If you are not familiar, Barnes Group B (Zacks Rank #5) is an internationalaerospace and industrial manufacturing and services provider, serving a widerange of end markets and customers. The products and services provided by the companyare used in far-reaching applications that provide transportation,communication, manufacturing and technology to the world.
Many of their products are highly engineered, high quality(high price) products for those industries. In a world that is seeing slowing growth on the downswing rather thanonthe rise, I am concerned that the 50% rise in share price and 19 timesearningsmultiple might be a little rich. I have no doubt the company willcontinue to sell its components, but their growth looks questionable inthe second quarter.
Barnes generates roughly 20% of its sales in Europe, 18% in Asiaand 62% in the Americas.
Last Earnings Report
Barnes Group reported Q1 adjusted earnings per share of 40cents, up roughly 25% year over year in late April; the results fell 11.1%short of the Zacks Consensus Estimate for 45 cents.
Revenue in the quarter grew 18.3% year over year, primarilydue to healthy performance in the Industrial segment. The impact of revenueincrease was, to a large extent, negated by 10.8% and 61.2% increase in cost ofsales and selling and administrative expenses, respectively. Operating incomegrew a mere 1.4% while operating margin fell 150 basis points.
Of bigger concern was Barnes’ anticipation of recordingincome tax charges to the tune of $20 million in the current quarter and thecompany’s cash flows are expected to be negatively impacted by $13 millionrelated to an unfavorable tax ruling.
While the stock price has been moving higher, analysts’expectations have been doing the opposite.
Most of the analysts that cover moved estimates lower since theirlast earnings report, with the current quarter’s results dropping from 54 centsto the current 46 cents. FY2013 estimatesalso came down 11.2% from $2.14 per share to $1.90.
Barnes is expected sales to decrease 1.42% for FY2013, butfor earnings to increase 12% on cost cuts and efficiency. Given their tax situation, margin issues anddeclining economic conditions, I wonder if they will be able to meet thoseexpectations.
Barnes has missed earnings expectations 3 of the last 4 quartersby an average of 4% and yet the shares continue to outperform.
While Barnes is still a great company, its Zacks Rank of 5(Strong Sell) coupled with the negativity amongst analysts makes it a littlerisky for my blood. If you are lookingfor a unique industrial company, you might check out Graco Inc. GGG (Zacks Rank#1) or Colfax Corp. CFX (Zacks Rank #2).
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