BRISTOL, Conn.--(BUSINESS WIRE)--Barnes Group Inc. (NYSE: B), a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, today reported financial results for the fourth quarter and full year 2020.

“Barnes Group delivered sequentially improved financial results in the fourth quarter and exceeded the high-end of our adjusted EPS outlook. After the historic disruption of business brought on by the global COVID-19 pandemic, the Company’s cost management and cash generation focus of 2020 is shifting to restarting our growth engine, as Industrial end markets are improving and Aerospace end markets are beginning to stabilize,” said Patrick J. Dempsey, President and Chief Executive Officer of Barnes Group Inc. “While continuing impacts of the pandemic remain and will be managed, our 2021 focus has returned to growth, with an emphasis on driving innovation and digital initiatives across the organization,” added Dempsey. “We envision elevated investment in these initiatives as we position the Company to best leverage the future economic recovery.”

Fourth Quarter 2020 Highlights

Fourth quarter 2020 net sales of $289 million were down 22% from $370 million in the prior year period, with organic sales (1) declining 21% primarily driven by the ongoing impacts of the global pandemic on the Company’s end markets. Divested Seeger sales had a negative impact of 3%, while foreign exchange had a positive impact of 3%. Since the sales low point of the second quarter, the Company has now delivered two consecutive quarters of sequential revenue improvement, with fourth quarter net sales increasing 7% from the third quarter. Operating income was $32.7 million versus $61.3 million a year ago. Operating margin decreased 520 bps to 11.3%. Excluding an aggregate $0.2 million of restructuring charges and Seeger divestiture adjustments, adjusted operating income was $32.9 million and adjusted operating margin was 11.4%, down 580 bps from last year.

Net income for the fourth quarter was $17.7 million, or $0.35 per diluted share, compared to $41.0 million, or $0.80 per diluted share, a year ago. On an adjusted basis, net income per share of $0.36 was down 58% from $0.86 a year ago. Adjusted net income per diluted share in the fourth quarter of 2020 excludes $0.01 of restructuring costs and Seeger divestiture adjustments. Fourth quarter 2019 adjusted net income per share excludes a $0.05 benefit related to the finalization of Gimatic short-term purchase accounting in our Industrial Segment and excludes an $0.11 non-cash impairment charge related to the disposition of the Seeger business.

Full Year 2020 Highlights

For the full year 2020, Barnes Group produced net sales of $1,124 million, down 25% from $1,491 million in the prior year. Full year organic sales were down 22%. Divested Seeger sales had a negative impact of 3%, while foreign exchange had a positive impact of 1%. Operating income was $123.4 million versus $236.4 million a year ago, while operating margin decreased 490 bps to 11.0%. On an adjusted basis, operating income was $144.0 million this year versus $244.1 million last year, a decrease of 41%. Adjusted operating margin was 12.8%, down 360 bps from 16.4% in the prior year.

Interest expense for 2020 was $15.9 million, a decrease of $4.7 million from the prior year due to lower average borrowings and the benefit of a lower average interest rate.

Other expense was $5.9 million compared to $9.0 million a year ago, primarily as a result of lower foreign exchange losses, offset in part by unfavorable pension expense.

The Company’s effective tax rate in 2020 was 37.6% compared with 23.4% last year with the increase largely due to a decrease in earnings in jurisdictions with lower rates, the recognition of tax expense related to the completed sale of the Seeger business during the first quarter of 2020, the impact of the global intangible low-taxed income tax on foreign earnings in the U.S. and excess tax charges related to stock awards granted in prior years.

Net income for the year was $63.4 million, or $1.24 per diluted share, compared to $158.4 million, or $3.07 per diluted share, a year ago. On an adjusted basis, 2020 net income per share was $1.64, down 49% from $3.21 in 2019. Adjusted net income per share for 2020 excludes $0.27 of restructuring costs and $0.13 of Seeger divestiture adjustments. For 2019, adjusted net income per share excludes $0.03 of Gimatic short-term purchase accounting adjustments and an $0.11 non-cash impairment charge related to the disposition of the Seeger business.

2020 full year cash provided by operating activities was $215.5 million versus $248.3 million in the prior year period. Free cash flow was $174.8 million compared to $195.0 million last year. Capital expenditures were $40.7 million, down $12.6 million from a year ago.

Segment Performance and End Market Outlook

Industrial

Fourth quarter sales were $209.1 million, down 9% from $230.9 million in the prior year period. Organic sales decreased 8% primarily related to a significant volume decrease caused by the continuing impacts of the COVID-19 pandemic on automotive and industrial end markets. Divested Seeger revenues of $12.6 million had a negative impact of 5%, while favorable foreign exchange increased sales by $10.2 million, or 4%. On a sequential basis, total Industrial sales increased 6% from the third quarter of 2020.

Operating profit in the fourth quarter was $24.5 million, down 19% from $30.2 million in the prior year period. The decrease was driven by lower sales volumes, partially offset by cost initiatives such as workforce reductions, temporary compensation cuts, and discretionary expense curtailments. Operating margin was 11.7%, down 140 bps from a year ago. Excluding an aggregate $0.2 million of restructuring charges and Seeger divestiture adjustments, adjusted operating profit of $24.7 million was down 24% from last year’s adjusted operating profit of $32.5 million. Adjusted operating margin of 11.8% was down 230 bps from a year ago.

During the fourth quarter, manufacturing PMIs in our major geographic regions remained solid and our Industrial organic orders growth of 10% over the prior year period reflected such strength. Although the global pandemic will continue to impact our expectations for our Industrial businesses, we anticipate 2021 to show continued progress along a recovery path in both sales and operating margin.

Industrial’s full year 2020 sales were $770.1 million, down 18% from $938.5 million a year ago. Organic sales were down 14%. The Seeger divestiture had an unfavorable sales impact of 5%, while favorable foreign exchange had a positive impact of 1%. Full year operating profit of $66.6 million was down 42% from $114.0 million in the prior year. On an adjusted basis, operating profit was $85.0 million for 2020 versus $121.6 million a year ago, a decrease of 30%. Adjusted operating margin was 11.0%, down 200 bps from 2019.

Aerospace

Fourth quarter sales were $80.0 million, down 43% from $139.3 million last year as the COVID-19 pandemic continues to impact global aerospace end markets. Aerospace original equipment manufacturing (“OEM”) sales decreased 39% while aftermarket sales decreased 49%. On a sequential basis, Aerospace sales increased 11% from the third quarter of 2020.

Operating profit was $8.2 million, down 74% from $31.1 million in the prior year period, reflecting the impact of lower sales volumes. Operating margin was 10.2% versus 22.3% a year ago.

For the fourth quarter, global aerospace end markets remained under considerable strain driven by the pandemic. We continue to anticipate that our OEM business will see muted demand for its manufactured components as aircraft production rates at Boeing and Airbus have been reduced. In the aerospace aftermarket, lingering declines in aircraft utilization and diminished airline profitability will negatively impact our business.

Full year 2020 Aerospace sales were $354.3 million, down 36% from a record $552.6 million last year. Operating profit was $56.8 million, down 54% from last year’s record $122.5 million. Operating margin was 16.0% versus 22.2% last year. On an adjusted basis, which excludes $2.3 million in 2020 restructuring charges, adjusted operating profit was $59.0 million and adjusted operating margin was 16.7%.

Aerospace OEM backlog ended the year at $572 million, up 7% from September 2020. The Company expects to ship approximately 45% of this backlog over the next 12 months.

Balance Sheet and Liquidity

Barnes Group’s balance sheet remains well-positioned with sufficient liquidity to fund operations. The Company has liquidity of $79 million in cash and $406 million available under the revolving credit facility, subject to covenants which would have allowed $162 million under our current credit agreements. With respect to the balance sheet, our “Debt to EBITDA” ratio, as defined in our credit agreements, was approximately 3.0 times at year end. The Company is in full compliance with all covenants under its amended credit agreements.

2021 Outlook

Barnes Group expects 2021 organic sales to be up 6% to 8%. Foreign exchange is anticipated to have a minimal impact on 2021 sales. Adjusted operating margin is forecasted to be in the range of 12.0% to 14.0%. Adjusted earnings per share are expected to be in the range of $1.65 to $1.90, approximately flat to up 16% from 2020’s adjusted earnings per share of $1.64. Adjusted earnings per share for 2021 are anticipated to exclude $0.02 related to residual restructuring charges for previously announced actions. Further, the Company forecasts capital expenditures of approximately $55 million and cash conversion of greater than 100% of net income. The effective tax rate for 2021 is expected to be approximately 30%.

“Although 2020 presented unprecedented business challenges, swift actions including cost management allowed Barnes Group to generate strong cash flow and remain in a solid financial position. We continue to invest in our businesses, positioning the Company for the anticipated recovery of our end markets. As 2021 unfolds, we anticipate organic revenue growth to return for our Industrial business, while Aerospace is expected to remain pressured. As sales volume returns, we expect margin leverage to follow,” said Marian Acker, Vice President, Controller and Interim Chief Financial Officer, Barnes Group Inc.

About Barnes Group

Barnes Group Inc. (NYSE: B) is a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, automation, healthcare, and packaging. The skilled and dedicated employees of Barnes Group around the globe are committed to the highest performance standards and achieving consistent, sustainable profitable growth. Barnes Group is committed to corporate accountability and furthering environmental, social and governance principles as evidenced by our listing as one of America’s Most Responsible Companies by Newsweek. For more information, visit www.BGInc.com.