Barnes Group (B) Down 4.5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Barnes Group (B). Shares have lost about 4.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Barnes Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Barnes Earnings and Revenues Surpass Estimates in Q1

Barnes Group reported better-than-expected results for first-quarter 2020, wherein both earnings and revenues surpassed estimates.

The company’s adjusted earnings in the reported quarter were 71 cents per share. This surpassed the Zacks Consensus Estimate of 52 cents. Notably, the bottom line remained flat year over year.

Top-Line Results

In the reported quarter, Barnes’ revenues decreased 12.2% year over year to $330.7 million. While organic sales in the quarter declined 8% year over year, divestitures and forex woes had an adverse impact of 3% and 1%, respectively.

The company’s revenues surpassed the Zacks Consensus Estimate of $330 million.

Barnes reports net sales under two heads — Industrial and Aerospace. A brief snapshot of the segmental sales is provided below:

Net sales generated from Industrial amounted to $199.1 million, declining 18% year over year. The segment suffered from persistent weakness in certain end markets and the coronavirus outbreak-related issues. Organic sales were down 12% year over year, while forex woes had an adverse impact of 2%. Divestiture of the Seeger business had a negative impact of 4%.

Aerospace’s sales were $131.6 million in the first quarter, down 2% year over year. Original equipment manufacturing net sales declined 7% on account of the Boeing 737 Max-related issues. Meanwhile, aftermarket net sales grew 8%, driven by growth in spare parts as well as maintenance, repair and overhaul sales.

Margin Profile

In the reported quarter, Barnes’ cost of sales decreased 14.9% year over year to $208.2 million. Notably, cost of sales represented 63% of net sales versus 64.9% in the year-ago quarter. Selling and administrative expenses decreased 10.2% year over year to $73.1 million, and represented 22.1% of net sales.
 
Adjusted operating income in the quarter declined 5% year over year to $51.7 million, while margin expanded 110 basis points to 15.6%. Interest expenses totaled $4.3 million in the reported quarter.

Balance Sheet & Cash Flow

Exiting the first quarter, Barnes’ cash and cash equivalents were $112.8 million, up 20.3% from $93.8 million recorded in the last reported quarter. Long-term debt was $783.4 million, reflecting a 5% decline from $825 million in the last reported quarter.

In the first three months of 2020, it generated net cash of $47.2 million from operating activities, down 11% from the comparable period of the previous year. Capital expenditure totaled $11.9 million, decreasing 13.1% year over year. Free cash flow was $35.3 million versus $39.3 million reported a year ago.

During the quarter, Barnes paid out dividends amounting to $8.1 million, representing a 1% decrease over the year-ago quarter’s disbursement. Also, shares worth $15.6 million were repurchased in the quarter.

Outlook

For the second quarter of 2020, Barnes anticipates adjusted earnings of $0.20-$0.30 per share, suggesting a decline of 66.7% at the mid-point from the year-ago reported figure.

Total net sales for the second quarter are predicted to decline modestly from the previous year. While organic sales are predicted to decrease about 30% in the year. Operating margin is predicted to be 8.5-10% in the year.

However, on uncertainties, regarding the impacts of the coronavirus outbreak on financial and operating results, the company has withdrawn its guidance for 2020.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -22.38% due to these changes.

VGM Scores

At this time, Barnes Group has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Barnes Group has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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