Barnes Group Investor Overview. October 2014

Transcription

1 Barnes Group Investor Overview October 2014

2 Safe Harbor Statement Certain remarks in today s discussion may contain forward-looking statements. Forward-looking statements are made based upon management's good faith expectations and beliefs concerning future developments and their potential effect upon the Company. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements, including the risks and uncertainties set forth under our full disclosure located at the end of this presentation and included in our SEC filings. The Company assumes no obligation to update our forward-looking statements. References to adjusted financial results are non-gaap measures. You will find a GAAP reconciliation table at the end of this presentation. -2-

3 Barnes Group Overview An International Industrial and Aerospace Manufacturer and Services Provider, Serving a Wide Range of End Markets and Customers Two Global Business Segments: Industrial & Aerospace Founded in 1857 Headquartered in Bristol, CT with Global Operations in Over 60 Locations Approximately 4,400 Employees NYSE: B (Public Since 1946) 80 Consecutive Years of Dividends Highly Engineered Products and Innovative Solutions 2013 Sales $1.1B Aerospace $0.4B 37% Industrial $0.7B 63% 2013 Operating Profit & Margin $141M, 12.9% (Adjusted) Aerospace $55M 13.7% Industrial $86M 12.5% Note: 2013 Sales and Adjusted Operating Profit are Based on Continuing Operations. Please see GAAP reconciliation table at the end of this presentation. -3-

4 Sales by End Markets & Geography End Markets Geography Transportation 34% Aero OEM 28% Europe 24% Asia 20% Industrial 28% Aero Aftermarket 10% Americas 56% Global, Diversified End Markets Note: % Sales from Continuing Operations for the year ended December 31,

5 Strategic Themes Seek Portfolio Enhancements to Drive Shareholder Value Build On Intellectual Property (IP) as Core Differentiator Choose End-Markets with Long Term Sustainable, Profitable Growth Target Cyclical Moderation Multiple Platforms / Market Channels Expand Global Footprint / Access Enhance Barnes Enterprise System Drive Sustainable Profitable Growth -5-

6 Driving Operating Margin Improvement Actions Taken Barnes Enterprise System (BES) Strategic Rationalization Targeted Investments Strategic Acquisitions Talent Development Today s Focus Differentiated Products and Processes Organic Investment in Growth Platforms Strategic Acquisitions Leverage Commercial Aerospace Extend Global Reach BES Next Generation ~13% High Teens 5% Average Expectation Holding Company Approach Aligned Portfolio Executing Our Strategy to Deliver Improved Margin Performance Note: 2001 to 2005 Average Operating Margin adjusted for the impact of accounting changes to be comparable to Adjusted Operating Margin from Continuing Operations. See GAAP reconciliation table at the end of this presentation. -6-

7 What Is BES? BES is a Fully Integrated Operating System that: Promotes a Culture of Employee Engagement and Empowerment Reflecting our Strong Corporate Values Ensures Alignment Across the Organization Around a Common Vision Fosters Continuous Improvement and Innovation in all of our Business Processes Achieves Results that Drive Sustainable Profitable Growth BES is One of our Greatest Competitive Advantages -7-

8 Cash Deployment Priorities $29 CapEx and Depreciation ($ in Millions) CapEx Depreciation $57 $36 $37 $37 $38 $34 $34 ~$60 $ F CapEx to Depreciation Ratio:.8x 1.0x 1.1x 1.7x 1.5x Drive Organic Growth 2013 CapEx Increased ~50% to $57M About Half Related to Growth Programs Strategic Portfolio Transformation Target Highly Engineered Products & Services Expand Global Reach/Channel Penetration Generate Returns to Shareholders Continue to Pay a Competitive Dividend Opportunistic Share Repurchase Primarily to Offset Dilution of Equity-based Compensation Increased Investment to Support Profitable Growth -8-

9 M&A Transactions 2010 Sales Mix (1) 2013 Sales Mix Distribution 32% Aerospace 32% Industrial 36% Portfolio Evolution Divestitures Year Sales Europe 2011 $105 Industrial 63% Aerospace 37% N. America 2013 $300 Sales (1) $1,133M Op. Inc. $ (1) $86.5 Op. Margin (1) 7.6% Share Price (2) $20.67 Market Cap (2) $1.1B Acquisitions 2012 $ $110 ($ in millions, ~ annual sales at time of transaction) Sales $1,092M -4% Adj. Op. Inc. $ $ % Adj. Op. Margin 12.9% +530 bps Share Price (2) $ % Market Cap (2) $2.1B +86% Portfolio Transformation Well Underway (1) 2010 Sales, Operating Income and Operating Margin are as reported in the Company s K Sales Mix re-calculated to reflect three segments Aerospace, Industrial & Distribution vs the original two reported segments of Precision Components & Logistics and Manufacturing Services (2) Share Price and Market Cap as of December 31, 2010 and 2013 respectively. -9-

10 Industrial Businesses Manufacturer of Hot Runner Systems and Components with a Focus on Providing High Quality Products and Value Added Services End Markets: Automotive Interior and Exterior Components General Industrial Telecom and Electronic Components Growth Drivers: Expand Automotive Offerings Increase Premium Consumer and Electronics Penetration Specializes in the Development and Manufacture of High-Precision Molds and Hot Runner Systems End Markets: Medical / Pharmaceutical Personal Care Packaging Electronic Components Growth Drivers: Capacity Expansion Expand Globally Manufacturer of Nitrogen Gas Springs and Hydraulic Systems for Automotive Stamping Dies and Demanding Vehicle and Industrial Applications End Markets: Industrial Equipment for Transportation, HVAC, Electronics, Whitegoods and Sheet Metal Stamping Growth Drivers: Expand Tool & Die Offerings Extend Machine & Vehicle Offerings -10-

11 Industrial Businesses (Continued) Pioneer, Leader & Innovator in Engineered Spring & Precision Metal Component Manufacturing End Markets: Light Vehicle General Industrial Household / Whitegoods Other Transportation Growth Drivers: Advanced Transmission Offerings Differentiated Product Growth Progressive Stamping, Micro- Stamping, Precision Cutting and Forming from Prototype Building to Complete Assemblies End Markets: Light Vehicle General Industrial Growth Drivers: Deliver Automotive GDi (Gas Direct Injection) Develop Adjacent Markets, such as Medical Develops and Produces a Comprehensive Range of Retaining Rings, Fasteners, Snap Rings and Shims End Markets: Light Vehicle General Industrial Growth Drivers: Expand Globally Enhance Product Offerings -11-

12 Industrial End Market Highlights A Leading Global Manufacturer of Highly-Engineered, High-Quality, Precision Components for Critical Applications Focused on Custom Components and Solutions for a Diverse Customer Base in Broad End-Markets Value Added Engineering: Customers Receive the Benefits of Research, Design, Manufacturing, Testing and Evaluation PMI Indices US ISM PMI Euro Mfg PMI China Mfg PMI Source: KeyBanc, ISM, Markit, Sept 2014 Key Macroeconomic Indicators US Q3 14 PMI was 57.6; 21 Consecutive Quarters >50 Europe and China PMI >50 Global Light Vehicle Auto Production Forecasted up +3% in % in % in % in 2017 Global LV Auto Production 100 Units, in Millions Source: IHS Automotive, Oct 2014 Favorable Industrial End-Markets -12-

13 Aerospace Aerospace Provides Superior Technology-Based Manufacturing Solutions and Comprehensive Component Overhaul and Repair Services to the World s Major Jet Engine Manufacturers, Commercial Airlines and the Military Barnes Aerospace OEM Barnes Aerospace Aftermarket Maintenance, Repair & Overhaul Spare Parts (Revenue Sharing Programs) Provides Highly Engineered Machined and Fabricated Components Using Super-alloys Concurrent Engineering & NPI Capabilities Deliver Value OEM-Source Approved for Rolls Royce, SNECMA, GE and Pratt & Whitney Engines FAA/EASA/CAAC Certified Engine Repair Stations Selected Aftermarket Spare Parts for CFM56 and CF6 Engines Note: FAA is the U.S. Federal Aviation Administration, EASA is the European Aviation Safety Agency, and CAAC is the Civil Aviation Administration of China -13-

14 Aerospace OEM End Market Highlights Strong Commercial Aircraft Deliveries Forecasted Over Next Several Years Airbus & Boeing Backlog at Levels Equivalent to ~7 Years of Current Production 1,800 1,600 1,400 1,200 1, Wide-body Aircraft Deliveries (Units) Narrow-body 2013E 2014E 2015E 2016E 2017E Sources: Boeing & Airbus Data, RBC Est., as of July 2014 Commercial Aircraft Production Increasing -14-

15 Estimated Shop Visits (000s) Fleet Size (000s) Estimated Shop Visits (000s) Fleet Size (000s) Barnes Aftermarket RSPs and CRPs Revenue Sharing Programs (RSPs) CFM56 Family of Engines Exclusive Rights to Supply Certain Aftermarket Spare Parts to General Electric (GE) Covers Life of CFM56 & CF6 Engines Programs 13 Agreements, Entered Between Investment of $294M, Amortized as a Reduction of Sales Quarterly Net Sales Can Vary Due to Inventory Management, Mix of Engines, Scope of Engine Repair, and Surplus Material for these High Margin Programs Shop Visits Fleet Size Component Repair Programs (CRPs) Provides Licensing Rights from GE for Repair Services of Certain Critical Components which Improve Overall Engine Efficiency Covers Life of CFM56 & CF6 Engine Programs Allows Access to Serve Global Market as OEM Certified Repair Service 2 Agreements, Entered Between Investment of $107M, Amortized as a Reduction of Sales Expands Margin Profile of Aftermarket MRO Business CF6 Family of Engines Shop Visits Fleet Size Programs Allow Barnes Aerospace to Participate in OEM Certified Aftermarket Business Sources: Shop Visit Forecast- ICF Aug 13 for 2013; ICF May 14 for ; Fleet Size-Aviation Week CAMRO

16 Financial Performance Trends (1,4) Net Sales (Continuing Operations, $ in Millions) Adjusted EPS (2) (Continuing Operations) +26% to 28% $742 $865 $929 $1,092 15% to 16% Growth $0.85 $1.34 $1.52 $1.83 $2.30 to $ F Adj. Operating Margins (2) (Continuing Operations) F Free Cash Flow (3) ($ in Millions) 10.3% 11.7% 12.2% 12.9% ~15.5% $37 $84 $99 $83 $115 to $ F F Cash Conversion: 69% 92% 104% 110% ~100% (1) Our 2014 full-year guidance is only as of our October 24, 2014 earnings call, and it is not being updated or affirmed at this time. (2) References to adjusted operating margin and adjusted EPS for 2012, 2013 and 2014 are non-gaap measures. For a reconciliation to the appropriate GAAP measure, see the Appendix of this presentation. (3) The Company defines free cash flow as net cash provided by operating activities less capital expenditures. Cash Conversion is equal to Net Cash Provided by Operating Activities less Capital Expenditures divided by Net Income (2011 excludes the loss on sale of Barnes Distribution Europe; 2013 excludes the income taxes paid and gain on sale of the BDNA disposition, and the impact of the U.S. Tax Court's unfavorable decision rendered on April 16, 2013.) (4) All previously reported financial information, except for Free Cash Flow, has been adjusted on a retrospective basis to reflect discontinued operations. -16-

17 Why Invest In Barnes Group? Well Positioned Businesses Global Industrial Products and Services; Expanding Auto Production Commercial Aerospace; Strong OEM, Aftermarket Recovery Anticipated Improved Financial Performance Demonstrated Margin Expansion; Further Expansion Planned Benefiting from Barnes Enterprise System Strong Cash Generator; Solid Balance Sheet Strategy Execution Delivering Results Expanding Differentiated Systems, Products and Processes Disciplined Acquisitions and Strategic Investments Focused on Long Term Profitable Growth -17-

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19 Barnes Aerospace Components Shaft Nuts & Gears Rotating Air Ducts Engine Cases Retainer Rings Combustor Components Turbine Exhaust Cases, Cones, Cylinders and Fairings Tube and Duct Assemblies Bearing Housings Manifolds Vane Actuation Rings, Lever Arms Struts Stub Shafts Rotating Air/Oil Seals, Vane Rings, Lever Arms HP and LP Shrouds, Hangers and Segments, Machined & Fabricated -19-

20 Commercial Aircraft Engine Product Life Cycle Development: Leap A,B,C Passport PW1000 GTF GE9X COST DEV. EARLY PROD. PRODUCT MATURITY SPARES Mature: CFM56 CF6-80 CF34-3/8 CF34-10E AE3007 V2500 PW4000 Trent700 GE90-115B Early Production: GENX-1B GENX-2B Trent 1000 GP7200 Trent 900 Trent XWB PRODUCTION VOLUME NEW EMERGING & EARLY LIFE CYCLE PROGRAMS TIME OUT OF PRODUCTION SPARES Out Of Production JT-9D JT-8D PW2000 CF6-6 CF6-50 Trent 500 Trent 800 Participation Throughout The Product Life Cycle -20-

21 Appendix: Non-GAAP Financial Measure Reconciliation ($ in Millions, except per share data) SEGMENT RESULTS Twelve months ended December 31, (1) % Change Operating Profit - Industrial Segment (GAAP) $ 71,888 $ 49, Synventive short-term purchase accounting adjustments - 4,987 Synventive acquisition transaction costs Männer short-term purchase accounting adjustments 5,456 - Männer acquisition transaction costs 1,823 - CEO transition costs 6,589 - Operating Profit - Industrial Segment as adjusted (Non-GAAP) (2) $ 85,756 $ 55, Operating Margin - Industrial Segment (GAAP) 10.5% 9.1% 140 bps. Operating Margin - Industrial Segment as adjusted (Non-GAAP) (2) 12.5% 10.2% 230 bps. Operating Profit - Aerospace Segment (GAAP) $ 51,313 $ 57,878 (11.3) CEO transition costs 3,903 - Operating Profit - Aerospace Segment as adjusted (Non-GAAP) (2) $ 55,216 $ 57,878 (4.6) Notes: (1) Results for 2012 have been adjusted on a retrospective basis to reflect the impact of the BDNA discontinued operations, including a reallocation of corporate overhead expenses, and the segment realignment. (2) The Company has excluded the following from its "as adjusted" financial measurements: 1) short-term purchase accounting adjustments and transaction costs related to its Synventive acquisition in 2012, 2) CEO transition costs associated with the modification of outstanding equity awards in 2013, 3) the tax charge associated with the April 2013 tax court decision in 2013, 4) short-term purchase accounting adjustments and transaction costs related to its Männer acquisition in 2013 and 2014 and 5) costs related to the close of production operations at Associated Spring s Saline, Michigan facility in Operating Margin - Aerospace Segment (GAAP) 12.7% 14.8% (210) bps. Operating Margin - Aerospace Segment as adjusted (Non-GAAP) (2) 13.7% 14.8% (110) bps. CONSOLIDATED RESULTS Operating Income (GAAP) $ 123,201 $ 107, Synventive short-term purchase accounting adjustments - 4,987 Synventive acquisition transaction costs Männer short-term purchase accounting adjustments 5,456 - Männer acquisition transaction costs 1,823 - CEO transition costs 10,492 - Operating Income as adjusted (Non-GAAP) (2) $ 140,972 $ 113, Operating Margin (GAAP) 11.3% 11.5% (20) bps. Operating Margin as adjusted (Non-GAAP) (2) 12.9% 12.2% 70 bps. Diluted Income from Continuing Operations per Share (GAAP) $ 1.31 $ 1.44 (9.0) Synventive short-term purchase accounting adjustments Synventive acquisition transaction costs Männer short-term purchase accounting adjustments Männer acquisition transaction costs CEO transition costs April 2013 tax court decision Management believes that these adjustments provide the Company and its investors with an indication of our baseline performance excluding items that are not considered to be reflective of our ongoing results. Management does not intend results excluding the adjustments to represent results as defined by GAAP, and the reader should not consider it as an alternative measurement calculated in accordance with GAAP, or as an indicator of the Company's performance. Accordingly, the measurements have limitations depending on their use. As Barnes Group does not predict special items that may occur in the future, and because our outlook is developed at a level of detail different than that used to prepare GAAP-based financial measures, we do not provide reconciliations to GAAP of our forward-looking financial measures. Diluted Income from Continuing Operations per Share as adjusted (Non-GAAP) (2) $ 1.83 $ Full-Year 2014 Outlook Diluted Income from Continuing Operations per Share (GAAP) $ 2.10 to $ 2.15 Männer short-term purchase accounting adjustments 0.13 Restructuring Charges 0.07 Diluted Income from Continuing Operations per Share as adjusted (Non-GAAP) (2) $ 2.30 to $

22 Safe Harbor Statement This presentation contains forward-looking statements as defined in the Private Securities Litigation Reform Act of Forward-looking statements often address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "strategy," "estimate," "project," and similar terms. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These include, among others: difficulty maintaining relationships with employees, including unionized employees, customers, distributors, suppliers, business partners or governmental entities; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; difficulties leveraging market opportunities; changes in market demand for our products and services; rapid technological and market change; the ability to protect intellectual property rights; introduction or development of new products or transfer of work; higher risks in international operations and markets; the impact of intense competition; and other risks and uncertainties described in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by the Company, including, among others, those in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings. The risks and uncertainties described in our periodic filings with the SEC include, among others, uncertainties relating to conditions in financial markets; currency fluctuations and foreign currency exposure; future financial performance of the industries or customers that we serve; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; inability to realize expected sales or profits from existing backlog due to a range of factors, including insourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions; changes in raw material or product prices and availability; integration of acquired businesses including the Männer business; restructuring costs or savings including those related to the closure of production operations at the Company s facility in Saline, Michigan; the continuing impact of strategic actions, including acquisitions, divestitures, restructurings, or strategic business realignments, and our ability to achieve the financial and operational targets set in connection with any such actions; the outcome of pending and future legal, governmental, or regulatory proceedings and contingencies and uninsured claims; future repurchases of common stock; future levels of indebtedness; and numerous other matters of a global, regional or national scale, including those of a political, economic, business, competitive, environmental, regulatory and public health nature. The Company assumes no obligation to update our forward-looking statements. -22-