Barnes Group, Inc. (B)

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Barnes Group Inc. (B)

Q4 2008 Earnings Call

February 19, 2009 8:30 am ET


Greg Milzcik - President and Chief Executive Officer

Chris Stephens - Senior Vice President of Finance and Chief Financial Officer

Brian Koppy - Director of Investor Relations & Communications


John Haushalter - Robert W. Baird

Fred Buonocore - CJS Securities

Christopher Wiggins - Oppenheimer

Edward Marshall - Sidoti & Company

Matt Summerville - KeyBanc Capital

Holden Lewis - BB&T Capital Markets

Yvonne Varano - Jefferies



Good day, ladies and gentlemen and welcome to Barnes Group fourth quarter 2008 earnings conference call. My name is Mary and I’ll be your coordinator today (Operator Instructions). As a reminder, ladies and gentlemen this conference is being recorded.

I’d now like to hand the call over to the host for today’s call Mr. Brian Koppy, Director of Investor Relations & Communications for Barnes Group.

Brian Koppy

Good morning, and thank you for joining Barnes Group’s fourth quarter and full-year 2008 earnings call and webcast. This is Brian Koppy, Director of Investor Relations & Communications for Barnes Group. With me this morning are Barnes Group’s President and CEO, Greg Milzcik and Senior Vice President of Finance and Chief Financial Officer, Chris Stephens.

Our press release was issued this morning and for supporting information we have provided a slide deck containing key financial data in the Investor Relations section of our website. References on today’s call regarding income, diluted earnings per share, operating profit and other company specific financial metrics relate to continuing operations of Barnes Group’s businesses, excluding adjustments unless otherwise noted.

I also 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. Please consider these risks and uncertainties that are described in our periodic filings with the Securities and Exchange Commission and are available through the Investor Relations section of our corporate website at

We’ll begin today’s call with brief opening statements by Greg, then Chris will provide some financial details and then we will open the call up to answer your questions.

Now let me turn the call over to Greg.

Greg Milzcik

Thank you and good morning. As you all know the global economy is facing severe difficulty. Today I’ll bring you up to date on Barnes Group’s position and actions we have taken to meet these challenges. While the final few months of 2008 proved difficult for our businesses, the success we achieved through the first nine months of the year provided positive full year performance for the company.

Throughout 2008, we were vigilant in controlling costs and preparing for the down cycle. However, the unanticipated precipitous decline in demand experienced in the fourth quarter necessitated swifter and deeper actions. As a result, we initiated a number of discrete actions to adjust the overall cost structure, enhance our manufacturing footprint and strengthen our global operations.

These actions are expected to yield $40 million in annualized savings in 2009 and result in a fourth quarter 2008 after tax charge of $14.3 million or $0.27 per diluted share within continuing operations and a $5.6 million loss or $0.11 per diluted share from discontinued operations.

These actions generated reduced headcount, facility closures, business exits and lower spending throughout the organization and are expected to help alleviate the effects of declining demand. While these actions are difficult, particularly for the employees and communities affected, they are necessary to maintain our long-term financial and competitive position.

We demonstrated overall solid financial performance for the full year of 2008. Key sales and operating profit for employee measures continue to improve. Our operating income from continuing operations on an adjusted basis grew to 11.8% over the reported 2007 level of 10.9%.

2008 operating activities provided $111.8 million of cash flow. We lowered our interest expense by nearly $6 million and we were able to maintain a favorable tax rate. On a full-year basis, adjusted diluted earnings per share from continuing operations for 2008 was $1.99 compared with the reported $1.80 diluted earnings per share in 2007.

Throughout 2008, Barnes Group continued to position itself for long-term success. To strengthen the benefits of our diverse end markets and geographic mix, we reorganized into two global business segments. Our new structure strengthens our focus on the needs of our customers, leverages administrative synergies and eliminates organizational redundancies.

To support our favorable long-term view of the aerospace market, we continue to invest in our Singapore and Ogden, Utah facilities. To further streamline and enhance our focus, we exited the plastic molding business and certain non-core distribution businesses within the United Kingdom.

Now let me turn to our segments and provide some color on what we are experiencing and what we expect in 2009. The distribution business of the Logistics and Manufacturing Service segment was negatively affected by weakening demand across many of its end markets, while growth in our aerospace aftermarket business continued to be negatively impacted by deferred airline maintenance and lower capacity usage.

Operation and productivity improvements in the North American distribution business, which confronted sales force disruption challenges in the first half of 2008 demonstrated measurable year-over-year progress. In addition, the positive impact of profit contributions from the stable, recurring aerospace aftermarket business bolstered margins to 12.2% on an adjusted basis.

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