Barnes (US:B) Zacks Investment Researchยท2024-04-15 16:10Core Viewpoint - Barnes Group Inc. has underperformed due to weaknesses in the Industrial segment, rising operating costs, and increasing debt levels, which are expected to hinder earnings in the upcoming quarters [1] Business Weakness - The Industrial segment is facing challenges from weak motion control solutions and automation businesses, with shipment delays and lagging orders being significant concerns [2] - In Q4 2023, the Aerospace segment's adjusted operating margin fell by 360 basis points year-over-year due to long-term intangible amortization from the MB Aerospace acquisition [2] - Organic sales in Motion Control Solutions and Automation businesses decreased by 10% and 7%, respectively, in the same period [2] - Factors such as higher-than-expected transformation costs, a slowdown in the U.S. economy, geopolitical instability, and labor productivity challenges are likely to negatively impact performance [2] Steep Costs - The cost of sales increased by 44% year-over-year in 2023, driven by high raw material and labor costs [3] - Selling and administrative expenses rose by 4.5% during the same period, which could adversely affect margins and profitability if costs continue to escalate [3] High Debt - Barnes ended Q4 2023 with long-term debt of $1.3 billion, a significant increase from $569.6 million at the end of 2022 [4] - Interest expenses rose to $23.6 million in Q4 compared to $4.4 million in the previous year, primarily due to the MB Aerospace acquisition [4] - The increase in interest expense contributed to a 21% year-over-year decline in adjusted earnings per share in Q4 [4] Southbound Estimate Revisions - The Zacks Consensus Estimate for Barnes' 2024 earnings has been revised downward by 1.2% in the past 60 days [4] Price Performance - Shares of Barnes have declined by 13.3% over the past year, contrasting with the industry's growth of 29.9% [4]