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Barnes Group (B) Up 12.4% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Barnes Group (B - Free Report) . Shares have added about 12.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Barnes Group due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Barnes Q3 Earnings & Revenues Beat Estimates, Down Y/Y

Barnes Group reported better-than-expected third-quarter 2020 results, wherein both earnings and revenues surpassed estimates.

The company’s adjusted earnings in the reported quarter were 30 cents per share. The figure surpassed the Zacks Consensus Estimate of 27 cents by 11.1%. However, the bottom line declined 66.3% on a year-over-year basis.

Top-Line Results

In the reported quarter, Barnes’ revenues decreased 27.8% year over year to $269.1 million. Revenues were adversely impacted by organic sales decline of 26% and adverse impact of 4% from divestitures, partially offset by positive impact of 2% from foreign exchange.

The top line beat the Zacks Consensus Estimate of $246 million by 9.3%.

Barnes reports net sales under two heads — Industrial and Aerospace. A brief snapshot of the segmental sales is provided below:

Net sales generated from Industrial amounted to $196.9 million, declining 15% year over year. The segment suffered from weakness in automotive and industrial end markets, and the coronavirus outbreak-related issues. Organic sales were down 12% year over year, while favorable foreign exchange had a positive impact of 3%. Divestiture of the Seeger business had a negative impact of 6%.

Aerospace’s sales were $72.1 million in the third quarter, down 49% year over year. Original equipment manufacturing net sales declined 44%, while aftermarket net sales fell 58% on account of softness in aerospace end markets.

Margin Profile

In the reported quarter, Barnes’ cost of sales decreased 24.5% year over year to $176.9 million. Notably, cost of sales represented 65.7% of net sales versus 62.9% in the year-ago quarter. Selling and administrative expenses decreased 13.7% to $60.9 million and represented 22.6% of net sales. Total operating income in the quarter declined 53.8% to $31.2 million, while margin contracted 650 basis points to 11.6%. Interest expenses totaled $3.7 million in the reported quarter, down 30.7% year over year.

Balance Sheet & Cash Flow

Exiting the third quarter, Barnes’ cash and cash equivalents were $77.5 million, up 4.4% from $74.2 million recorded in the last reported quarter. Long-term debt was $701.4 million, reflecting a 1.4% decline from $711.4 million in the last reported quarter.

In the first nine months of 2020, it generated net cash of $163.4 million from operating activities, up 1.3% from the comparable period of the previous year. Capital expenditure totaled $30.2 million, decreasing 19.9%. Free cash flow was $133.2 million compared with $123.6 million reported a year ago.

During the quarter, Barnes paid out dividends amounting to $8.1 million, in line with the year-ago quarter’s disbursement. Notably, the company refrained from repurchasing any shares in the quarter.

Outlook

For the fourth quarter of 2020, the company anticipates adjusted earnings of 27-35 cents per share, suggesting a decline of 64% at the mid-point from the year-ago reported figure.

Organic sales for the fourth quarter are predicted to decline about 20% on a year-over-year basis. Operating margin is predicted to be 11%.

For full-year 2020 it anticipates capital expenditures of $40 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -6.6% due to these changes.

VGM Scores

At this time, Barnes Group has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Barnes Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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