Barnes Group Inc. has managed to deliver solid bottom-line performance even in what company leaders called a "challenging" global industrial market that has hit Barnes' Industrial business segment — including continuing softness in automotive hot runners and some other areas.
CEO Patrick Dempsey also said pending European packaging regulations have caused customers to hold off on investment in personal care products there, and the impact could cascade into in other parts of the world.
Molding Solutions Group sales were down 11 percent in the third quarter, from the year-ago period — and Barnes is giving a full-year 2019 outlook for Molding Solutions as down by low-single digits, and down high-single digits when measured organically.
"Automotive hot runners, personal care and packaging markets remain strained, while the medical market remains solid," Dempsey said in a third -quarter conference call with financial analysts Oct. 25.
Companywide, Barnes plays in the industrial segment and the aerospace segment, which focus on aircraft components and has been solid during the economic uncertainty, generating a 12.1 percent third quarter gain, even with the economic uncertainty.
The total Industrial segment declined 5.1 percent, with third quarter sales of $231.7 million, down from 244.1 million in the prior-year period. Dempsey said ongoing productivity improvements helped the industrial segment's operating margin grow in the third quarter by 14.3 percent.
"Every one of our businesses has been anticipating increasing headwinds over the course of the year and have taken actions earlier in the year," Dempsey said.
Companywide, Barnes generated third quarter sales of $373 million, up just 1 percent from the third quarter of 2018. But net income increased 17 percent, to $45.7 million.
"Despite the top-line performance, we continue to deliver strong financial performance," Dempsey said. And Barnes' outlook for 2019 now projects flat revenue growth for the full year. Factors include slowing global growth, trade uncertainties and softening automotive production.
Dempsey gave some insights into issues facing the Molding Solutions Group, which includes Synventive and Thermoplay hot runners, Männer and Foboha molds and Gammaflux and Priamus control technologies.
Economic uncertainty and trade wars have led customers to defer product launches, he said.
Dempsey said the mold businesses have a "relatively strong" backlog for the rest of the year, and molds have been growing. But what he called "short cycle" businesses such as hot runners have been impacted by "continued headwinds against the backdrop of trade and economic uncertainties." He said Barnes continues to invest on the short cycle areas and has added a chief technology officer.
The automotive sector is holding up, Dempsey said, and in the third quarter began showing what he called some "green shoots" signaling new-model launches — a big factor for investment by plastics-related suppliers. But no model launches are happening in Europe, and China is operating at a slow pace, he added.
But Dempsey said. that at some point, the new automotive product launches will break loose.
"As we move into 2020 we should expect that those launches and new model changes would continue to take place, but unless these trade uncertainties get resolved, I think it will be on a slower rate that we any of us would like," he said.
In response to an analyst's question, Dempsey also said European regulations are slowing new product development there in personal care products, usually a consumer staple that holds up regardless of a slowing economy.
"In the case of personal care, what is currently happening is that there is a set of regulations that are at are being contemplated at the moment to the use of post-consumer resin. And so that happening at this juncture, which causes uncertainty as to how those regulations are actually going to play out," Dempsey said.
Because Barnes works closely with product manufacturers, the industrial company is in a good place to help with the problem, but it will take time to have a clearer picture, he said.
Barnes Group exhibited at K 2019, the huge trade show that just ended in Germany. Dempsey said Barnes showed how it works very closely with customers to foster sustainable production and focus on environmental issues.