This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Ladies and gentlemen, thank you for standing by, and welcome to the Barnes Group, Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in listening mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to turn the conference over to their speaker today, Mr. William Pitt, Director of Investor Relations. Please go ahead, sir.
spk03: Thank you, Angie. Good morning, and thank you for joining us for our second quarter 2021 earnings call. With me are Barnes Group's President and Chief Executive Officer, Patrick Dempsey, and newly appointed Senior Vice President and Chief Financial Officer, Julie Stryke. If you have not received a copy of our earnings press release, you can find it on the investor relations section of our corporate website at bginc.com. During our call, we will be referring to the earnings release supplement slides, which are also posted on our website. Our discussion today includes certain non-GAAP financial measures, which provide additional information we believe is helpful to our investors. These measures have been reconciled to the related GAAP measures in accordance with SEC regulations. You will find a reconciliation table on our website as part of the press release and in the Form 8K submitted to the Securities and Exchange Commission. Be advised that certain statements we make on today's call, both during the opening remarks and during the question and answer session, may be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Please consider the risks and uncertainties that are mentioned in today's call and are described in our periodic filings with the SEC. The filings are available through the investor relations section of our corporate website at BGINC.com. Let me now turn the call over to Patrick for his opening remarks. Then Julie will provide a review of our financial results and details of our updated outlook for 2021. After that, we'll open up the call for questions. Patrick.
spk02: Thank you, Bill, and good morning, everyone. Continuing with a clear focus on our business recovery, Barnes Group produced another solid quarter of year over year and sequential improvement in orders, organic sales, operating margins, and earnings. With total backlog at its highest point since the end of 2019, expanding revenue outlook, strengthening industrial end markets and a progressing aerospace environment, we feel confident about the prospects for the second half of the year. More importantly, our improving financial results continue to be supported by significant investments in growth initiatives that position us to sustain performance over the long term. In the second quarter, organic sales were up 31%, with sizable gains in both our operating segments. Industrial was particularly strong, while aerospace continues to build momentum after the significant effects of the pandemic on that industry. Similarly, orders were very good, as we generated a book to bill of 1.3 times, with aerospace driving that result. Our total backlog stands at 984 million at quarter end, reflecting a 12% increase from the end of the first quarter. Adjusted operating income and margins were up 41% and 40 bps respectively. Adjusted earnings per share were 45 cents, up 67% from last year. Again, really great results by the team. Moving now to a discussion of end market dynamics, beginning with industrial. Our industrial segment generated another strong quarter, with each of our businesses generating excellent year-over-year organic orders and revenue growth. For the segment, orders were up 37% organically, with a book-to-bill of approximately one times. Industrial sales grew 42%, with organic sales growth of 35%, Of note, second quarter total industrial sales were ahead of pre-COVID second quarter of 2019. As a macro-level backdrop, like last quarter, manufacturing PMIs in the U.S. and Eurozone remain strong, with China in the expansion territory, though not as robust as the other regions. Notwithstanding the ongoing semiconductor issue that's dampening automotive bills, IHS still predicts 2021 global production to be up 10% over last year and up an additional 11% in 2022. With respect to new platform launches and major refresh programs of light vehicles, 2021 2022 and 2023 are forecast to be sustained at a healthy level within our molding solutions business we saw a good orders quarter of 17 percent organically automotive packaging and personal care each saw double-digit orders growth with automotive being particularly strong medical mold orders took a dip in the quarter not an unusual dynamic as these large ticket products can be somewhat lumpy. Organic sales were up 22% year over year, while sequential sales were up 13%. On many occasions, you've heard me talk about investments in growth that we're making across the businesses to drive our sales and marketing efforts, innovation, and new product development. Recently, I discussed the launch of our new vacuum gripper technology in our automation business. At Moulding Solutions, we are also working hard to expand our leading technology-based solutions across multiple end markets. A prime example, relative to the public health crisis we've all experienced over the last year or so, is our Mould technology serving the global medical market and our investment and development of a new product offering known as Pipette Tips. Petite tips are a high volume critical item used in the world of laboratory diagnostics for collecting a precise amount of liquid and transferring it to a test apparatus. This market has expanded recently in order to meet the enormous demand brought on by the pandemic. Our customers require a technology based solution that consistently delivers high output rates with extremely tight tolerances. The pipette tips geometry must be precise to ensure that test results are both accurate and reliable. Our molding solutions business has developed a mold concept specifically for production of pipette tips, which not only meets strict technical requirements, but also focuses on superior reliability and ease of maintenance. To maximize uptime in an operation that runs 24 hours a day, seven days a week, The configuration of the mold allows for required maintenance of worn parts to occur right on the machine through replaceable modular units or clusters, allowing for minimum disruption and production to come quickly back online. Delivering leading technology-based solutions such as the pipette tip mold system and focusing on customer success allows our molding solutions business to demonstrate extraordinary value. To close my Moulding Solutions comments, our sales outlook has improved once again as we now forecast organic sales growth in the mid-teens, a bit better than our prior view. At force of motion control, organic orders were up over 50% with organic sales up double digits. FMC's two major end markets, Sheep Metal Forming and General Industrial, both saw robust orders and sales growth. On a sequential basis, sales increased 6%. We continue to see full-year 2021 organic sales growth to be up mid-Teens. Engineer components once again generated high double-digit organic orders and revenue growth on a year-over-year basis. Sequentially, we saw a modest dip in orders and sales as automotive semiconductor issues weigh on automotive end markets. As a result of this issue, we saw a second quarter revenue impact of approximately $5 million, very much aligned with the exposure we disclosed in April. We expect a third quarter semiconductor revenue impact of $3 million and another $1 million in the fourth quarter. Our general industrial markets remain very healthy and are helping to mitigate some of the impact. Our outlook for organic sales growth is now forecast to be up in high teens, a step up from our prior view of mid-teens growth. At automation, as economies rebound, the migration towards industrial robotics and more complex end-of-arm tooling solutions continues to be favorable. On a year-over-year basis, organic orders and sales growth were well into the double digits. Sequential growth in orders and sales also continues along a healthy trend. We now expect 2021 to deliver organic growth of approximately 20%, better than our April expectation of mid-teens growth. To wrap up on industrial, Clearly, our year-over-year growth rates across the segment compare favorably to last year's second quarter, which was the trough quarter relative to the impact of the pandemic. Comparables get more difficult over the next few quarters, though we expect to perform well. At industrial, we see 2021 organic growth in the mid-teens with operating margins of 12% to 13%. Our margin expectation is down slightly as we continue to make strategic investments in our people, products and systems. However, we view these investments as critical to setting us up for long-term growth and profitability. Additionally, in the near term, we are managing supply chain challenges, which Julie will address in a moment. Moving to aerospace, it's fair to say that the environment continues to improve. Airbus and Boeing narrow-body production levels are anticipated to increase meaningfully, although wide-body recovery is still a way off. Global traffic and capacity trends are improving, and that all bodes well for a strengthening aftermarket. At the segment level, we've been seeing good sequential sales growth and expect that trend to continue. And beginning this quarter, we'll see favorable year-over-year comparisons as we move through the year. Aerospace sales improved 23% over last year and 6% sequentially from the first quarter. OEM led the growth while aftermarket was down modestly, which we believe is simply timing. A highlight of the quarter was our strong OEM orders, which generated a book to bill of 2.5 times. That's three quarters in a row with a strong order book. This reflects our customers' confidence in a narrowbody ramp as most of the order volume relates to the LEAP engine platform. Our 2021 outlook for aerospace is unchanged from our prior view. Total aerospace sales are expected to be up low single digits. Within the segment, OEM sales are forecast to be up mid single digits, MRO down low single digits, and spare parts down in the mid teens. Segment operating margin is anticipated to be 13% to 14%, slightly higher than our April outlook. In closing, the second quarter finished with excellent results, positive momentum, and a healthy outlook for the remainder of the year. Several growth initiatives have been driven across the organization to help advance our recovery and position us to execute on our profitable growth strategy. While supply chain and inflation risks are present, our teams are doing a good job mitigating the impacts and implementing pricing actions as appropriate. We remain confident in the strength of our end markets and our team's ability to convert that into new business opportunities. Now, let me pass the call over to Julie Strike, our new Senior Vice President and Chief Financial Officer, for details on our quarterly performance. Julie brings to us a highly qualified business background and proven leadership in corporate finance. We're very happy to have you as part of our team. Julie?
spk01: Good morning, everyone, and thank you, Patrick, for the warm welcome to Barnes Group. I am happy to be here and look forward to working with you and the leadership team as we accelerate the ongoing transformation of our portfolio. It's an exciting time for Barnes, and it's likewise exciting to be part of crafting the go-forward story. Let me begin with highlights of our second quarter results on slide six of our supplement. Second quarter sales were $321 million, up 36% from the prior year period, with organic sales increasing 31% and foreign exchange generating a positive impact of 5%. As the impacts of the pandemic lessen, our well-positioned businesses are seeing recovery in almost all our end markets, operating income was $38.5 million versus $10.1 million a year ago. On an adjusted basis, which excludes restructuring charges of $700,000 this year and $17.7 million last year, operating income of $39.2 million was up 41% and adjusted operating margin of 12.2% was up 40 basis points from a year ago. Interest expense was $4.5 million, an increase of $600,000 as a result of a higher average interest rate offset in part by lower average borrowings. We'll see a sequentially lower average interest rate beginning in the third quarter as our debt to EBITDA ratio has improved, driven by the recovery in our business and active cash management. For the quarter, our effective tax rate was 25.3% compared with 89% in the second quarter of 2020 and 37.6% for full year 2020. As compared to the full year 2020 rate, our second quarter tax rate is benefiting from the absence of tax expense related to the sale of the Seeger business in 2020, a net benefit related to certain foreign tax matters in the current year quarter, and a favorable mix in earnings based on tax jurisdictions. 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. On an adjusted basis, net income per share of $0.45 was up 67% from 27% a year ago. Adjusted net income per share in the current quarter excludes $0.01 of restructuring charges and a net foreign tax benefit of $0.04, while the prior year period excludes $0.26 of restructuring charges. Now I'll turn to our segment performance, beginning with industrial. Second quarter industrial sales were $235 million, up 42% from a year ago, while organic sales increased 35%. As Patrick noted, the strong growth reflects volume increases across all our SBUs. Favorable foreign exchange increased sales by 12.4 million or 7%. As has been the case since June of last year, we have delivered another sequential quarter of sales improvement with second quarter sales up 7% from the first quarter of 2021. Industrials operating profit was 27.3 million versus an operating loss of 300,000 last year. Excluding restructuring costs of 200,000 this year and 15.8 million last year, adjusted operating profit was 27.5 million versus 15.5 million a year ago. Adjusted operating profit benefited from the contribution of higher organic sales volumes and the continuing impact of cost actions taken last year. Partially offsetting these items were higher personnel costs, primarily incentive compensation, and costs incurred in support of segment growth initiatives. Adjusted operating margin was 11.7%, up 230 basis points from a year ago. Supply chain concerns, including raw material availability, inflation, and increased freight costs continue to be a watch item. We do have raw material escalation clauses in certain long-term contracts and are able to price newly quoted business to account for increasing costs. We continue to work these issues and are taking steps to mitigate our risk exposures. In the second quarter, we experienced approximately 1.5 million of combined freight and material inflation in the industrial segment. For the second half of 2021, our industrial outlook includes 2 million of inflation impacts. Moving now to aerospace. Sales were 86 million, up 23% from a year ago, driven by a 37% increase in our OEM business. Our aftermarket business, which continues to be impacted by lingering effects of the global pandemic, experienced a 2% sales decrease with MRO down 8% and spare parts up 14%. We expect the aftermarket to sequentially improve as we move through the second half of the year. On a sequential basis, total aerospace sales increased 6% from the first quarter of 2021. Operating profit was $11.3 million, an increase of 8%. Excluding $400,000 of restructuring costs this year and $1.9 million last year, adjusted operating profit was $11.7 million, down 5%, driven by higher incentive compensation and unfavorable mix. Adjusted operating margin was 13.5%, down 400 basis points from a year ago. Aerospace OEM backlog ended June at $694 million, up 16% from March 2021, and we expect to ship approximately 40% of this backlog over the next year. Moving to cash flow performance. Year-to-date cash provided by operating activities was $86 million versus $123 million last year, with free cash flow of $68 million down from $103 million last year. Capital expenditures were $18 million down $2 million from a year ago. Year-to-date operating cash flow in 2020 saw a $48 million benefit from working capital as cash management was a significant focus during the pandemic. While we have seen a modest working capital improvement in the first half, we won't see the same benefit in 2021 as we did last year as business rebounds. Regarding the balance sheet, our debt to EBITDA ratio, as defined by our credit agreement, was 2.9 times at quarter end, down from 3.1 times at the end of last quarter. Our second quarter average diluted shares outstanding were 51.1 million. During the second quarter, under a pre-existing 10 plan, we repurchased 100,000 shares at an average price of 52.29, leaving approximately 3.6 million shares remaining available for repurchase under the Board's 2019 stock repurchase authorization. Turning to slide seven of our supplement, let's discuss our updated financial outlook for 2021. We now expect organic sales to be up 11% to 12% for the year, an increase from our prior view of up 10% to 12% driven by stronger industrial growth. FX is expected to have about a 2% favorable impact on sales, while divested Seeger revenues will have a small negative impact. Adjusted operating margin is forecast to be approximately 13%, consistent with our prior view. We currently expect a small amount of residual restructuring charges to come through, which we will take as an adjustment to 2021 net income. Adjusted EPS is expected to be in the range of $1.83 to $1.98 per share, up 12% to 21% from 2020's adjusted earnings of $1.64 per share. Our current expectation reflects an increase at the lower end of our previous range of $1.78 to $1.98, and we expect second-half EPS to be weighted to the fourth quarter. Rounding out a few other items, our interest expense forecast remains $16 million, while our other expense is forecast at $6.5 million, slightly less than our April outlook. Estimated CapEx of $50 million, average diluted shares of $51 million, and a full-year tax rate of 30% are all consistent with our prior outlook. Cash conversion is now anticipated to be greater than 110%, an increase over our prior expectation of 100%. In closing, we continue to drive solid revenue gains across the organization and expect further improvement. With many of our end markets demonstrating sustained recovery, our businesses are positioned to seize upon the opportunities presented by a stronger economy. Improving financial performance, good cash generation, and a supportive balance sheet sets us up for a good second half of the year. With a clear focus on executing our profitable growth plans, we'll continue to fund our strategic initiatives and pursue accretive acquisitions that will help us deliver superior performance over the long term. Operator, we will now open the call for questions.
spk00: If you would like to ask a question, please press star 1 on your telephone keypad. Again, that's star 1 to ask an audio question. Your first question comes from the line of Miles Walton with UBS.
spk05: Thanks. Good morning. Good morning, Miles. Good morning. And welcome. I was hoping you could touch on the aerospace aftermarket MRO. It sounds like the spares were nicely up sequentially and year on year, and that would be sort of consistent with GE spares. But the MRO business itself is always a little bit more challenging to know when you guys are going to come out. Is that lack of expansion sequentially more an indication of competition for MRO activity, constraints, or just overall market as you see it?
spk02: No, I think it's, Miles, I think it's basically timing in that we saw our sales slightly down a couple of percent sequentially. However, our orders were up 4% in the quarter last So what we saw over the course was a strong May, a little bit of a dip, or a strong April, a little bit of a dip in May, and then a strong June. And that's continued into July. So again, it's nothing, I think, more than just the nuances of how products are coming in to the shops, and nothing that we see as... other than the natural volatility of what's going to happen, I think, over the coming weeks and months. But nonetheless, with an upward trend, and we see aftermarket just going to continue to grow sequentially quarter over quarter as we move through the year. Okay.
spk05: And your full year look for that, the MRO outlook for the year that's been baked in, didn't really change that much?
spk02: Yeah, no, inside of aerospace, we have a, you know, our full year MRO was down low single digits, which is consistent with where we started the year. And the primary reason for that, of course, as you recall, was a strong first quarter in 2020. And then also, I'd bring note to the fact that we had a strong April as the pandemic hit last year. We saw the strength continuing into April before it tailed off in May. So you had a comp that was pretty tough on a year-over-year basis as well.
spk05: Okay. And then on the supply chain concerns, and in particular the inflation numbers you provided, the $1.5 million in the quarter and then $2 million for the rest of the year, maybe can you just contextualize that? How much inflation is that? Maybe how much more than you expected is that? Maybe some frame of reference you could put around it.
spk01: Sure. Thanks, Miles. And if you might recall from our first quarter call, we had anticipated full year inflation to be closer to $6 million for the year. And now we're backing off of that slightly as a result of what we've been experiencing. So I would say what we've experienced year-to-date is largely in line with expectations, but we're a bit more optimistic going into the second half of the year. Okay.
spk05: Okay. And then the only other one, cleanup-wise, is on cash flow. And I know you've raised the greater than 100 to greater than 110, and I heard you on the working capital in the second half. But unless there's a big working capital build – I guess I'm a little unclear why 110 is the right number as opposed to something materially higher than 110% conversion.
spk01: Well, I'm certainly aligned with your line of thinking that we'd love to see something materially higher than 110%, and clearly we're going to strive to maximize our cash conversion. But as the business rebounds, we do need to be cognizant of some build in working capital and therefore are comfortable at 110% or greater.
spk05: Okay. So you do anticipate some, you know, some relatively material level of working capital build, or at least are allowing for that to happen in the second half. Is that right?
spk01: Yes. Okay.
spk05: All right. Thank you. Thanks, Bob.
spk00: Your next question comes from the line of Michael Termali with Chura Security.
spk06: Hey, good morning, guys. Thanks for taking the questions.
spk00: Good morning.
spk06: How are you guys? Maybe just look at the margins in both segments. I mean, aerospace, you know, took a step down, you know, sequential incrementals, I guess, less than 4%. You had the spares improve, which presumably carries higher margin than MRO. Can you just give us color on what's happening with the aerospace margins and kind of how we should be thinking about that?
spk02: Sure. So, If you recall, in the first quarter, our operating margin was 13.6%. And then, as you noted, we're down 10 bps to 13.5% in the second quarter. The 13.5%, I would suggest, was a better performance than what we had indicated in the first quarter because we'd given full year guidance of 13% for the full year. And the reason that guidance, we gave that guidance was just some concerns over mix between the rate of which OEM would grow versus aftermarket, obviously with aftermarket being higher margin. So with that improvement in the mix, We actually finished the quarter at 13.5 and now have upped their guidance for the year between 13 and 14 for aerospace. And clearly, depending on the rate at which aftermarket comes back, that number could be significantly improved upon. It totally depends on the rate at which we see aftermarket recovery over the back half of the year.
spk06: Got it. And I mean, looking at the commentary from GE, from Safran, I mean, clearly if we see the parts pull through, I mean, that's going to be the bigger lever for you guys than the MRO.
spk02: Yes, spare parts clearly is another area that we saw nice sequential improvement and year over year in the mid teens from, you know, on the spare side. So that bodes well for, you know, a trend that we continue to see improving. And of course, the you know, the repair side of the business continues to be a nice margin business as well. And as the engines come into the shops, you know, clearly we'll see the repair side also improve.
spk06: Got it. Got it. And then just quickly on the industrial margins. Obviously, you know, some of the items you mentioned from supply chain, inflation-related costs, the investment process, How should we think about, you know, sort of the trajectory or the recovery of these industrial margins? I guess, when do you think you guys can kind of really start showing the benefits here? I mean, obviously, once the supply chain raw materials ease a bit, that should help. But the investments, and I guess I'm thinking, you know, trending back up to, you know, those levels you had been, you know, kind of mid-teens, you know, just how should we think about, you know, the overall cadence and maybe even when does the investment subside a little bit?
spk02: Yeah, it's a great question. And what I would highlight is that if you think about what is weighing right now on our industrial margins, which are still pretty healthy even as I compare them back to pre-COVID performance. And so I referenced in my prepared remarks that we had seen total sales higher in the quarter in industrial than we did in Q2 of 2019 before COVID-19. Our margins are just slightly below that performance in Q2 of 2019 as well, with significant investments being made into the industrial side of our business. So the areas that we're making those investments are primarily we announced last year the launch of our innovation hub. And that has continued to build momentum into 2021. And we're excited about the opportunities of the key technologies that the team there are developing. Secondly, obviously, you know, personnel costs on a year-over-year basis, particularly as it pertains to incentive comp, where last year was basically zero. This year, you know, obviously we're seeing the improvement in the business overall. The inflation is a factor, and I'm very pleased with how the team is managing that. And whilst we tried to put some parameters around it, we built those parameters into our guidance for the full year. And the last thing I just mentioned, and I mentioned it in the first quarter, the way we allocate out to the two segments is based on sales. And so Industrial has taken a little bit more of the weight this year with Aero being down. And that will self-rectify as well as Aero comes back and we move forward through the year. So I would just highlight that our goal and our target of mid-teams with Industrial is still very much where the team is focused. and we're looking for industrial margins with to continue to improve sequentially um just with the off so the underlying margins to improve the offset being some of the investments we're making got it thanks very much uh julie just the housekeeping i think you said what was interest expense really for the year going to shake out to 16 million yes 16 million great thanks a lot guys i'll jump back into you thank you
spk00: Your next question comes from the line of Matt Somerville with DA Davidson.
spk07: Thanks. Maybe just first put a little finer point on what Mike was talking about with industrial incrementals at 17%, total company at 13%. Given the volume increase you're seeing running through that business, Maybe can you parse out, and you mentioned the input cost pressure, $1.5 million. That would get you a little bit higher on an incremental basis if we were to exclude that. But I guess I'm a little surprised that incrementals aren't materially better than what they are right now. I know you mentioned some growth investments, but can you maybe get a little more granular on what's driving that and how we should think about incrementals in the back half?
spk02: Yeah, so the incrementals, as I pointed out, I look at it from internally, we look at it from a perspective of the underlying businesses and what the businesses are doing operationally. And there we remain very confident that we're continuing to see improvement and that incremental flow through occurring. The areas that I just highlighted, investments in terms of the mid to long term, those investments are the hub that I highlighted, our innovation hub, and we see that as a key strategic initiative for our long term. And that is primarily focused today on the industrial business, in particular as it pertains to technology around molding solutions, digitalization, and the whole area of how we use our technology to become a major solutions provider in the quest for reducing plastic waste. And so there, as I highlight that, and with the clear opportunity within that industry and in that space, we think we can be a leading provider of what is a breakthrough technology um solution in the future the digitalization side of things is where we're looking to move our products and services more towards being smart and connected and there we have a number of key projects that are working around again opportunities to create recurring revenue streams in the future uh again another investment that we see as key to our future success and then The last investment that we're making, which I expect to see a return on in more the short to mid-term, is strategic sales and marketing. And there we've added significant resources in terms of talent on the marketing side as well as feet on the street, salespeople, to continue to position ourselves for future growth. they're what's weighing, Matt, on the incremental margins externally. And as I mentioned also, if you just parse it out to industrial, it's clearly a little bit of a shift in the allocations as well. So as I...
spk07: Well, maybe it might be helpful, Patrick, which in the industrial business, how much would you say growth-related investments are up on a year-on-year basis, 21 relative to 20?
spk02: So, you know, they're up, I would say, in the $5 million to $10 million range.
spk07: Okay, got it. And then as a follow-up, industrial book to bill at 1.0, given kind of where we're at with the trajectory of the recovery, I'm a little surprised it's not higher. Maybe that's some lumpiness in molding. So can you talk about that a little bit? You know, what SBUs are trending maybe above that? What's trending below that? Maybe just a little more granularity there.
spk02: Well, as you highlight, I think the primary is the mold side of the business. And as I highlighted in my prepared remarks, we did see a little bit of lumpiness in medical orders in the quarter, which is not surprising or not something that is surprising. not something we've seen in the past because from quarter to quarter, they tend to be a little lumpy. But within industrial overall, I would suggest that each of the businesses were in that consistent range of about one time.
spk07: Okay, great. Thank you.
spk02: Thank you.
spk00: The next question comes from the line of Pete Skibinski with Olivet Global.
spk04: Good morning, guys. Nice quarter. Morning, Pete. Morning, Pete. So, guys, just sticking with industrial, revenue-wise, you grew 42%, so it's kind of hard to ask this question, but We've heard a lot about the chip shortages in the automotive industry and people having planned shutdowns. You know, we've heard about the impacting revenue at other firms. So I'm just wondering, have those kind of phenomenon impacted your sales at all so far, kind of year to date, from a revenue perspective in your automotive end markets?
spk02: Yes, they have. They have paid impact at a certain point. Predominantly in the production side, which is within engineered components. And what we've seen is in the second quarter, we saw about a $5 million impact revenues with an outlook that we've built into our forecast of another $3 million in the third quarter and $1 million in the fourth quarter. So it dampened a little bit the engineered components performance. However, I would highlight that the industrial side of engineered components has grown from strength to strength, and that has been an offset to some of the dampening effect of the top line on automotive components.
spk04: Okay. And so it didn't really impact molding solutions at all, really, it sounds like.
spk02: No, molding solutions primarily driven by the new model launches and, you know, the new model changes. And to that end, they saw some nice increased activity in the quarter, particularly, I think, as it pertains to new electric vehicles and the announcements that have been made around that.
spk04: Okay, okay. So let me – next question. Let me beat a dead horse a little bit on the industrial margins. You took down the full year modestly, but even with that, it looks like you're expecting, you know, call it 14% to 15% type of a margin at industrial in the second half of the year. And obviously it seems like volume will be your friend for a while. It seems like an industrial. So I'm just wondering that 14% to 15%. And not to back you into the corner on 2022, but is that type of range something that is reasonable to think about for 2022?
spk02: Well, I think we're definitely looking at margins improving over the course of the back half of the year. And I would suggest that it's going to be a combination of volume and internal activities that the teams are driving. So we're looking to see an improvement in margins, both from an operational standpoint and the initiatives being driven by the Barnes Enterprise System. And then also, obviously, as you mentioned, a little bit of an uplift as a result of volumes. As we move into 2022, I expect, again, that industrials will continue to improve and build on that momentum back, as you said, and as we've continued to communicate with a goal of getting back to mid-teens.
spk01: To build on what Patrick's saying, since industrial margins are very much in focus, I would also add that, remember, $12.4 million of the sales increase was driven by FX in-quarter, which has virtually no margin drop-through associated with it. So that is another factor contributing to in-quarter performance in industrial.
spk04: Okay. That's helpful. Thank you, guys. Just one last question, switching to aerospace. On the OEM side, a lot of good things there. And, Patrick, I would think that the strong OEM results in aerospace is I would think you're having some headwind on the 787 program. I would think that not much is going on for you on that program at the current time.
spk02: That's correct. That's correct. We're seeing clearly lower volumes as it pertains to most of the wide-body platforms. And what's driving our activity at the moment is all narrowbody and particularly the LEAP program.
spk04: Okay, okay.
spk02: That sounds great. Thanks for the call, guys. Thank you.
spk00: Your next question comes from the line of Christopher Glenn with Oppenheimer.
spk08: Thanks. Good morning. Good morning, Julian, Patrick, and Bill.
spk02: Morning, Chris.
spk08: Morning, Chris. So I was curious, this spares out what, Remains down mid-teens, but you did up mid-teens in the second quarter. And look at the sequential increases. It seems like that trend line would kind of eat up the big down in the first quarter more than the outlook. So just curious about the arithmetic there.
spk02: Well, as you highlight, there may be some conservatism inside of the outlook for aftermarket, but it is something that is going to continue to be driven by air traffic. And moreover, I think the dynamics of the airlines and how they're managing cash. So There are a number of factors in play, but clearly domestic travel here in the US has seen a marked improvement and everybody's pleased about that. Also within, I'd say, Asia, particularly China, a marked improvement in passenger traffic. The little bit of a laggard has been Europe, and I think that also stands to be an upside. in the event that the Europeans and the vaccinations roll out a little quicker there. So all in, Chris, we see sequential improvement in MRO and in spares through the back half of the year. The question is how much we gauge the rate of that increase, and I think we've reflected it in the guidance accordingly. Okay.
spk08: Yeah, I think the comps actually get a little easier, but I'll revisit my notes. And then on MRO off-spares, I'm wondering if you run into any periodic pockets of inventory that are causing some of the volatility. Any idea how that spares channel in front of you is situated?
spk02: Yeah, well, clearly what happened over the course of the pandemic was with a view to conserving cash, the airlines did everything within their power to bleed down inventories. And to that end, that all bodes well, I think, in that, you know, they've reached, if they haven't reached it already in the first quarter or the second quarter, the point of where, you know, they're restocking. And so that, I think, is something that is another positive outlook on the aftermarket side of the house, as well as, you know, they've run probably a lot of what's known as green time engines, which they've allowed them to defer maintenance. I think they're going to run to the end of that and be required to pull the engines back into the shops as well.
spk08: Thanks. Switching to industrial, you said automation orders were up well into the double digits. Curious if we get a little more specific on what the orders did there. Sort of a state of play on that dramatic acquisition, the operations and the pipeline around that, both in organic and organic.
spk02: Sure. So I said it was well up into the double digits. Just to put a number on that, it was up north of 70% in terms of organic orders and up north of approximately 60% organically in terms of sales. So just a super strong quarter. And actually, I would highlight a record quarter within Germatic in the history of the company. So just a very strong all around performance by the team there. And of course, that's been driven, I think, in part by virtue of the industrial sector waking up to some of the vulnerabilities in a pandemic and a shift towards more automation and robotics. uh to complement you know existing workforces and so that's driven demand across each of the rent markets into q2 and we expect that to continue on a healthy trend going forward sounds great i missed the updated uh industrial margin god if we could repeat that yeah for the full year we guided uh 12 to 13 percent okay
spk03: great thanks guys thanks chris thanks chris at this time there are no further questions i would like to turn the conference back to mr pitt for any additional or closing remarks thank you angie we would like to thank all of you for joining us this morning and we look forward to speaking with you next on october 29th with our third quarter 2021 earnings call angie will now conclude today's call
spk00: Thank you for participating in today's conference call. You may now disconnect your lines at this time.
Disclaimer