Barnes Group, Inc. (B)

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Barnes Group Inc. (B)

Q3 2009 Earnings Call

October 30, 2009 8:30 am ET

Executives

Brian Koppy - Director of Investor Relations & Communications

Gregory F. Milzcik - President and Chief Executive Officer

Christopher J. Stephens - Chief Financial Officer

Analysts

Christopher Glynn - Oppenheimer & Co.

Josh Chan for Peter Lisnic - Robert W. Baird & Co., Inc.

Fred Buonocore - CJS Securities

Edward Marshall - Sidoti & Company

Matt Summerville - KeyBanc Capital

Yvonne Varano - Jefferies & Co.

Holden Lewis - BB&T Capital Markets

Presentation

Operator

Good day ladies and gentlemen and welcome to Barnes Group third quarter 2009 earnings conference call. My name is Dan and I’ll be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would 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 third quarter earnings call and Web cast. 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.

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. 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 Web site at www.BGInc.com.

We will 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.

Gregory F. Milzcik

Thank you and good morning. Barnes Group's third quarter results continued to reflect the economic challenges that were present during the first half of the year for many of our end markets. We generated net income of $10.9 million, or $0.20 per diluted share for the quarter. These results include a pre-tax restructuring charge of $3.4 million related to our efforts to reduce fixed costs.

Quarterly sales were $260.3 million, down 22% from last year, but sequentially, and even monthly, trends are encouraging. However, the timing and scope of any market recovery is still anything but certain.

In the meantime we remain focused on our internal initiatives to enhance our operations, strengthen our balance sheet, and generate cash flows to run our business. In particular, we had noteworthy execution in the quarter on improving our capital structure. Working capital improvements and convertible note buybacks strengthened our balance sheet. We are pleased to say that our financial position is much improved versus where we were at the beginning of the year.

Our third quarter cash flow from operations improved to a record $78.0 million and our year-to-date cash flow from operations was $126.0 million, up over 50% from last year. Throughout the year we have improved our financial position and made progress rationalizing costs. While we recognize our end markets still provide challenges, we continue to distinguish the importance of investments in new products and services to drive future revenue opportunities.

Revenue growth will be driven by focusing on the right platforms that are supported by our lean services and processes. Incremental revenue growth will leverage improved operations and core competencies, prudent investments in our sales teams and targeted high-opportunity customer relationships.

As our strategy is long term in nature, we realized that these investments may not provide immediate returns and may potentially offset gains in certain areas, but we believe that these will position our business for the recovery.

Let me now detail some of the activities within each of our business segments for the quarter.

In our Logistics and Manufacturing Services segment, end-user demand continued to be weak across our markets, although there were signs of increased activity levels during the quarter. Within the North American distribution business, we realized increased monthly daily sales averages, which is encouraging. However, market price pressure increased. We believe in the quality of our services and have attempted to maintain our value-added pricing.

Continued market pressure and seasonally low fourth quarter activities is likely to continue to pressure top-line growth and we are not expecting end-market improvements, or at least normal environment, until later in 2010.

Progress within our European distribution continues. Daily sales averages are improving here as well, with sales for the last month of the quarter at the highest level all year. However, economic activity, which these businesses support, is expected to remain soft, providing a tempered outlook for the rest of 2009 and into 2010.

While we have significantly improved the operating structure and focused the business within Europe, our cost structure continues to pose challenges. Nevertheless, we have focused a considerable amount of resources on this business and are optimistic we can improve its financial performance in 2010.

For the aerospace aftermarket business, demand continued to be soft as both passenger traffic and freight volumes languished. Deferred maintenance, along with limited scope repairs and engine cannibalization continued throughout the third quarter. These low activity levels, however, are finite and will come to an end. Unfortunately, the timing is difficult to forecast but is expected to continue into 2010. We are, however, encouraged by the long-term prospects within our aerospace aftermarket maintenance business.

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