Barrick Mining Corp (B) 2014 Q4 法說會逐字稿

At this time, I would like to welcome everyone to the Barnes Group Inc. fourth-quarter and full-year 2014 earnings conference call.

(Operator Instructions)

I'll now turn the call over to William Pitts, Director Investor Relations. Please go ahead, sir.

Thank you, Laurel. Good morning, and thank you for joining us for our fourth-quarter and full-year 2014 earning 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 for 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 8-K submitted to the SEC.

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 will now open today's call with commentary from Patrick followed by a review of our fourth quarter and full year results and our initial 2015 outlook from Chris. After that will open the call for questions. Patrick?

Thanks, Bill. Good morning, everyone. Barnes Group achieved outstanding financial performance in 2014 as we continue to execute our profitable growth strategy. Sales were up 16% for the year with solid organic growth of 6% and a Manner acquisition contribution of 10%.

Adjusted operating margin increased 250 basis points to 15.4%, driven by meaningfully increases in both of our segments. On an adjusted basis, income from continuing operations was $2.34 per diluted share, up 28% from a year ago.

These excellent results were achieved through solid execution of our strategy to expand into highly engineered and differentiated industrial technologies which provide innovative solutions to the markets and customers we serve.

So while Chris will give more details on our quarterly and full-year financial performance, I'd like to take some time to discuss the inroads made on our strategic journey this year. And also what I firmly believe we are well positioned for another good year in 2015.

In the execution of our growth strategy, we've been focused on transforming our portfolio, not only from the outside in with recent value-enhancing acquisitions, but also from the inside out, investing in our existing businesses and global workforce to drive profitable growth. In 2014, the smooth integration of Manner into the BGI Industrial family added to our capabilities in the plastic injection molding arena and helped solidify our position as a leading global provider of hot runner systems and high precision molds.

Manner's performance has been exceptional, far better than originally modeled. And the medical and personal care markets that generates approximately two-thirds of their sales remains stable at elevated levels, supporting our plans for future global expansion. Although not a 2014 event, our previous acquisition, Synventive, delivered outstanding performance as well, generating record sales and operating profits as demand for their hot runner technology continues to increase.

At Aerospace our new component repair programs, or CRPs, give us the right to provide overhaul and repair services on certain critical components for the CF6 and CFM56 over the life of these successful engine programs. With the installed base of the CFM56 engine, the much larger portion of the CRP programs estimated at over 21,000 engines today and growing, and with the number of shop visits not expected to peak until the early 2020s, we remain confident these programs will generate a meaningful revenue stream with improved MRO margins for some years to come.

With respect to internal investment, our capital expenditures were $57 million for the year, with approximately 0.5 of that targeted at growth platforms that are expected to drive future revenues and allow us to prosper in the long term. We continue to augment our advanced manufacturing capabilities across the portfolio while at the same time further expanding our engineering proficiencies. This has led to major wins such as our recent announcement last quarter on the Rolls-Royce Trent XWB engine for the new Airbus A350, which further solidifies our position as a leading global provider of complex aerospace OEM products and services.

In direct alignment with our vision and strategy, 2014 saw significant efforts in building our intellectual property program and promoting innovation. Building a culture of innovation at Barnes Group became a cornerstone of these efforts as we worked to differentiate our business and enhance our competitiveness in the marketplace.

To that end we institutionalized the Barnes Global Engineering and Technology Forum, leveraging our worldwide engineering talent by promoting a heightened level of collaboration, innovative thinking, and action across all of our businesses. With the help of this Forum, we advanced the disciplined [save gate] process for quickly identifying and screening great ideas, funding those opportunities and moving them from inception to launch through a very structured approach.

While today's economic environment can be volatile and present many challenges, we recognize that our ability to innovate and adapt is critical to our future. So let me comment about the economic environment and global market trends we see heading into 2015.

Certainly the last quarter has seen some significant volatility on two fronts in particular. First with about 30% of our business in Europe, the strengthening of the US dollar to the euro will create headwind on the revenue line but significantly less so on the operating profit line.

That's in part due to the nature of our global manufacturing footprint where the cost structure generally resides where the revenues are generated. So this will have some impact on our revenue growth for 2015, less so on earnings. And Chris will touch upon that in our outlook discussion.

The other recent noteworthy economic event relates to the significant drop in oil prices. We have minimum direct exposure into energy markets, so we're not expecting any meaningful impact there. We will, however, monitor how lower oil prices may affect Aerospace end markets.

It is our belief that in the short to medium term, that lower oil prices will not have a significant impact on the aircraft production of Boeing and Airbus and correspondingly to our OEM business. Longer term, it is just too early to tell.

In the Aerospace after-market the low oil price environment may ultimately provide some upside to the business, but I would describe it as a modest expectation at this point. More central to Barnes Group for the upcoming year are the global trends in the major end markets we serve: general industrial, transportation and aerospace.

In our general industrial end markets, we're growing with our customers in emerging markets. We are seeing the benefits of stable to growing manufacturing trends, as indicated by global manufacturing PMI metrics. And we're well positioned to meet the growing medical device requirements of an aging population through our offerings of complex high capitation molds and hot runner systems.

Some notable industrial-related innovations underway include the development of advanced spring technology with a new patent on a hybrid compressor [refab] design for greener, quieter and more efficient refrigerators, automotive HVAC, and other compressor applications. Also our ongoing investment in the development of hot runner side gate technology for medical markets that will provide unparalleled control of the flow of hot plastic from the hot runner into the mall.

In transportation, advanced technologies and highly engineered precision components provided by Barnes are playing an even more critical role to achieve the demanding fuel efficiency requirements of the future. In addition, the inclusion of greater amounts of lightweight metals and plastic provides for penetration rates that exceed global growth in light vehicle production, which is expected to increase again in 2015.

Barnes Industrial participates in these global trends in a number of ways. We are a leader in the development of spring technologies for the new 8-, 9- and 10-speed transmissions coming to market. We are advancing further our position stamping technologies in the manufacture of our GDI, gas direct injection, offerings. And success with our newly developed active gate technology helps to sustain our leading position with hot runner applications in the automotive industry.

At Aerospace, innovation is likewise alive and well. We excel in complex, difficult to manufacture engine components where our engineering talent creates true value for our customers. Innovation is primarily found in the processes that support our operations such as the major strides we have made in the development of hot exchange dye technology, the creation of new tooling used in additive manufacturing and in achieving major cycle time reductions used in advanced machining technologies coupled with leading edge tool design.

In retrospect, 2014 saw tremendous progress in our strategy to drive engineered differentiated industrial technologies and innovative solutions to our end markets. We are on a clear path of transforming our Company to meet the current and future needs of our customers.

2015 will be another year where we are equally as focused on executing of our vision and long-term strategy. Internally we are investing heavily in the next generation of our Barnes Enterprise System to accelerate our continuous improvement efforts and drive further margin expansion while simultaneously investing in our people and the continued development of our global workforce.

As M&A opportunities that are consistent with our vision and strategy present themselves in the upcoming year, we're in a solid position to execute on them. We realize that continued execution of our growth strategy requires vigilance in the management of capital. So beginning in 2015 we have implemented a couple of changes to our management performance programs to more closely align our incentives with capital efficiency.

First, for our annual incentive award we will reintroduce a cash metric specifically on meeting working capital reduction targets. Second, for our long-term incentive award we are including a return on invested capital performance measure to drive long-term value creation.

So before I turn the call over to Chris, from the many accomplishments just cited, you can see why I am pleased with the transformational progress made in 2014 and why I believe we're well positioned for another good year in 2015. I'd like to thank all Barnes Group employees for their dedication, hard work and contributions to a successful 2014.

I look forward to meeting the challenges of the upcoming year with this exceptional team. With that as a strategic backdrop, Chris will now take us through how the progress made is translating into financial performance. Chris?

Thank you Patrick, and good morning everyone. Let me begin by providing highlights of our fourth-quarter and full-year results, and then with our initial guidance for 2015.

Looking at Slide 2 in our supplement, fourth-quarter sales were $310 million, up 7% over last year, driven by 6% organic sales growth and one additional month of Manner acquisition revenues versus a year ago, offset by FX headwind of 3%. For the quarter, income from continuing operations was $33.3 million, or $0.60 per diluted share, compared to $26.3 million, or $0.47 per diluted share a year ago. On an adjusted basis income from continuing ops was $0.62 per diluted share, an increase of 9%.

This quarter's adjusted earnings exclude the impact of Manner short-term purchase accounting adjustments of $800,000 pretax and $500,000 pretax for final closure costs related to Associated Spring's Saline, Michigan facility. Taken together these items contributor $0.02 to adjusted diluted earnings from continuing ops.

For the full year sales were up 16% with organic sales growth of 6%. Income from continuing operations was $120.5 million, or $2.16 per diluted share, compared to $72.3 million, or $1.31 per diluted share in 2013.

On an adjusted basis income from continued ops was up 28% to $2.34 per diluted share compared to $1.83 in 2013. This year's 2014's adjusted diluted earnings from continuing ops excludes the impact of Manner's short-term purchase accounting adjustments of $8.5 million, or $0.11 per diluted share, and Saline closure costs of $6 million pretax, or $0.07 per diluted share. For 2013 income from containing ops included $7.3 million pretax, or $0.10 per diluted share, of Manner short-term purchase accounting adjustments and transaction costs, $10.5 million pretax, or $0.12 per diluted share, of nonrecurring CEO transition costs, and finally a tax charge of $16.4 million, or $0.30 per diluted share associated with the April 2013 US Tax Court's unfavorable decision.

Let me now comment on segment performance, beginning with Industrial. Industrial's fourth quarter sales were $198 million, up 8%. The Manner business, acquired in October of 2013, provided $10.4 million of acquisition sales, while Industrial's organic sales grew 7%.

FX negatively impacted sales by 5%, or $9 million, primarily driven by the strength of the US dollar versus the euro. Fourth quarter operating profit was $27 million, up from $15.5 million in the prior-year period, benefiting from the contribution of Manner and higher organic sales, partially offset by the Manner short-term purchase accounting adjustments and Saline restructuring charges just reference. So ex these items, adjusted operating profit was $28.3 million, or 24% from a year ago, with adjusted operating margins of 14.3%, up 190 basis points.

Industrial's full-year sales were $822 million, up 20%, while organic sales grew 4%. Manner provided $114 million of acquisition sales in 2014, and FX headwind reduced sales by $7 million or 1%.

Full year operating profit was $108.4 million, benefiting from the contribution of Manner and higher organic sales, again partially offset by Manner short-term purchase accounting adjustments and Saline restructured charges. Excluding these items, adjusted operating profit was $122.9 million, up 43%, while adjusted operating margins expanded at 14.9%, which was up 240 basis points.

At Aerospace fourth quarter sales grew 4% to $112 million, with sales growth in the OEM and after-market MRO businesses being partially offset by lower after-market spare parts sales. Fourth quarter operating profit was $21.6 million compared to $18.6 million for the prior-year period.

OP benefited from increased sales in the OEM and MRO businesses, partially offset by increased employee-related costs and the profit impact of lower spare parts sales. Operating margin was 19.3%, up 200 basis points.

Aerospace full year sales grew 9% to $440 million. Similar to the quarter's performance, increased sales from the OEM and after-market MRO businesses were partially offset by lower after-market spare parts sales.

2014 operating profit was $71.6 million as compared to $51.3 million last year, benefiting from increased sales in our OEM business, higher profits and MRO driven by our CRP programs and the absence of an inventory valuation adjustment taken in the third quarter of 2013. These benefits were partially offset by the profit impact of lower spare parts sales and increased employee-related costs.

2014 operating margin for Aerospace ended the year at 16.3%. Aerospace backlog technical was $523 million at the end of the fourth quarter, up 2% sequentially from the third.

2014's effective tax rate from continuing ops was 27.6% compared with 32.8% in 2013. Excluding last year's tax charge mentioned earlier, the 2013 adjusted affected text rate was 17.5%. The rate increase this year over last year's adjusted rates is due to the mix of earnings attributable to higher tax jurisdictions, the expiration of certain tax holidays, and the increase in the US repatriation of a portion of current year foreign earnings.

Regarding share count, our fourth quarter average diluted shares ousting was 55.5 million shares, while quarter end basic share count outstanding was 54.5 million. No repurchases were made during the fourth quarter, and 2.4 million shares remain available for repurchase under existing Board authorizations.

Cash generation continues to be strong, as full year cash provided by operating activities was approximately $187 million. Free cash flow, which we define as operating cash flow less CapEx, was an adjusted $117 million for 2014 versus $83 million last year.

With respect to debt, our year end debt-to-EBITDA ratio was 1.8 times, down from 2 times, 2.0 times, in the third quarter. And at year end under our existing senior debt covenants, additional borrowings of approximately $400 million would be allowed.

Now let's turn to our initial 2015 continuing operations outlook on Slide 4. We expect 2015 organic revenue growth of 6% to 9% with total revenue growth of 3% to 6% after consideration of approximately 3% of FX headwind. Operating margin outlook is in the range of 16% to 17%.

GAAP earnings from continue operations are expected to be in the range of $2.40 to $2.55 per diluted share. Excluding $0.02 of remaining Manner short-term purchase accounting adjustments expected in 2015, adjusted diluted EPS is expected to be the range of $2.42 to $2.57, up 3% to 10% from 2014's adjusted diluted earnings per share of $2.34.

For 2015, our earnings are more heavily weighted toward the second half, approximately 55%, with our first quarter expected to reflect only a modest increase over last year's adjusted first quarter EPS of $0.50 per diluted share.

Our Aerospace segment is the primary driver for a more heavily weighted second half, given forecasted unit deliveries and end customer demand ramp for new programs such as the A350. We don't anticipate any unusual calendarization in our Industrial segment, except in Q1 with the Chinese New Year. Our CapEx outlook for 2014 is in the range of the $55 million to $60 million and cash conversion again is expected to be approximately 100% of net income.

There are, however, a few specific headwinds we face entering 2015. As Patrick mentioned, FX will impact our results, primarily on the top line. Our outlook assumes a euro rate of $1.15 for the year, which would negatively impact revenue by about $35 million to $40 million, less so on the bottom line, and the impact of both of these has been reflected in our 2015 guidance.

Pension expense will be another headwind. There are several factors causing approximately $7 million of increased pension expense, or $0.09 per share negative impact in 2015. The discount rate was reduced to 4.25%, mortality tables have been updated and the return on asset assumption has been adjusted to 8.25% from 9% as we looked to derisk our pension program, which is closed to new participants.

And lastly our 2015 expected tax rate is approximately 30%, primarily reflecting the expiration of certain tax holidays. That tax rate increases a headwind of approximately $0.08 per share.

So in summary, 2014 was an excellent year for Barnes Group. We continue to make significant investments in our businesses, advancing our ability to deliver differentiated industrial technologies.

Our balance sheet is in a great position. And coupled with a solid cash flow generation in 2014 and expectations for 2015, we're well positioned for further growth investments and acquisition opportunities.

Operator, we will now open the call for questions.

(Operator Instructions)

Joe Radigan, KeyBanc.

First, just trying to reconcile the guidance -- if you assume the midpoint of the revenue and the operating margin ranges you gave, it seems that the EPS range looks fairly conservative. Is there a variance, Chris, below the line that you are expecting, either in other income, or is there risk to that tax rate being higher? I'm just trying to figure out if there's any other moving parts in there.

Joe, no one particular item. We look at the top line, the headwind from -- mainly from translation, in terms of the revenue side, given the growth of 3% to 6%. And when we walk that down to earnings per share, given the 16% to 17% operating margins, we get a little bit of benefit actually just on that line alone -- just on operating margin -- because we're translating those sales on a higher operating income. So, you get the margin benefit there. But really nothing below that.

Share count should be roughly around 56 million or so. Tax rate -- 30% to low-30%. So, nothing specific, Joe.

Okay. And then, how much were spares down in the quarter, and then the full year of 2014? And then, obviously it's not that easy to predict, but what do you expect spare parts growth to be in 2015?

Joe, RSPs were down 4% in -- 5% in the quarter, and approximately 5% for the full year. I would note that, in terms of Q3 and Q4, they did sequentially improve. As we look out for 2015, as it pertains to our aerospace business, after-market in total we're looking at mid-teens, which is primarily consist of MRO being in the high-teens. And right now we remain conservative with RSPs; our outlook is flat.

Okay. Obviously, there is volatility in that spare parts piece. And I know that what GE says is not a direct read, but their part shipments were up, I think, 24%; orders were up 37%. And I would think, at least the directional trend I would think would be somewhat of a read-through. Can you -- Patrick, can you just talk about what's going on there in terms of the volatility again?

Absolutely. First, let me say that the RSPs are a key strategic part of our aerospace business. We entered into them as long-term investments spanning the life of the engines, which was 25 years-plus. These programs have been and will continue to be a great investment for Barnes Group and our shareholders, creating a strong economic return.

As I think about 2014 in particular, there are two main factors that impacted the RSPs. That is, one, it was the mix between spare parts sales on the CFM56 engine and the CF6 engine, with growth of the modern CFM engine being offset by the decline of the CF6, as well as the earlier models of the CFM, resulting in a net flat to down revenue line in 2014.

The second item that contributed in 2014 -- on the CF6, there's an intermediate distributor, which was destocking throughout 2014. And we believe we'll need to restock in 2015. So, those two factors ultimately resulted in our results; and as you point out, put us out of sync maybe with some of the OEs. But underlying that, I would still highlight that, as we look at it by an engine-model-by-engine-model basis, we are directionally in line with the market.

Okay. And then, maybe last question from me: Can you talk about the initial success rate you're having marketing your MRO services under the CRP agreements, either -- can you talk about new customer adds? Are there any quantifiable metrics, or is it still too early there in the process?

I think it's too early to make a quantifiable metrics, but I will say that we are very pleased with how the CRPs have got off and running. The aerospace team is very aggressive in terms of its marketing of these new services, now that we have -- we are the OEM licensed provider worldwide. We have had a number of new successes -- not necessarily ones we want to advertise yet -- but ultimately, for the first six months of CRP number two, we've been extremely pleased.

Okay, thanks, guys.

Tim Wojs, Baird.

Good morning, everybody. Just touching a little bit on the subsegment guidance, maybe just around margins, can you give us a little bit more color what you're expecting in the industrial business and the aero business, just from a margin perspective in 2015?

As we think about the outlook for both aerospace and industrial, what we have indicated in the past is that mid-teens for our industrial segment, while we target high-teens for the aerospace. What I think is the key driver for our guidance going into 2015 -- what we focus on are more the end markets and the macro trends within those markets, and the products and services we are providing.

As it pertains to aerospace, we are moving in to the year with a strong backlog of $523 million, which supports our full-year outlook. As Chris mentioned, unfortunately it's back-end loaded. So, that is going to create a lower revenue line and corresponding bottom line in the first quarter. However, on the after-market side, we continue to be very bullish as it pertains to the MRO, with the addition of a full year of the CRPs in 2015. And correspondingly we are forecasting high-teens in terms of the MRO.

On the industrial side, the primary end markets we focus on are general industrial and transportation. General industrial, we are targeting mid-single-digits top-line growth, with the primary drivers being the strength of the tool and die industry, as well as the demand for medical devices. On the transportation side, we continue to see robustness in global automotive, targeting low-single digits, I would say, to mid-single digits in auto because our penetration rates of plastics into the auto industry actually exceed production rates.

Okay. I guess the question I'm trying to get at is: If I look at just the midpoint of your implied EBIT and implied revenue range, I think it's about 40% plus incrementals. And you do have a headwind from pension. I know FX helps to offset that a little bit. But that is much higher than what you guys have done historically. I'm just wondering where the confidence is in the margin improvement in some of the businesses, and the visibility, I guess, especially with spare parts being flat.

Sure, and roughly that -- I called that 40% range -- you're exactly right. The simple answer for that is just the FX impact on the top line. If you actually adjust back for FX, put roughly that $35 million to $40 million back, our operating margin leverage of 25% to 30% historically is what you'll see in that number. Recognizing the FX on the top line -- not so much on the bottom line, given the global nature of our Business, and where we manufacture versus where we ship, is less so. You're seeing roughly a 35% to 40% implied operating margin leverage in 2015 guidance.

Okay.

Tim, I would add to that, that as you think about our guidance for 2015, it is in absence of any significant contribution in terms of the RSP growth. And I think that is evidence of the great progress we have been making in terms of executing our strategy to move towards becoming a more diversified provider of engineered products and differentiated industrial technologies, reflecting some of the great acquisitions, not only the acquisitions we've made, but the entire innovation and margin mindset that we are driving into the legacy businesses.

Okay. And RSPs are flat, but I would assume also that capital allocation in terms of M&A or buybacks is included here, right?

Yes, it's included in the assumptions; that's right.

Just a point of clarification on a comment that Chris made: He made a reference to $55 million to $60 million in CapEx. That is for 2015.

That's right. Yes, sorry.

Okay. Lastly, you mentioned in your prepared remarks that you're introducing an ROIC metric into your long-term incentive program. I guess, how large of a component is that, and any color on what the long-term ROIC target is?

First, we'd highlight that the ROIC has always been a measure. The history of Barnes Group is that we are historically an EVA. We were an EVA-oriented company.

I think, as we continue on executing our strategy, it became evident that bringing it back into the incentive compensation was a good thing to do in terms of not only drawing focus internally, but also being able to highlight it externally. At this juncture, we're not indicating what the targets are, but they are on an absolute measure, and they're both annual for [DWC], as well as over a three-year period for the ROIC.

Okay. Well, nice job on the quarter. Thanks, guys.

Pete Skibitski, Drexel Hamilton.

Good morning, guys; nice quarter. Guys, I like the move to the focus on the working capital -- on the long-term move to ROIC. Does this mean any kind of change in philosophy on either M&A or new CRPs? Because I would say you have been relatively aggressive on M&A and on CRP investments. Should we think that that's going to change at all with this move towards ROIC?

The short answer is no. We will continue to invest in the Business for the long term, which is a practice we have always employed. The ROIC is to heighten the awareness against capital efficiency. Having said that, we are very much continuing to focus on M&A activities, with a tremendous amount of work being done by the team in the background on that -- in that area.

Our primary area of focuses continue around the plastic injection molding industry, which might complement our two first acquisitions into that space, bolt-ons to our existing businesses. And at the same time, we are also looking at additional markets that might align with our overall strategic direction. Full speed ahead from our perspective, as it pertains to M&A.

Okay. And I guess you have to be pleased, though, with the CRP programs already projecting pretty strong growth there. Can you remind us: Are the CRP programs -- are they additive to aerospace EBIT margin?

Yes, they will have a nice impact on improving MRO margins, which, in turn, will impact total aerospace.

We are also very pleased, as you stated, in terms of their performance right out of the gate. We entered into them, again, as like for programs investments. So, they are going to span through 2030, 2035 as an example. And in terms of their contribution to the aerospace results, we think they're going to be a strong contributor.

That's great. Maybe just to end up with a couple housekeeping for Chris. Chris, what's your expected cash pension contribution in 2015? And then just directionally for D&A -- I know we probably have less Manner amortization. I was just wondering directionally for D&A how that is shaping up for 2015?

D&A roughly $80 million or so; it's pretty consistent with what we saw in 2014. And then the pension contributions -- nothing abnormal. We contributed a little less than $10 million this year, in 2014. We expect that same level going in to 2015. No significant cash contribution required in 2015 for pension plans.

Got it.

Scott Graham, Jefferies.

Good morning, nice quarter. I wanted to just maybe look at the guidance in a little bit of a different way. I assume that you guys are sticking to your CRP accretion view of $0.08 to $0.10 a share?

That's correct.

Okay. Well, obviously, the naysayers will strip that out -- and I guess maybe I'm kind of taking that angle right now -- of your guidance and say that the low end implies actually a decline in earnings. And the high end, like 6% or 7% earnings on what is a fairly robust organic expectation. Chris, you indicated additionally that the FX hits the top line, obviously a lot more than the bottom line.

So, something for me is maybe a little bit lost in translation here in terms of why -- and I know that the incrementals seem high, but based on the walk-through, it almost feels like they should be even higher. Where are we losing some earnings?

Scott, let me just kind of walk from the $2.34. As you mentioned, we did state and we continue to reiterate that CRPs are going to contribute in that $0.08 to $0.10 range this year, recognizing incrementally that's probably about $0.05 or $0.06 coming off of 2014. When you walk that up, as well as the contributions from industrial and aerospace, and overall earnings per share, then you have to back it down, unfortunately, for two big hits. And one is the pension expense, roughly $0.09, as well as tax rate being approximately $0.08, to get you to that midpoint of our range of, let's say, $2.50 roughly.

We are walking it up. We're probably -- before those items, you're talking double-digit EPS growth on an organic growth that we think is quite healthy -- 6% to 9% heading into 2015. But that's the -- those are the two primary drivers that are backing this down.

Edward Marshall, Sidoti and Company.

The question you just -- did you say $0.09 of pension headwind?

Yes.

Is that incremental, or is that the full pension expense?

No, that would be incremental.

Incremental.

Yes, that's incremental going into next year; just as well as the tax rate of roughly $0.08.

So, [you've got] $16 million higher -- $16 million, $17 million higher -- what was last year's expense, and what do you expect it to be for 2015?

On the pension expense side?

Yes.

We're going from about $1 million or $2 million in pension expense, to this $8-million or $9-million level. It is significant. So, a $7-million headwind going into next year. When you normalize our pension expense, and you just go off a base for 2014, you are talking about an incremental $7-million headwind.

Right, okay. That math works. My estimate was a little high at first.

Did you enter into a third CRP during the quarter, or was it just the cash payout that came through? Was there a lingering cash payment?

We did not enter into a third CRP. As you correctly state, the cash payments were spread out over different periods of time. So, that is what you're seeing.

How many more cash payments are there?

One.

One more?

Yes, second quarter of this year -- roughly $20 million left.

Okay. The 3% headwind that you have for FX -- what is the euro-to-dollar conversion that you're assuming? Because we are down roughly, what, 17% right now.

Yes.

What are you assuming?

As I mentioned in my prepared remarks, $1.15 is the assumption right now.

$1.15.

$1.15. So, we went through the planning period in that -- and then we saw a significant drop, as we all saw, right, from December to January. We recast our outlook for 2015 reflecting a $1.15 euro.

When you talk about maybe the low end of your guidance range, and you talk about the strengthening dollar, and maybe I guess you could parse in the euro outlook with that, do you assume that $1.15 is your starting point, and then weaker dollar -- or stronger dollar, rather, from there would lower to the low end? Just help me understand kind of what you're getting at.

Yes, that's right. You would have an incremental headwind guiding to the lower side.

So, a change from your assumption?

Right, right.

Finally, as we look at the aerospace margin, and in particular this quarter -- I don't want to get too excited because I think it is one of those good-margin quarters -- equally had one in the fourth quarter of last year. Is there something seasonally, maybe with contributions or compensation there that maybe hits in the first half of the year and not the back half, or is this a result of the CRPs rolling through? Help me understand that, so we can look at that from a modeling perspective.

Ed, there's a couple of factors. In the fourth quarter, 19.3% was a fabulous quarter for aerospace. And what it reflects was timing of shipments in the fourth quarter. As you highlight, it happened in 2013, and it is going to happen again in 2014.

So, as I mentioned earlier, aerospace's schedule is such that it is back-end loaded. It occurred in this most recent quarter. The 19.3%, as you mentioned, was also added to by the benefit of CRPs and the shipment of some programs which are developmental in nature, are built over a longer period of time, but then ship in the fourth quarter.

Okay, because I remember last couple -- last call, I think we talked about maybe peakish-type margins, or mature margins in that business between 16% and 17%. Is that still accurate, even with the CRP programs you expected to go from there?

I continue to reference high-teens for aerospace as our target. I think in that high-teens it reflects contributions from CRPs; it reflects contributions from RSPs; and as I continue to reference, RSPs right now are not at the levels we would like. But at the same time, the margins continue to be robust, reflecting the strength of the remainder of the Business.

We talked a bit about the top-line growth in the back half of the year, especially with the A350 ramp. I'm just curious, as you kind of ramp up production in that line, maybe throughout 2015, are there any specific changes to maybe the capital that you need or the different line structure or maybe [LRIP] that may affect the margin that goes along with that? Is there a ramp in the production margin, or is it so similar to previous parts that you provided that it's just opening up more line and there is not going to be more of a margin decrement to it?

We are fully capacitated at this juncture for to support the A350. That has been a tremendous effort in terms of production readiness planning that has gone on over the last two years. Our $50 million to $60 million range for CapEx, which occurred in 2014, and we're projecting again for 2015 -- in those CapEx numbers we have built in anticipated capacity to support these increasing programs. And as they increase, we will expect that we will obtain leverage from that, and so that the margins will also improve.

How much margin improvement do you think -- from the initial kind of ship sets to the end, do you think that -- or until it starts to hit that midstream [5%] to [6%] a month that you'll --

As you know, Ed, we do not speak to margins by any one of the businesses. And needless to say, as we enter into any new development program, it's a key area of focus for our Enterprise, our Barnes Enterprise System and our practitioners around that operating system. And so, we place a tremendous amount of effort in terms of streamlining that process and bringing us down the learning curve as quickly as possible.

Okay, thanks, guys.

Pete Skibitski, Drexel Hamilton.

Sorry about that; I was on mute. Thanks, guys. Yes, a couple of follow-ups: First, on Manner, it looks like it grew roughly 17% organically, apples to apples, for the full year, I guess in spite of the FX headwind. And, Patrick, I don't think you've even started your global expansion yet of Manner. So, I wanted to ask you: How does the rollout timeline-wise of the global expansion take place? And is this going to grow another double digits in 2015? Does that seem likely now?

As you highlighted, clearly, 2014 was a fabulous year for Manner. I think it exceeded everybody's expectations. The team there done a fabulous job.

For us, the primary area of focus in 2014 was all about capacity expansion within the German facility. That was what drove the top-line revenue. The even greater backdrop to that, I think, in terms of news is that the demand for their products continues at heightened levels. So, orders remain strong.

And so, really we are acting fast to move to what I refer to as phase 2 of their integration, which is to embark upon that global expansion, as you referenced. We are looking at plans right now within -- the industrial leadership team is working closely with Manner and with Synventive to how we leverage both businesses as we embark upon this global expansion. We have just conducted a complete market survey to get back real-time voice of the customer, so that as we embark upon this expansion, it is in perfect alignment with what our customer is telling us that they need.

We will wait to hear more, I guess, as the year unfolds. But that is very interesting. Last one for you, Patrick: You said you're still very interested in M&A, it sounds like. How are valuations out there looking to you? The market has been up quite a bit. I'm just wondering how -- that aspect of the strategy?

For us, we -- as you know, our strategic criteria continues to center around premium type businesses. We are not necessarily looking at any turn-around type businesses or anything that requires significant fixing up. Representative of our criteria are Manner and Synventive. As you know, we paid in a 9 to 10 range multiple -- EBITDA multiple on both of those businesses.

We continue to look at various opportunities. And for us, we remain disciplined in terms of our financial criteria, both in terms of what the valuations are, as well as the performance of the businesses we are looking at.

Understood. Thanks very much, guys.

Scott Graham, Jefferies and Company.

Good morning, again. Back from an Internet disconnection, sorry.

I was going to say, we must have lost you, Scott. We were surprised you didn't have at least one more follow-up.

That was such a great answer, Chris, I didn't know what to do.

Obviously, my question was: Beyond maybe what you had already mentioned, but maybe that is something I can talk to you and Bill about later. I thought that there might have been a little bit more, but I can definitely see how it can balance things out, some of those headwinds.

The next question I wanted to ask was really of Patrick. I guess every other quarter I ask this question, but this RSP situation is obviously a little bit frustrating, I'm sure for you and certainly to model for us. It's a business that was supposed to be kind of like the outlook on your CRP business is now going to be. I think that you had a lot more higher expectations, and you don't have to acknowledge that over an open mic, but I'm guessing that you did.

And I'm just wondering: What is it that is keeping this business from growing? We have not seen growth in this business. In fact, we have seen mostly down quarters since the end of 2011. What has to change here for this business to start to grow?

Scott, I wouldn't necessarily agree with your categorization of RSPs, in that we remain extremely positive on these programs. We entered into them, as I had mentioned before, as long-term investments.

The declines that you reference that have occurred over the last couple of years are, from our perspective, very explainable in terms of the management fees, the incremental management fees initially that we had built in to the programs over a number of years. And that started occurring, and it was a -- management fees were a reduction on top-line sales, which, again, took them out of sync with anything that was happening in the market.

As I explained earlier, what we're seeing right now is a transition between CFM 56 and CF6. And where the CF6 and the earlier versions of the CFM are declining in shop visit rate, the CFM56-5-7, which is the more modern model and the predominant amount of the install fleet, is continuing to grow.

We're in this transition where one is equalizing against the other, and dampening out ultimately the top line. As this shift moves forward -- and remember these programs are for the next 20 years. As you look at our investor presentation, you'll see the shop visit forecasts that are in there. And we see, over the next five years, continued growth, whereby shop visits won't even peak until 2022. The outlook for these programs is very strong.

Yes, okay. And I do understand that. It sounds to me, however, like you're still not calling for that inflection, defined as when the install, the older stuff runs off less fast, if you will, then the new stuff kind of installed starts to impact. It doesn't sound like that is a 2015 event. Could that be a 2016 or 2017 event, do you think, Patrick?

I think that is appropriate timing, Scott. And if you look at the chart that I referenced in our investor presentation, you'll see that reflected right there.

Understood. Last question from me is: The industrial business -- obviously you guys are having great success with the addition of the two hot runner businesses. Could you talk about the monthly order trends for industrial as the quarter progressed? And we're done with 1.5 months of this year -- whatever color you can give us on how the orders are progressing on a year-over-year basis would be helpful.

I think we came off of Q4, Scott, with a strong momentum coming into the new year. In terms of end markets, as I indicated, we see continuing strength and demand for our medical device end market. We see tool and die continuing strong. The demand, across the board, has met our expectations, and supports our outlook going into -- that we've provided for 2015.

Okay, very good, thank you.

There are no further questions at this time. I turn the call back to Mr. Pitts for closing remarks.

Thank you, Laurel. We would like to thank everyone today for joining us. We look forward to speaking with you in April with our next quarterly earnings call. This concludes our call for today. Thank you.

This concludes today's conference call. You may now disconnect.