Barrick Mining Corp (B) 2014 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the third-quarter 2014 Barnes Group earnings conference call. My name is Lisa, and I'll be your operator for today.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. William Pitts, Director Investor Relations. Please proceed, sir

Thank you, Lisa. Good morning, and thank you for joining us for our third-quarter 2014 earnings call. With me are Barnes Group's President and CEO, Patrick Dempsey; and Senior Vice President of Finance and Chief Financial Officer, Chris Stephens. 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 that we believe is helpful to our investors. These measures have been reconciled to the related GAAP measures in accordance with the 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 SEC.

I want to remind everyone 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 Securities and Exchange Commission. These filings are available through the investor relations section of our corporate website at BGInc.com.

Before we begin our prepared remarks, I want to remind everyone that our financial results discussion is based on continuing operations. We'll now open today's call for remarks from Patrick, followed by a more detailed review of the quarter's results and our 2014 outlook discussion from Chris. After that, we'll open up the call for questions. Patrick?

Thanks, Bill, and good morning everyone. Barnes Group achieved excellent performance this quarter. Orders and sales growth were impressive, and operating margins further expanded. These results demonstrate our continued progress towards being a global provider of highly engineered products and innovative solutions, generating superior value for our customers and stakeholders to an energized and passionate workforce. These are the elements that form our corporate vision, and our profitable growth strategy is the blueprint to get us there.

Our strategy focuses on transforming our existing portfolio of businesses and acquiring new businesses. This strategy provides our customers a combination of engineered products and differentiated industrial technologies. It means developing and optimizing intellectual property as a true competitive advantage, growing in favorable end markets, and expanding our global access. In short, we are using our 157-year history of being a high precision manufacturing company as the foundation upon which to build a truly differentiated Company.

Our Barnes Enterprise system, or BES, embodies the fundamental way we do business on a daily basis. (Technical difficulties) operating system comprised of four main elements: to promote a culture of employee engagement and empowerment, reflecting our strong corporate values; ensure alignment across the organization around a common vision; foster continuous improvement and innovation in all our business processes; and achieve results that drive sustainable profitable growth. None of our success could be achieved without the contributions of the 4,400 dedicated and talented women and men across our Company.

Turning to Q3 results. We delivered very strong sales growth of 18% with robust organic growth of 8% and expanded operating margins to 16.5% on an adjusted basis. Chris will discuss additional details of our financial performance shortly, but let me take a moment to provide some color on our segment performance and the end markets they serve.

Our Industrial segment had another terrific quarter. Sales growth was achieved across the portfolio, excluding Associated Spring with the closure of its Saline, Michigan facility. Segment orders were very robust, increasing 28% overall and up 11% if you exclude (technical difficulties) Nitrogen gas products had record sales, with the majority of this growth coming from Asia. Synventive had a record quarter of both orders and sales, the second quarter in a row for such a distinction, driven by strength in automotive model changes. Also worth noting, is Maenner delivered another solid quarter, and order activity remains strong. Their results are driven by favorable personal care and medical end markets in both Europe and the US.

Our Aerospace business delivered solid sales growth, and backlog remains healthy. Our long-term outlook for OEM remains bullish, as significant backlogs at Boeing and Airbus support planned increased production rates for both narrow- and wide-body aircraft. Our elevated investment in new product introduction, or NPI, over the past few years is beginning to pay off. For example, we're excited to be a key supplier on the Airbus A350 and its Rolls Royce Trent XWB engine, and we're very pleased to announce that we have content of approximately 550,000 for A350 aircraft with the opportunity to grow our content as the program moves forward.

We also continue to be very positive about the underlying fundamentals of the after-market industry over the long term. Revenue passenger miles continue to increase. Load factors remain at all-time highs. And airline profitability steadily improves. All of these factors coupled with a growing install base are expected to generate after-market growth for the next decade, both in MRO services and spare parts sales.

As mentioned last quarter, our confidence in the aerospace after-market was demonstrated by our investment into a second component repair program. Let me take the time to go into greater details on the expected benefit from CRPs. First, we have a long-standing relationship with General Electric. This relationship creates opportunities for us to enter into mutually beneficial agreements like our revenue-sharing programs and, more recently, CRPs.

CRPs provide Barnes Aerospace the right to provide overhaul and repair services on critical components for the CF6 and CFM56 over the life of these engine programs. The programs consist of three primary sources of revenue. First, the growing component repair demand from GE's engine overhaul shops. Second, Barnes revenue rights from existing GE contracts with other end customers. And third, the license to provide component repair services to worldwide airlines and independent overhaul shops as a GE-authorized repair source.

An important aspect of the CRPs is that the repair services we perform are on critical high-performance components within the hot section and are highly instrumental to the overall efficiency of the engine. We expect continuous growing demand for the repair services we provide as the installed fleet matures. It should also be noted that we already have in place a well-established direct after-market sales team with highly qualified technical skills, strong customer relationships, and an established worldwide sales representative network.

Regarding growing demand, note that the installed base of the CFM56 engine, estimated at over 21,000 engines today, is still growing and not expected to peak until 2018. And the number of (technical difficulties) MRO activity is not expected to peak until 2022. With that as additional background, you can see we are confident these programs will provide a meaningful revenue stream at improved MRO margins over the long term.

Before I turn the call over to Chris, let me say that we continue to demonstrate that successful execution of our strategy provides for profitable growth. And strengthening our portfolio differentiated products, processes, systems, and services, positions us well for the future. The outlook for our fourth quarter remains positive, and we look to exit 2014 with the momentum to deliver another great year in 2015. Chris?

All right. Thank you Patrick, and good morning everyone. Let me start by highlighting a few key points on our quarterly results, and end with our updated 2014 guidance. As you can see on Slide 2, third-quarter sales were $318 million, up 18% over last year, driven by 8% organic sales growth and the contribution of nearly $30 million from Maenner. FX impact decreased sales by $2 million, or 1%.

For the quarter income from continuing operations was $34.3 million, or $0.62 per diluted share, compared to $0.39 in the prior-year period. Please keep in mind that in the third quarter of last year, 2013, income from continuing operations included an $8.6 million pretax inventory valuation charge in our Aerospace segment. On an adjusted basis, third-quarter income from continuing operations was $0.64 per diluted share, which excludes the impact of Maenner short-term purchase accounting and Saline restructuring charges. Each item worth about $0.01 per diluted share. As Bill mentioned, we have provided a GAAP reconciliation to these adjusted results as part of our press release.

Let me add to Patrick's comments regarding segment performance, beginning with Industrial. Sales were $207 million, up 24%, driven by Maenner's sales contribution and strong 7% organic sales growth, partially offset by unfavorable FX of 1%. Operating profit of $33.2 million was up 59% from $20.9 million last year, primarily benefiting from Maenner's profit contribution. These results include Maenner's short-term purchase accounting adjustments and Saline restructuring charges. So x these items, adjusted operating profit was $34.6 million, up 66% from a year ago, with adjusted operating margins of 16.7%, up 430 basis points. A really strong quarter for our Industrial segment.

At Aerospace, third-quarter sales were $110 million, up 9%, driven by a 12% sales increase at OEM, a slight reduction in MRO sales, and flat spare parts sales. Segment operating profit grew to $17.7 million, benefiting from the profit contributions of increased OEM sales, higher profits in the MRO business, and the absence of the inventory valuation charge recorded last year. These benefits were partially offset by increased employee-related costs. And operating margins expanded to 16% for the quarter. Aerospace's backlog of $511 million, down slightly from the end of second quarter, but remains healthy and in a good position to support next year's increased sales plan.

As Patrick mentioned, let me add a few financial points related to our CRPs, as highlighted on Slide 3 of our supplement. The investment of $107 million is an intangible asset on our balance sheet, and will be amortized over the expected life of the programs as a reduction to sales. While it is very early, profit performance from CRPs has been in line with expectations. And although MRO sales in the quarter were down slightly, MRO order activity was actually up 10% year over year with a strong rebound in September.

During the quarter investors asked us how we valued the program, and as with any major investment, we used a discounted cash flow analysis to determine the program IRR. We believe our model assumptions include capturing additional third-party volumes were appropriately conservative. And as previously noted, this third-party revenue stream is expected to take a few quarters to ramp. We anticipate our returns on our investment will exceed the cost of capital in year three or four. For CRPs in 2015, our first full year of both programs, we anticipate an EPS contribution in the range of $0.08 to $0.10 per share.

As previously noted, RSP sales this quarter were flat to prior year. However, we did show 5% growth sequentially. A few comments on RSPs as noted on Slide 3. We are the exclusive provider of certain spare parts for the CFM56 and CF6 family of engines, with the CFM56 making up approximately 80% of net sales in these programs. Our quarterly net sales from RSPs, can and will be, impacted by the mix between the two engine families. And may also be impacted by what was considered customer buying patterns as well as inventory management, given the scope of engine repairs and the use of surplus material. But despite these variables that will have either a positive or negative impact to quarterly results, we feel very good about the long-term benefits these high-margin programs will continue to provide.

The effective tax rate from continuing operations in the quarter was 28.1% compared to 15.8% in the (technical difficulties) and 32.8% for the full-year 2013, which included a tax charge as a result of the April 2013 US Tax Court's unfavorable decision. Excluding this charge, the full-year 2013 adjusted effective tax rate was 17.5%. Given anticipated further growth in earnings from higher tax jurisdictions and the scheduled expiration of certain tax holidays in 2015, we do expect our tax rate to increase to approximately 30% next year.

Regarding share count. Our third-quarter average diluted shares outstanding was 55.5 million shares, while quarter end basic shares outstanding were 54.4 million. We did not repurchase any shares during the quarter, and 2.4 million shares remain available for repurchase under existing Board authorizations.

Cash generation continues to be good, as year-to-date cash provided by operating activities was approximately $122 million. Free cash flow, which we define as operating cash flow less capital expenditures, was approximately $78 million year to date versus an adjusted $74 million last year. Our year-to-date capital expenditures were $44 million through September 2014 versus $34 million last year. Last week our Board authorized a 9% increase in our quarterly dividend, which now stands at $0.12 per common share per quarter.

With respect to debt, our quarter end-to-EBITDA ratio was 2 times, down from 2.3 times in the second quarter. And during the quarter we redeemed our remaining convertible notes for approximately $71 million in cash using our revolver. And last week we announced that we issued $100 million of private placement notes at a fixed rate of 3.97%. These senior unsecured notes due October 2024 create capacity under the existing credit facilities to support our growth strategy, provide long-term debt financing at favorable rates, and diversifies our funding profile.

Now let's turn to our updated 2014 continuing ops outlook on Slide 4. We now expect total sales growth of 15% to 16% and organic sales growth of 5% to 6%. Adjusted operating margin is forecasted to be approximately 15.5%. And adjusted EPS from continuing operations is expected to be in the range of $2.30 to $2.35 per diluted share, up 26% to 28% from 2013's adjusted EPS of $1.83; reflecting strong year-to-date performance, the incremental contributions from CRPs, and generally favorable end markets.

Adjusted cash conversion is projected to be approximately 100% to net income in 2014. Our full-year 2014 guidance continues to exclude an estimated $10 million pretax, or $0.13 EPS impact, of short-term purchase accounting adjustments related to Maenner and approximately $7 million pretax, or $0.07 EPS impact, of Saline closure costs.

In summary, a solid quarter for Barnes Group. Our performance to date gives us increased confidence in the fourth quarter outlook and the overall expectation of a very good year for BGI in 2014.

Operator, we will now open the call for questions.

(Operator Instructions)

Christopher Glynn, Oppenheimer.

Thanks, good morning.

Good morning, Chris

Congratulations on that A350 content.

Thank you.

Just want to understand Industrial margins a little better. Looks like the quarter had maybe record incrementals, and then sequentially revenues were down, mainly Maenner-driven, which I believe is pretty accretive to the segment. Yet margins and profit were up sequentially. Was there some otherwise unusual mix, or anything else going on there?

Yes, Chris. I would say that you're right. The Maenner contribution in the quarter was very strong, exceeded expectations. We looked at the month of August being a little bit slower, but the reality is, is we were able to work our work schedules to get additional product out, which ended up to be a great quarter for Maenner. Their contribution is very good. At the same time, as Patrick mentioned, our nitrogen gas products business delivered a record quarter, higher margin profile business, and Synventive as well. I would say each of our businesses within Industrial segment had a nice contribution to the quarter.

Okay. Thanks for that. On the Aero OEM, if you look at your content by platform and the build schedules, are you able to offer an early look on what the OEM should do next year?

We don't give guidance, Chris, until later in the year or early part of next year. What I would indicate is, is that we're very pleased with the healthy backlog that we have in place. And we think that positions us extremely well for to meet our increased sales plan next year.

Chris, I would add that the fact that the A350 is going to be building over time and that we're out with content of 550,000, we like the dynamics of that, given the fact that the GE90 and 777, which is a known item, will be coming down over time. We like how that's going to help us fill that void.

Absolutely. Thanks.

Thank you, Chris

Edward Marshall, Sidoti & Company.

Morning.

Morning, Ed.

It's good to see those margins that you put up in both businesses

Absolutely Ed

We're very pleased.

I'm curious if you might talk about maybe some of the puts and takes around that, maybe from the long-term and long-run targets that you have for maybe both businesses as it relates to Aero and Industrial?

Okay. Well, what we've indicated always is that our target margins for the Industrial are in the mid-teens. And we've always indicated that Aero, we would see in the high teens. The high teens, of course, being contributed to by the RSPs to achieve those types of numbers. As we move forward, clearly this quarter demonstrates extremely solid performance on the Industrial side and also strong performance on Aerospace.

What I would indicate is that what is a very interesting is that even with our RSPs being flat on a year-over-year basis, historically that would have impacted Barnes Group overall. And what you see now is our reliance on those as we continue to expand, our strategy continues to put us in a great place.

I see. When I look at the guidance for revenue for the year, I look into Q4, organic sales appear to be down. First, is that right? And second --

No we would show organic sales growth for purpose of the fourth quarter. Recognize that we've got the contribution of -- we closed on the transaction with Maenner in the end of October timeframe. As we look to our full-year guidance of 15% to 16%, organic of 5% to 6%, we're feeling the effects somewhat of FX, given the euro's down to 126, 127 level. But that is how we're looking at the full year, given the year-to-date performance.

It implies, what, a $300 million to $315 million in revenue for Q4?

That's not unreasonable, right

And you're getting, what, a contribution of maybe $20 million from the stub period of, say, two months for Maenner?

That's a little high. In terms of last year? Yes, they contributed $20 million last year.

$20 million last year in the fourth quarter.

Exactly. We had the benefit of November and December in our results. So they had a partial quarter.

Okay. I had it reversed. Thank you. Secondly, interest target for the year? Do you have that?

You saw on the fact that we were able to, and very pleased with being able to issue private placements, helps fix some of our longer-term debt and support our growth plans. So we're glad to be able to get that done. We don't see much in the way of change in our interest expense. So in that $11 million range for the full year, recognizing that's going to put -- it's going to be up a little bit going into next year, now that we have that private placement in place.

And then finally, if I look at this 550,000 per ship set on the A350, and I just think back to what happened with the 787, I know you've been conservative about giving that number for some time. My sense is that's a good number. We're not going to see additional in-sourcing or any kind of changes as we move forward. That's all-in at this point. Is that right?

We're very confident in that the number. And as you said, we held off issuing it until such time as that confidence level was high. And we remain even more confident that it may increase in the future.

And that's in all three variances? Is that right?

Well, it's on the initial variant and a lot of those components will transfer. They may be subject to some engineering changes over time, but that will be -- remains to be seen.

Okay. Thanks.

Thank you, Ed

Matt Summerville, KeyBanc.

Good morning.

Good morning Matt.

Couple questions. The first, can you talk about just how we should think about product mix in the Industrial business going forward? The sustainability of the margin performance you had this quarter? And then Chris, can you also talk about your FX sensitivity on the bottom line, meaning for every one point move in the dollar, what EPS impact, good or bad, we can expect from that?

Sure. Let's let Patrick maybe address --

Relative to the margins, as I indicated earlier, we're targeting mid-teens for Industrial overall. Clearly, we had a very strong quarter this particular quarter, above what our all-in targets were. What I would highlight is that it is not business as usual at our legacy units, either. All of our businesses contributed to this quarter's results. We are challenging each of the leadership teams to think about their businesses very differently, and asking them to focus on what are the critical factors that truly drive their overall sales and profitability.

We continue to be very positive on runway with margins on the Industrial side. We will see a seasonality drop in the fourth quarter, which is the norm on a number of our Industrial businesses. But over the long term, continue to target mid-teens.

And Matt, on the FX side I would say that with the euro at 126 or 127, really what's more meaningful to us is going to be the translation side in terms of the top line. Given our business base, we don't necessarily see that not materially impacting our bottom line if it gets down to that (technical difficulties) bottom line.

Chris, I'm sorry. You were breaking -- the call was breaking up there a little bit. Can you repeat that?

Sure, Matt. It relates to FX, your question on FX. I would say it's more related to a top-line impact. So the strength of the dollar is going to impact on a translation level. We don't necessarily anticipate or see much pressure on the bottom line from an EPS point of view, not a material impact based on where the euro is today.

Got it. And then if interest rates were to stay where they are at currently, what would happen to your pension expense next year?

Yes, that's -- I'm glad you brought that up. If you think about 2015 and the items, I will call them below operating profit. The tax rate, we do anticipate that to increase to roughly approximately 30% next year, as best we say. We're going through the planning process, obviously, with our businesses. Interest expense will also provide a little bit, a headwind going into next year.

And then lastly is just pension expense. And with anticipated reduction in the discount rate, we do expect a few million dollars of pension expense headwind going into next year. Obviously, we're not going to know that until 12/31, but that is an area that we're paying close attention to for planning and for guiding 2015, which we will do in February.

And then just lastly from me, with respect to the Industrial business again, if you could maybe spend a few more minutes talking about the relative performance around that 7% organic growth and the outlook between Associated Spring, nitrogen gas, Hanggi, Seeger, the various business units there. If you could just give a little more granularity as to what you're seeing, that would be great.

Basically across our Industrial businesses we saw strong performance in Q3, both on sales and orders front. We clearly are cognizant of the backdrop of global economies, and at the same time we see Synventive being driven by model changes, with them achieving record sales and orders in the quarter. Nitrogen gas products continues to see tool and die industry at an all-time high, and benefiting from that. We see that continuing strong into the fourth quarter based on orders received, as well.

In terms of Maenner, medical devices and personal care are the main drivers behind that business. And we see continued demand for their high precision molds and hot runner systems. Associated Spring done well in the quarter, in that excluding Saline was flat on a year-over-year basis. They continue to be focused clearly on driving continued improvement in their margins, which they have done a wonderful job on. And so end markets-wise, whether it's transportation, industrial or aerospace, we remain very positive in terms of the outlook for fourth quarter and 2015.

Thanks.

Thank you.

Myles Walton, Deutsche Bank.

Thanks. Good morning

Good morning, Myles.

I was hoping to maybe start on Aero and the underlying margin performance. Patrick, you were alluding to it, that the margins are strong despite the lack of growth in the underlying spares business, and MRO being down, and yet the margin performance is still really strong. A couple of questions underlying that. One is, are you seeing, implied are you seeing an increase in the OEM margin rates, your productivity? Or are you seeing better pricing in your mix of spares, firstly? And then the second question is, what is the spares expectation for the full year at this point?

Relative to margins in aerospace, what I referenced in my prepared remarks was the Barnes Enterprise System, and nowhere more than Aerospace have they embraced the whole philosophy of driving our Enterprise System with a keen focus on driving productivity. We saw the benefit of that coming into the third quarter. And as you highlighted, RSPs were flat. We also remain very positive for the future outlook.

When I talk about the spare parts, what I would reference is the fact that we entered into the RSPs as a key strategic part of the Aerospace business, and we entered into them as long-term investments spanning 25 years plus. With regards to the underlying fundamentals of the after-market, we believe that they will -- have been and will continue have to be a tremendous conservation to Aerospace. Our margins can only improve as RSPs sales improve.

And I would just add the contributions of our component repair programs are going to help the MRO margins, which we saw slightly this quarter, and we expect that to continue and improve.

In terms of the outlook for the full year, you asked on the RSPs. We see then to be down mid-single digits for the full year.

Okay. Is that the driver for the reduction in the underlying top end of the sales range? Is that the only driver?

In terms of overall BGI?

Yes

I would say the FX impact on the fourth quarter is primarily a driver as well, and just the seasonality of our business being fourth (technical difficulties) shutdowns as expected, kind of that mid-December timeframe, especially in Europe -- especially in Maenner, as an example. Those are the primary drivers. Nothing fundamentally different, but we feel good about the orders activity, we feel good about the strength of our end markets that we're serving. And I would say reasonable seasonality.

Okay. And last one for me is, you've been about a year since your last deal. It's been successful, certainly on Maenner. What is the outlook for M&A as you sit here today? What does the deal space look like in terms of price, availability, and your general interest level?

We remain very active in looking at potential acquisition targets that align with our overall strategy. That strategy being, of course, to create a portfolio of highly differentiated businesses that specialize in engineered products and industrial technologies. As demonstrated by our last two acquisitions, I think everyone would agree, we've set our standards high. And we are continuing to seek out acquisitions of that caliber meeting our specific acquisition criteria.

Okay. Thanks.

Thank you.

Thank you.

Peter Skibitski, Drexel Hamilton.

Good morning. Nice quarter.

Good morning. Thank you.

On Maenner, I might have missed it. Are you still expecting 125 to 130 for the full year?

I would say it's a little north of 130, actually. Yes, we're coming off of a very strong third quarter. We're in this 130-ish range, roughly. We're on the higher end of that, Pete

Got it. Okay. And then I'm just trying to think about Industrial. I know most of the segment is doing tremendously. And Associated Spring, I know you've been focused, I think for two or three quarters now, on higher-margin business. I think that has brought down the growth rate. At some point I think that's going to annualize for you, and accounts will get easier. I'm just wondering the way things have been going for Industrial this quarter versus the first half, are you thinking next year you're going to see accelerated growth in Industrial, given the comps and Associated Spring should be easier?

I think that's a fair statement in that Associated Spring also will have this year as we closed our Saline plant, that has clearly created headwind in terms of the top line. On an absent Saline, we see slight to increased growth next year. What I would indicate again is that Associated Spring has done a magnificent job in terms of driving their focus on creating value for the customer and focusing on those products that drive its overall bottom-line performance. And to that end, it's done a wonderful job.

Yes, margin was great this quarter. And then one for Chris. Chris, on the GAAP tax rate guidance that you gave, how should we think about cash taxes? What do you expect them to be this year? And then on a cash tax rate, would that go up also in 2015?

Yes. We are now post the BDNA divestiture and use of NOL. So we are a cash tax payer. I don't see much in the way of a significant increase going into next year, not a substantial change, Pete. We're going through the planning now, trying to look at all 2015, including cash taxes. But I don't view it as a major driver.

Okay. And last one, maybe more for Patrick. Patrick, on, I think it was Maenner that I think initially when you bought the company, the plan was to really take it more globally. I believe that was the acquisition. Can you talk about the progress there, and the plan, and how far along that is?

That's a great question. What I would highlight from Maenner is that where we put in tremendous amount of our focus in the first 12 months is making it a seamless integration. Also as we looked at the business in the early due diligence process, we recognized that there was truly untapped potential, even before we went global, in the context of capacity.

We -- I just came back from Europe. I spent time with our Board of Directors, actually, in Maenner last week. The team there have done an outstanding job in terms of increasing that capacity. It's been reflected directly into the results, as you see. And the team now is working on the next phase, which is an alignment with that global expansion.

More goodness ahead.

More goodness ahead

Thank you. Thanks.

Thank you.

Thank you.

Scott Graham, Jefferies.

Hey, good morning. Nice quarter.

Thank you.

You did a great job of putting it together this third page of your handout, and I want to make sure we do it justice, particularly on the CRP side. Patrick, you talked about the three avenues of revenue growth. I'm hoping you can kind of maybe reiterate that and give us a little bit more detail on those avenues with respect to what you've laid out here. Sort of free form it, if you wouldn't mind, with a little bit more detail on this off of this handout page, if you wouldn't mind.

Okay. So first (technical difficulties) relative to the three revenue sources. The first one was component repair demand from GE's engine overhaul shops. And there what we see, again, in terms of the outlook for the CFM56 engine is that it will not peak until 2022. In terms of a 10-year outlook for that particular engine program, of which the CRPs, I would remind you, are onboard the CF6 and the CFM56, we see shop visits increasing over that timeframe, of which we will benefit on the first revenue stream from GE's engine overhaul shops.

The second stream is the revenue streams relative to the contracts that GE had in place with certain customers. And there, what we are looking to do is, of course, take over as the GE-authorized repair source. And we will continue to provide those services. As you may be aware, there is a tremendous push in the industry relative to driving OEM-approved repair sources, as well as spare parts, both of which benefit, will benefit and do benefit our CRPs, as well as our RSPs. And a great example of that at the moment is GE's True Engine program.

Third revenue is our access to the third-party market, or the open -- overall world's airlines and independent overhaul shops. Up to this point we were excluded from that under the contract arrangements that preceded the CRP. As I mentioned, we have a very well established sales force globally that is already in a lot of negotiations with all of the world's airlines in terms of offering that service.

All right, that's helpful. That third thing that you just said is essentially the third bullet point?

The third bullet point is the license to provide component repair services to worldwide airlines and independent overhaul shops as the GE-authorized repair source.

That's right, Scott. So that allows access to serve global market as OEM-certified repair service. That's what that third bullet point is.

That's right, great. That's what I was thinking. Do you have numbers on -- you say GE contracts with customers, that you take them over as their authorized repair source. Was there a 2003 number that GE benefited from these contracts from that you now benefit from?

I don't understand the question. What was the -- can you repeat it?

Sure. You are saying that you are taking over as an authorized repair source for GE. Prior to that, I assume GE was doing it. On the point two that you are making here. I'm wondering what that number -- can you tell us what those revenues were for GE last year that you have an opportunity to capture going forward?

On that point, no, we're not a position to highlight actual revenues. What I will say is that we see this as a key offering as part of our CRP program that we will offer to those customers on a go-forward basis, and expect them to see an immediate impact.

Got you. Last question is more housekeeping. Did you give us an MRO sales number for the quarter? I didn't catch that.

We just commented that that was slightly down for the quarter, Scott.

And slightly down is not that we are necessarily concerned about, in that's what you see in the third quarter of any year is a seasonality impact. What we are extremely positive on is the fact that orders were up 10% in the quarter. And then in addition to that, we saw them up even higher in September.

That's great. That's all I had. Thank you.

All right. Thank you.

Tim Wojs, Baird.

Hey. Nice job.

Thank you, Tim.

Just a couple of clean-up questions from me. Broadly on capital allocation, you talked about M&A in a prior question. How should we think about buybacks looking forward? Is that something you'd look to do, just to offset dilution? Or would you look to maybe get a little more aggressive?

We generally look at buybacks. As we commented in the opening comments, we have 2.4 available under the Board authorization to buy back. It's really to offset dilution from equity-based compensation, primarily. At the same time, we'll be opportunistic. And we've been authorized with our Board to do that. So from a capital allocation, we do look at buybacks. We increased our dividend, as we announced recently, or the Board authorized an increased dividend.

I would say from the rest of the capital allocation, we like the fact that with we put the private placement in place, we like the fact that our capacity is expanding. We've got $250 million available as an accordion on our revolver if an opportunity came up, and we're going to continue, as Patrick mentioned, the strategy for the Company is to continue to focus on accretive M&A-type of activities. And acquire a Synventive, Maenner, quality-type business

Okay. That's great. And then I guess just looking at FX next year, is there any way to ballpark what the revenue impact might be at this point, just using current FX rates?

That's a fair question. I would say at this 126 or 127 level, categorizes it as roughly a $10 million, roughly (technical difficulties) headwind going into next year, is how I would calibrate it right now. But it is, got down to the 125, and now it's back up to 127 or so. It is volatile. For purposes of guidance, what we will do is we'll clarify that in February as how we're looking at next year in our revenue projections for the year.

Okay, that helpful. Thanks. I guess just on the spares business, any color on inventory levels in distribution that you might see, how that looks going forward?

Right now what we're seeing in terms of our RSP performance is that there -- two factors that are impacting our current results. One is the mix of revenue between the CFM56 and the CF6. And the second is the intermediate distribution channels that came into place over the last couple of years. What that has created is a volatility in buying pattern. In any given quarter now, what we're seeing is effectively a destocking within the distribution channel that is impacting our comps on a year-over-year basis.

That said, the underlying demand, we understand to be up. And so, what's -- over time it will work itself out. Having said that, we do not expect the volatility to go away in terms of the buying patterns based on our understanding of how the distribution channel is going to work

Our quarterly sales, (multiple speakers) they're going to be lumpy. We try to highlight what we get visibility to, literally every week in terms of that order activity. But what we do feel great about is the fundamentals of the growth of the shop as it curves around CFC, which makes up a majority of our sales. So a good long-term program for Barnes Group.

Great. Well, nice job on the quarter.

Thank you, Tim.

There are no additional questions. At this time, I would now to turn the presentation back over to Mr. William Pitts for closing remarks.

Great Thank you. We'd like to thank all of you today for joining us. We look forward to speaking with you next quarter. And so with that, we will conclude today's call.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.