Barrick Mining Corporation

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Barnes Group, Inc. first quarter 2022 earnings conference call and webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one in your telephone keypad. If you'd like to withdraw your question, again, press star one. Thank you. Bill Pitts, Vice President, Investor Relations. You may begin your conference.

Thank you, Rob. Good morning, and thank you for joining us for our first quarter 2022 earnings call. With me are Barnes Senior Vice President, Finance and Chief Financial Officer, and Interim Chief Executive Officer, Julie Strike, and Vice President, Controller, Marion Acker. 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 orangegroupinc.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 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 our 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. These filings are available through the investor relations section of our corporate website at barnesgroupinc.com. Let me now turn the call over to Julie for her opening remarks. Then Marion will provide a review of our first quarter financial results and our updated outlook for 2022. After that, we'll open up the call for questions. Julie?

Thank you, Bill, and good morning, everyone. Before getting into the quarter's details, I'd like to take a moment to address the humanitarian crisis continuing in Ukraine. Our thoughts and prayers go out to those affected by the ongoing violence and devastation. All of us at Barnes hope for a quick resolution of the hostilities, a return to peace, and the rebuilding of the many lives disrupted. Barnes begins 2022 with solid first quarter earnings performance, exceeding our February expectation in the face of some significant headwinds. While January started slowly, we saw sequential sales growth each month, ending with strong results in March. One of the quarter's highlights was a book-to-bill ratio of 1.15 times, indicative of a supportive demand environment, with both segments seeing a greater than one times ratio. First quarter organic sales grew 6% from a year ago and adjusted earnings per share were up 8%. Our performance was driven by aerospace, which generated strong revenue growth and margin expansion. Industrials saw several pressure points accelerate in the first quarter, which weighed on margin performance. While macro environmental headwinds will likely persist throughout 2022, We anticipate the pressure will moderate and with demand remaining healthy, we expect the first quarter to be the low point for the year for revenues, margins, and EPS. With the ongoing conflict in Ukraine, we have examined potential impacts across our portfolio, including trade with Russia. For industrial, our Russian exposure is minimal with annual revenue in the $1 to $2 million range. However, We have seen delivery and other logistical challenges, including increased freight costs, as a result of the conflict. For aerospace, we do not sell into the Russian OEM market, so there is no direct impact. With respect to indirect OEM sales or with aftermarket sales, we anticipate minimal impact. For Barnes, the watch item will be the continued availability of titanium through our Russian supplier. At this point in time, titanium has not been sanctioned by the U.S. government, and procuring this material is not a current issue. We maintain buffer inventory for the components we manufacture, and we are working to assess alternate titanium supply channels should the need arise. Barnes is complying with all global sanctions and has stopped shipping into impacted regions in accordance with such sanctions. Within our segments, industrials organic orders declined 2% and organic sales declined 1% versus a year ago, though they were both up modestly on a sequential basis. From a macro standpoint, the first quarter proved to be a tough environment. Sales were impacted by supply chain challenges, lockdowns in China, and weakness in certain end markets. Operating margin was squeezed by broad-based inflation and costs associated with spikes in COVID-related absenteeism across our businesses. That said, our teams around the globe rallied, showing great agility to rapidly adapt and mitigate much of the downward pressure. Across industrial, we estimate approximately $2 to $3 million in net absenteeism-related costs in the quarter. While we expect a greater than normal level of absenteeism to continue, it has trended down since early in the first quarter. We forecast approximately $2 to $3 million of similar net absenteeism costs over the remainder of 2022. In addition to the absenteeism costs, we saw $8 million in gross raw material freight and utilities inflation in the quarter, Through pricing and procurement actions, we were able to mitigate approximately $5 million, resulting in a net $3 million of inflation impact. We also expect a $2 to $3 million net impact in the second quarter. While we see gross inflation continuing at a high level in the second half of 2022, the momentum behind our pricing, procurement, and productivity actions are anticipated to offset much of this impact. At Molding Solutions, organic orders were flat year over year. Automotive orders were positive. Medical was flat, though up sequentially. And packaging and personal care, while at healthy levels, were down compared to a year ago. That said, orders improved through the quarter, with March up significantly. Organic sales decreased 2%, with personal care and general industrial down, and medical and packaging solidly up. For 2022, we continue to expect molding solutions organic sales growth to be up mid-single digits. At force and motion control, organic orders were up 1% and organic sales up 3%. Our general industrial markets created the lift. We anticipate high single-digit organic sales growth for the year up from our prior mid-single-digit expectation. Engineered components saw organic orders decline 11%, while organic sales decreased 3%. Automotive production markets were the primary driver, though interestingly, both automotive orders and sales improved considerably on a sequential basis, up more than 20%. In the first quarter, we did see automotive revenue pushouts of $5 million, a bit less than the $6 million we expected, and an improvement from the $8 million in Q4. We anticipate a further impact of $3 million in the second quarter. Full-year organic sales growth is anticipated to be up mid-single digits, unchanged from our prior view. Within automation, organic orders were down 4% and organic sales were down 5%. We had anticipated a slow first quarter to begin 2022. Our full year view has not changed as we foresee organic sales growth in the mid-teens. For the industrial segment, we continue to forecast 2022 organic growth in the mid to high single digits. However, with the macro headwinds I discussed, we have lowered our adjusted operating margin expectation to a range of 10.5% to 11.5%. Moving to aerospace, the recovery continues as sales increased 23% over last year's first quarter. Both original equipment manufacturing and aftermarket businesses delivered very strong growth. Adjusted operating margin improved 300 basis points from a year ago. In our OEM business, orders grew 21% in the quarter with a book-to-bill of 1.55 times and sales grew 18%. OEM backlog reached $716 million, up 5% from December and up 19% versus a year ago. We expect to convert approximately 45% of this backlog to revenue over the next 12 months. We continue to anticipate high single-digit OEM growth in 2022, supported by increased production of narrow-body aircraft at both Airbus and Boeing. For the aftermarket, we generated 34% sales growth with MRO and RSP businesses delivering strong year-over-year performance, up 24% and 59% respectively. The positive recovery should continue as airlines are showing strong demand and business travel looks to be returning. For the year, we anticipate sales growth for MRO to be in the high 20% range with spare parts up in the low 20s, the latter an increase from our prior outlook. Aerospace adjusted operating margin is now forecast to be between 16.5% and 17.5%, a slight uptick benefiting from higher spare parts sales. To close my aerospace comments, I'd like to take a minute to welcome Ian Reason as our new president of Bonds Aerospace. Ian brings broad industry experience and understanding of the commercial and defense aerospace markets, making him the ideal person to lead this business through its next phase of profitable growth. I would also like to offer best wishes to Mike Beck in his well-deserved retirement. We thank Mike for his many years of service and dedication to Barnes. Shifting gears, I'd like to provide an update on our environmental, social, and governance initiatives. Barnes is deeply committed to corporate responsibility and furthering ESG principles.