improve bottom line profitability.
These actions in turn.
Future pipeline investments and increase our sales funnel.
During 2023, we extended two long term aerospace agreements with safran.
And molding solutions, we deployed an integrated channel management approach and a global go to market alignment to drive commercial excellence operationally, we are applying a heightened cost management and working capital discipline across the organization.
Please turn to slide seven and our second strategic pillar scale.
Scale aerospace.
In 2023, we made a massive leap with the strategic acquisition of M B Aerospace, which closed in August.
Aaron's Aerospace is now a truly global business with an expanded geographic reach.
Diverse capabilities and offerings to serve markets and customers around the world.
The addition of N b aerospace to our portfolio positions us as a more attractive partner, then enables deeper customer relationships and the ability to win additional contracts.
To that end.
Have already closed on two large contract renewals and expect to close on several other large contract wins and extensions with customers via will discuss this in more detail in a moment.
We continue to further scale this business through integration and synergies, which will drive growth operational excellence and margin expansion.
Please turn to slide eight and our final strategic pillar.
Integrate consolidate and rationalize our industrial segment.
During the year, we formed the Barnes transformation office or bto to enable a more agile responsive organization using standard tools processes and systems.
Our experienced solid momentum as we execute numerous transformation initiatives in support of accelerating our growth and profitability.
We advanced our manufacturing facility optimization through footprint rationalization with plant closures and molding solutions motion control solutions.
And several smaller underperforming technology and service centers in the automation business.
At molding solutions. After several months of planning, we recently announced a new organization structure to fully integrate and streamline the business to drive efficiency and expand manufacturing capacity globally.
Last month, we took another important step forward with the announced sale of our associated spring and hanging businesses.
With this divestiture, we will exit automotive components manufacturing and simplify the industrial segment.
Post close.
The expected net cash proceeds of approximately $150 million will be used to reduce debt supporting our leverage target goals.
On slide nine you can see how these strategic actions are dramatically shifting our portfolio.
He goes towards higher growth and margin opportunities, while increasing our exposure to more stable business.
As we move forward, our aerospace segment will account for the majority of our consolidated revenues and even larger percentage of our earnings positioning us for long term profitable growth.
In closing our teams drove an incredible amount of progress in 2023.
Where we have faced challenges we have taken actions to improve performance, we have a clear vision for Barnes a solid strategy that we are in the process of executing to make that vision a reality.
And a passionate team that has proven they know how to deliver results.
While we still have a lot more to do we are committed to reshaping and positioning Barnes for success by executing our strategic priorities to maximize value for our shareholders as such.
Expect more progress in 2024.
We will continue to drive multiple working capital cash management and cost reduction activities with a focus on business fundamentals and deleveraging our balance sheet.
Now before passing the call to Ian I wanted to take a moment to thank the global Barnes team of 6500 employees for their hard work contributions and dedication to the success of Barnes and its transformation. They are collaborative attitude and willingness to embrace change and a fast paced environment is what will allow us.
To achieve our desired outcomes and for that I am truly grateful Ian I'll now pass the call to you for an update on Barnes aerospace.
Thank you Tom and good morning, everyone I'm happy to participate in today's call to provide an update on bonds aerospace, including the <unk> Aerospace acquisition and share my excitement about the opportunities to capitalize on the strengths of the combined business.
Please turn to slide 10.
In the five months since the acquisition closed we have made significant progress with our key integration objectives, we approached the integration with the guiding principle of stronger together to inform our decisions and actions and we now operate as one Barnes aerospace.
Our new organization structure is in place, including the senior management team, who combines leaders from both Barnes aerospace and NV Aerospace and we are going to market as a single unified Barnes Aerospace brand.
With core integration activities complete we are now focused on optimizing and improving the combined business.
There has been solid advancement in identifying and executing synergies as we exit 2023, we have secured eight $5 billion of run rate synergies and have line of sight to increase the run rate to $12 million by the end of 2024.
We fully expect to realize the $18 million run rate target shared upon closing of the transaction by the end of 2025.
In addition, we are enabling greater flexibility and best practice sharing to optimize our existing facilities for.
For example in January in Connecticut, We created a new OEM operations center of excellence or.
Primarily focused on military related components, resulting in management and operational efficiencies.
Coa approach creates opportunities to optimize global facility capacity, which enables us to position work in the right CEO relocation from our extensive global footprint to best meet program and customer needs.
As Tom noted our now larger aerospace business is seeing new commercial and defense opportunities, given our expanded capabilities and solutions set or.
Our increased scale also provides greater diversification of customers markets and platforms.
Customer feedback regard regarding our combined value added offering has been very positive.
We have been working diligently on renew in multiple long term agreements with all of our major OEM customers and have largely concluded negotiations on all the agreements. We've already signed two major otas and are now working towards finalizing the remainder of the agreements over the coming few weeks.
These deals a combination of program extensions and incremental new work will generate significant order strength for the business over time.
An example of an LTA, we have recently signed which illustrates our competitive position as a long term agreement with general electric to extend the term for leap engine programs by 10 years extend legacy engine programs by four years and expand our portfolio of products on military engines.
This agreement has an estimated sales value of over $1 billion to 2035 with most of the value from program extensions.
In addition, we have signed an LTA extension with the legacy MB Aerospace engine OEM customer and we are close to finalizing several others.
Building on the previously announced Safra and long term agreement for the repair and overhaul components for the leap and CFM engine programs and the increasing demand for after market repairs from other customers. We are expanding our existing MRO footprint in Singapore with the opening of a new facility.
In the <unk> Aerospace Park in 2024.
Furthermore to ensure we can offer a truly global repair solution to our customers. We have initiated planning for a new European MRO component repair facility utilizing our existing footprint in Poland.
In closing we have made significant advancements on many fronts and becoming a billion dollar aerospace business as we position ourselves for further organic and inorganic growth.
Our team is excited about the progress and I look forward to sharing more highlights reviewed in the future.
With that I'll now pass the call to Julie to cover our financial performance and outlook.
Thank you Ian and good morning, everyone.
Before I walk through our results I want to first share that we are introducing adjusted EBITDA metrics to our reporting and outlook. We believe. This addition, better reflects our core operating and cash generating capability and provides increased transparency into our performance.
Also as Tom discussed, we recently announced the divestiture of associated spring and hanging combined these businesses generated approximately $200 million in revenue in 2023.
The combination of our MB Aerospace acquisition, coupled with this divestiture shifted our portfolio to a more focused and higher value business.
It is truly an exciting time as we position Barnes for sustainable profitable growth and further value creation.
My comments today will focus on our fourth quarter results and 2024 outlook. We have provided full year results for the total company and by segment within our earnings presentation, which is posted on our Investor Relations website for your reference.
Also comparisons are year over year, unless otherwise noted.
Please turn to slide 12.
For the fourth quarter sales were $416 million up 33% reported and up 2% organic foreign exchange was a benefit of 2%.
Adjusted operating income was $48 million up 36% and adjusted operating margin of 11, 5% was up 30 basis points largely attributable to our restructuring program.
Adjusted EBITDA was $78 million up 36% and adjusted EBITDA margin was 18, 8% up 50 basis points.
Interest expense was $24 million versus $4 million due to higher borrowings given the acquisition of MB Aerospace and a higher average interest rate associated with our debt recapitalization.
The fourth quarter adjusted tax rate was 12%.
During the quarter, we completed an intercompany transaction between related entities in several tax jurisdiction, which.
Just on the tax law in those jurisdictions provided a favorable tax benefit.
On an adjusted basis net income per share was <unk> 41 compared to 52.
Reflecting revenue growth and margin improvement offset by higher interest and tax expense.
I will now turn to our fourth quarter segment performance, starting with aerospace on slide 13.
We have made significant strides in integrating our aerospace business and are better positioned to participate in the strong industry growth opportunity.
For the fourth quarter total sales were $213 million up 96% reported and up 15% organic.
Excluding the impact of MB aerospace organic OEM sales increased 17% MRO sales grew 15% and RSP sales were up 7%. These.
These results demonstrate the strength of our underlying aerospace business.
Adjusted operating profit of 27 million was up 53%, while adjusted operating margin declined 360 basis points to 12, 8%, reflecting the impact of MBS portfolio mix and the amortization of long term acquired intangibles.
Aerospace adjusted EBITDA was $46 million up 69% benefiting from higher organic sales and the contribution of MB aerospace.
Adjusted EBITDA margin was 21, 5% versus 24, 9% a year ago impacted by portfolio mix and productivity.
With the combined Barnes and MB Aerospace business, our OEM backlog now stands at 123 billion and we expect to convert approximately 50% to revenue over the next 12 months.
Moving to industrial results on Slide 14, we have made significant progress to integrate consolidate and rationalize our industrial segment. This includes our restructuring program aimed at reducing our cost structure.
Closing of numerous locations over the last year and a half and more recently the announced agreement to sell our associated spring and hanging.
Fourth quarter sales were $203 million down 1% reported.
And down 4% organic.
Molding solutions organic sales increased 1%, while motion control solutions organic sales were down 10% and automation was down 7%.
Adjusted operating profit was $20 million up 19% and adjusted operating margin was 10, 1% up 170 basis points.
Adjusted EBITDA was $33 million up 4% and adjusted EBITDA margin was 16% up 80 basis points benefiting from positive pricing and favorable productivity due in part to transformation related activities, partially offset by lower sales volumes and mix.
Okay.
Turning to the balance sheet and cash flow on slide 15.
Cash provided by operating activities for the full year was $112 million versus 76 million a year ago. The significant improvement was driven by a lower investment in working capital.
Free cash flow was $57 million versus $40 million and capital expenditures were $56 million up $21 million from the prior year as we continued to reinvest in our businesses.
60% of the Capex is related to growth and transformation.
Our net debt to EBITDA ratio was three six times at year end, which improved from three eight times at the end of the third quarter due to both higher EBITDA and lower debt.
Liquidity as of December 31 was $447 million, comprising approximately $90 million in cash on hand, and 357 million availability under our revolving credit facility.
With the debt recapitalization of our MB Aerospace acquisition.
There are no major debt maturities until 2028.
Turning to slide 16, we.
We continue to maintain a disciplined approach to capital allocation our priorities are the health of our balance sheet organic.
Investments that will drive sustainable profitable growth and remaining committed to shareholder returns.
Net cash proceeds from the divestiture of approximately $150 million will be used to reduce debt.
We continue to target net leverage to be three times or lower by the end of 2024 and two five times by the end of 2025.
We also continued to invest in the business for long term growth with most of the increase in capex directed towards business transformation activities and MB aerospace.
In addition, we will continue to return capital to our shareholders through a dividend, which we have been paying for 90 consecutive years.
Turning to our outlook on slide 17.
Our 2024 guidance reflects the strategic actions, we have taken to shift our portfolio towards aerospace, which offers higher growth and higher margin opportunities. This guidance assumes one quarter contribution from associated spring in handy as we expect the transaction to close in early 2024.
We expect the impact to 2024 to be a negative negative 11% to revenue and negative 10% to adjusted EBITDA.
For the year, we expect total sales to be up 12% to 16% with organic sales up 4% to 8%.
Given the shift in our portfolio and streamlining of our businesses starting this quarter and going forward, we are providing our outlook at a segment level only.
Okay.
Looking at our segments, we expect our aerospace sales growth to be over 55% inclusive of a full year contribution of MB Aerospace, we expect organic sales growth in the low double digits.
For industrial we expect sales down in the mid teen range with organic sales growth up low single digits, when taking the announced divestiture into account.
Regarding our restructuring program as Tom mentioned, we achieved $25 million of savings 3 million ahead of our previously communicated commitment.
For 2024, we expect to achieve $38 million in run rate savings and the program remains on track to deliver against our 2025 run rate target.
Expected run rates are impacted by the pending divestiture and a reconciliation table is included on slide 18 of our investor presentation.
Adjusted operating margin is expected to be in the range of 12% to 14%. This reflects aerospace adjusted operating margin in the range of 14, 5% to 16% and industrial in the range of eight 5% to 10%.
Depreciation and amortization expense in 2024 are expected to be between 130 and $140 million.
Adjusted EBITA margin is expected to be in the range of 20% to 22%. This reflects.
Aerospace adjusted EBITDA margin of 23, 5% to 25% and industrial of 15 to 16, 5%.
We expect adjusted EPS to be between $1 55 on the low end and $1 80 on the high end.
This guidance reflects the impact of MB aerospace and our announced divestiture, which combined are dilutive to adjusted EPS by approximately <unk> 47 per share.
Top line growth and margin expansion from ongoing cost savings offset this dilution.
On slide 18 of our Investor presentation. We have included additional 2024 guidance information for modeling purposes.
Please turn to slide 19.
Given the moving pieces and to assist with modeling our business in the near term we wanted to provide some additional transparency into our first quarter performance expectations, we expect revenue growth of 25% 27%.
<unk> operating margin of 11% to 12% adjusted.
EBITA margin between 19, and 20% and adjusted EPS between.
<unk> 32 and 37.
Operator, we will now open the call for questions.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw that question again Press Star. One. Your first question comes from the line of Matt Summerville from D. A Davidson. Please go ahead.
Thanks, Good morning.
Good morning, Matt maybe just start good morning, maybe just starting with the molding solutions SBU can you talk a little bit about the organic performance across the molds and hot runner businesses in 'twenty, three and what your expectation is in 'twenty four and specifically.
Delve into to the extent you can a little more detail on some of the headwinds you may be facing in the Chinese automotive market.
Yes sure Matt.
So in 'twenty three obviously, we had a lot of activities in.
And success on the multi cavity molds in particular, our lead times due to the amount of work that we've won in have in operations there.
That were actively trying to keep pace with has increased our lead time is really almost doubled our lead times from about 26 weeks up to a more complex molds for $50 to 52 weeks.
That has met the very intensive period for the operations team to output.
And we've been obviously struggling with long lead times to continue to book business with customers until we can clear that backlog. So we still are.
Leading from a mobile standpoint globally very effectively.
Multi cavity mold hot runners asymmetric story.
We do see market weakness in markets.
Like China.
We have seen a little bit of wavering in the European markets, but that has kind of stabilized.
We sell across the hot runner product lines from the mid range all the way to the high end.
We feel that we have struggled competitively in certain markets against other competition in the hot runner markets.
That hurt our market share.
The organization, we put in that streamline molding solutions and has also allowed us to invest more in the go to market focus and commercial market excellence will stabilize and has stabilized.
Hot runner sales funnel that we're feeding we still are concerned about China market weakness we have.
<unk>.
<unk>.
Good market in the Americas et cetera.
For us it's more of the hot runners in the automotive side than it is broadly across molding solutions, we're making more investments in North America to have a more significant presence across the molding solutions product lines.
We feel that while the market in North America is not as favorable as it was last year, we feel the investments, we're making Bolton molds and hot runners will continue to allow us to capitalize on market growth in North America, but primarily right now I would say in China, we're expecting kind of weaker conditions I think all competitors youre seeing that that we're expecting.
<unk> stable conditions in Europe.
And I think for the overall year, we expect a level of growth that's kind of mid single digits across those product lines. If we get more output of multi cavity molds, we could have an upside opportunity to that but I think our hot runners for the most part in the <unk> part of the product lines globally will be kind of a recovery.
A year from some of the market share loss in 'twenty three.
Hopefully that answers that question.
Yes.
The detail.
I'll flip it over to aerospace I think you'd guided high teens organic for the full year you came in mid teens, maybe talk about what sort of shortfall you may have experienced there and I think last quarter. You commented that the business was having some productivity challenges if you could maybe elaborate on.
State of the Union, if you will in that regard.
Yes, Thanks, Matt.
Uh huh.
I mean, we certainly had some productivity challenges primarily at two of our OEM locations in Q4.
So good progress all of the 15 locations, including one underperforming businesses turned around their performance in Q4 back to expectations, where we did have the challenges we understand the issues and are working to fix them with robust plans in place as an example, we've taken actions to drive high attrition levels down at <unk>.
Site to ensure we have a more stable workforce and we are now reinvesting heavily in the right training and employee engagement should we brits retiring our employees, but also accelerate that development.
Enable higher productivity and efficiency levels.
So we made some key leadership changes during.
Through impacted sites.
On top of that we do have some persistent supply chain issues that hasn't helped but we're working with our customers and suppliers to mitigate these and we're making solid progress.
Had a good start to Q1, although it is going to take time to fully mitigate productivity challenges at a small number of outside some comfort that we're seeing the improvements and breath of our action plans in place.
Got it thanks, guys I'll get back in queue.
Your next question comes from the line of Christopher Glynn from Oppenheimer. Please go ahead.
Thanks, Good morning, guys.
Congrats on the spectrum.
Gil bold moves in the past year.
Question about 38.
The divestiture impact how much of that pertains to.
Core earnings in Q4 Q versus.
Ancillary impacts.
Stranded cost store.
Kind of transaction related adjacent Pat maybe you don't adjust out.
So the 47, we referred to on the call was related to all of the adjusted impacts.
That we will see throughout the course of the year and it's a combined number as Tom mentioned in his remarks.
Both the acquisition of <unk> Aerospace and these divestitures are clearly aligned with our two strategic pillars to scale Barnes <unk> aerospace and integrate consolidate and rationalize industrial and combine theres no doubt they create a step change towards achieving our objectives next year.
So given a little more color around what's driving the.
47 <unk>.
Firstly, I think I saw 38 cents dilution from divestiture impacts and the bridge from adjusted earnings to GAAP earnings guidance.
Identifying with the 47, but the question predicated the 38 from the press release.
All right.
Alright.
I can I can pivot to a 38%.
Those are the Oh youre talking about the Reg G items, you're talking about the Reg G items notwithstanding in so the Reg G items Euro nail I apologize I apologize for that Chris I was I was answering a different question.
Those include yes transaction costs loss on <unk>.
The impact of the gain on sale and some pension related items.
Okay. So the core earnings losses.
Im wondering what the.
Yes, it's rational.
The operational earnings correct. So that is what I was describing the core operational impact coming out of Alpha that's where I was going the core operational impact coming out of Alpha is approximately 28 cents.
But remember the proceeds of the divestiture will be used to pay down debt, which is generating interest expense and tax benefit.
And in the end it now going back to the the total 47 of EPS dilution, we talked about in the year.
<unk> will be approximately 19.
And it's really important to point out that that is all noncash there's about $24 million of intangible amortization that flows through the P&L.
And so the 19th dilution is all noncash and we expect to exit the year approximately.
Neutral to accretive on the deal.
Yes.
Okay.
And then.
The automation, how do you guys view there.
It's got some nice niche technology.
Well scale and tech.
Technologies kind of isolated in the context.
Automation markets generally.
So curious if you could.
The strategic fit for automation.
Certainly well.
Yes.
Automation business for us we've done a refresh of the management team we laid out in the second half of last year in parallel with molding solutions kind of a streamlined automation strategy as well we've added a very important product line we've been traditionally.
Mechatronics gripping we've added a vacuum product line and we're launching that globally. So we're quite excited about the growth potential for automation Emmanuel a Orlando is the new president of automation is off to a very good start.
Mind, you our menu Eylea Orlando was the architect and execute are of a very successful multi cavity molding strategy in molding solutions, which earned him the opportunity to move to that business.
So we're strategically it is a small business, we see it as a nice strategic fit into the tooling side and were toolmakers a lot on the industrial portfolio between molding automation tool and die industry. So that's the fit from the automation business strategically.
Sell through a combination of dealers and direct selling through automation centers that have been highly successful so.
So we see that as a.
Very nice business with good growth trajectories, as we know due to labor demand labor productivity automation and robotics in the genetic business. We run there is an end of arm tooling specialist application solutions for customers has been very successful so we.
Very carefully <unk> been investing in that to grow it and expand that new product line globally.
And opening up some new market opportunities primarily through the automation center channels that we've been developing.
So the strategic fit really is is that as we've exited or exiting associated spring and hangar, we're kind of focusing industrial Lana.
<unk> and.
And die.
Molding solutions, which is tool and die and then automation, which is obviously tooling. So we think that the connections of those product lines are quite nice.
Made the required adjustments in leadership and focus of the business for go to market there'll be successful as we get into 'twenty. Four course, we're always looking at the overall strategy of the company and in combination and we think that's a nice fit with always made that maybe is pending dispositions.
Exciting associated spring and hanging to bring those into focus and alignment.
Okay. So you don't see it as being handicapped in the channel not being part of it.
Broader automation portfolio.
Right now I think were focus Chris on getting the businesses to perform topline bottomline pipeline.
Industrial we've been focused on rather than trying to scale. The portfolio like we are in aerospace we're focused on getting the business performing on the basic fundamental of generating organic growth and profitability by pricing correctly productivity.
Once we have and of course 24 is a pivotal year for the industrial businesses to do this once we have that level of integration.
Which we're aligning on right now once we have that level of performance topline Bottomline pipeline, then we'll talk about investing into the business for future growth.
But until we get to that point and we will continue to hold on industrial M&A activities.
Because we're not prepared to add to the portfolio in that manner.
Okay, Great and last one from me you have the 30% to 32%.
Tax rate guide.
I'd like a clarification.
You know how that should translate to the <unk>.
Just did tax rate and that level of taxation is certainly an outlier.
So curious how that what your expectations are for.
General tax rate.
<unk> understanding that there are a lot of.
Influences on deductibility and non deductibility in the current year.
Okay.
So going going forward.
The 30% tax rate would be.
R R.
Standard tax rate and in terms of I want to make sure Im answering your question correctly, but that would be our standard tax rate going forward in light of where we sit with our interest expense and the geographic composition of our of our business.
Okay, we'll tell that back more online offline. Thank you okay. Thanks.
Your next question comes from the line of Myles Walton from Wolfe Research. Please go ahead.
Great. Thanks, so much I just had a.
Couple of quick questions. If I could the first one is around orders within the aerospace business.
Ian you went through sort of <unk> on the on the horizon, but just wanted to make sure that I'm thinking about this right to see order declines both in the quarter that we're pretty big in an order to costs for the year that we're still there I'm trying to reconcile that with.
Sort of the market expansion and if you're just saying that it's timing related and nausea.
These LTA is actually pop into backlog in the near term.
Thanks Ross.
Youre absolutely right. Our orders are lumpy just the nature of the business absolutely solid <unk> rehab.
Play at the moment. They are included in the one we've announced.
<unk>.
To start with two 5 billion.
Order value.
About seven <unk>.
So we're seeing very strong orders, it's just a timing a timing issue, we'll be announcing a number of new <unk>.
<unk> as we go forward.
Absolutely no issues.
With orders very strong backlog.
And as we all know with Gregory demand loan basis.
New build and aftermarket.
Aftermarket so we're seeing strength from both sides of the business okay.
Okay, and I think that.
The margins were expected to be a bit stronger in aero. The ended up a bit lighter is that simply RSP mix.
Im not coming through or something else and then buy.
<unk>.
Within Aero the low double digit organic growth you have for 'twenty four.
Aftermarket expected to grow at a faster pace than that average.
Color there.
This on the certainly on the on the mix of RSP.
There is a big part of the driver of that and of course with bringing <unk> in.
It doesn't have an RSP program, that's going to drive our.
Margin down but of course here. It's a good it's a good story is just the RSP.
This is a bit of a heavy heavy way back in terms of its profit contribution.
But looking looking forward, we expect to see margin margin accretion some of the productivity challenges that I talked about earlier.
<unk> side of the business as we work through those and we get the work through refractories.
But those sales fall to the bottom line in a very predictable way. So now we expect to see incremental margin expansion and on the aftermarket side, yes, we expect to see higher growth levels.
And then the average level.
It's very difficult to predict the aftermarket business.
It is very cyclical, but we are seeing a very big upcycle in demand certainly in Q1.
Across our RSP and.
Our repair shops has been phenomenally high so we're seeing that come strong outlook does that continue strong throughout the year. The receipt cycles, we don't know, but were expecting to see solid growth year on year in the half.
Aftermarket side.
And then growth from the OEM side as production rates start to ramp.
On the narrow bodies.
Okay and last one Julie on cash flow the conversion I see on the slide is a 140% of gap, but obviously, you've got a very large adjusted.
Number in there that it sounded to the answer to Chris' question was largely noncash.
No Im curious from a working capital perspective, I'm backing into something like a.
$40 million consumption does that is that correct.
A $40 million consumption from what.
What area.
In 2024 to get to 75% to $90 million of free cash flow what is the working capital outlook that you have for 2004.
The working capital outlook, let me.
Let me get to that one it is.
Let me get back to you on that one.
On the follow up call I do have it it's just not right in front of me okay. Thanks.
Your next question comes from the line of Michael CRM, Molly <unk> from <unk> Securities. Please go ahead.
Hey, good morning, guys. Thanks for taking the questions just a couple of follow ups or clarity first Julia did you say <unk> is now expected to be neutral to accretive I guess by the end of this year.
And then I think I heard the operational impact from the divestitures in 2008.
I think you've called out maybe 50 bps of margin impact from the divestiture. So I guess you are.
And 200 million, maybe 4% margin that 28 cents sounded sounded high to me.
I have that right.
Yes, you have that you have that approximately approximately right from what what's falling with falling out of the portfolio and you did hear correctly that we anticipate <unk> will be.
Existing the year.
<unk> on the two accretive.
Okay.
28% operational impact it doesn't seem to reconcile with Joe.
Margins.
So.
From a from a dollar perspective, it's about a $20 million outflow of operating income.
20.
And remember I remember the reason the reason it might not be reconciling for you is that we have a quarter of the business. We have one quarter performance in the outlook for the year. So that reflects three quarters of a year.
Hopefully that helps triangulate your math.
So you are losing $20 million of operating income on that.
<unk> to be fairly high margin.
What what's actually in all of that operating income.
I thought this was more of a margin dilutive.
Business that you were selling.
So in 2020 in the range of our margins. It was absolutely on the low end of our margin portfolio in 2023, we experienced some benefits in the business, which.
Temporarily inflated that margin as we were closing the Bristol facility, we had the Ford final buys and we had some other final type sales, which.
Supported the profitability of the business in 2023.
That would not be recurring if the business remained in our portfolio and thats, probably what scaling what youre thinking about.
Basically Mike just the end of life program through the end of life programs for the transfers that.
The Bristol associated spring Bristol shutdown okay.
It out and ended that they're onetime benefit in onetime revenues for 'twenty, three and they were going to repeat under any circumstances prospectively.
<unk>.
Got it.
And then I guess, just shifting to industrial that the outlook.
For the year on low single digit organic what gives you. The I know you gave a lot of color originally to Matt's question, but I think the organic order flow was down 11%.
It gives you the confidence in that in that industrial organic outlook.
Mike like going on in industrial as you know and I'll focus my comments away from even those are quarter of associated spring and hanging in here I'm going to focus on molding solutions motion control solutions and automation.
Each of those pieces we've Reno.
<unk> done some streamlining in the what we call. This integrate consolidate rationalize industrial because we've made a lot of investments there to streamline our approach to the businesses.
Focused management teams and commercialization initiatives and with the reduction in G&A, we've been able to put more feet on the street and focus on sales funnels.
We have seen multiple places where thats been very successful certainly in multi cavity molds.
Been highly successful last year seeing that initiative and we've been rolling that out more broadly.
Into the industrial go to market teams.
More resources.
The additional one for molding solutions is selling the entire portfolio globally. We don't typically sell comprehensively in North America for modeling, that's a big pick up opportunity for us.
<unk> appropriately.
It looked at upsides and downsides to be balanced in providing our guidance. We know we also have more full year effects of some of the commercial investments in 'twenty three coming through in 'twenty, four which would be pricing.
For a full year effect. So we're starting to see more full year benefits and also see some of the returns in those prospective use from the investments we've made in the second half of last year, when I was running the molding solutions business.
Stable leadership in place and we're kind of beyond those integrate consolidate initiatives that have already been completed so we're going to end up seeing the benefits of those come through we understand and have and are recognizing the markets may not be as favorable in 'twenty four as they were in 'twenty three and some of these markets. So we've <unk>.
<unk> our expectations Accordingly based on the information we have from competitive and market information. So I think we that up with a very balanced view, but also growth perspective that kind of supports the investments you've already made to improve those businesses and make sure we get the performance and returns out we are expecting.
Okay got it and then just last one on the.
Aerospace LTA.
I know historically you guys made some upfront investments in the RSP CSD is there any any nuance to it.
These new LTE or extensions, where you have to make any upfront investments or are these should we think of these as more traditional.
Industry.
Quarters.
Without any upfront investment.
No. Thanks for the question Michael.
No significant investments required for <unk>.
A follow on with some new work in there and some volume expansions, but now these are just.
Normal normal orders and not require any significant investments at all.
Okay, perfect I'll jump back in the queue. Thanks, guys.
Hey, and this is this is Julie I just wanted to hop in and follow up on miles question on working capital.
We actually have working capital expectations to be approximately flat year over year as we continued to work through.
Backlog.
<unk> excuse me inventory reserves, we have that we're still working down and as we continue to drive additional productivity. So we despite sales growth and growth in some of our areas are looking and working with the business very closely on driving down working working capital overall, so it's a net neutral.
In the year.
Your next question comes from the line of Matt Summerville from D. A Davidson. Please go ahead.
Thanks, I just want to clarify one item.
Getting back to Mike's question and maybe a question prior.
Much in operating income dollars are for.
We'll go point in 2024.
The nine month period, you will not own this spring.
And if you need to normalize that it was over earning in 'twenty. Three can you. Please make that normalization I just wanted to be crystal clear how much <unk> you're foregoing. Thank you.
So in the back three quarters of 2024, we will forgo.
Approximately $155 million in sales and approximately $20 million in operating margin normalizing that I don't want to throw out a number that is.
Directionally incorrect for you. So when we have our follow up call, albeit we can dissect that a bit.
<unk>.
Because I know you are trying to use this for modeling purposes, and I just don't want to give you incorrect information, but there was.
There was a meaningful increase in our sales this year as those end of life programs came in and happy to get you.
The figures when we have our follow up.
Perfect and then just final one on pricing.
Tom can you maybe talk about how much price you were able to realize and industrial in 'twenty, three and how much incremental price capture.
Should be thinking about for 2004.
Yes, I'll give a qualitative answer and then.
Ill, let Julie give the analytical answer the short answer is not enough to my satisfaction.
Been hit with a lot of inflation energy freight labor materials supply chain disruption longer lead times. So offsetting all of that has required a comprehensive across all of industrial.
Even the associated spring and Hany businesses.
Hello.
Reach out to customers to pass on those inflationary pressures.
And to either re price the book of business, we have or to price business prospectively for future orders.
That has been a battle as you can imagine across the portfolio. That's been our primary that over the last since my 18 months and this company has been one of the primary.
Customer interface negotiation points.
I'll, let Julie give the analytics behind it but we were late in getting started we only partially mitigated this.
22% and 23 I would say today.
Pasty, even keel point in our.
It really in a position of recovering price and making up for inflation that we've already experienced but we were late in responding and only partially in mitigating it.
So I would say that we've done an incomplete job there.
But prospectively better balance and certainly the ensuring supply chain and the lower inflationary environment make that normalization in equilibrium better, but I'll, let Julie give the analytics behind them that those qualitative statements to help out.
Yes.
Thanks, Matt.
For pricing, we realized approximately and this is a gross number approximately $30 million of price.
In the year.
That was used as Tom said to largely offset.
What we saw in terms of inflation.
And mix impacts and other productivity challenges that we faced.
And that's across the whole portfolio not just that's not just industrial.
That's real that's across the whole portfolio of which about $19 million was industrial.
Okay, and then how much incremental price capture should we be thinking about it in 'twenty four across total Barnes industrial as a subset.
Yeah. So for total Barnes, we're looking at a number that's around the $20 million range at this point.
And that would be skewed towards aerospace with industrial you know call it.
Seven to 10.
Perfect. Thank you for that color yes.
Yes, no worries.
Your next question comes from the line of Michael <unk> from <unk> Securities. Please go ahead.
Hey.
Sorry, guys, just just to write back to Mark's question to make this clear Julie $165 million.
Revenue goes away from the divestiture and Matt was asking the op income dollar loss for the nine months forgetting about the year on year is it fair to say that $165 million, which generating 4% to 5% margin. So maybe it's a $6 million of op income loss for the room.
Nine.
Nine months this year.
Okay.
No I don't think that I don't think thats, the right way to be looking at it.
Sure.
We would be the $20 million, which would be closer to about like a 12% 13% margin is what we would expect to see going out.
Going going out the door as a result of the divestiture.
What.
Okay.
And Thats all the time, we have for questions today I will now turn the conference over to Tom Hook, Chief Executive Officer for closing remarks.
Thank you for joining our call today is an exciting time as we reshape the company in position Barnes for sustainable profitable growth.
We remain laser focused on executing our strategic business transformation and delivering solid results in 2023.
<unk> is building and we have a clear path to drive growth margin expansion and cash flow in 2024, which will support our commitment to reduce debt.
There are multiple work streams underway across the company for improved predictable financial performance and to maximize value.
Okay.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
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Yeah.
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