Barnes (US:B)2021-07-30 22:33Financial Data and Key Metrics Changes - In Q2 2021, total sales were $321 million, up 36% from the prior year, with organic sales increasing by 31% and a positive foreign exchange impact of 5% [18] - Adjusted operating income was $39.2 million, up 41%, with an adjusted operating margin of 12.2%, an increase of 40 basis points from the previous year [19] - Net income was $24.5 million or $0.48 per diluted share, compared to $600,000 or $0.01 per diluted share a year ago, with adjusted EPS of $0.45, up 67% from $0.27 [21] Business Line Data and Key Metrics Changes - Industrial segment sales were $235 million, up 42% year-over-year, with organic sales increasing by 35% [22] - Aerospace sales were $86 million, up 23% from a year ago, driven by a 37% increase in OEM business [24] - The Molding Solutions business saw organic sales growth of 22% year-over-year, while the Force & Motion Control segment experienced over 50% organic orders growth [12][8] Market Data and Key Metrics Changes - Manufacturing PMIs in the U.S. and Eurozone remain strong, with China in expansion territory, although not as robust [8] - Global production is expected to increase by 10% in 2021 and an additional 11% in 2022, despite ongoing semiconductor issues [8] - The aerospace aftermarket is anticipated to improve sequentially as air traffic recovers, particularly in the U.S. and China [66] Company Strategy and Development Direction - The company is focused on growth initiatives, including investments in technology and new product development, such as the launch of vacuum gripper technology and pipette tips for the medical market [10][11] - The outlook for organic sales growth has been revised to mid-teens for Industrial and approximately 20% for Automation, reflecting strong demand and recovery [14][13] - The company aims to continue funding strategic initiatives and pursue accretive acquisitions to enhance long-term performance [29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of end markets, with a strong backlog of $984 million, reflecting a 12% increase from the previous quarter [7] - Supply chain challenges and inflation risks are being actively managed, with pricing actions implemented as necessary [16] - The outlook for Aerospace remains unchanged, with total sales expected to increase by low single digits, while OEM sales are forecasted to rise by mid-single digits [16] Other Important Information - The company repurchased 100,000 shares at an average price of $52.29 during the quarter, with approximately 3.6 million shares remaining available for repurchase [26] - The debt-to-EBITDA ratio improved to 2.9 times, down from 3.1 times at the end of the previous quarter [26] - Cash conversion is now anticipated to be greater than 110%, an increase from the prior expectation of 100% [28] Q&A Session Summary Question: Can you discuss the aerospace aftermarket MRO? - Management indicated that the slight sequential decline in MRO sales was due to timing, with orders up 4% in the quarter, and expects continued growth in the aftermarket [30][32] Question: How do you contextualize the inflation numbers provided? - Management noted that full-year inflation expectations have been adjusted slightly down from $6 million to align with current experiences, indicating optimism for the second half of the year [34] Question: What is the outlook for cash flow conversion? - Management acknowledged the potential for a working capital build in the second half, hence the comfort with a 110% or greater cash conversion expectation [36][37] Question: Can you provide insights on Aerospace margins? - Aerospace margins were slightly down, but management remains optimistic about the mix improving as aftermarket recovery continues [40][41] Question: What is the outlook for Industrial margins? - Management expects Industrial margins to improve sequentially, driven by volume and operational initiatives, with a target of mid-teens margins in the future [46][61]