Barrick Mining Corp (B) 2015 Q1 法說會逐字稿

Good day. My name is Jonathan. I will be your conference operator today. At this time, I would like to welcome everyone to the Barnes Group Inc first-quarter 2015 earnings conference call.

(Operator Instructions)

Thank you. Mr William Pitts, Director of Investor Relations, you may begin your conference.

Thank you, Jonathan. Good morning. Thank you for joining us for our first-quarter 2015 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 investors. These measures have been reconciled for their 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. We'll now open today's call with commentary from Patrick followed by a review of our first-quarter results and our updated 2015 outlook from Chris. After that, we'll open up the call for questions. Patrick?

Thanks, Bill. Good morning, everyone. Barnes Group delivered a good first quarter, setting us up for another year of solid performance in 2015. We generated adjusted earnings per share of $0.53, 6% higher than last year's results. Our overall performance was in line with the expectation we laid out on our last earnings call, which foreshadowed only a modest increase in diluted earnings per share over last year.

During the quarter, we did see strengthening, finishing with a very strong March. Sales in the quarter were down 4% year-over-year, though organic sales were up 3% after adjusting for approximately $20 million of FX headwind in our industrial segment.

In industrial, our performance continues to be very strong, delivering organic sales growth of 8% and organic orders growth of 6%. As we mentioned last quarter, the strengthening of the US dollar relative to the euro creates significant headwind on the industrial revenue line but not a meaningful impact on segment operating profit. Looking at industrial's performance a bit deeper, if we exclude the impact of the Saline closure, organic sales and orders growth would have been 11% and 8%, respectively. So we are very pleased with our performance at industrial and encouraged by our industrial end markets which remain favorable.

At Aerospace, sales were down 7% in the quarter, with mixed results among our businesses. Original equipment manufacturing was down 8% given the timing of deliveries to our customers. We do however expect our railroad OEM business to be stronger in the second half. In fact, OEM orders were up 24% year-over-year and our backlogs remained very healthy.

In our Aerospace aftermarket business, revenues were down 3% in the quarter primarily from lower volume, as our customers reported to us that they saw fewer shop visits in the quarter that drove softness in our MRO business, which was down 10%. The base MRO business was impacted by lower volumes, though the component repair programs provided some positive offset. Despite a slow start, we remain optimistic for healthy revenue growth in the MRO given the full year of contribution of CRP programs and an improving aftermarket environment.

A key highlight for our Aerospace aftermarket business was our revenue sharing programs, where sales were up 10% driven by the CF6 engine family. A good first quarter for our business that as you know has limited short-term visibility and can be lumpy with respect to revenues.

On the whole, we're happy with our positioning relative to the end markets we serve. We are fully committed to executing our business strategy of delivering profitable growth and extending our global reach. Culturally, we've been driving innovation much deeper into the organization and recognize that embracing intellectual property as a core differentiator will allow us to deliver even more highly engineered solutions and services valued by our customers. In concert, we are making significant investments in our enhanced talent management system, which is squarely focused on advancing our people and developing the next generation of leaders for Barnes Group.

At the same time, we are harnessing the power of the Barnes Enterprise System across the organization to drive a much sharper focus on continuous improvement and boosting our overall productivity. Collectively, these actions have allowed us to deliver improved performance in what feels like a more challenging global economic environment.

As we continue to execute our vision and strategy, I would like to take a few moments to discuss how we think about our capital deployment priorities. First, we look to support our business operations through organic investment, allowing them to enhance their competitiveness and position for future profitable sales growth.

Since 2013 and inclusive of our 2015 expectations, we will have spent approximately $60 million a year in CapEx. These expenditures include a healthy portion of growth capital, roughly half of the annual amount and target opportunities in both segments. In addition, we are funding new product and process development activities across the enterprise.

At industrial, such investments in our business that serve transportation end markets are seeing positive results. For example, our high-speed transmission springs and GDI, gas direct injection offerings provide highly engineered components supportive of the drive for higher fuel efficiency. These new capabilities are benefiting from solid global automotive production increases which are forecasted to be up 2% to 3% for 2015 and 3% to 4% growth anticipated for the next few years.

Our nitrogen gas products business continues to benefit from robust tool and die industrial end markets, driven in large part by current elevated demand of the automotive industry. You may recall in 2013, we invested in expanding our manufacturing capacity in this business. We brought back in-house previously outsourced work to improve profitability. NGP's organic sales were strong in the quarter, up 20% plus. Our market outlook remains favorable.

At Aerospace, we are positive on both the OEM and aftermarket businesses. Significant backlog with Boeing and Airbus appear to be holding in today's lower oil price environment and continue to support planned production increases on both narrow and wide-body platforms. We maintain our emphasis on securing work packages related to the new aircraft engine programs coming to market and support this by investing in our manufacturing capabilities and overall competitiveness.

In the aftermarket, we remain constructive on the underlying fundamentals of the industry over the long-term. Revenue passenger miles are increasing, load factors remain high, airline profitability steadily improves and the commercial fleet continues to grow. All of these influences are expected to provide aftermarket growth both in MRO services and spare parts sales. We envision the aftermarket to ramp through the year ending on a strong note.

Our recent investments into the component repair program demonstrate our confidence that this is a great long-term market for us. We believe these CRP's are long-term profitable enhancements to our portfolio; which brings me to the second component of our capital deployment priorities. With a commitment to enhancing our core manufacturing expertise, the transformation of our portfolio is an integral factor in our reshaping the business for the future.

When warranted, we have demonstrated our willingness to divest of a business that is not consistent with our strategy, allowing us to redeploy capital into highly engineered and differentiated industrial technologies, providing a greater opportunity to achieve the profitable growth we pursue. Our recent strategic acquisitions have propelled us along this journey.

Our automotive hot runner business continues to perform exceptionally well with organic sales growth in the quarter being very robust, driven by strong demand from North America and Asia. Our forecast for automotive model changes, a big driver for this business, anticipates robust growth around the globe for 2015 as market trends continue to be very positive. Likewise, the demand for hot runner's and molds for medical and personal care end markets also remain strong as organic orders in the quarter were double-digit with strength in North America, Europe and Asia.

Finally, the third component of our capital deployment priorities is to return capital to our shareholders through a combination of a competitive dividend and opportunistic share repurchase. Tied into our capital stewardship is a point I made on our last quarterly call; we fully realize that the continued execution of our growth strategy requires vigilance in the management of capital. So while we have always been keenly focused on capital efficiency, the recent introduction of incentive compensation components for both working capital and return on invested capital will further reinforce Management's attention on the balance sheet as well as the P&L.

To wrap up my comments, let me say that we have begun 2015 on solid ground with favorable end markets and well-positioned businesses. I am pleased with the progress we've made on many fronts over the last couple of years: transforming the portfolio; building a culture of innovation; extending our global reach; and institutionalizing the next generation of the Barnes Enterprise System. We also continue to execute on our profitable growth strategy to further enhance the value of Barnes Group.

Chris will now take you through the financial details for the quarter and provide you with a current view of our full-year outlook. Chris?

Thank you, Patrick. Good morning, everyone. Let's start with highlights of our first-quarter results. Looking at slide 2 in our supplement, first-quarter sales were $301 million, down 4%. As organic sales growth of 3% was more than offset by an unfavorable FX headwind of 6%. Net income was $29.1 million or $0.52 per diluted share compared to $22.8 million or $0.41 per diluted share a year ago. On an adjusted basis, net income was $0.53 per diluted share, an increase of 6%.

This quarter's adjusted earnings exclude the impact of Manner short-term purchase accounting adjustments of approximately $900,000 pretax or $0.01 per diluted share. As a reminder, last year's first-quarter adjusted net income excludes the impact of Manner short-term purchase accounting adjustments of $0.06 per diluted share and Saline closure costs of $0.03 per diluted share.

Now let me comment on our segment performance beginning with industrial. Industrial's first-quarter sales were $200 million, down 2%. As Patrick mentioned, industrial's organic sales growth was very strong, increasing 8%, while FX negatively impacted sales by nearly 10%. First-quarter operating profit was $31 million, up from $19.4 million in the prior year, primarily benefiting from the contribution of higher organic sales. Excluding Manner short-term purchase accounting adjustments this year and last year, plus last year's Saline restructuring charge, adjusted operating profit was $31.8 million, up 18% from a year ago, with adjusted operating margin of 15.9% which was up 260 basis points.

At Aerospace, first-quarter sales were down 7% to $100 million, with lower sales in the OEM and base MRO businesses being partially offset by incremental CRP and spare parts sales. First-quarter operating profit was down 18% to $12.9 million, as compared to $15.8 million from the prior-year period. Operating profit was negatively impacted by lower sales in OEM and base MRO businesses though partially offset by increased profit from CRP's and spare parts sales. Operating margin was 12.9% in the quarter, down 170 basis points from last year. In Aerospace, backlog ended the quarter at $542 million, up 4% sequentially from year-end.

Our effective tax rate for the quarter was 29.2%, compared to 27.9% in the prior-year period and 27.6% for the full-year 2014. The effective tax rate increases in 2015 over the full-year 2014 rate is primarily due to the expiration of certain tax holidays. Regarding share count, our first-quarter average diluted shares outstanding was 55.7 million shares, while quarter-end basic shares outstanding were 54.8 million. No repurchases were made during the first quarter. 2.4 million shares remain available for repurchase under existing Board authorizations.

Our cash generation continues to be strong as first-quarter cash provided by operating activities was approximately $23 million versus $17 million last year. Free cash flow, which we define as operating cash flow less capital expenditures, was $12 million versus $2 million last year. Our quarter-end senior debt to EBITDA ratio was 1.7 times, down from 1.8 times at year-end 2014. At quarter-end, under our existing debt covenants, additional borrowings of approximately $420 million of senior debt would be allowed.

Turning to our updated 2015 continuing operations outlook on slide 3. We now expect 2015 organic revenue growth of 6% to 8%, with total revenue growth of 1% to 3% after consideration of 5% FX headwinds given the continued strength of the US dollar. Our current outlook assumes a euro rate of $1.10 for the rest of the year, which is anticipated to negatively impact full-year revenue by about $60 million, which is an increase of $20 million to $25 million from our call in February.

Operating margin, outlook remains in the range of 16% to 17%. GAAP earnings from continuing operations are forecasted to be in the range of $2.43 to $2.58 per diluted share, up $0.03 on both ends of the range, primarily attributable to a slightly lower tax rate than the 30% rate we discussed in February and a small non-operational gain on the sale of fixed assets we recorded in the first quarter. Excluding $0.02 of remaining short-term purchase accounting adjustments expected in 2015, adjusted diluted EPS is anticipated to be in the range of $2.45 to $2.60, up 5% to 11% from 2014 adjusted diluted earnings per share of $2.34.

We continue to forecast a stronger Q3 and Q4 with earnings weighted 55% in the back half of the year. CapEx outlook is in the range of $55 million to $60 million. Cash conversion is forecasted to be approximately 100% of net income; both of which are unchanged from our previous guidance.

So we begin 2015 on solid footing and expect to deliver another good year of financial performance. We'll continue to invest in our businesses and seek acquisition opportunities that advance our portfolio of differentiated industrial technologies. The balance sheet is in a great position to support these investments. Cash flow is forecasted to remain strong. Operator, we will now open the call for questions.

(Operator Instructions)

Edward Marshall, Sidoti & Company.

So, you gave us -- the RSPs were up 10% in the quarter. I don't know that I caught the OEM. Then I guess total MRO for the quarter as well?

Total MRO, Ed, was down 10%.

Does that include RSPs or no?

No.

Okay.

No. So MROs down 10%; RSPs up 10%; total aftermarket was down 3%.

Okay.

Then the OEM side was down 8%.

Down 8%, okay. Can you remind us why, throughout this year, Aerospace is going to be back-end loaded? I guess it's the timing of specific orders.

You talked a little bit about the progression as you expect for the entire business, but maybe you could kind of hone in on Aerospace and look at that, since that seems to be a little bit trickier than normal -- a normal year?

Yes, happy to do so. Relative to Aerospace, as we foreshadowed in the fourth quarter, we saw the schedule of shipments that were planned in our backlog over the course of the year. We mimic this year, whilst you've seen a little bit in the last few years, which is the second half of the year being stronger than the first half.

There's nothing in particular that is driving it other than the shipment schedules on some of the major programs that we continue to participate in. The incremental factor also might be some of the new product developments that we're doing. Scheduled shipments of those happened this year to be in the second half, as well, on the OE side.

In the aftermarket side, we continue to see strengthening across the aftermarket in terms of the fundamentals that drive that industry. In particular, airline profitability, as well as increases in capacity, with capacity, again, forecasted to increase this year. So overall, aftermarket looks like it's going to continue to strengthen throughout the year. We believe we'll be benefactors of that.

So have you seen the MRO pick up through April so far?

Yes.

Okay. Then, when you look at the orders, I think you said in your prepared remarks that OEM orders were up 24%. Was that year over year?

Yes.

How come when I look at the backlog, it doesn't necessarily translate? I know there's some shipments out of that backlog, but I don't know looking at it -- with the shipments being down, it looks like it's up just modestly year over year. I'm just curious as to where I'm missing those orders? Can you kind of walk me through that?

Well, the backlog at the end of March for BA is $542 million, which is $538 million, primarily of it is -- it's predominately OEM. So last year, we hit a peak of $550 million in terms of backlog. So we're almost at all-time highs as it pertains to our Aerospace backlog. That, of course, is intended to shift 60% over the next 12 months, is what we use as a rule of thumb. The remainder, then, is beyond that 12 months.

Right. If I look though, specifically at the orders, would that 24% year over year on the OEM side -- did it hit in the first quarter? Or did it hit post-first quarter?

No, it hit in the first quarter.

It was a year-over-year number, 24%?

Correct.

Okay. You mentioned that guidance for tax was coming down. Did you say it was -- is it going to be even with the first quarter? Or is that first quarter a little chunky versus the rest of the year?

Pretty much in line -- between the 29% and 30% is what we're anticipating for the full year. The difference between this quarter -- or where we are now, as we project out the full year, versus when we put initial guidance together, is just really that mix of earnings, how it's coming through in our outlook.

I see. Then, last one, with the operating guidance and revenues coming down, but minimal impact, if any, on the op-line, I was curious as to why you didn't decide to raise the operating margin guidance for the year? I assume revenues will be lower and operating profit probably stays relatively the same. That would imply slightly higher margins. Was it just not enough to push you to the -- pass the high end?

Yes. Right, a little bit more confidence on the upper end of that range, but not enough to go beyond that 17% at this stage. So we're in that -- we remained at the 16% to 17%.

I see. Great. Thanks, guys.

Pete Skibitski, Drexel Hamilton.

Nice quarter. Would you be willing to give a range for revenue for the second quarter, given I think we were all a little bit surprised by the arrow number here in the first quarter. Any chance we could get that?

What we indicated was that the year is going to be split 55% in the back half of the year, in terms of -- we normally don't give out quarterly guidance. So we are seeing a strengthening in Q2. So it's not that it's all in the back half, but we see that sequential improvement over the course of the year.

Okay. So 55% is revenue as well as EPS?

No. The percentage I referenced was EPS. But clearly, the back end will also be stronger pertaining to revenue.

Okay. Okay. Then, any sense to why shop visits were down in the first quarter?

Well, I just came back last week from the MRO Americas Show, which was probably one of the best attended that I've seen, with significant enthusiasm around that particular show. In general, how I would capture it is that, overall sentiment continues to be very optimistic. But in speaking with a number of customers, which just reinforced our own direct communications, shop visits were a little slower. A couple of factors were that there were some issues, I think, with supply chain in terms of certain components.

Secondly, light work scopes in the first quarter; however, in every instance, everybody remains bullish on the full year and continues to see a ramp and a strengthening as the year progresses. In particular, as you saw in the first quarter in some of the earnings releases, the airlines are starting to report stronger profitability. Of course that isn't -- that was not expected -- unexpected, sorry. So we think that's going to bode well in terms of deferred maintenance being done over the course of the year as well.

Okay. Got it. Any meaningful change to your full-year outlook? I think MRO, you're thinking up high-teens for the full year? OE up maybe mid to high single-digits? That's roughly what you're still thinking?

Well, we -- in terms of aftermarket, or MRO in particular having a softer first quarter, our outlook continues now at mid-teens. We're looking at mid-teens for the full year. In terms of OEMs, overall -- or for Aerospace overall, we're looking at mid single-digits. OEM sales low single-digits.

Then, MRO being that mid-teens. RSPs had a great first quarter of 10%. So again, we continued to remain conservative just because of the low visibility of that business. But clearly first quarter boded well for the full year.

Okay. Thanks, guys.

Christopher Glynn, Oppenheimer.

So a lot of color on the Aerospace timing factors, but just wondering, what maybe you expected? What sort of surprised you in terms of timing factors in the quarter? Then, the corollary would be, would we expect another negative quarter for Aerospace as we bridge to the second half?

So in terms of surprises in the quarter versus expectations, overall, we couched, I think in the last earnings call, the fact that we saw Q1 being a lighter quarter. When that was primarily going to be driven by the OE side of the house, which was -- we could clearly see these schedules were going to be softer in Q1 than they were for the rest of the year. I think the surprise might have been on the MRO side being a little softer than we expected.

By contrast, RSPs were stronger. So offsetting one against the other, we were down 3%. We thought that might have been flat in the first quarter and then expected it to ramp through the year. So remain overall very positive on Aerospace, in general, both aftermarket and OEM. I see that ramp consistently from now through the end of the year.

Okay. So sort of ratable progression to get to mid-singles for the year. That makes sense. There was another surprise in the top line, more on the positive side, just in terms of timing the industrial organic growth. You talked a lot about the automotive strength, but maybe we could dive a little deeper into the drivers there? What's going on the non-automotive side, just some additional complexion with industrial organic?

So industrial, across the board, had a wonderful first quarter. I think we have provided guidance excluding FX of 6% to 9% and industrial came in at 8%. So as I pointed out in my prepared remarks, if you were to remove Saline, that would have been 11%. So in general, the total comp within our industrial was on Associated Spring because we had Saline in the first half of last year. Obviously that put tough comps against that business.

But in general, across our industrial businesses, in terms of end markets, nitrogen gas products, very strong quarter. Tool and die remains strong for that particular business. The medical, pharmaceutical, personal care at Manner, in terms of the services and products they bring to market, they had a very strong orders quarter. We see that strength continuing. So broad-based, we were very pleased with all end markets that our industrial businesses are serving at the moment.

Great. How would you describe the gestation periods for the internationalization efforts around Manner?

Manner, as we've communicated, I think, on Manner, we looked at Manner in terms of a phased approach. As we acquired the business, we clearly saw the opportunity to grow it in the short term, whilst integrating it over the first 12 months. That's been a significant challenge, which the team has done a wonderful job on and has almost been seamless, in terms of not only integrating the business into the Barnes Systems and the Barnes Enterprise System, but also in terms of the cultural aspect and ensuring that what was a family-owned business coming into a public arena -- that, that wasn't without its challenges, and of course, has worked extremely well as well.

So as we look at Phase 2 of that particular integration process, we're looking at it in the context of expansion. Those plans are currently drawn up; the teams are working on them in terms of how to phase that rollout. We will continue to communicate that as we actually execute, but it's actually in progress as we speak. The planning and necessary investments are being made.

Thanks, Patrick.

Myles Walton, Deutsche Bank.

I was wondering if I could start with the balance sheet. So you're in a mode of reducing debt here. It sounded like, Chris, you said there were $420 million additional senior debt now allowed under your covenant. So tying that together with maybe the strategic outlook from an M&A perspective, can you comment both on the acquisition pipeline, the size, availability and pricing that you're seeing today?

Also from a priority perspective, you haven't been doing share repurchase for about a year. You have been paying down debt. Obviously it's a revolver so it's pretty easy to do. But can you comment on those two aspects, both the near term use of capital, and then the quality and size of the pipeline for acquisitions?

Sure. Why don't we let Patrick talk to the acquisition side. I'll come back to the share repurchase, et cetera.

Myles, on the M&A or the acquisition side of things, we continue to sustain our efforts in developing an acquisition pipeline. What is very important for us is that we are holding a very disciplined approach, in terms of the strategic criteria which we vet any potential acquisition. I think both Manner and Synventive are both indicative of the type of high-quality acquisition targets that we are looking at.

As we continue to move forward, in an ideal situation, we'd like to do deals of that relative size. Having said that, as we look at continuing to expand our intellectual property strategy, we're also looking at key technologies that may be incremental to our existing businesses. So we're looking at smaller deals as well as deals in the order of magnitude of Manner or Synventive.

In terms of the strategic criteria that we continue to screen against, we're looking at businesses to provide highly engineered products, systems or services; leverage IP as a core differentiator; are market leaders in terms of the brands that they bring to the market; obviously are profitable to our hurdle rates; and of course, achieve our return on invested capital hurdles that exceeds our cost of capital by year three or year four. So those criteria, we're continuing to hold a very disciplined approach on.

I will say that we're looking at both industrial as well as Aerospace. However, the volume seems higher on the industrial side of the equation and will continue to be a keen area of focus, not only for myself and Chris, but the entire Barnes team.

So, Myles, I would add to that, given the targets that we're looking at, that Synventive/Manner-sized business that $300 million to $400 million value, we want to make sure we preserve that.

You asked about the share repurchase, just the general philosophy is to offset the dilutive effect of employee stock-based compensation. So you're not talking about a significant redeployment of capital in terms of the share repurchase. We do have over $2.4 million left on Board authorizations which we have that discussion. But to Patrick's point, we are keenly focused on when's that next opportunity, from an M&A point of view, to add to our strategy and make sure we've got capacity in place to execute on that.

Okay. One clarification on the cash flow statement. There was a $10 million positive inflow in other financing cash flow. Then also, Chris, can you clarify the size of the benefit in the quarter from the asset or the transaction sale?

Sure. So, that's $10 million really is just -- it's representative of an inter-company loan, which -- we have a US functional currency, but a euro-based loan. We were looking to cover that.

So it's actually presented a little bit of coverage that provided a benefit once we settled that, which represented $10 million. So that's just an inter-company financing activity. So that's the primary driver for that $10 million. Then your second question, Myles?

Yes. I think you mentioned a first-quarter positive benefit from exiting a business or settling a transaction?

We did. We actually had the opportunity to sell one of the buildings that we closed down during the recessionary period. So if you look at our statement of cash flows, you'll see a $1.3 million gain on the disposition of plant, property and equipment. That was in our industrial space. So that small benefit is represented in their numbers for the quarter.

Did that $1.3 million drop through the EBIT as well?

It would, yes. What we do is we flow back basically all items, from a Corporate point of view, back to the segments. So we don't have a Corporate line item in our P&L. So the segments represent the entire Company.

Got it. Okay. Thanks, guys.

Scott Graham, Jefferies.

Nice quarter. Just two questions from me. Could you talk about your assumptions behind US and European auto build, and certainly, specifically within that, you're more exposed to the model change piece of that? Could you talk about those? What are the bases of those assumptions?

So if you think about our businesses overall, Scott, in terms of our European -- automotive for us, we've seen strength in North America and Asia in particular. The European businesses have been more -- our European auto has been more subdued.

However, having said that, if you think about our businesses even in Europe, they are net exporters to the globe. So even though we serve automotive within Europe, at the same time, our businesses there continue to do well because of serving a global marketplace. The model changes is something that is a key driver to the hot runner business that -- primarily Synventive. So model changes actually allow our businesses to actually grow at a faster rate than even overall auto production.

So you benefit from the build, and then incrementally to that, you benefit from changes, is what you're saying?

That's correct.

Got you. Thank you.

We would expect to outgrow the automotive production rates that are cited in general.

Understood. Then kind of the same question on the Manner business, which is not automotive, I think someone alluded to it earlier. What are some of the drivers? Why are those businesses, as you said, talked about personal care, some healthcare.

What is your thinking on those businesses for the balance of the year? What are the drivers to that business, maybe specifically the types of products that those markets are demanding right now?

Right. Well, Manner, as you know, is a premium brand within the plastic injection molding industry, serving primarily medical, pharmaceutical, personal care. The types of products that Manner provides the systems for, in the form of hot runners as well as molds, are types of products like inhalers for COPD or for diabetes. So some of the factors we look at are overall trends in medical devices.

Those medical devices trends are what are some of the primary drivers of our Manner business. In addition to that, on the personal care, it could be products like disposable razors, as an example, or highly engineered irrigation type items. So a wide range of end products. But what the customer comes to Manner for is its engineering capabilities and being able to take something from concept to full production.

So one of the factors -- one of the services that Manner provides is full validation of the actual production process before its molds and its hot runner systems leave their facility. So it's just a plug-and-play at the customer. That is yet another tremendous value add that they bring to their customers.

I got you. Thank you for that. If I just may add this one last question on this. I want to stay on this business because you guys have built a very nice platform in this area, US and Europe.

The question is simple; obviously, M&A has been the linchpin in that build-out. I'm wondering if your next acquisition is something as -- within this category, near neighbor to it? Or would you be looking to build out yet another new platform?

The short answer, Scott, is that we're looking at both. We're looking not only at investing further into the plastic injection molding industry but we are also looking at a wide range of industrial technologies. More of our focus is ensuring that against those strategic criteria that I mentioned, which are: serving attractive growth orientated end markets; strong brands; intellectual property; industrial technologies. We're looking at a broad range of possibilities.

Thank you, all. Appreciate it.

Joe Radigan, KeyBanc.

My first question's on the Aerospace margins. 12.9% is the lowest that segment's been in a while. Obviously, that's impacted by the volume decline. But you did have growth in the RSPs, which is a good margin business. You have accretion from the CRPs.

So just the decrementals there seemed a little higher than it would have expected. Was there any operational issues in the quarter? Or is it truly just fixed-cost leverage?

I think it's the latter, Joe. In that a large portion of the decrement to the 170 basis points over last year was primarily driven by volume. The other factor that I look at is productivity. Productivity was down in the quarter primarily as a result of those lower volumes and the leverage across the fixed assets.

Okay. Then, on the RSP growth, I think Patrick, you said that it was driven by CF6, which -- did you get a stock-in order there? I think that's the -- I mean, they both can be lumpy but isn't the CF6 more prone to bigger swings? Can you delineate the growth there between the CFM56 and the CF6 piece of the RSPs?

Absolutely. In terms of our 10%, it was primarily driven by the CF6 engine model. Last year, what we highlighted was that, we continued to monitor both engines and the spare parts demand to the end markets. What we saw last year was that we were slightly disconnected as the result of an intermediate distributor. What we saw, as I had highlighted a few times, was a destocking taking place at that distributor.

What we saw in the first quarter is that same distributor starting to restock. What that does is it starts to put our results back in sync with the directional line of the market. CFM56 on a year-over-year basis, again, we continued to monitor it very closely as well, and we were directionally aligned with the market in terms of the first quarter.

Okay. Then lastly, a question on industrial around the cadence in the quarter. I think I heard you say that March ended quite strong. So can you talk about what you saw there through the quarter? How you entered the quarter versus exited the quarter? Because it sounds like you're actually picking up momentum in that business.

Well, we came off of the fourth quarter with strong momentum coming into Q1. In some of our business, we saw that momentum even continue to strengthen. So as we are coming out of Q1, looking at Q2, whilst we don't see the same level of organic growth holding at perhaps that same high level of 8% every quarter, we are looking at mid single-digits for industrial for the full year.

Okay. That's very helpful. Thanks, Patrick.

Josh Chan, Baird.

Just a couple of clean-up questions. My first question is on the organic growth guidance for the year. I noticed that you trimmed the top end a little bit, which would still give you a very strong rate. But just wondering, what you saw that made you take down the top end of the growth range there?

It was primarily based on the first quarter's results. What we looked at is if we hadn't had a stronger, say, first quarter, then we would have been more confident in the top range. But given where we started from, obviously we have a very positive outlook, as you've heard, on the full year, but we thought it prudent to trim down by 1 point on the top.

Okay. That makes sense. Then just to clarify some of the comments about the cadence of OEM Aerospace. Is there a chance that OE Aerospace would continue to be down in the second quarter compared to the last year?

No. We expect second quarter to be much stronger than Q1.

Okay. That's good. Then lastly, just in terms of foreign currency, should we think of the euro being the predominant driver? Are you guys exposed to any other currencies as well in the industrial segment other than the euro?

We ship across the world, but the euro is the primary rate that we keep our eye on. That's right. That's the primary driver.

Okay. Great. Thanks, guys, and congrats on the quarter.

Edward Marshall, Sidoti & Company.

Just a quick follow-up. The FX assumptions, what denomination are you using? Is it the $1.08 that's currently flowing?

Actually $1.10. Ed, we're looking at a little volatility. We got down to as low as $1.05, $1.06, and then it kind of bounced back up, today I think it's up a little bit to $1.09. So $1.10 is what we are using for the balance of the year.

Okay. It looks like on the industrial side, where it's just -- where the impact is, Q4 impact was roughly 8% year over year. Q1, 18% decline year over year, and you felt roughly, what, 10% of that? On Q2, it starts to get even darker. 3Q as well, although it looks like the heavier comps or tougher comps.

So if I look at the industrial business is this base level about $200 million on an all-in basis kind of where you expect, adding back that mid single-digit organic growth, is that what you expect this business to be for the 2Q, 3Q until we get some fresh air in Q4?

That sounds reasonable. That's not unexpected.

Okay. Thanks, guys. I appreciate it.

There are no further questions at this time. I will now turn the call back over to Mr. Pitts.

We would like to thank all of you for joining us this morning. We look forward to speaking with you in July with our next quarterly earnings call. So this concludes the call. Have a good day.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.