Barnes Group Inc. (B)
Q3 2008 Earnings Call
October 31, 2008 8:30 am ET
Brian D. Koppy – Director of Investor Relations & Communications
Gregory F. Milzcik – President & Chief Executive Officer
Francis C. Boyle, Jr. – Acting Chief Financial Officer
Christophe Glynn – Oppenheimer & Co.
John Haushalter for Peter Lisnic – Robert W. Baird & Co.
Edward Marshall – Sidoti & Company
Fred Bonacore – CJS Securities
Matt Summerville – KeyBanc Capital Markets
Daniel Goldberg – RBC Capital
Holden Lewis - BB&T Capital Markets
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» Barnes Group Inc. Q3 2009 Earnings Call Transcript
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Brian D. Koppy
Good morning and thank you for joining Barnes Group’s third quarter 2008 earnings call and webcast. This is Brian Koppy, Director of Investor Relations and Communications for Barnes Group and with me this morning are Barnes Group President and CEO, Greg Milzcik, and acting Chief Financial Officer and Vice President and Controller, Frank Boyle.
I want to remind everyone that certain statements we make on today’s call, both during the opening remarks and during the question and answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the financial statements. We encourage everyone to consider these risks and uncertainties that are described in our periodic filings with the Securities & Exchange Commission which are available through the investor relations section of our corporate website at www.bginc.com.
Our press release was issued this morning and we hope you’ve had a chance to review it. We will begin today’s call with brief opening statements by Greg and then open the call up to answer your questions.
Now, let me turn the call over to Greg.
Gregory F. Milzcik
Good morning and thank you for joining us today. This morning we released our third quarter results which reflect both the progress we have made in improving a number of our businesses as well as the challenges that lie ahead as market conditions remain in flux.
Sales were down approximately 6% in the quarter, driven by the slowing economy and changing industry dynamics within the aerospace market. However, net income improved 5% in the quarter, which we achieved through a focus on productivity and lean enterprise programs which aided our efforts to control costs.
Clearly, the macroeconomic pressures in the U.S. and abroad have made their way into our business as we have seen in our recent to line results and short-term reductions or deferrals in key market sectors. We believe we can navigate through these disruptions without deviating from the long-term objectives we have set out to achieve as a company.
Over time we have built a company with strong global diversification and a significantly differentiated business. Barnes Group’s diverse and global end markets are our greatest strength during these dynamic times. When combined with our liquidity position and overall balance sheet strength, we remain comfortable that we can operate in these turbulent markets while remaining focused on executing the necessary strategic objective to secure Barnes Group’s market leadership position for the future.
A driving force behind our long-term success will be our favorable outlook for the aerospace sector. We remain cautious of the affect airline deferred maintenance and capacity cuts will have. We are confident the disruption that the Boeing strike had will be resolved and the strong industry fundamentals will prevail.
I want to take a moment to further comment on the Boeing strike, which essentially halted half the world’s large commercial aircraft production. The adverse effect was not simply with suppliers doing business directly with Boeing, but also with tier suppliers, such as Barnes Group.
While we have been managing the Boeing 787 production slide throughout the year, the strike and its impact during the third quarter as well as the beginning of our fourth quarter adversely affected our business.
Roughly one third of Barnes Aerospace revenues are related to Boeing aircraft. Clearly the strike is short term in nature and for the most part we have seen backlog deferred rather than cancelled. It is unclear what the lasting effects will be on production related to delays. Therefore, we have acted quickly with prudent measures to implement workforce reductions, cost containment, and cost reduction actions during the third and early part of the fourth quarter to weather this difficult environment.
Similar to prior distresses in the aerospace industry, we are confident Barnes Group’s aerospace business will emerge a stronger, leaner, and more efficient producer of complex components and assemblies.
Turning to the industrial manufacturing end markets, third quarter results for Barnes Industrial benefitted from our businesses outside of North America, which have provided upside for the business as the North American slowed. Our European strategic business units, SBUs, generated sales and operating profit improvement over the prior year as their high quality products continued to be in demand throughout their diverse end markets.
The North American manufacturing industry has been in a decline since last year but had only experienced moderate declines until recently. The largest industrial slowdown has been within the transportation end market. The North American transportation unit production was down approximately 17% in the third quarter. Adding to the adverse impact of declining production has been the move toward the manufacture of smaller vehicles as gas prices rise.