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Text: 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.
Please consider the risks and uncertainties that are mentioned in today's call and are described in our periodic filings with the SEC.
Then Julie will provide a review of our financial results and details of our updated outlook for 2021.
Barnes Group delivered a very good third quarter of financial performance with 20% organic sales growth, a 180 basis points increase in adjusted operating margin, and an 80-plus percent increase in earnings per share year-over-year.
Sequentially, each of those metrics improved as well.
Clearly, last year was highly impacted by the global pandemic.
Nonetheless, the demand environment overall improved across the portfolio, as each of our SBUs generated double-digit organic sales growth.
Similarly, orders were seasonally good as we generated a book-to-bill of 0.9 times for both industrial and aerospace.
Industrial book-to-bill in the third quarter is typically impacted by the summer holiday season, particularly in Europe.
That said, the ongoing impact of auto semiconductors lingered, and I'll address that in more detail shortly.
In Aerospace, orders were healthy for a fourth straight quarter.
Moving to our segment discussion beginning with Industrial.
Organic sales growth was 17% while organic orders growth was 3%.
As we exited the third quarter, manufacturing PMIs in the U.S. and Eurozone remain well in expansionary territory.
So, not as is robust as they were entering the quarter.
China continues to hover around the neutral 50 mark.
The continuing semiconductor issue affecting automotive builds has worsened prompting IHS to make a significant downward adjustment to their global automotive production forecast in September.
Relative to their prior view, 2021 production was reduced by 5 million units or 6%, and 2022 was reduced by 8.5 million units or 9%.
The decrease corresponds for customers expanding shutdowns, and pushing out demand for our products.
For 2022, IHS expects global auto production to grow 11% over this year, so still a rebound.
Supply chain disruptions including expanded raw material lead times, inflation and freight costs have also persisted throughout the quarter.
And we expect them to continue through the remainder of the year, and into the first half of 2022.
In spite of the headwinds, the industrial team has done a great job to improve margins both year-over-year and sequentially.
Operating margin was 13%, up 60 basis points from a year ago and 130 basis points sequentially.
Inflationary pressures have been mitigated to the extent possible through pricing actions and raw material pass-through arrangements.
Our Barnes Enterprise System has been employed to create various cost savings.
While our July outlook contemplated $2 million of second half inflation pressure, we saw approximately $2.5 million in the third quarter.
And we now forecast a similar amount in the fourth quarter.
Within Molding Solutions, organic orders were up low-single digits with medical rebounding of year-over-year and sequentially.
Automotive orders were solid up mid-teens, driven by a strong quarter in Asia.
Packaging and personal care orders were soft compared to a year ago.
With respect to organic sales, we generated a 15% increase over the prior year quarter.
Personal care and medical saw good sales growth, while automotive was particularly strong.
However, with anticipated supply chain factors in mind, our organic sales growth outlook has been trimmed to the low-teens for the full year, a bit softer than our prior view.
At Force & Motion Control, organic orders were up 27% with organic sales up 24%.
On a sequential basis, sales and orders were approximately flat.
Our largest end market with this business sheet metal forming saw a robust orders and sales growth year-over-year.
And the same is true for our industrial end markets within FMC.
Supply chain disruptions including freight delays are expected to influence near term customer orders.
Nonetheless, our full-year 2021 organic sales growth is up slightly from our prior view with a revised expectation of up high teens.
Engineered Components once again generated solid organic sales growth on a year-over-year basis, up 15%, primarily driven by industrial end markets.
Our automotive production end market sales were up modestly.
Though the third quarter saw semiconductor and supply chain issues intensify, impacting both orders and sequential sales growth.
The automotive semiconductor issue impacts this business the most.
And we saw a third quarter pushout of approximately $6 million in revenue, which was doubled what we anticipated.
We now forecast our fourth quarter impact of a similar $6 million.
General Industrial markets remained very healthy and are helping to mitigate some of the semiconductor impact.
For Engineered Components, our full-year organic sales growth is now estimated to be up in the mid-teens, a bit lower than our prior year.
As noted earlier, with seasonal effects year-over-year organic orders were flat.
However, we continue to expect 2021 to deliver organic growth of approximately 20% on par with our July expectation.
To close my industrial discussion, the business delivered really good third quarter performance.
As we look forward, the near-term challenges of the current operating environment appear likely to persist.
That said, the team is working diligently to lessen the various headwinds space in the business.
For the segment we forecast 2021 organic growth in the mid-teens consistent with our prior view.
We now anticipate operating margins of 11.5% to 12%, a bit softer than our prior expectation with the decline primarily driven by the current economic environment.
Moving to Aerospace, sales improved 30% over last year and 8% sequentially from the second quarter.
Our Original Equipment manufacturing and aftermarket businesses each generated excellent results.
Adjusted operating margin improved 490 basis points from a year ago and 130 basis points sequentially.
The Aerospace environment continues to show recovery progress.
Global passenger traffic and flight activity are expected to increase further as the international markets reopened.
Aerospace freight markets continue to be strong.
All of that contributes to a strengthening aftermarket.
Correspondingly, our sequential sales growth has been good and we expect that trend to continue.
Solid order activity continued in the third quarter with total orders of approximately 70% versus a year ago.
OEM orders were up approximately 80% with the aftermarket being up approximately 50%.
Within the aftermarket, MRO was up 40% plus and spare parts up 70%.
Our 2021 outlook for Aerospace is for total sales to be up low-single digits.
Within the segment, OEM sales are forecast to be up mid-single-digits, MRO down low single-digits and spare parts down in the low to mid-teens.
The latter a bit better than our July view.
Segment operating margin is anticipated to be approximately 14%, slightly higher than our prior outlook benefiting from the better spare parts mix.
In closing, a solid third quarter financial performance in the face of some accumulating pressures as we look ahead, we're taking the necessary steps to limit the risks noted with our primary focus on pricing initiatives and other actions directed to cost management.
Overall, we are positive in the ongoing demand we are seeing from our customers, and the underlying strength of our end markets.
Moving forward, our growth investments in strategic marketing and our sales force, digitalization and innovation should enhance our ability to power up the recovery curve and allow us to deliver further stakeholder value.
Now, let me pass the call over to Julie for details of our quarterly performance.
Let me begin with highlights of our third quarter results on Slide 5 of our supplement.
Third quarter sales were $325 million, up 21% from the prior year period with organic sales increasing 20%.
Adjusted operating income was $43.9 million, up 39% from $31.5 million last year.
While adjusted operating margin was 13.5% up 180 basis points from a year ago.
Our adjusted results include a small amount of restructuring in both the current and prior year quarters.
Interest expense was $4 million, an increase of $300,000 over last year as a result of a higher average interest rate, offset in part by lower average borrowings.
As we foreshadowed a quarter ago, we saw sequentially lower interest expense as our debt-to-EBITDA ratio has continued to improve, driven by the recovery in our business and active cash management.
Sequentially, our interest expense was lower by $448,000.
For the quarter, our effective tax rate of 27.6% compared with 44.1% in the third quarter of 2020 and 37.6% for full year 2020.
As compared to the full year 2020 rates, our third quarter rate is benefiting from the absence of tax expense related to the sale of the Seeger business in 2020, a benefit relating to the tax basis of goodwill at Automation, the positive resolution of a foreign tax matter in the current year quarter and a favorable mix in earnings based on tax jurisdictions.
These items were partially offset by a charge relating to U.K. legislative changes.
Net income was $27.9 million or $0.55 per diluted share compared to $15.4 million or $0.30 per diluted share a year ago.
Now I'll turn to our segment performance beginning with Industrial.
Third quarter Industrial sales were $232 million, up 18% from a year ago, while organic sales increased 17%.
Like last quarter the solid growth reflects volume increases across all our SBUs.
Favorable foreign exchange increased sales by approximately 1%.
Sequentially sales decreased slightly as they were further impacted by the semiconductor and supply chain issues that Patrick mentioned.
Industrial operating profit was $30.1 million, up 23% from $24.4 million last year.
Operating profit benefited from the contribution of higher sales volumes, offset in part by higher personnel costs, which include incentive compensation higher sourcing costs, inclusive of freight and ongoing costs incurred in support of segment growth initiatives.
Operating margin was 13%, up 60 basis points from a year ago and 130 basis points sequentially.
Moving now to Aerospace, sales were $94 million, up 30% driven by a 23% increase in our OEM business and a 46% increase in our aftermarket business.
Operating profit was $13.6 million doubling the $6.8 million in last year's third quarter.
Excluding a small amount of restructuring in the current and prior year period, adjusted operating profit was up 95% from a year ago.
Adjusted operating profit benefited from the contribution of higher sales volumes and favorable productivity offset in part by higher personnel costs including incentive compensation.
Adjusted operating margin was 14.8%, up 490 basis points from last year and 130 basis points sequentially.
Aerospace OEM backlog ended September at $665 million, down 4% from June 2021 and we expect to convert approximately 40% of this backlog to revenue over the next year.
Before moving to our cash flow discussion, I'd like to make you aware of an adjustment to our reported backlog.
During the quarter, we noted that our June backlog included a portion of unshipped orders that had already been recognized in revenue under percentage of completion.
Accordingly, a downward adjustment of $46 million at Industrial and $19 million at Aerospace was made during the third quarter.
This adjustment is reflected in our September ending backlog and no further adjustments are anticipated.
Earlier reported sales, orders and book-to-bill were not impacted.
Moving to cash flow performance, year-to-date cash provided by operating activities was $128 million versus $164 million last year with free cash flow of $101 million, down from $134 million last year.
Capital expenditures were $27 million, down approximately $3 million from a year ago.
As a reminder, year-to-date operating cash flow in 2020 saw an approximate $60 million benefit from working capital as cash management was a significant focus during the pandemic.
Regarding the balance sheet, our debt to EBITDA ratio, as defined by our credit agreement was 2.6 times at quarter end, down from 2.9 times at the end of last quarter.
Our third quarter average diluted shares outstanding were 51.1 million during the third quarter, we did not repurchase shares and approximately 3.6 million shares remain available under the Board's 2019 stock repurchase authorization.
Turning to Slide 6 of our supplement, let me provide you with our updated financial outlook for 2021.
Organic sales are forecast to be up 11% to 12% for the year consistent with our prior view.
Foreign exchange is expected to have about a 2% favorable impact on sales, while divested Seeger revenues will have a small negative impact.
Adjusted operating margin is forecast to be approximately 12.5%, down slightly from 13% in our July outlook.
We expect a small amount of residual restructuring charges in the fourth quarter which we will take as an adjustment to 2021 net income.
Adjusted earnings per share is expected to be in the range of $1.83 to $1.93 per share, up 12% to 18% from our 2020 adjusted earnings per share of $1.64.
This expectation reflects the decrease at the top end of our previous range of $1.83 to $1.98 related to Q4 headwinds.
A few other outlook items, our interest expense forecast remains approximately $16 million while other expense is anticipated to be $6 million, slightly less than our July outlook.
We expect the full year tax rate of approximately 29% excluding adjusted items, a point lower than our previous estimate.
Estimated Capex of $40 million is down from our prior view of $50 million, average diluted shares of $51 million is consistent with our prior view.
And cash conversion is now anticipated to be approximately 120%, an increase over our prior expectation of greater than 110%.
To close, financially, we delivered a good third quarter.
Looking forward, as Patrick mentioned, there are some near-term economic pressures to overcome as we close out the year.
Leveraging the Barnes Enterprise System, our team is focused on executing comprehensive mitigation plan.
In the meantime, our cash generation remains solid and our balance sheet supports ongoing growth investments expected to further improve financial performance and long-term shareholder value.

user
compname reports q3 adjusted earnings per share $0.55.
q3 adjusted earnings per share $0.55.
q3 gaap earnings per share $0.55.
q3 sales rose 21 percent to $325 million.
2021 adjusted earnings per share outlook of $1.83 to $1.93.2021 organic sales growth expectation of up 11% to 12%.
industrial end markets, are experiencing some headwinds as supply chain issues remain a near-term challenge.
foreign exchange is anticipated to have an approximate 2% favorable impact on 2021 sales.
fy operating margin is now forecasted to be approximately 12.5%.

assistant