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Here's Why You Should Avoid Investing in Barnes (B) for Now
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Barnes Group Inc. (B - Free Report) is struggling with productivity challenges in some of its facilities across North America and Asia due to a significant amount of new employee hiring, rising operating costs and increasing interest expenses, which are likely to impede the company’s earnings in the quarters ahead.
Let’s discuss the factors, which are likely to continue taking a toll on this Zacks Rank #5 (Strong Sell) company.
Segment Weakness: Barnes’ motion control solutions business within the Industrial segment has been facing challenges due to the ongoing United Auto Workers strike. Also, shipment delays and lagging orders have been worrisome for the segment. Higher-than-expected transformation costs, a slowdown in the U.S. economy, geopolitical instability and labor-productivity challenges are likely to impact Barnes’ performance in the near term.
In the third quarter of 2023, the Aerospace segment’s adjusted operating margin declined 380 basis points year over year due to long-term intangible amortization from the MB Aerospace acquisition and lower productivity.
Increasing Costs: The escalating cost of sales poses a threat to B’s bottom line. Barnes’ cost of sales in the first nine months of 2023 increased 12.1% year over year. High raw material costs are pushing up the cost of sales. Selling and administrative expenses also rose 24.3% in the same period. Escalating costs, if unchecked, can be detrimental to Barnes’ margins and profitability.
Steep Interest Expenses: Increasing interest expenses are worrisome for the company. In the third quarter, Barnes’ interest expense was $22.8 million compared with $3.4 million in the year-ago period. The increase was due to the MB Aerospace acquisition. It is worth noting that the high interest expense drove the majority of the year-over-year decline in adjusted earnings per share (down 157.9% in the third quarter).
Southbound Estimate Revisions: In the past 60 days, the Zacks Consensus Estimate for B’s 2023 earnings has been revised 23.8% downward.
Price Performance: Shares of the company have declined 18% in the past year against the industry’s 23.4% increase.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
FLS delivered a trailing four-quarter average earnings surprise of 27.3%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2023 earnings has increased 1.5%. The stock has risen 39.8% in the past year.
Applied Industrial Technologies, Inc. (AIT - Free Report) presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 13.9%.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has increased 1.8% in the past 60 days. Shares of Applied Industrial have jumped 36.2% in the past year.
A. O. Smith Corporation (AOS - Free Report) currently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 14%.
In the past 60 days, the Zacks Consensus Estimate for A. O. Smith’s 2023 earnings has improved 2.2%. The stock has risen 44.2% in the past year.
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Here's Why You Should Avoid Investing in Barnes (B) for Now
Barnes Group Inc. (B - Free Report) is struggling with productivity challenges in some of its facilities across North America and Asia due to a significant amount of new employee hiring, rising operating costs and increasing interest expenses, which are likely to impede the company’s earnings in the quarters ahead.
Let’s discuss the factors, which are likely to continue taking a toll on this Zacks Rank #5 (Strong Sell) company.
Segment Weakness: Barnes’ motion control solutions business within the Industrial segment has been facing challenges due to the ongoing United Auto Workers strike. Also, shipment delays and lagging orders have been worrisome for the segment. Higher-than-expected transformation costs, a slowdown in the U.S. economy, geopolitical instability and labor-productivity challenges are likely to impact Barnes’ performance in the near term.
In the third quarter of 2023, the Aerospace segment’s adjusted operating margin declined 380 basis points year over year due to long-term intangible amortization from the MB Aerospace acquisition and lower productivity.
Increasing Costs: The escalating cost of sales poses a threat to B’s bottom line. Barnes’ cost of sales in the first nine months of 2023 increased 12.1% year over year. High raw material costs are pushing up the cost of sales. Selling and administrative expenses also rose 24.3% in the same period. Escalating costs, if unchecked, can be detrimental to Barnes’ margins and profitability.
Steep Interest Expenses: Increasing interest expenses are worrisome for the company. In the third quarter, Barnes’ interest expense was $22.8 million compared with $3.4 million in the year-ago period. The increase was due to the MB Aerospace acquisition. It is worth noting that the high interest expense drove the majority of the year-over-year decline in adjusted earnings per share (down 157.9% in the third quarter).
Southbound Estimate Revisions: In the past 60 days, the Zacks Consensus Estimate for B’s 2023 earnings has been revised 23.8% downward.
Price Performance: Shares of the company have declined 18% in the past year against the industry’s 23.4% increase.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Flowserve Corporation (FLS - Free Report) presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 27.3%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2023 earnings has increased 1.5%. The stock has risen 39.8% in the past year.
Applied Industrial Technologies, Inc. (AIT - Free Report) presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 13.9%.
The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has increased 1.8% in the past 60 days. Shares of Applied Industrial have jumped 36.2% in the past year.
A. O. Smith Corporation (AOS - Free Report) currently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 14%.
In the past 60 days, the Zacks Consensus Estimate for A. O. Smith’s 2023 earnings has improved 2.2%. The stock has risen 44.2% in the past year.