Barnes Group Inc. Reports Fourth Quarter and Full Year 2012 Financial Results

Barnes Group Inc. Reports Fourth Quarter and Full Year 2012 Financial Results

• Fourth quarter sales of $327 million, up 16%; full year sales up 5% to $1,230 million

• Fourth quarter diluted EPS from Continuing Operations of $0.54, up 26%

• Full year diluted EPS from Continuing Operations up 9% to $1.78; up 13% to $1.86 on an Adjusted Basis

• Ends 2012 with a record year-end backlog of $677 million

• 2013 EPS from Continuing Operations guidance of $2.03 to $2.18 per diluted share

BRISTOL, Conn.--(BUSINESS WIRE)-- Barnes Group Inc. (NYS: B) , an international aerospace and industrial manufacturer and service provider, today reported financial results for the fourth quarter and full year 2012. Fourth quarter 2012 sales totaled $327.4 million, up 16% from $283.3 million in the fourth quarter of 2011, driven primarily by the sales contribution of the Synventive business. Income from continuing operations was $29.8 million or $0.54 per diluted share, up 26% from the fourth quarter of 2011.

For the full year, Barnes Group generated sales of $1,230 million, up 5% from last year. Income from continuing operations was $98.3 million, or $1.78 per diluted share, compared to $91.6 million, or $1.64 per diluted share in 2011. Income from continuing operations in 2012 included $5.9 million pre-tax, or $0.08 per diluted share, of short-term purchase accounting adjustments and acquisition transaction costs. Excluding these acquisition related items, adjusted diluted earnings per share from continuing operations was $1.86 for 2012. A table reconciling these non-GAAP adjusted results to our GAAP results is included at the end of this press release.

"We delivered record fourth quarter Net Income despite lingering challenges in some of our global markets," said Gregory F. Milzcik, President and Chief Executive Officer of Barnes Group Inc. "We've continued to transform our business by executing on our strategy of differentiated product and processes resulting in margin expansion. Even as some of our end-markets continued to reflect top-line softness, we generated improvement in operating margins. In addition, we completed the largest acquisition in the Company's history with Synventive and we end 2012 with a record year-end backlog of $677 million, up 16% from 2011." Milzcik continued, "We're optimistic about 2013, with an expectation of continued growth in sales and profitability and furthering the substantial progress made in 2012."

Aerospace

• Fourth quarter 2012 sales were $101.1 million, up 2% from $99.1 million in the same period last year. An increase in aerospace original equipment manufacturing ("OEM") sales was largely offset by declines in aftermarket repair and overhaul and spare parts sales.

• Operating profit of $19.0 million for the fourth quarter of 2012 was up 5% compared to the prior year period of $18.1 million. Profit benefited from higher OEM sales and lower employee related expenses, primarily reduced incentive compensation. Profit was negatively impacted by lower profit from aftermarket repair and overhaul and spare parts sales and an inventory valuation adjustment within the aftermarket repair and overhaul business. Operating margin increased to 18.8%, up 50 bps.

• Full year 2012 sales were $390.5 million, up 2% from $382.5 million in 2011. The increase was primarily from sales growth in the OEM and aftermarket repair and overhaul businesses, partially offset by a decline in aftermarket spare parts sales.

• Full year 2012 operating profit increased 1% to $63.3 million. Operating profit benefited from higher sales in the OEM manufacturing business and lower levels of incentive compensation. Operating profit was negatively affected by the profit impact of lower sales in the highly profitable aftermarket RSP spare parts business and an inventory valuation adjustment within the aftermarket repair and overhaul business. Full year operating margin decreased to 16.2%, down 20 bps.

Industrial

• Fourth quarter 2012 sales were $147.6 million, up $45.1 million or 44% versus the same period last year. Synventive sales of $44 million contributed most of the growth, while organic sales were up 2% and foreign exchange was an unfavorable 1%.

• Operating profit of $15.2 million for the fourth quarter of 2012 increased $8.4 million from last year driven by the profit contribution of the Synventive business. Operating margin increased to 10.3%, up 370 bps.

• Full year 2012 sales were $497.0 million, up 13% from $440.5 million in 2011. Synventive provided $60 million of sales, while organic sales increased by $9.9 million. Unfavorable foreign exchange decreased sales by approximately $13.4 million for the year.

• Full year 2012 operating profit was $43.9 million, up 12% from 2011 primarily benefiting from the profit contribution of the acquired Synventive business. Operating profit was partially offset by $5.9 million in short-term purchase accounting adjustments and transaction costs related to the Synventive acquisition. Excluding the Synventive acquisition related items, adjusted operating margin increased to 10.0%, up 110 bps.

Distribution

• Fourth quarter 2012 sales of $79.7 million were down 4% compared to the fourth quarter of 2011 as a result of softness in our North American markets and a focus on more profitable accounts.

• Operating profit of $5.6 million increased 41% from last year primarily due to pricing actions, customer mix, and lower employee related costs, namely incentive compensation. This favorability was partially offset by higher pension costs and the negative profit impact from lower sales volumes. Operating margin increased to 7.0%, up 230 bps.

• Full year 2012 sales were $350.7 million, down 1% from 2011. Organic sales declined as customers continued to manage costs and inventory levels and as the business focused on more profitable accounts. Foreign exchange decreased sales by $1.1 million.

• Full year 2012 operating profit was $29.4 million, up 14% from 2011. The profit increase was driven by lower employee related costs, namely incentive compensation, customer mix, and lower cost structures, partially offset by higher pension costs and the impact of lower sales volumes. Operating margin increased to 8.4%, up 110 bps.

Additional Information

• Interest expense increased $2.0 million from 2011, to $12.2 million, as a result of higher borrowings used to fund the acquisition of Synventive.

• Other expense in 2012 was $2.7 million, up $2.3 million from last year, primarily driven by foreign exchange losses.

• The Company's effective tax rate from continuing operations was 19.2% in 2012 compared with 21.7% in 2011. The 2011 effective tax rate included the recognition of $1.8 million of discrete tax expense related to tax adjustments for earlier years. The 2012 effective tax rate was impacted by the absence of this discrete item, a change in the mix of earnings attributable to higher-taxing jurisdictions, and the impact of a decrease in the repatriation of a portion of current year foreign earnings to the U.S. The Company repatriated $8.0 million and $17.5 million in 2012 and 2011, respectively.

Announced Sale of Barnes Distribution North America

As announced this morning, the Company has entered into a definitive agreement to sell its Barnes Distribution North America business ("BDNA") to MSC Industrial Direct Co., Inc. for $550 million, subject to certain adjustments. The transaction, which is subject to customary conditions and approvals, is expected to close in late March or early in the second quarter of 2013. The BDNA business had 2012 revenues of approximately $300 million.

"We're very pleased to announce the sale of our BDNA business to MSC Industrial Direct," said Gregory F. Milzcik, President and Chief Executive Officer of Barnes Group Inc. "MSC is gaining an established leader in vendor managed inventory distribution and Barnes Group is further advancing its strategy of adjusting the business portfolio to focus on core manufacturing and aftermarket capabilities."

Barnes Group expects to use after-tax proceeds of approximately $400 million to reduce debt, buyback common shares, invest in profitable growth initiatives including acquisitions, and general corporate purposes.

2013 Outlook

Excluding impacts from this morning's announced pending sale of BDNA and CEO transition, Barnes Group expects 2013 revenue to grow 14% to 18% from 2012 and operating margins of 12% to 13%. Earnings per diluted share are anticipated to be in the range of $2.03 to $2.18, up 9% to 17% from 2012's adjusted diluted earnings per share from continuing operations of $1.86. Further, the Company expects capital expenditures of approximately $50 million and cash conversion to be better than or equal to 100% of net income.

"Our achieved 2012 financial performance, coupled with our expectations for profitable growth in 2013, allows us to further invest in our businesses while continuing to solidify our balance sheet following the Synventive acquisition," said Christopher J. Stephens, Jr., Senior Vice President, Finance and Chief Financial Officer, Barnes Group Inc. "We believe the Company is well positioned for organic growth and to take advantage of value enhancing acquisition opportunities as they arise."

Barnes Group expects to report BDNA as Discontinued Operations beginning with the first quarter of 2013. The BDNA business results are currently reported within the Company's Distribution segment. The remaining business within the Distribution segment, Associated Spring Raymond, will be realigned into the Company's Industrial Segment. Accordingly, the Company's financial results, beginning with the first quarter of 2013, will be reported in two segments; Aerospace and Industrial.

The Company expects to update its outlook in connection with the closing of the BDNA transaction.

Conference Call

Barnes Group Inc. will conduct a conference call with investors to discuss fourth quarter and full year 2012 results at 8:30 a.m. EST today, February 22, 2013. A webcast of the live call and an archived replay will be available on the Barnes Group investor relations link at www.BGInc.com. The conference is also available by direct dial at (888) 679-8033 in the U.S. or (617) 213-4846 outside of the U.S. (request the Barnes Group Earnings Call), Participant Code: 49233865.

In addition, the call will be recorded and available for playback beginning at 12:00 p.m. (EST) on Friday, February 22, 2013 by dialing (617) 801-6888, Passcode: 42867174.

About Barnes Group

Founded in 1857, Barnes Group Inc. (NYS: B) is an international aerospace and industrial manufacturer and service provider, serving a wide range of end markets and customers. The products and services provided by Barnes Group are used in far-reaching applications that provide transportation, communication, manufacturing and technology to the world. Barnes Group's approximately 5,100 dedicated employees, at more than 70 locations worldwide, are committed to achieving consistent and sustainable profitable growth. For more information, visit www.BGInc.com.

Forward-Looking Statements

This release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are made based upon management's good faith expectations and beliefs concerning future developments and their potential effect upon the Company and can be identified by the use of words such as "anticipated," "believe," "expect," "plans," "strategy," "estimate," "project," and other words of similar meaning in connection with a discussion of future operating or financial performance. These forward-looking statements may relate to, among others, the expected impact of the Synventive acquisition on the Company's financial results, business performance and product offerings; and the impact of the acquisition on the Company's fiscal revenue, non-GAAP results and GAAP results. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These include, but are not limited to: the impact of the pending divestiture of the Barnes Distribution North America business to MSC Industrial Direct Co., Inc.; the effects of disruption from the Synventive transaction; difficulty maintaining relationships with employees, customers, distributors, suppliers, business partners or governmental entities; the success of integration strategy implementation; the ability to recruit and retain key personnel and execute effective executive transitions; difficulties leveraging market opportunities; difficulties providing solutions that meet the needs of customers; rapid technological and market change; the ability to protect intellectual property rights; higher risks in international operations and markets; the impact of increased competition; currency fluctuations; litigation; and other risks and uncertainties which are described more fully in documents filed with or furnished to the Securities and Exchange Commission by the Company, including the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings with the Securities and Exchange Commission. These risks and uncertainties include, among others, uncertainties arising from the current or worsening conditions in financial markets; future financial performance of the industries or customers that we serve; changes in market demand for our products and services; inability to realize expected sales or profits from existing backlog; integration of acquired businesses, including Synventive; restructuring costs or savings; the impact of the divestiture in 2011 of our Barnes Distribution Europe businesses and any other future strategic actions, including acquisitions, joint ventures, divestitures, restructurings, or strategic business realignments, and our ability to achieve the financial and operational targets set in connection with any such actions; introduction or development of new products or transfer of work; changes in raw material or product prices and availability; foreign currency exposure; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; the outcome of pending and future claims or litigation or governmental, regulatory proceedings, investigations, inquiries, and audits; uninsured claims and litigation; outcome of contingencies; future repurchases of common stock; future levels of indebtedness; and numerous other matters of global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature. The Company assumes no obligation to update our forward-looking statements.