Q1 2024 Barnes Group Inc Earnings Call
Krista: Thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Barnes First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is Krista and I'll be your conference operator today at this time I would like to welcome everyone to the Barnes first quarter 'twenty 'twenty four earnings conference 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.
Krista: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Bill Pitts, Vice President of Investor Relations. Bill, you may begin your presentation.
If you'd like to ask a question at that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw that question again press Star one. Thank you I would now like to turn the conference over to Bill Pitts, Vice President of Investor Relations. Phil You May begin your conference.
William Pitts: Good morning, and thank you for joining us for our first quarter 2024 earnings call. With me are Barnes President and Chief Executive Officer Thomas Hook, and Senior Vice President of Finance and Chief Financial Officer Julie Streich. You can access all earnings-related materials on the Investor Relations section of our corporate website at onebarnes.com. That's O-N-E-B-A-R-N-E-S dot com.
William Pitts: Good morning, and thank you for joining us for our first quarter 2024 earnings call.
William Pitts: With me are Barnes, President and Chief Executive Officer, Thomas Hook.
William Pitts: And senior Vice President Finance, and Chief Financial Officer, Julie strike.
William Pitts: You can access all earnings related materials on the Investor Relations section of our corporate website at one Barnes Dot com.
That's O N E B a R E <unk> dot com.
William Pitts: During our call, we will be referring to the earnings release presentation. 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 8K submitted to the Securities and Exchange Commission. Please be advised that certain statements we make on today's call, both during the opening remarks and the question and answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
William Pitts: During our call, we will be referring to the earnings release presentation.
William Pitts: Our discussion today includes certain non-GAAP financial measures, which provide additional information. We believe is helpful to investors.
William Pitts: These measures have been reconciled to the related GAAP measures in accordance with SEC regulations.
William Pitts: You will find a reconciliation table on our website as part of our press release and in our form 8-K submitted to the Securities and Exchange Commission.
William Pitts: Be advised that certain statements we make on today's call.
William Pitts: Both during the opening remarks, and the question and answer session. Maybe forward looking statements as defined in the private Securities Litigation Reform Act of $19 95.
William Pitts: 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 in the Investor Relations section on onebarns.com. I will now turn the call over to Tom for his opening remarks. After that, Julie will provide a review of our financial performance and details of our updated 2024 outlook. Then we will open up the call for questions. Tom.
William Pitts: These forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
William Pitts: 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 Dot com.
William Pitts: I will now turn the call over to Tom for his opening remarks.
Tom: After that Julie will provide a review of our financial performance and details of our updated 2020 for outlook.
Tom: Then we will open up the call for questions Tom.
Thomas J. Hook: Thank you, Bill, and good morning. Barnes had a solid start to 2024, led by strength in aerospace and underpinned by strong end market demand. Additionally, we delivered substantial progress on our three strategic pillars to dramatically enhance shareholder value. These pillars are core business execution.
Tom: Thank you Bill and good morning.
Tom: <unk> had a solid start to 2024 led by strength in aerospace and underpinned by strong end market demand.
Julie: Italy, we delivered substantial progress on our three strategic pillars.
Julie: Dramatically enhance shareholder value.
Speaker Change: These pillars are core business execution.
Thomas J. Hook: Scale Aerospace, and Integrate, Consolidate, and Rationalize Industrial. We are now five quarters into the execution of our multi-year transformation plan, with many positive steps already completed along this journey. We continue to execute a multitude of products in parallel through 2024, and we are energized by the momentum we have generated for the first quarter. Revenue of $431 million increased 28% reported and 4% organic. Adjusted EBITDA grew 38% to $80 million, and the adjusted EBITDA margin was up 130 basis points. We will discuss the drivers momentarily.
Speaker Change: Scale aerospace.
Speaker Change: And integrate consolidate and rationalize industrial we are now five quarters into the execution of our multiyear transformation plan with many positive steps already completed along this journey.
Speaker Change: We continue to execute a multitude of products in parallel through 2024 and.
Speaker Change: And we are energized by the momentum we have generated.
Speaker Change: For the first quarter.
Revenue of $431 million increased 28% reported.
Speaker Change: And 4% organic.
Speaker Change: Adjusted EBITDA.
Speaker Change: 38% to $80 million and adjusted EBITDA margin was up 130 basis points.
Speaker Change: We will discuss the drivers while materially.
Thomas J. Hook: Our restructuring program, which is aimed at accelerating growth and profitability, has progressed on schedule, and planned savings remain on track. We continue to target run rate annualized savings of $38 million by the end of 2024 and $42 million by the end of 2025. Please note that $11 million of the original $53 million target related to the Associated Spring and Hange Businesses and transferred with the divestiture. Thus, much of that benefit was already realized, in part, facilitating the sale. Our restructuring savings to date have largely served to offset inflationary cost pressures and unfavorable industry conditions.
Speaker Change: Our restructuring program, which is aimed at accelerating growth and profitability has progressed on schedule and planned savings remain on track, we continue to target run rate annualized savings of $38 million by the end of 2024.
Speaker Change: $42 million by the end of 2025 please.
Speaker Change: Please note that $11 million of the original $53 million target related to the associated spring and hanging businesses and transferred with the divestiture.
Speaker Change: Much of that benefit was already realized in part.
Speaker Change: It's hitting the sale.
Speaker Change: Our restructuring savings to date have largely served to offset inflationary cost pressures and on favorable industrial VIX, we will aggressively pursue additional cost rationalization opportunities primarily associated with the integrate consolidate and rationalize pillar of our strategy.
Thomas J. Hook: We will aggressively pursue additional cost rationalization opportunities primarily associated with the integrate, consolidate, and rationalize pillar of our strategy. As mentioned on our last call, Barnes Aerospace is now a truly global business with expanded geographic reach, diverse capabilities, and offerings to comprehensively serve customers around the world. The scale achieved with the addition of MB Aerospace positions us as a more significant player in the industry and allows us to compete more effectively.
Speaker Change: As mentioned on our last call Barnes Aerospace is now a truly global business with expanded geographic reach.
Speaker Change: Diverse capabilities.
Speaker Change: And offerings to comprehensively serve customers around the world.
Speaker Change: The scale achieved with the addition of en be aerospace positions us as a more significant player in the industry and allows us to compete more effectively.
Thomas J. Hook: To that end, we successfully closed multiple new profitable long-term agreements. You may recall in February, we reached the General Electric Agreement 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. In addition, another five long-term agreements have been finalized during the quarter across our large customers, including General Electric, Rolls-Royce, and Pratt & Whitney. A few other LTAs are agreed to and awaiting finalization. In total, the full term value of these agreements is approximately $2 billion.
Speaker Change: To that end, we successfully closed multiple new profitable long term agreements.
Speaker Change: You may recall in February we spoke to the general electric agreement to extend the term for the leap engine programs by 10 years extend legacy engine programs by four years and expand our portfolio of products in military engines.
Speaker Change: In addition, another five long term agreements have been finalized during the quarter across our large customers.
Speaker Change: General Electric Rolls Royce and Pratt and Whitney.
Speaker Change: A few other ltvs are agreed to and awaiting finalization.
Speaker Change: In total the.
Speaker Change: Full term value of these agreements is approximately $2 billion.
Thomas J. Hook: Our success in getting these agreements across the finish line led to incredibly strong orders in the quarter. OEM booked the bill 2.6 times, and OEM backlog grew to $1.46 billion, up 19% since December 2023. With respect to the aerospace aftermarket, the recent Emerald Americas Conference highlighted a robust industry outlook. Persistent supply chain concerns and disruptions in new aircraft production have provided lift to the aftermarket. This is an increased utilization of older planes, especially for legacy narrowbody engines like the CFM56 and V2500, which are key platforms for Barnes Aerospace.
Speaker Change: Our success in getting these agreements across the finish line led to incredibly strong orders in the quarter.
Speaker Change: OEM book to Bill was two six times and OEM backlog grew to $146 billion up 19% since December 2023.
Speaker Change: With respect to the aerospace aftermarket the recent MRO Americas conference highlighted a robust industry outlook.
Speaker Change: Persistent supply chain concerns and disruptions in new aircraft production have provided lift to the aftermarket.
Speaker Change: This is increased utilization of older planes.
Speaker Change: Especially for legacy narrow body engines like the CFM 56, and <unk> 2500, which are key platforms for Barnes Aerospace. We expect these dynamics will continue to benefit the aftermarket for some time.
Thomas J. Hook: We expect these dynamics will continue to benefit the aftermarket for some time. Barnes Aerospace is well-positioned in the aftermarket, and we have made additional investments to further solidify our position. For example, in February, we opened a new facility in Singapore to increase our capacity for engine component repairs in the Asia-Pacific region.
Speaker Change: Barnes aerospace is well positioned in the aftermarket and we have made additional investments to further solidify our standing.
Speaker Change: For example in February we opened a new facility in Singapore to increase our capacity for engine component repairs in the Asia Pacific region.
Thomas J. Hook: This facility will also have the flexibility to expand capacity for future growth. Additionally, just this month, we significantly expanded our MRO facility in East Granby, Connecticut. Performance across our aftermarket business is solid. We are seeing robust demand, as MRO sales were up 136% reported and 19% organic in the quarter. In addition, RSPs grew 30% organically.
Speaker Change: This facility will also have the flexibility to expand capacity for future growth.
Speaker Change: Additionally, just this month, we significantly expanded our MRO facility in East Granby, Connecticut.
Speaker Change: Performance across our aftermarket business is solid.
Speaker Change: Seeing robust demand is MRO sales are up 136% reported and 19% organic in the quarter. In addition, rsp's grew 30% organically.
Thomas J. Hook: With a robust aerospace industry, a long runway of strong demand for both OEM and the aftermarket, and a great team of talented people, we are well on our way to achieve $1 billion in annual aerospace revenue in 2025. Aerospace is now the largest part of Barnes in terms of revenue and profit. Significant progress on our portfolio transformation continues as we shift our business mix towards the higher growth, higher margin, and higher value aerospace market while simplifying and optimizing our industrial businesses to deliver improved performance.
Speaker Change: With a robust aerospace industry, a long runway of strong demand for both OEM and the aftermarket.
Speaker Change: Have a great team of talented people, we are well on our way to achieve $1 billion.
Speaker Change: Annual aerospace revenue in 2025.
Speaker Change: Aerospace and is now the largest part of Barnes in terms of revenue and profit.
Speaker Change: Significant progress on our portfolio transformation continues as we shift our business mix towards the higher growth higher margin and higher value aerospace market, while simplifying and optimizing our industrial businesses to deliver improved performance.
Thomas J. Hook: As disclosed in early April, we closed the sale of the Associated Spring and Hang U business. This divestiture materially reduces our exposure to automotive component manufacturing and represents an important step in our ongoing strategy to integrate, consolidate, and rationalize the Industrial Business. Net cash proceeds of approximately $150 million will be used to reduce debt.
Speaker Change: As disclosed in early April we closed the sale of the associated spring and hanging business.
Speaker Change: This divestiture materially reduces our exposure to automotive component manufacturing and represents an important step in our ongoing strategy to integrate.
Speaker Change: Saudi and rationalize the industrial business.
Speaker Change: Net cash proceeds of approximately $150 million will be used to reduce debt.
Thomas J. Hook: Our Barnes Transformation Office, established one year ago, continues to make great progress across Barnes. This work is critical to the margin expansion, supply chain efficiencies, and manufacturing footprint optimization needed to deliver our profitability target. Before concluding my prepared remarks this morning, I would like to speak about a few changes with respect to our board, including the planned retirements of two of our longtime directors. Tom Barnes has served on our board since 1978 and as chair since 1995, providing steady leadership and guidance during his long tenure.
Speaker Change: Our barns transformation office established one year ago continues to make great progress across Burns. This work is critical to the margin expansion supply chain efficiencies and manufacturing footprint optimization needed to deliver our profitability targets.
Speaker Change: Before concluding my prepared remarks this morning.
Speaker Change: I would like to speak about a few changes with respect to our board, including the planned retirements.
Speaker Change: Two of our longtime directors.
Speaker Change: First.
Speaker Change: Tom Barnes has served on our board since 1978.
Speaker Change: And as chair since $19 95, providing stay leadership and guidance during his long tenure.
Thomas J. Hook: He has been a stalwart champion of our people and an extraordinary community steward. It has been an honor to serve with Tom, and we are grateful for his lengthy dedication and service to the company that his family founded in 1857. We look forward to his continued contributions as Chair Emeritus. Second, I want to thank my esteemed colleague Millie Mangum, the lead independent director, for her tireless dedication and meaningful contributions to Barnes over her 21-year tenure as a director.
Speaker Change: He has been a stellar champion of our people.
Speaker Change: And an extraordinary community steward.
Speaker Change: It has been an honor to serve with Tom and we are grateful for his lengthy dedication and service to the company.
Speaker Change: His family founded and $18 57.
Speaker Change: We look forward to his continued contribution as chair of Meredith.
Speaker Change: Second I want to thank my esteemed colleague Milli Mangum.
Speaker Change: Lead independent director for his tireless dedication and meaningful contributions to Barnes over her 21 year tenure as a director.
Thomas J. Hook: His passion for our people and impact has been profound. Next, I would like to welcome Adam Katz to our board. Adam is one of the founders and the chief investment officer of Renick Capital Manager. I look forward to hearing his insights and perspectives as an investor and welcome his contributions in support of our value creation goal. Finally, I would like to acknowledge Dick Hipple as our new board chair. Dick has significant public company experience and wisdom.
Speaker Change: For energy <unk>.
Speaker Change: And for our people and impact has been profound.
Speaker Change: Next I would like to welcome Adam Cats were bored.
Adam Cats: <unk> is one of the founders and the Chief investment Officer of <unk> Capital management.
Adam Cats: Look forward to hearing his insights and perspective, as an investor and welcomed his contributions in support of our value creation goals.
Adam Cats: Finally, I would like to acknowledge <expletive> hipple as our new Board chair.
Adam Cats: Nick has significant public company experience and wisdom.
Thomas J. Hook: He has been a great partner and colleague since he joined the Barnes board in 2017. I am confident that he will provide the strong board leadership necessary to enhance value for our stakeholders. To close my remarks this morning, 2024 is off to a good start. The ongoing execution of our three-pillar strategy is making Barnes a more focused and competitive company on the path to unleash profitable growth. And a meaningful shift towards aerospace, with its higher growth and profitability characteristics, will accelerate the unlocking of Barnes value.
Adam Cats: He's been a great partner and colleagues since he joined the barns Board in 2017, I am confident that he will provide strong board leadership necessary to enhance value for our stakeholders.
Adam Cats: To close my remarks. This morning, 2024 is off to a good start.
Adam Cats: Ongoing execution of our three pillar strategy is making Barnes, a more focused and competitive company.
Adam Cats: The path to at least profitable growth.
Adam Cats: And a meaningful shift towards aerospace with its higher growth and profitability characteristics will accelerate the unlocking of Barnes value.
Thomas J. Hook: While we have made great progress in a short period of time, we are only approaching the midpoint of the comprehensive transformation of the company. As such, we are taking additional actions to reduce our cost profile, enhance profitability, drive cash generation, and optimize the portfolio in 2024. With that, I will pass the call to Julie to cover our financial performance and outline.
While we have made great progress in a short period of time, we are only approaching the midpoint of the comprehensive transformation of the company as such we are taking additional actions to reduce our cost profile enhanced profitability drive cash generation and optimize the portfolio in 2024.
Adam Cats: With that I will pass the call to Julie to cover our financial performance and outlook.
Julie K. Streich: Thank you, Tom, and good morning, everyone. As a reminder, comparisons are year over year unless otherwise noted. Please turn to slide 8. For the first quarter, sales were $431 million, up 28% reported, and up 4% organic. Foreign exchange was not meaningful in the quarter. Adjusted operating income was $51 million, up 37%, and adjusted operating margin of 11.9% was up 80 basis points. Adjusted EBITDA was $80 million, up 38%, and adjusted EBITDA margin was 18.7%, up 130 basis points.
Julie: Thank you Tom and good morning, everyone.
Julie: As a reminder, comparisons are year over year, unless otherwise noted.
Julie: Please turn to slide eight.
Julie: For the first quarter sales were $431 million up 28% reported and up 4% organic.
Julie: Foreign exchange was not meaningful in the quarter.
Julie: Adjusted operating income was $51 million up 37% and adjusted operating margin of 11, 9% was up 80 basis points.
Julie: Adjusted EBITDA was $80 million up 38% and adjusted EBITDA margin was 18, 7% up 130 basis points.
Julie K. Streich: Interest expense was $25 million versus $5 million a year ago, largely due to higher borrowings given the acquisition of MBIE Aerospace and higher average interest rates. The company's effective tax rate was approximately 85%, primarily driven by $6.8 million of tax expense relating to the sale of Associated Spring and Hanging. On an adjusted basis, the first quarter tax rate was 28 percent.
Julie: Interest expense was $25 million versus $5 million, a year ago, largely due to higher borrowings given the acquisition of MB aerospace and higher average interest rates.
Julie: The company's effective tax rate was approximately 85%, primarily driven by $6 $8 million of tax expense relating to the sale of associated spring and hanging.
Julie: On an adjusted basis, the first quarter tax rate was 28%.
Julie K. Streich: Adjusted net income per share was $0.38 compared to $0.47 a year ago. Now, turning to our segment performance, beginning with aerospace, on slide 9. As Tom noted, our aerospace business is well-positioned to participate in the industry's robust growth, and our top-line performance reflects the strength of our scaled aerospace franchise.
Julie: Adjusted net income per share was 38 cents compared to <unk> 47, a year ago.
Julie: Turning to our segment performance beginning with aerospace on slide nine.
Julie: As Tom noted our aerospace business is well positioned to participate in the industry's robust growth and our top line performance reflects the strength of our scaled aerospace franchise.
Julie K. Streich: For the first quarter, total sales were $221 million, up 89% reported and up 19% organically. Adjusted operating profit of $35 million was up 69%, benefiting from the contribution of higher organic sales volume, inclusive of pricing, favorable aftermarket mix, and the contribution of MB aerospace. These benefits were partially offset by the non-cash amortization of long-term acquired intangibles for the MV Aerospace acquisition and lower productivity at certain OEM facilities. Adjusted operating margin declined 180 basis points to 15.7 percent.
Julie: For the first quarter total sales were $221 million up 89% reported and up 19% organic.
Julie: Adjusted operating profit of $35 million was up 69% benefiting from the contribution of higher organic sales volume inclusive of pricing.
Julie: Favorable aftermarket mix and the contribution of MB aerospace.
Julie: These benefits were partially offset by the non cash amortization of long term acquired intangibles for the NV aerospace acquisition and lower productivity at certain OEM facilities.
Julie: Adjusted operating margin declined 180 basis points to 15, 7%.
Julie K. Streich: Aerospace Adjusted EBITDA was $53 million, up 75%, benefiting from higher organic sales and the contribution of MV Aerospace. The Adjusted EBITDA margin was 24.2% versus 26.1% a year ago. As a reminder, the year-over-year change in aerospace margins is in line with our guidance and reflects the mix between OEM, MRO, and RSP sales following our acquisition of MV Aerospace. As Tom mentioned, aerospace OEM backlog increased 19% sequentially from December and now stands at a record $1.46 billion. We expect to convert approximately 45% to revenue over the next 12 months. Moving to industrial results on slide 10.
Julie: Aerospace adjusted EBITA was $53 million up 75% benefiting from higher organic sales and the contribution of M. B aerospace.
Julie: Adjusted EBITDA margin was 24, 2% versus 26, 1% a year ago.
Julie: As a reminder, the year over year change in aerospace margins is in line with our guidance and reflects the mix between OEM MRO and RSP sales following our acquisition of MB Aerospace.
Julie: As Tom mentioned aerospace OEM backlog increased 19% sequentially from December and now stands at a record $146 billion.
Julie: We expect to convert approximately 45% of revenue over the next 12 months.
Julie: Moving to industrial results on slide 10.
Julie K. Streich: We have made meaningful progress towards delivering our strategy to integrate, consolidate, and rationalize our industrial segment in a short period. April's divestiture of Associated in Spring and Hange and our ongoing cost reduction actions evidence our commitment to transform the business. First quarter sales were $209 million, down 4% on both a reported and an organic basis. Molding solutions organic sales decreased 2%, while motion control solutions and automation were each down 7%.
Julie: We have made meaningful progress towards delivering our strategy to integrate consolidate and rationalize our industrial segment in a short period.
Julie: April's divestiture of associated spring and hanging and our ongoing cost reduction actions evidenced our commitment to transform the business.
Julie: First quarter sales were $209 million down 4% on both a reported and organic basis.
Julie: Molding solutions organic sales decreased 2%, while motion control solutions and automation were each down 7%.
Julie K. Streich: sequentially, industrial sales were up 3%, primarily driven by motion control solutions. Adjusted operating profit was $16 million, down 1%, reflecting lower organic sales volumes and an unfavorable mix, partially offset by positive pricing and VTO cost initiatives. Adjusted operating margin was 7.8%, up 20 basis points. Adjusted EBITDA was $27 million, down 6%. And the adjusted EBITDA margin was 13%, down 30 basis points. Within Industrial's order book this quarter, we saw the timing of certain customer projects pushed out. At Molding Solutions, hot runner demand remains soft while mold demand remains healthy.
Julie: Sequentially industrial sales were up 3%, primarily driven by motion control solutions.
Julie: Adjusted operating profit was $16 million down, 1%, reflecting lower organic sales volumes and unfavorable mix, partially offset by positive pricing and bto cost initiatives.
Adjusted operating margin was seven 8% up 20 basis points.
Julie: <unk> EBITDA was $27 million down, 6% and adjusted EBITDA margin was 13% down 30 basis points.
Julie: Within Industrials order book this quarter, we saw the timing of certain customer projects pushed out at molding solutions Hot runner demand remains soft while mold demand remains healthy.
Julie K. Streich: Excluding the divested business, motion control generated soft tool and die orders but improved orders in general industrial markets, and our automation business experienced lower year-over-year order activity in the quarter. However, sequentially, industrial orders improved 7% with molding solutions, automation, and the remaining motion control businesses all contributing. Commercial strategies developed by leadership teams named in Q4 are gaining traction, and we anticipate momentum to build in support of our strengthening second half outlook. As Tom mentioned, we completed the sale of Associated Spring and Hange in early April.
Julie: Excluding the divested business motion control generated soft tool and dye orders, but improved orders in general industrial markets and our automation business experienced lower year over year order activity in the quarter.
Julie: Sequentially industrial orders improved 7% with molding solutions automation and the remaining motion control businesses all contributing.
Julie: Commercial strategy is developed by leadership teams named in Q4 are gaining traction and we anticipate momentum to build in support of our strengthening second half outlook.
Julie: As Tom mentioned, we completed the sale of associated spring and hanging in early April.
Julie K. Streich: He provided highlights of the transaction, but let me take a moment to share a few more details. At March quarter end, the assets and liabilities of these businesses were classified as held for sale on the balance sheet. Tax charges are estimated at $16 million, with $6.8 million of these charges recorded in the first quarter.
Julie: He provided highlights of the transaction, but let me take a moment to share a few more detail.
Julie: At March quarter end, the assets and liabilities of these businesses were classified as held for sale on the balance sheet.
Julie: Tax charges are estimated at 16 million with $6 8 million of these charges recorded in the first quarter.
Julie K. Streich: Turning to the balance sheet and cash flow on slide 11, year-to-date cash used by operating activities was $2.3 million versus cash provided of $32.2 million a year ago. The decrease was largely due to cash used for accrued liabilities, working capital, and an increase in other current assets. Capital expenditures of $12.8 million were up $1.9 million and related to the company's restructuring program and investments for growth. Free cash flow was a negative $15.2 million.
Julie: Turning to the balance sheet and cash flow on slide 11.
Julie: Year to date cash used by operating activities was $2 3 million versus cash provided of $32 2 million a year ago.
Julie: The decrease was largely due to cash used for accrued liabilities working capital and an increase in other current assets.
Julie: Capital expenditures of $12 $8 million were up $1 9 million and relate to the company's restructuring program and investments for growth.
Julie: Free cash flow was a negative $15 2 million.
Julie K. Streich: Our net debt to EBITDA ratio was 3.62 times at quarter end, which improved modestly from 3.64 times at the end of 2023. We remain on track to achieve a leverage ratio of three times or lower by the end of 2024 and 2.5 times by the end of 2025. Liquidity, as of March 31st, was $426 million, including $82 million in cash on hand and $344 million available under our revolving credit facility. With the debt recapitalization for our MV Aerospace acquisition, there are no major debt maturities until 2028. During the quarter, Barnes refinanced its Term Loan B facility.
Julie: Our net debt to EBITDA ratio was 362 times at quarter end, which improved modestly from $3 six four times at the end of 2023.
Julie: We remain on track to achieve a leverage ratio of three times or lower by the end of 2024 and two five times by the end of 2025.
Julie: Liquidity as of March 31 was $426 million, including $82 million in cash on hand, and $344 million available under our revolving credit facility.
Julie: With the debt recapitalization for MB Aerospace acquisition, there are no major debt maturities until 2028.
Julie: During the quarter Barnes refinance its term loan b facility.
Julie K. Streich: While the terms are essentially unchanged, we will see a reduction of 60 basis points in the interest rate on outstanding borrowing. Accordingly, we expect interest and tax savings of approximately $1.4 million in 2024 and $4.7 million in 2025. Turning to slide 12, our full year outlook has improved slightly. We now expect total sales to be up 13% to 16%, with organic sales of 5% to 8%. Both ranges are up one percentage point at the bottom end due to aerospace strength.
Julie: While the terms are essentially unchanged, we will see a reduction of 60 basis points in the interest rate on outstanding borrowings.
Julie: Accordingly, we expect interest and tax savings of approximately $1 4 million in 2024, and $4 7 million in 2025.
Julie: Turning to slide 12, our full year outlook has improved slightly.
Julie: We now expect total sales to be up 13% to 16% with organic sales of 5% to 8% both ranges up one percentage point at the bottom end due to aerospace strength.
Julie K. Streich: We expect aerospace sales growth to be approximately 60% inclusive of a full year contribution from MB Aerospace and forecast aerospace organic sales growth in the mid-team. For industrial, we continue to expect total sales to be down mid-teens given the divestiture and organic sales to be up low single digits. In addition, our outlook assumes a stronger second half of the year in industrial. Adjusted operating margin expectations are unchanged, with total Barnes between 12 to 14%. Aerospace between 15-16% and industrial between 8.5-10%. Full year depreciation and amortization expense is expected to be approximately $130 million.
Julie: We expect aerospace sales growth to be approximately 60% inclusive of a full year contribution from MB aerospace and forecast aerospace organic sales growth in the mid teens.
Julie: For industrial we continue to expect total sales to be down mid teens, given the divestiture and organic sales to be up low single digits.
Julie: In addition, our outlook assumes a stronger second half of the year in industrial.
Julie: Adjusted operating margin expectations are unchanged.
Julie: With total Barnes between 12% to 14%.
Julie: Aerospace between 15% to 16% and industrial between eight 5% to 10%.
Julie: Full year depreciation and amortization expense is expected to be approximately $130 million.
Julie K. Streich: Adjusted EBITDA margin guidance is unchanged in the range of 20 to 22 percent. This reflects aerospace adjusted EBITDA margin of 24 percent to 25 percent and industrial of 15 to 16 percent. We expect adjusted EPS of between $1.62 and $1.82, up $0.07 on the bottom end of the range and $0.02 at the top end of the range versus our February expectation, reflecting the benefit of our first quarter performance and Terminal B repricing, partially offset by a higher-for-longer interest rate environment.
Julie: Adjusted EBITDA margin guidance is unchanged in the range of 20% to 22%. This reflects aerospace adjusted EBITDA margin of 24% to 25% and industrial of 15% to 16%.
Julie: We expect adjusted EPS of between $1 62.
Julie: And $1 82.
Julie: Seven on the bottom end of the range and <unk> at the top end of the range versus our February expectation, reflecting the benefit of our first quarter performance and term loan b repricing, partially offset by a higher for longer interest rate environment.
Julie K. Streich: On slide 13 of our earnings presentation, we have included additional 2024 guidance assumptions for modeling purposes. One last point on the outlook regarding the portfolio transformation supporting our long-term strategy. As previously disclosed, the associated spring and hangy divestiture will reduce year-over-year EPS by $0.28, and the MV Aerospace acquisition will be approximately $0.20 dilutive in-year, but EPS neutral to accretive exiting 2024. Our portfolio transformation is positioning us for higher, more profitable growth over the long term.
Julie: On slide 13 of our earnings presentation. We have included additional 2024 guidance assumptions for modeling purposes.
Julie: One last point on the outlook regarding the portfolio transformation supporting our long term strategy as previously disclosed the associated spring and hanging divestiture will reduce year over year EPS by <unk> 28.
Julie: And the MV aerospace acquisition will be approximately <unk> <unk> dilutive in year, but EPS neutral to accretive exiting 2024.
Julie: Our portfolio transformation is positioning us for higher more profitable growth over the long term, we are well positioned and energized to take advantage of the growth opportunities before us in aerospace and we will continue to optimize our industrial businesses as we execute our three pillar strategy.
Julie K. Streich: We are well positioned and energized to take advantage of the growth opportunities before us in aerospace and will continue to optimize our industrial businesses as we execute our three-pillar strategy. Operator, we will now open the call to questions.
Speaker Change: Later, we will now open the call for questions.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And your first question comes from Matt Summerville with D.A. Davidson. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue.
If you would like to withdraw your question simply press Star. One again, if you are called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking your questions.
And your first question comes from Matt Summerville with D. A Davidson. Please go ahead.
Matt J. Summerville: Thanks. A couple of questions. The second half, better in industrial. I've heard that probably a number of times over the course of my covering Barnes in the last 20 years. What underpins the better second half outlook for industrial today versus what the company's talked about in the past that, again, just seemingly hasn't come to fruition more times than not?
Matt J. Summerville: Thanks, a couple of questions.
Matt J. Summerville: Second half better than industrial.
Matt J. Summerville: Probably a number of times.
Matt J. Summerville: Over the course of my covering bonds in the last 20 years what underpinned.
Matt J. Summerville: <unk> had a better outlook for industrial today versus what the company has talked about in the past.
Matt J. Summerville: Again, just seemingly hasn't come to fruition.
Matt J. Summerville: More times than.
Thomas J. Hook: So, help me with that first.
Speaker Change: So help me with that first please.
Thomas J. Hook: Certainly, Matt. Thanks for the question. Last year was largely about the industrial portfolio. Implementing the strategy of integrate, consolidate, and rationalize. It was standing up teams to do the transformation, integrating the management teams and putting them in place, which took place in the third and fourth quarters of last year, which gave us a real solid foundation start on the integration side. A series of transformation products were being implemented last year. We had to set up the systems to manage those transformation products.
Speaker Change: Certainly Matt Thanks.
Speaker Change: Thanks for the question.
Speaker Change: Last year largely was through the industrial portfolio.
Speaker Change: Implementing the strategy of integrate consolidate and rationalize.
Speaker Change: It was standing up teams to do the transformation.
Speaker Change: Reading the management teams and putting them in place, which took place in the third and fourth quarter of last year.
Speaker Change: Which gave us a real solid foundation start on the integration side.
A series of transformation products were being implemented last year, we had to stand up the systems to manage those transformation products. So heading in to 2024.
Thomas J. Hook: So heading into 2024, we have a much stronger foundation to kick the year off, hence it's delivered some very nice solid results as we close the first quarter. That momentum in those teams that have been in place, significantly on a sequential basis, improves penetration of the commercial market excellence initiatives into the market. Our overall sales funnel is healthier, our overall look into the markets is healthier, and it's resulting in sequential orders increasing on all the businesses that we have in industrial.
Speaker Change: Have a much stronger foundation to kick the year off 10 ships delivered some very nice solid results as we closed the first quarter that momentum and those teams that have been in place.
Speaker Change: Significantly on a sequential basis improves penetration to the commercial market excellence initiatives into the market.
Speaker Change: Our overall sales funnel is healthier or.
Speaker Change: Our overall look into the markets are healthier and it's resulting in sequential orders increase on all of the businesses that we have in industrial and it's that momentum and the effect for the full year of the transformation project savings coming into effect that make that trajectory into the second half stronger.
Thomas J. Hook: And it's that momentum and the effect of the full year of the transformation project savings coming into effect that make the trajectory into the second half stronger. We're not expecting any macro shifts in the markets, but it's just our operational performance and execution that'll deliver against that. And we see ourselves very well positioned to do that.
Speaker Change: We're not expecting any macro shifts.
Speaker Change: In the markets, but it's just our operational performance and execution that will deliver against that and we see very well positioned to do that.
Thomas J. Hook: Got it. As you think about the bigger picture around the industrial segment today, do you view any of these businesses as core at this juncture? And just to review the 38 million in run rate savings. How much will actually be realized? So the 30th is a run rate number you bill to. I get that. So how much is actually realized on X spring and Hengi in 24 versus what was actually realized on the P&L in 23? Thank you.
Speaker Change: Got it.
Speaker Change: <unk>.
Speaker Change: Bigger picture around the industrial segment today do you view any of these businesses as core at this juncture and just to review the $38 million run rate savings.
Speaker Change: How much will be actually realized.
Speaker Change: <unk> a run rate number you build to that so how much is actually realized ex spring in handy in 24 versus what was actually realized in the P&L in 23. Thank you.
Thomas J. Hook: Got it. Well, from a big picture perspective, I'll give you the macro, and then I'll let Julie talk about the run rate savings on the $38 million. The big picture perspective is we're strategically looking at the entire industrial portfolio, how it is comprised and fits together, and evaluating all of our strategic alternatives. That will be started in 2023. It's been a very active process this year. We hit a clear major milestone exiting automotive components with the associated spring and hanging divestiture.
Speaker Change: Got it well from a big picture perspective.
Speaker Change: Give you the macro and then I'll, let Julie talk to the run rate savings on the $38 million Big picture perspective is we're strategically we're looking at the entire industrial portfolio. How it is comprised and fits together and evaluating all of our strategic alternatives. That's been started in 2023 has been a very active process.
Speaker Change: This year, we hit a clear major milestone eggs.
Speaker Change: Exiting automotive components with the associated spring hanging divestiture, we're looking at all the other business for how they fit into Barnes industrial portfolio evaluating our alternatives nothing to communicate at this time.
Thomas J. Hook: We're looking at all the other businesses for how they fit into Barnes' industrial portfolio and evaluating our alternatives. Nothing to communicate at this time. We, our macro perspective on the synergies, we expect to be able to precipitate the full extent of those synergies in 2024 for industrial that we've outlined as we head into 2025, part of the three-year program, but I'll let Julie give you the progression of how that incrementally works from last year to this year from a numbers perspective.
Julie: We are macro perspective on the synergies we expect to be.
The precipitate the full extent of those synergies in 2024 for industrial that we've outlined as we head into 2025 part of the three year program, but I'll, let Julie give you the progression of how that incrementally works in from last year to this year from a numbers perspective.
Julie: Hey, Matt Yeah for the full year, we're looking at about $16 million million dollars of in year savings, we realized about $6 million to $7 million of that in the first quarter and we will continue to see that build as Tom mentioned the nuance. This.
Julie K. Streich: For the full year, we're looking at about $16 million of in-year savings. We realized about six to seven million of that in the first quarter.
Julie K. Streich: And we'll continue to see that build, as Tom mentioned. The nuance this year as well is that we'll start to see some benefits flow through the aerospace side of the business as the LEAP transformation program where we're transitioning work from our Windsor facility to Singapore also starts to take effect. So net net, you'll see about 16 million in a year.
Julie: Here as well is that we'll start to see some benefits flow through the aerospace side of the business as the leap transformation program, where we're transitioning work from our Windsor facility to Singapore also starts to take effect. So net net you'll see about $16 million in year.
Matt J. Summerville: Got it. Thanks, guys. I'll get back.
Speaker Change: Got it thanks, guys I'll get back in queue.
Operator: Your next question comes from the line by Christopher Glynn with Oppenheimer. Please go ahead.
Speaker Change: Your next question comes from the line of Christopher Glynn with Oppenheimer. Please go ahead.
Speaker Change: Yeah.
Hi, good morning.
Christopher D. Glynn: Hi, good morning. I have good news for you on the CFM 56 kind of shop visit peak extensions here. Just a question on free cash flow guidance. I believe it's unadjusted. So, I'm curious what the current year's impacts are. You gave us deal taxes, so that $16 million comes back next year. And, but in terms of other transaction costs, restructuring cash, et cetera, so we can think about a bridge to, you know, an otherwise clean operating cash number.
Speaker Change: Yes.
Christopher D. Glynn: Good good good news for you on the CN CA.
Christopher D. Glynn: <unk> hundred 56 kind of shop visit extensions here.
Speaker Change: Just a question on free cash flow guidance I believe it's unadjusted. So curious what the current year impacts are.
Speaker Change: Gave us deal taxes, so that $16 million comes back next year and.
Speaker Change: But in terms of other transaction costs restructuring cash et cetera. So we can think about a bridge too.
Speaker Change: Otherwise clean operating cash number.
Speaker Change: Yes. It is.
Thomas J. Hook: I'll let Julie answer the free cash flow guidance question, but yes, I would reiterate the aftermarket CFM56 expansion is very good news, and given our positioning with the expansions and our MRO facilities, both in the Americas and in Singapore, we feel very well positioned on the aftermarket side to respond to increased requirements from customers to grow the aftermarket business going forward, and I think that does really position the aerospace aftermarket well. I'll let Julie talk about the free cash flow guidance question, Matt.
Speaker Change: I'll, let Julie answer the free cash flow guidance question, but yes, we I would reiterate.
Speaker Change: <unk> aftermarket CFM 56 extension is very good news and given our positioning with expansions in our MRO facilities, both in the Americas and in Singapore, we feel very well positioned on the aftermarket side to respond to inquiries.
Speaker Change: Lease requirements from our customers to grow the aftermarket business going forward.
Speaker Change: That does really position the aerospace aftermarket well prospectively I'll, let Julie talk to the free cash flow guidance question.
Speaker Change: So.
Julie K. Streich: If I understood your question correctly, Chris, on a normalized basis, if you think about unadjusted numbers, we would still look to have cash flow generation and Cash Conversion exceeding 100%. The numbers this year of 140% cash conversion, if you look at that on an adjusted net income basis, gets you down closer to that greater than 100%. So that's not a specific numeric answer, but it's directionally what we would expect the business to generate.
Julie: If I think if I understood. Your question correctly, Chris on a normalized basis, if you think about.
Julie: Unadjusted numbers, we would still look to have cash flow generation.
Julie: And cash conversion exceeding 100%.
Julie: The <unk>.
Number this year of 140% cash conversion if you look at that and on an adjusted net income basis gets you down closer to that greater than 100%.
Julie: No that's not a specific numeric answer, but it's directionally, what we would expect the business to generate.
Christopher D. Glynn: Yeah, what's the impact of cash restructuring this year and transaction costs that you expect that are in your free cash flow number if you have some kind of roundish numbers there? Sure, so we have a number of...
Julie: Yes.
Julie: The impact of cash restructuring this year.
Julie: Transaction costs.
Julie: You expect better and your free cash flow number if you have some kind of roundish numbers there.
Speaker Change: Sure. So we have a number of items that are contributing there are adjusted taxes are $42 million Theres, a transition tax payment of $17 million, we have associated spring and hanging operating taxes about $16 million.
Julie K. Streich: Sure. So, we have a number of items that are contributing there. Our adjusted taxes are $42 million. There's a transition tax payment of $17 million. We have associated spring and summer operating taxes, about $16 million. So, those are some of the one-time items that are hitting this year.
Speaker Change: So those are some of the one time items that are hitting this year.
Speaker Change: Okay.
Operator: Your next question comes from the line of Sam Strewshaker from Truist Securities. Please go ahead.
Speaker Change: Okay. Thank you.
Speaker Change: Yes, no problem.
Your next question comes from the line of.
Speaker Change: Sam It's true Shaker from Truest Securities. Please go ahead.
Sam Strewshaker: Hi, good morning, guys. I'm Mike Ciarmoli.
Thomas J. Hook: I was curious, you guys called out lower productivity in some of your aerospace facilities. Can you just give any more detail on maybe kind of what the drivers were for that? And then also, if you have any idea, maybe [inaudible]
Hi, good morning, guys on for much more.
Sam Shaker: I was curious you guys pulled out lower productivity in some of your aerospace facilities can you give any more detail on that would be kind of what the drivers were and then also if you have any idea of who will be the sales trajectory with an M. B moving forward.
Speaker Change: Thank you.
Speaker Change: Yes. It is.
Thomas J. Hook: From the aerospace side, we have addressed very nicely in the aftermarket our aerospace aftermarket facility productivity issues. So on the aftermarket side now, not only are we adding capacity in the Americas and Asia, but we've also corrected the operational productivity issues we had in that aftermarket facility. And on the OEM side, we have a mix of supply chain challenges, supply chain inputs, which are not, you know, symmetrical; they're jumpy, as well as some labor productivity in the plants with lower tenured employees and inefficiency.
Speaker Change: From the aerospace side.
<unk> addressed very nicely in the aftermarket.
Speaker Change: Our arrows.
Speaker Change: <unk> aftermarket facility productivity issues. So on the aftermarket side now where not only are you adding capacity in the Americas and Asia. We've also corrected the operational productivity issues, we had in that aftermarket facility and the OEM side, we have a.
Speaker Change: A mix of both supply chain challenges supply chain inputs, which are nuts.
Speaker Change: Symmetrical there.
Speaker Change: There jumpy as well as we have some lay.
Speaker Change: Labor productivity in the plants with lower tenured employees and inefficiencies.
Thomas J. Hook: On the good side, we have each of those facilities identified, we have made leadership changes, we put in additional resources, we brought in external resources, and now they're helping that corrective action journey to get those resolved in those situations. And we're expecting good progress over the course of 2024 to directly address those more aggressively. And we're, you know, in our second half of the year. We're projecting that we'll be able to work our way out of those challenges, just like we did with the aftermarket facility.
Speaker Change: On the good side is we have each of those facilities identified we have.
Speaker Change: Made leadership changes you put in additional resources, we brought in external resources now that are helping that corrective action journey to get that resolved and those situations and we're expecting good progress over the course of 2024 to directly address those more aggressively.
Speaker Change: And we are.
Speaker Change: Our second half of the year, we're projecting that we'll be able to work our way out of those challenges just like we did the aftermarket facility.
Thomas J. Hook: We can't control the supply chain asymmetries, but we are expecting relief over the course of the second half of the year on some of that supply chain inconsistency that hurts OEM production flow. And we're expecting that also to be a positive SAM as well. I didn't quite catch your question on MB, the second part of your question. Could you just repeat that?
Speaker Change: We can't control the supply chain.
Speaker Change: Asymmetries, but we're expecting relief over the course of the second half of the year and some of that supply chain and consistency.
Speaker Change: Production flow.
Speaker Change: And we're expecting that also to be a positive Sam as well.
Speaker Change: Didn't quite catch your question on the second part of your question could you just repeat that.
Sam Strewshaker: Yeah, no problem, just if you guys have any idea in terms of kind of what we might think about for a sales trajectory moving forward, like looking forward within MVA Aerospace, and then I guess also kind of building on that, there have been some other operators in the aftermarket that talked about increased visibility, you know, to 18 to 24 months, especially, you know, the Aftermarket show, and I was just curious if you guys kind of have a similar level of visibility or what you're seeing in terms of that. Certainly, well, we're expecting it.
Sam Shaker: Yes, no problem just if you guys have any idea in terms of kind of what we might think about through sales trajectory moving but looking forward with an MBA aerospace and then I guess also kind of building on that there've been some other.
Sam Shaker: Operators in the aftermarket you talked about increased visibility is the 24 months, especially as you know.
Sam Shaker: Aftermarket show and I was just curious if you guys kind of have a similar level of visibility of what youre seeing in terms of that.
Speaker Change: Certainly, while we're expecting from an <unk> standpoint.
Thomas J. Hook: Certainly, well, we're expecting from an MB standpoint, you know; we wouldn't break it down to an individual facility, but overall, we're on the projections of the combined deal model between Barnes Aerospace and MB. There is a little bit of a shift towards a healthier aftermarket, as you know, and we can confirm that, really, given the, you know, slower pace of OEMs delivering particular aircraft from Boeing, it is shifting more workload into the aftermarket on the CFM56 platform, which is favorable to us.
Speaker Change: We wouldn't break it down to an individual facility, but overall, we're on the projections. The combined deal model between Barnes Aerospace and M. B there is a little bit of a shift towards healthier aftermarket as you know and we can confirm that really given the.
Speaker Change: Our pace of Oems delivering particularly.
Speaker Change: Craft for Boeing it is shifting more workload into the aftermarket on the CFM 56 platform, which is favorable to US. We also see that favorable tilt on the MB product lines that we've acquired in the aftermarket. So we're expecting that robust environment continue.
Thomas J. Hook: We also see that favorable tilt on the MB product lines that we've acquired in the aftermarket. So, we're expecting that robust environment to continue. It is tempered a little bit by availability in the supply chain of how much growth can be supported, but we also feel that putting on additional capacity could continue that growth trajectory for many years to come. So, we feel confident in the deal model of MB Aerospace. There are puts and takes as we decide how to rebalance the portfolio across Barnes and MB facilities as we do some of the transformation efforts, but overall, on a consolidated basis, we have a very robust and healthy view of the rest of 24 heading into the future years. Great, thank you. Welcome. Your next question comes from the line of Greg Dahlberg with Wolf Research. Please go ahead.
Speaker Change: Tempered a little bit by availability in the supply chain of how much growth can be supported.
Speaker Change: But we also feel that putting on additional capacity to continue that growth trajectory for many years to come.
Speaker Change: So we feel confident in the deal model then be aerospace there are puts and takes as we decide how to rebalance the portfolio across orange and N b facilities as we do some of the transformation efforts, but overall on a consolidated basis, we have a very robust and healthy view of the rest of the 24 heading into the future years.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Greg Dahlberg Whitfield with Wolfe Research. Please go ahead.
Speaker Change: Hi, Good morning, Tom and Julia I'm on for Myles Walton did add one.
Speaker Change: I had one quick question.
Speaker Change: So kind of taking into account everything we've talked about so far in aerospace guy getting kicked up at the bottom end can you just talk about the moving pieces. So your latest 2020 core sales outlook for <unk>.
Operator: Hi, good morning, Tom and Julie.
OE aftermarket RSP any any major changes to talk to you there.
Thomas J. Hook: I'll give a little background and then Julie can chime in. What we expect, obviously, with some of the changes on the new deliveries of aircraft, while Boeing will obviously be adjusting their output rate, it won't necessarily equate to increases at Airbus. So we're expecting stronger risk transfer of that, you know, type of compression in the aftermarket growth for us, which we actually think is more favorable in the overall mix of our aerospace business from a profitability perspective.
Speaker Change: I'll give a little background and then Julie can chime in.
Speaker Change: Expect obviously with some of the changes on that.
Speaker Change: New deliveries of aircraft.
Speaker Change: Boeing will obviously be adjusting their output rate.
Speaker Change: It won't necessarily equate to increases at Airbus, So, we're expecting stronger risk transfer that type.
Speaker Change: Type of compression in the aftermarket growth for us, which we actually think it was more favorable in the overall mix of our aerospace business from a profitability perspective.
Thomas J. Hook: From a trajectory of the, you know, broader industry, we still see overall travel very strong heading into the year and into next year. So, we see strength across really all platforms. For us, you know, with the combination of MB, we feel very geographically balanced, very balanced across all the engine OEM manufacturers, both on the OEM side, as well as on the aftermarket side. So, even though there may be, from an aerospace perspective, shifts within the market, we feel we're quite balanced across it.
Speaker Change: For me.
Speaker Change: The trajectory of the broader industry, we still see.
Speaker Change: We're all travel.
Speaker Change: <unk> strong heading in to the year and into next year.
Speaker Change: So we see strength across really all platforms.
Speaker Change: For us.
Speaker Change: With the combination of that would be we feel very geographically balanced very balanced across all the engine OEM manufacturers, both on the OEM side as well as in the aftermarket side.
Speaker Change: So even though there may be an aerospace perspective shifts within the market, we feel we're quite balanced across it to be able to pick up those shifts we're consciously making sure. We are ahead of capacity.
Thomas J. Hook: To be able to pick up those shifts, and we're consciously making sure we're ahead of capacity and also making sure that we're addressing the operational challenges proactively, so that we can win that business and keep the trajectory growing on a profitable basis. If you want the X's and O's of the guidance, we can get into that a little bit more, but we think all of that macro picture is digested into our prospective view on guidance as well.
Speaker Change: And also making sure that we are addressing the operational challenges proactively so that we can win that business and keep the trajectory growing on a profitable basis.
Speaker Change: If you want the Xs and OS.
Speaker Change: The guidance, we can get into that a little bit more but we think all of that macro picture is digested into our prospective view on guidance as well.
Speaker Change: Perfect. Thank you so much.
Operator: Your next question comes from the line by Christopher Glynn with Oppenheimer. Please go ahead. Thanks.
Speaker Change: Welcome.
Speaker Change: Your next question comes from the line of Christopher Glynn with Oppenheimer. Please go ahead.
Christopher D. Glynn: Thanks, I misplaced my other question on the first try. I was curious about quantifying the MV related amortization and you know where you are in terms of thoughts to potentially exclude that in the future from Adjusted EPS.
Christopher D. Glynn: Thanks, and misplaced my other question the first try.
Christopher D. Glynn: Curious about.
Christopher D. Glynn: If you could quantify that and the related amortization and.
Christopher D. Glynn: We are in terms of thoughts to potentially exclude that in the future.
Christopher D. Glynn: From adjusted EPS.
Julie K. Streich: Thanks for the question, Chris. So there is a significant impact, obviously, from the amortization that I will talk about in a second. And because we are now also guiding to adjusted EBITDA, that is our way of giving a metric that neutralizes that. So when we model and when we talk about the business and think about the business, we can think about it from a clean perspective.
Christopher D. Glynn: Sure.
Speaker Change: Thanks for the question, Chris So there is a significant impact obviously from the amortization that I will talk to you in a second and because we are now also guiding to adjusted EBITDA that is our way of giving a metric that.
Speaker Change: Realizes that well.
Speaker Change: When so when we model and when we talk about the business and think about the business. We can think about it on a clean perspective.
Operator: In the quarter, there was about six-ish million dollars of amortization related to the deal. But if we think about it on an adjusted EBITDA margin perspective, the overall portfolio from the legacy business would have had margins that were up a couple hundred basis points year over year. That was offset by about 400 basis points of Deludive Impact from MB, netting to the 190 basis points that we spoke about in our earnings.
Speaker Change: In the quarter, there was about six ish million dollars of amortization.
Speaker Change: Related to the deal, but if we think about it on an adjusted EBITDA margin perspective.
Speaker Change: The overall portfolio from the legacy business would have had margins that were up a couple of hundred basis points year over year that was offset by about 400 basis points of <unk>.
Speaker Change: The dilutive impact from MB, netting to the 190 basis points that we spoke about in our earnings I'll remind you, though and it's really important we do always keep this in mind M. B has a very rich mix of OE and aftermarket business. They have healthy margins and it is a business.
Operator: I'll remind you, though, and it's really important we do always keep this in mind, MB has a very rich mix of OE and aftermarket business. They have healthy margins, and it is a business that is performing well for us. The single differential is that the legacy business benefits from RSPs, which as you know have an additionally higher level of margin, and it's just the law of averages when you blend the two portfolios.
Speaker Change: That is performing well for us the.
Speaker Change: The single differential is that the legacy business benefits from Rsp's, which as you know have and additionally, higher level of margin and that's just the law of averages when you blend the two portfolios. So strategically great deal strategically the right thing for the business long term.
Operator: So strategically, a great deal, strategically the right thing for the business long term, and the margins that we delivered this year are in line with expectations. So I hope that answers your question and provides a little bit more color as well.
Speaker Change: <unk> and the margins that we delivered this year are in line with expectations. So I hope that answers your question and provides a little bit more color perspective as well.
Speaker Change: Thank you.
Matt J. Summerville: Your next question comes from the line of Matt Summerville with DA Davidson. Please go ahead.
Speaker Change: Your next question comes from the line of Matt Summerville with D. A Davidson. Please go ahead.
Thomas J. Hook: Thanks, that was, and I apologize if you mentioned this in the prepared remarks, but can you give us a feel for how the go forward quarterly earnings cadence, adjusted EPS cadence, sort of plays out for Barnes for the remainder of the year?
Matt J. Summerville: Thanks, Kevin.
Matt J. Summerville: Apologize if you mentioned this in the prepared remarks, but can you give us a feel for how.
Matt J. Summerville: The go forward quarterly earnings cadence adjusted EPS cadence sort of plays out for Barnes for the remainder of the year.
Thomas J. Hook: Certainly, I'll give you the macro math, and then Julie can chime in with some more specifics. As you know, post the Associated Spring and Heinz Hange acquisitions that we guided to the first quarter perspective, we have some integration stranded costs that we're taking out of the business. We have the BTO initiatives that are coming in full force over the course of 24. We also have the Barnes Aerospace Transformation starting to kick in over the second half, in particular for savings.
Kevin: Certainly I will give you the macro Matt and then Julie can chime in with some more specifics as you know post associated spring and Heinz Hany.
Kevin: We guided to the first quarter perspective.
Kevin: Some integration stranded cost that were taking out of the business. We have the bto initiatives are coming in full force over the course of 2004. We also have the Barnes aerospace transformation starting to kick in over the second half in particular for savings that in combination with.
Thomas J. Hook: That, in combination with the very strong commercial portfolio that is. I would like to start by saying that we are in a very strong order trajectory for industrial. We are projecting stronger results into the back half of the year, obviously reflecting all the benefits of those programs. I will let Julie give a little more color with regard to how she thinks that breaks down on a quarterly basis for 2024.
Kevin: Very strong commercial portfolio that is.
Kevin: Really appreciate a lot of orders.
Kevin: In the beginning of the year here at aerospace and sequentially very strong orders trajectory for industrial.
Kevin: Projecting stronger results into the back half of the year, obviously, reflecting the all the benefits of those programs I'll, let Julie gave a little bit more color with regards to how should you think that breaks down over the course on a quarterly basis for 24.
Julie: So without giving specific guidance by the quarter I would we're expecting that the second quarter will be slightly better than the first quarter and we would ramp in the second half and tying back to the question you asked earlier, Matt that's largely due.
Julie K. Streich: So without giving specific guidance by the quarter, we're expecting that the second quarter will be slightly better than the first quarter, and we will ramp up in the second half.
Julie K. Streich: And tying back to the question you asked earlier, Matt, that's largely driven by the fact that we are watching how macro industry supply chain challenges play out in aerospace. The second quarter will allow us time to continue to address the productivity and throughput opportunities we have at specific facilities, and we'll continue to see commercial activities on the industrial side ramp up. So, as mentioned, if you're thinking about it from a modeling perspective, Q2 will be slightly favorable to Q1, and then we would ramp up in the back.
Julie: Driven by the fact that we are watching how.
Julie: Macro industry supply chain challenges play out in aerospace.
Julie: The second quarter will allow us time to continue to address the productivity and throughput opportunities we have at specific facilities and we'll continue to see.
Julie: The commercial activities on the industrial side ramp.
Julie: So.
Julie: As mentioned.
Julie: If youre thinking about it from a modeling perspective, Q2 will be slightly favorable to Q1, and then we would ramp in the back half.
Thomas J. Hook: Got it. And then maybe just digging into industrial and aero a little bit deeper, when you think about the organic outlook, mid-teens, aero, low-single, industrial, how do the various SBUs kind of revolve around those midpoints, if you will? Can you kind of hit on OE versus the aftermarket categories in aero, and then the three remaining SBUs in industrial relative to the segment average organic expected, please?
Speaker Change: Got it.
Speaker Change: And then maybe just digging into industrial and Aero.
Speaker Change: A little bit deeper when you think about the organic outlook mid teens arrow low single industrial how do the various SP use kind of revolve around those mid points. If you will can you kind of hit on OE versus the aftermarket categories narrow and then the three remaining SB used in industrial.
Speaker Change: Relative to the <unk>.
Speaker Change: Segment average organic expected please.
Thomas J. Hook: Certainly, I can give you some qualitative comments, Matt. On industrial, you're going to see all the businesses really be fairly close to that target range. We see the effectiveness, not necessarily that it's market driven; we see the effectiveness as the integration of the teams and the rejuvenated commercial market efforts to go to market. So despite some challenging conditions in some of the industrial markets, we still feel that we can grow the underlying businesses.
Speaker Change: Certainly I can give you some qualitative comments Matt.
Speaker Change: Duster Ilya there youre going to see all the businesses really be fairly close into that target range.
Speaker Change: See the effectiveness not necessarily that it's market driven we see the effectiveness as the integration of the teams in the region.
Speaker Change: <unk> commercial market efforts to go to market.
Speaker Change: So despite some challenging conditions in some of the industrial markets. We still feel we can grow the underlying businesses, we see the order flow of each of those businesses increasing sequentially and.
Thomas J. Hook: We see the order flow of each of those businesses increasing sequentially in response to those initiatives that we put in place, both the ETL cost savings initiatives, as well as those commercial, team initiatives to build the funnel. So I don't think across industrial, we're gonna see much variation across that midpoint of that trajectory. Arrow is a different story.
Speaker Change: In response to those initiatives that we put in place for the CTO cost savings initiatives as well as those commercial.
Speaker Change: Our team initiatives to build the funnel. So I don't think across industrial you're going to see much variation across that midpoint of that trajectory.
Speaker Change: Zero is a different story you will see that the aftermarket will continue to be strong tempered by some supply chain availability at a certain point.
Thomas J. Hook: We will see that the aftermarket will continue to be strong, tempered by some supply chain availability. You know, at a certain point, even with additional capacity and engagement of the customer on the demand side, we will have some limitations on the supply chain to be able to deliver against that growth. But I do feel that there'll be a shift as OEMs may have some tempering against that growth.
Speaker Change: Our ability even with additional capacity and engagement of the customer on the demand side, we will have some limitations on the supply chain to be able to deliver against that growth, but I do feel that there'll be a shift as OEM may have some temporary.
Speaker Change: Against that growth the aftermarket will continue to be stronger.
Thomas J. Hook: The aftermarket will continue to be stronger, and we were expecting that, provided we don't have any limits on the supply chain, that it'll continue that transition. Of course, there's a lot of dynamics as we look forward. We will end up having to see what happens with the production output rates in the new aircraft and how that could affect that. But in general, I'd say qualitatively aftermarket stronger and OEM just a touch under what our original projections were.
Speaker Change: And we're expecting that provided we don't have any limits against the supply chain that it'll continue that transition of course theres a lot of dynamics as we look forward.
Speaker Change: We'll end up having to see what happens with the production output rates on the new aircrafts.
Speaker Change: Could affect that but in general I would say qualitatively aftermarket stronger an OEM just a touch under our.
Our original projections were.
Thomas J. Hook: Got it. So I want to dig into molding solutions for a minute. Can you talk about what you saw from, on a sequential basis, incoming order activity with respect to both hot runners and molds? Can you talk about whether you've begun to alleviate some of the capacity constraints you've been facing in the molding solutions segment? Maybe comment on what lead times there are presently looking like.
Speaker Change: Got it.
Speaker Change: So I wanted to dig in the molding solutions for a minute can you talk about.
Speaker Change: What you saw from on a sequential basis incoming order activity with respect to both hot runners and molds can you talk about whether you've begun to alleviate some of the capacity constraints you've been facing in the molding solutions segment, and maybe comment on what lead time.
Speaker Change: There are presently looking like.
Thomas J. Hook: Yeah, so in molding solutions, there are geographic effects and product line effects. I'll hit the product line effects first.
Speaker Change: Yes, so with molding solutions, there's geographic and product line effects all hit the product line effects first.
Thomas J. Hook: We see continued strength globally in the multi-cavity molds, and we're one of the world's leaders in this. We've put additional capacity in place in the Americas and Asia to be able to respond to customer demand. We've shortened the lead times down from 50 plus weeks of lead time for complex molds down into the range of 40 weeks, so a significant reduction over the last quarter, which we're pretty happy with. That helps us relieve inventory levels and backlog quite nicely and helps us win new business.
Speaker Change: We see continued strength globally in the multi cavity molds, we're one of the world's leader in this we've put up additional capacity in place than the Americas Asia too.
Speaker Change: To be able to respond to customer demand, we have shortened our lead times down from 50, plus weeks of lead time for complex molds down into the range of 40 weeks, a significant reduction over the last quarter, which we're pretty happy with that.
That helps us with inventory levels and backlog quite nicely and helps us win new business sequentially.
Thomas J. Hook: sequentially, on the molds side, we picked up again more business in the first quarter, and our deal funnel is extremely full, and our win rate is healthy. So, overall, across the globe, from a market standpoint, the multi-cavity molds market is strong. Top runners, asymmetric.
Speaker Change: Sequentially on the bulb side, we picked up again more business in the first quarter in our deal funnel is extremely full and our win rate is healthy. So overall across the globe from a market standpoint, the multi cavity molds as strong hot runners asymmetric.
Thomas J. Hook: We have done a really nice job of stabilizing that business and recovering the deal funnel, the commercial deal funnel, for sales in EMEA and also now in Asia, particularly China. The new commercial leadership teams in place in molding solutions have been very effective at stabilizing the business and winning in those markets. Those markets are not particularly strong in terms of the recovery, so this is more of an internal commercial market excellence initiative that is really driving these results through the Integrate, Consolidate, and Rationalize initiatives.
Speaker Change: We have done a really nice job of stabilizing that business and recovering the deal funnel commercial deal funnel for sales in EMEA and also now in Asia, particularly China.
Speaker Change: The new commercial leadership teams in place and molding solutions have been very effective at stabilizing the business and winning in those markets.
Speaker Change: Markets are not particularly strong in terms of the recovery. So this is more of an internal.
Speaker Change: Mercury market Excellence initiative that is really driving these results through the integrate consolidate rationalize initiative.
Thomas J. Hook: But in EMEA, in China, we definitely feel that the implementation of the initiatives has had positive traction. We still have work to do in the Americas as we move forward, where we still see, you know, kind of not great market conditions. We're not expecting anything, any uptick, but we still have changes to make in the Americas, and we're implementing those changes actively already, and we're expecting to be able to turn the Americas around by the mid-year point to pick up more momentum as well.
Speaker Change: But in the EMEA and China, we definitely feel that the implementation of the initiatives has been positive traction we still have work to do it in the Americas as we move forward, what we see so.
Speaker Change: Kind of not great market conditions, we're not expecting anything any uptick.
Speaker Change: But we still have changes to make in the Americas and we're implementing those changes actively already and we're expecting to be able to join the Americas around by the mid year point to be able to pick up momentum as well.
Matt J. Summerville: Got it. That's it for me. Thanks, Tom.
Speaker Change: Got it that's it for me Thanks, Bob.
Thomas J. Hook: That concludes our question and answer session. I will now turn the call back over to Thomas Hook for closing remarks.
Bob: Okay. Thanks, Matt.
Bob: That concludes our question and answer session I will now turn the call back over to Thomas Hook for closing remarks.
Thomas J. Hook: Thank you for joining our call today. Barnes continues to advance our business transformation strategy with solid results for 2024. With the acquisition of MB Aerospace and the associated spring and hanging divestiture, an increasing majority of our earnings are driven by Aerospace. In alignment with our three-pillar strategy, we will continue to invest in Aerospace to take full advantage of strong demand and attractive growth opportunities. In parallel, we will continue to integrate, consolidate, and rationalize our industrial business and to further optimize that part of our portfolio for long-term profitable growth.
Thomas J. Hook: Thank you for joining our call today.
<unk> continues to advance our business transformation strategy with solid results to open 2024 with.
Thomas J. Hook: With the acquisition of Endy aerospace and the associated spring and hanging divestiture and increasing majority of our earnings are driven by aerospace.
Thomas J. Hook: Alignment with our three pillar strategy, we will continue to invest in aerospace to take full advantage of strong demand and attractive growth opportunities.
Thomas J. Hook: In parallel we will continue to integrate consolidate and rationalize our industrial business.
Thomas J. Hook: And to further optimize that part of our portfolio for long term profitable growth.
Thomas J. Hook: Our comprehensive strategic review is ongoing, and we remain committed to reshaping and positioning Barnes to maximize value for our shareholders. We will continue to share further progress updates as appropriate, and we appreciate your continued interest in Barnes.
Thomas J. Hook: Our comprehensive strategic review is ongoing and we remain committed to reshaping and positioning barnes to maximize value for our shareholders.
Thomas J. Hook: We will continue to share further progress updates as appropriate and we appreciate your continued interest in bars.
Operator: This concludes today's conference call. Thank you for your participation, and you may now disconnect.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
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