Barrick Mining Corp (B) 2015 Q3 法說會逐字稿

Good morning. My name is Shawn. I'll be your conference operator today. At this time, I'd like to welcome everyone to the Barnes Group Incorporated third-quarter 2015 earnings conference call.

(Operator Instructions)

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

Thank you, Shawn. Good morning, and thank you for joining us for our third-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 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 the corporate website at bginc.com Also during today's call, we will be discussing our two recent acquisitions. Thermoplay and Priamus System Technologies. You will find a business overview slide for each on pages 3 and 4 respectively in our earnings call supplement slides.

I will now open today's call with commentary from Patrick followed by a review of our third-quarter results and our updated 2015 outlook from Chris. After that, we will open up the call for questions. Patrick?

Thanks, Bill, and good morning, everyone. Barnes Group experienced a challenging third quarter as overall macro economic conditions put pressure on some of the end markets we serve. The developing softness within our industrial segment are referred to during last quarter's call continued into the third quarter, increasing its effect on our businesses and tempering our outlook for the remainder of the year. In addition, we experienced some short-term delivery challenges within our Aerospace segment. With that said, I remain very optimistic about the long-term outlook for Barnes Group, and while not immune to overall market conditions, we are being very deliberate and decisive in taking the necessary steps to ensure our businesses adjust to fluctuations and demand.

Immediate actions include doubling our focus on productivity initiatives, accelerating our efforts on key development projects, and leveraging the combined purchasing power of our collective business, to name but a few. All with the aim of preserving or expanding current operating margins. Irrespective of these short-term dynamics, I remain steadfast in the execution of our vision and strategy to transform the Company towards more engineered products and differentiated technologies. This is evidenced by our two recent acquisitions, which I will discuss in a moment. With respect to our performance in the quarter, total sales were down 8% compared to last year, while organic sales declined 5% after adjusting for FX. Adjusted operating margin grew slightly to a healthy 16.6%, benefiting from sustained strength in our Aerospace aftermarket spare parts business and continuing solid performance in medical end markets served by our plastic molding solutions business. Adjusted earnings per share were $0.61, a 5% decline from last year's adjusted $0.64.

There were several items that occurred during the quarter that reflect adjustments to our reported earnings. So I'd like to address those first and then move to a deeper discussion of our ongoing business operations and the end markets we serve. In the third quarter, we closed on the previously announced Thermoplay acquisition, which furthers our strategy of transforming Barnes Group into a global provider of highly engineered products and differentiated industrial technologies. Thermoplay specializes in the design, development, and manufacturing of hot runner solutions, primarily serving the packaging, automotive, and medical end markets. The transaction headline price was EUR50 million. Thermoplay has annual sales of about EUR35 million, EBITDA margins in the 20% range, and is predominantly a European-centric business.

Similar to Manner, there is a great opportunity for us to grow this business by expanding globally. We like the complementary end markets Thermoplay provides and see the acquisition as a nice gateway to expanding our hot runner applications in packaging. During the quarter, we recorded approximately $1.9 million in short term purchase accounting adjustments and transaction costs related to this acquisition. And we have excluded these amounts from our adjusted earnings. On October 1, we closed our acquisition of Priamus System Technologies. Priamus is a technology leader in the development of advanced process control systems for the plastic injection molding industry. The company is based in Switzerland and has direct sales offices in both the US and Germany. We paid approximately $9 million for the business which is about 1 time sales.

Priamus' innovative suite of sensor and process control systems and our portfolio of plastic injection molding solutions represent a powerful combination which will enable us to offer a unique set of exceptional capabilities and expand what's possible in injection molding. So we're very excited about the ongoing portfolio transformation and continue to look for other opportunities to advance our profitable growth strategy. At Aerospace, we mentioned last quarter a reduction in our content on the Boeing 787 platform due to a customer sourcing decision. As a result of this decision, a contract termination dispute has arisen. And we have recorded a pre-tax charge of $2.8 million during the quarter. The last item excluded from our adjusted quarterly results is a beneficial tax refund of $3 million. Chris will provide additional details on these adjustments shortly.

Moving now to our ongoing operations. At industrial, after a strong first half, organic sales declined 3% in the third quarter yet remained positive at plus 3% on a year-to-date basis. A number of factors were in play, including mix performance across our varied end markets and the continued headwind from FX. Within our molding solutions business, organic sales for medical end markets remained strong. Geographically, Manner's organic sales in Europe and Asia were up low-double digits while North America delivered some modest growth. For automotive hot runner systems, organic sales in the quarter were relatively flat, yet remain up on a year-to-date basis. The North American market continues to do well while Europe remained soft, though showing signs of promise. However, the recent news out of Volkswagen will contribute to a heightened level of uncertainty in this region.

We see China as a market that will continue to grow albeit at a slower rate. Demand for our nitrogen gas springs saw a slowdown in the quarter with organic sales declining in the low-double digits. Recall that tool and die end markets have been at elevated levels for some time, and some contraction from these highs is not unexpected. Also noteworthy, this business goes to market through numerous distribution channels so any softening in demand results in an immediate destocking of the channel, which has a negative effect on orders in the short term. In North America, automotive tool and die activity slowed while industrial end markets also saw lower activity. And in Asia, we are seeing lower exports of tooling projects, however, year-to-date organic sales are positive at mid- to high-single digits.

In our engineered components business, organic sales were down low-single digits as we experience different effects between the industrial and automotive sides of this business. We continue to see weakness in global industrial end markets as indicated by declining manufacturing PMIs in North America, Europe, and China with the PMI index in China below 50 once again. Brazil is also contracting economically. In particular, orders from our customers in white goods and agriculture construction equipment markets have slowed. On the other hand, for light vehicles, production levels in North America and Europe remain healthy. In addition, China's automotive build forecast continues to grow, yet is doing so at a decelerating rate. In the meantime, we continue to make investments in key strategic programs that will position these businesses for the future. With solid progress being made on development programs for GDi and 8 to 10 speed transmissions.

One of the biggest stories in the news these days relates to the Volkswagen diesel issue and how that may impact the automotive supply chain. Barnes Group does generate meaningful revenues from Volkswagen, however, more than half our revenues from them are not depending upon the engine platform as most of our products are in plants that produce auto body parts. The remaining revenues relate to a combination of gas and diesel engine platforms but only small portion of those sales applicable to the diesel platforms.

Certainly, overall slowing macroeconomic conditions have affected many of the end markets served by our industrial businesses over the last quarter, and as such, have tempered our 2015 outlook. We now anticipate positive organic growth of 2% to 3% in our industrial segment with total revenues forecasted to decline 3% to 4%. For the full year, the positive organic growth and acquisition growth of 2% is expected to be offset by negative FX of approximately 8%. Margins meanwhile are anticipated to remain healthy in the mid-teens.

Moving to Aerospace, sales declined 7% year over year. Our original equipment manufacturing sales were down 12% while Aerospace aftermarket grew 14%. The OEM decline was primarily due to delayed shipments and impacted production volumes from the previously referenced contract termination dispute that has arisen. Delays were a result of some of the most complicated components that we've ever produced taking longer than expected to manufacture and the completed assemblies required extra time for customer approval. A number of those components have since shipped or are in the process of shipping. We have scrubbed our production forecast for the remainder of the year, and while our outlook has been reduced, we still have an expectation of a higher fourth quarter over both Q3 and last year. For the full year, we have lowered our OEM sales expectation to be down high-single digits given the third-quarter shortfall and a tempered fourth-quarter expectation.

On a positive note, a clear bright spot for Aerospace OEM was the strength in orders, up 44% over the same quarter last year which drove OEM backlog to $554 million. Up 10% year over year and up 4% sequentially from the second quarter of 2015. As such, I remain bullish on our outlook for Aerospace OEM. As mentioned, Aerospace aftermarket revenues grew 14% in the quarter with strong performance from spare parts sales which were up 35% with nice volume increases from both the CFM and CF6 engine families.

We continue to forecast spare part sales to be up greater than 20% for the full year. In our aftermarket MRO business, revenues were up 3% primarily benefiting from our component repair program though partially offset by continued lower volumes from a specific OE customer. In late September, this same customer announced its decision to dissolve it's 50/50 joint venture with American Airlines, which is a major engine overhaul shop. This contracting volume shortfall is a significant contributor as to why our performance expectations for MRO have softened over the course of the last two quarters.

Entering the year, we had anticipated the lower inputs to recover over time, however, with the impact of this continuing, we now forecast overall MRO revenues to decline mid-single digits for 2015. For Aerospace as a whole, we now forecast full-year sales to decline low-single digits for the reasons just cited. Adjusted operating margins are anticipated to remain in the mid to high teens given the strength of our RSPs and CRPs. To close my prepared remarks, the third quarter presented us with a number of challenges. While some of these were macro economic related, others were within our control. As such, we have been very deliberate and decisive in taking the necessary actions to offset these headwinds.

We continue to ingrain the Barnes enterprise system deeper into the organization with an even higher degree of intensity on improving productivity and enabling us to deliver superior customer value. All of which are critically important in the current economic environment. I remain fully committed to execute on our profitable growth strategy. We firmly believe that our transformed portfolio, productivity focus, and cash generation will allow us to continue to invest in value enhancing growth opportunities.

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

That you, Patrick. And good morning, everyone. Let's begin with highlights of our third-quarter results starting on slide 2 of our supplement. Third-quarter sales were $291 million, down 8% as negative organic growth of approximately 5% coupled with unfavorable FX was only partially offset by acquisition revenues. Income from continuing operations was $33.7 million or $0.61 per diluted share compared to $34.3 million or $0.62 per diluted share a year ago. On an adjusted basis, income from continuing operations was $0.61 per diluted share, down 5%.

As Patrick noted in his opening comments, this quarter's adjusted earnings excludes a $2.8 million pre-tax charge or $0.03 per diluted share related to a contract termination dispute in our Aerospace segment, $1.9 million pre-tax or $0.02 per diluted share of Thermoplay's short term purchase accounting adjustments and transaction costs in our industrial segment. And a $0.05 per diluted share benefit from a tax refund received during the quarter. As a reminder, last year's third quarter adjusted income from continuing operations excludes a combined adjustment of $1.4 million pre-tax or $0.02 per diluted share for Manner short-term purchase accounting adjustments and Associated Spring Saline, Michigan facility restructuring charges.

Let me now comment on our segment performance starting with industrial. Industrial's third-quarter sales were $189 million, which was down 9% from $207 million a year ago, mostly driven by unfavorable FX of $16 million or 8% in the quarter. Organic sales declined 3%, and the Thermoplay acquisition contributed $4.6 million to sales in the quarter. Third-quarter operating profit was $27.3 million, down from $33.2 million in the prior year as a result of lower sales volumes, unfavorable FX, and the short-term purchase accounting and transaction costs related to Thermoplay.

These items were offset in part by proactive cost management given the softer end markets, lower employee related costs, and the absence of Manner short-term purchase accounting adjustments and Saline restructuring charges taken a year ago. Excluding Thermoplay adjustments this year and Manner and Saline adjustments last year, adjusted operating profit was $29.2 million, down 16% from a year ago, and adjusted operating margin was 15.4%, down 130 basis points from last year's adjusted operating margin of 16.7% which was a tough comp.

At Aerospace, third-quarter sales were down 7% to $102 million. Growth in the Aerospace aftermarket business primarily driven by a 35% increase in RSP sales was offset by lower Aerospace OEM sales, which was down 12%. Third-quarter operating profit was $16.4 million, down 7% driven by lower profit on reduced OEM sales volumes and a $2.8 million contract termination charge which was recorded in the quarter. The charge relates to the amortization of an intangible asset and other balance sheet adjustments. We see this charge as a discrete item rising from a contract dispute and not indicative of ongoing operations. Accordingly, this adjustment or this charge, if you will, was excluded from our adjusted results. Partially offsetting these items was higher profit contributions from increased RSP and CRP sales and lower employee related costs.

Operating margin was 16.1% in the quarter, up 10 basis points from last year. Excluding the contract termination charge, adjusted operating margin in the quarter was 18.8%, up 280 basis points driven by favorable aftermarket mix. Our effective tax rate for the third quarter was 19.2% compared to 28.1% in the third quarter of 2014 and 27.6% for the full-year 2014. The effective tax rate decrease in the third quarter of 2015 over the full-year 2014 rate is primarily due to the recognition of a tax refund partially offset by the expiration of certain tax holidays.

Tax refund relates to withholding taxes previously paid on transactions within certain Barnes Group subsidiaries. When the US tax audit was initiated, we proactively filed protective claims to preserve the right to assert certain protections against these withholding taxes around the -- should the IRS prevail, which it did. So although the timing was not predictable, the $3 million refund related to these withholding taxes was received and recorded in the quarter. For the full-year 2015, our tax rate excluding the tax impact related to the adjustments reflected in our Reg G statement, is expected to be approximately 28%. We also believe that approximately 28% is a good rate to use for 2016.

Regarding share count, our third-quarter average diluted shares outstanding was 55.6 million shares while quarter-end basic shares outstanding were 54.9 million. Presently, 2.1 million shares remains available for repurchase under existing Board authorizations. Year-to-date 2015, we repurchased approximately 300,000 shares and we will continue to be optimistic on share repurchases going forward utilizing what remains available under Board authorizations.

Cash generation continues to be strong as third-quarter year-to-date cash provided by operating activities was $153 million versus $122 million a year ago. Free cash flow, which we define as operating cash flow less capital expenditures, was $122 million versus $78 million last year to date. Our balance sheet remains strong with a debt to EBITDA ratio of 1.7 times at quarter end. Under our existing debt covenants, additional borrowings of approximately $435 million would be allowed and $390 million remained available with respect to our credit facility at quarter end.

Turning to our updated 2015 outlook on slide 5, we now expect 2015 organic revenue growth to be flat to 1%, with total revenue down 3% to 4% after consideration of about $70 million or 5% FX headwind. Acquisition revenues should contribute about 1% sales growth. Our operating margin outlook remains at approximately 16.5% given our focus on cost management and productivity actions to offset softness in our top line. GAAP earnings from continuing operations guidance is in the range of $2.40 to $2.45 per diluted share excluding Manner and Thermoplay purchase adjustments, the Aerospace contract termination dispute charge, and the tax refund benefit recorded in the third quarter, adjusted diluted earnings per share from continuing operations is now expected be in the range of $2.42 to $2.47, up 3% to 5% from 2014's adjusted diluted earnings per share of $2.34.

Our CapEx outlook is now $50 million, $5 million lower than our previous view but continues to represent a reinvestment ratio greater than 1 times when compared to our annual depreciation level of approximately $40 million. And our cash conversion is now forecast to exceed 100% of net income reflecting the strength of our focus to expand margins and improve cash generation across the Company.

There is one item that I would like to highlight that is not reflected in our updated guidance but is noted in our press release. In September of this year, we communicated to approximately 1,300 former employees an option to receive a lump sum distribution of their vested benefits by the end of 2015. This represents approximately 17% of Barnes Group's US pension plan obligations. For those who accept the offer, there will be a payout in December of 2015, which will be made out of existing plan assets. We would expect to record a non-cash pension settlement charge in the fourth quarter based on the level of acceptance. This charge will be excluded from adjusted earnings.

So in summary, we certainly experienced a quarter with mixed results but firmly believe that the transformation that's taken place over the last several years better positions the Company to address the impact of shifting business cycles. We will efficiently manage costs and working capital in what now appears to be a slower growth environment in some of our end markets. That said, our balance sheet is well positioned and cash generation remains strong allowing us to pursue the investments that will continue to fuel profitable growth for Barnes Group.

Operator, we will open the call to questions.

(Operator Instructions)

Christopher Glynn, Oppenheimer.

Good morning.

Good morning, Chris.

So a fairly dramatic swing in the industrial revenues, yet the operating margin, almost completely unperturbed. Just curious how you reacted that quickly, or if there was some mix benefit like in aerospace, and if there is maybe a lag? Do we see more underabsorption hitting in the fourth or first quarter maybe?

I think, Chris, your observations are correct in that was we did see a deterioration in the top line. The team's done a wonderful job in terms of managing costs on the bottom line. We had in the past been prepared for -- as we watched out of Q2 the relative global macroeconomic conditions starting to soften, we in turn internally had put in place contingency plans as to what we might do in the event of any particular business, and it seeing any particular softening. So in the case of industrial overall, the team's done a very nice job of acting very proactively in terms of what they were seeing, and continuing to do so and will continue to do so as we move forward.

Okay, so we shouldn't expect any lagged impact of underabsorption or anything.

No, we're continuing to forecast mid-teens for industrial and, again, I think it's a clear accolade to the team. As you think about the same impact a few years back, we would have had a very different result. So, very nice performance relative to the bottom line, given the headwinds experienced on the top.

Good distinction. And then just on the pension plan, I guess we will probably have to wait for real detail, but just wondering how this came about. What are the typical take rates relative to such an initiative? In this case, it's 1,300 employees, and what can be the indications for the funded status?

Chris, for the funded status, we are not too concerned. We'll still remain well funded in the pension plan. We have modeled anywhere from 20% to 50% take-up rate. We are early, in terms of understanding -- in terms of responses from those 1,300 employees, so it's kind of hard to predict.

So I'm going to hold off on making any commentary. We just wanted to highlight the fact that we have initiated this to those 1,300 former employees, term-vested employees, and we'll communicate that in the fourth quarter. We'll appropriately -- whatever that adjustment may be, we will appropriately Reg G that in our fourth-quarter results. But again, just to emphasize, we do not anticipate this to have any meaningful impact on the funded status of our pension plans.

Okay, and early guesstimates on directional pension expense next year versus this year?

We'll communicate that in the February time frame, once we get through year end -- understand the discount rate and thinking about next year.

Okay. So, no mark to market. Thanks.

No.

Thank you.

Myles Walton, Deutsche Bank.

Good morning.

Good morning, Myles.

I was wondering if you could first leap on the Aero margins, in particular, implied in the fourth quarter? It looks like the mix is going to continue to help you here. Is this a business where next year you're probably still going to have favorable mix trends and you could be in the 20% range?

So if you look at our Aerospace in total, it basically is benefiting this year from a number of key programs on the OEM side, as well as the aftermarket. As it moves into next year, we will clearly look to provide a better outlook in the fourth quarter. But the RSPs or the spare parts sales were a great contributor in 2015. They will represent tough comps going into next year, but nonetheless, all of the outlook for shop visits against the CFM56, which is the primary driver, continue to be positive. So we remain bullish on our Aerospace, whether it's OE or whether it's aftermarket, going into 2016.

And the drive up in the backlog year to date and year on year looks pretty good. How much of a read-through should we use for that as a OEM trajectory into next year, understanding that there is a $7 million headwind from the 787?

What we normally project is about 60% of the backlog at any given time will ship in the next 12 months. So we use that as a good rule of thumb. It may vary up or down slightly, but usually our history says that's the range you should think about.

Okay. The other question I had for you was -- the Industrial piece -- can you give us some trajectory of how it trended through the quarter, and how you have, in the full year, fourth quarter, de-risked any potential further deceleration, which -- it seems like it would've occurred here in the third quarter. And just curious -- are you snapping a line or you're forecasting it to continue to trend lower?

What we saw in the third quarter was a softening in a number of different end markets. By contrast, there were also pockets of strength, though, as I mentioned, we saw strength in North America in terms of our hot runner business. We saw softening in North America pertaining to our general industrial. As we look forward into the Q4, we think that we have accounted for, in the guidance we have given, to the softening that we projected or continued levels overall. And so, fourth quarter, we see relative consistency moving from Q3 into Q4.

Okay. Thanks, guys.

You're welcome.

Thank you, Myles.

Edward Marshall, Sidoti & Company.

Just a quick follow-up on the last question: I'm curious, was September weaker than July on the Industrial side?

That's a good question. I think we saw softening over the course of the quarter to -- actually -- I have my numbers in terms of the quarter and the sequential aspect of the quarter, more so than the months within. But I think what we saw as an example is the softening that occurred in Q3 in the case of an example, nitrogen gas products, what we saw was a little bit of magnification as a result of the fact that they go to market through the distribution channel, and that we believe some destocking took place there. So that I think in the case of that end market, tool and die, may have been a little more harsh than some of the others, which were also softened as I mentioned in terms of general industrial, but not significantly. We saw it as being a gradual event over Q2 and Q3.

I know you're not providing guidance for 2016, but I'm curious, do you think that with respect to not providing that guidance at this point, does it make sense to think that you would see organic growth maybe in the first half of next year, based on the trends that you've seen so far and what you anticipate for Q4?

As I look out into 2016, I still remain bullish in terms of the overall portfolio. When I think -- it depends on which end market I consider when I make that comment. If I think about our Aerospace OE, we continue to position well with a strong backlog moving into 2016. If aftermarket continues to perform with the strength that we have seen into 2015, it should fare well, and all fundamentals in the aftermarket continue to remain intact.

As I look to the Industrial side, I have not seen any glimmers of uptick as it pertains to general industrial and in North America. There in particular I'm referring to white goods, construction and agriculture. As I look at our molding solutions businesses, Manner continues to do very well, even throughout this year, and we expect that into next year based on the number of programs that they are currently in negotiations on. And on the case of the automotive hot runners, North America continues to be strong. We have seen a slowing in China, but it's growing but at a decelerating rate. But we think that that will normalize going into the first half of next year as well.

Okay. And on the nitrogen gas products, can I refer to the comments earlier that there is a bit of inventory in the channel. There's going to be some destocking, and that would continue?

I think it usually happens very quickly because what we've seen is the distributors react accordingly. So what it clearly is signaling to us is that the distributors are adjusting their stock levels, which says that their end markets, their end customers are signaling to them a lower demand. But overall, if you think about nitrogen gas products, it has been a great story for us overall, with tool and die being at elevated levels for the past few years. As I think about organic sales within NGP, we're still up in positive territory on a year-to-date basis. So, softening clearly exaggerated I think by the channel. But I think going forward, still a lot of good feedback from customers relative to programs that are in the works to drive demand against their product lines.

Okay. Just remind me -- I think I missed it. What was the organic outlook for Q4? Or did you give a full outlook for Q4 on the Industrial side?

I didn't give it for Q4. I gave it for the full year. So, organic for the full year on Industrial is expected now to be low-single digits, in the 2% to 3% range.

Okay. When I look at the aerospace contract, was that a termination or was that a writedown and, therefore, just a dispute and, therefore, you're taking a charge against that program?

It's a contract termination related -- the dispute that came from the contract termination required us to take a look at the balance sheet and just take a position in terms of the end of the quarter. So it is a contract termination dispute, and we appropriately made an adjustment to our balance sheet, which is the $2.8 million that we reflected in the quarter. We don't view that as part of ongoing operations; as a result, we Reg G'd that item, but it's an ongoing dispute.

So, to be clear, are you still producing the part or no?

We are not. Part of the issue and part of the impact to production volumes in Q3 was cancellation of orders, which ultimately we thought we would get to a commercial resolution to the entire issue, but unfortunately now we're moving into arbitration. And so, as you can imagine based on the sensitivity of that, we will probably not expand too further on the details of the dispute at hand.

Sure. That's fine. Did you say it was with Boeing?

I did not.

Okay. Would you tell us what platform it was on?

Yes, it was on the Boeing 787. If you recall in the last quarter, we indicated that our content per platform was going to go down [$50,000] per aircraft. This is the same issue.

Got it. Okay, that's all I have for now. Thank you very much.

Thank you.

Thanks, Ed.

Joe Radigan, KeyBanc.

Thanks. Good morning, guys. I think you said auto was flat organically. Was that a comment for Industrial in general, or was that the hot runner piece of the Business?

In terms of auto overall, what I highlighted was the fact that auto production levels continued to be healthy across North America, Europe; and we're seeing them decelerate in China, but still being positive. In terms of our particular businesses, and the products and services they provide, we have seen that organic sales within Synventive slowed in the quarter but are up double digits on a year-to-date basis.

Okay. And then, you made a couple of bolt-on acquisitions there. How many smaller competitors are there in that hot runner space, and is this your strategy, to continue to roll up the space? Are there barriers to entry that preclude you from expanding into these adjacents organically, or is it more of a make versus buy type decision?

As I think about the plastic injection molding space overall, we have been very deliberate in terms of our assessment of the end markets, and we've looked at this space with a view to -- how does Barnes Group create value to the overall end customer? And in doing that, our key focus is on the key technologies that drive this industry. And as we added Thermoplay and Priamus into the mix in the last few months, what we see again is it positioning Barnes to where the combination of our capabilities, the industrial technologies now that we're bringing to the space will allow us to push the envelope in terms of the intelligence that we're adding to the overall process to drive a lower cost of ownership to the customer.

So we're excited -- continue to be excited about the space. We are very selective in picking our spots. We're holding, as I always say, to a very stringent set of criteria on our M&A side of the equation. We are also growing organically in the sense that we have plans to expand. And one of the greatest opportunities in front of us is the global expansion of these businesses as they have operated somewhat locally in their local markets prior to joining Barnes Group, and one of the things we're most excited about is taking them global.

Okay. And then on the Aerospace side, Patrick, I assume you saw the comment from the CEO of Delta recently about low interest rates creating a bubble in the wide bodies. I would be curious to get your view on that, given your exposure there. And then, given all the puts and takes on the OE side, with the A350 ramp, with the potential for 777 cut, how are you thinking about growth in your Aerospace OE business longer term? All that summed together, do you think you still can continue to grow this business over the next several years?

So, how I think about it is that the -- in the past, Barnes Group historically has played predominately in the wide-body arena. As we continue to assess the go-forward landscape in the Aerospace industry was we are deliberately doing is making sure that we hedge against both sides of the equation. So we have been actively doing development work into the narrow-body side of the business, and that is really a growth opportunity first, as well as a hedge against any declines that might occur on the wide body. One of our primary programs, as you know, is the GE90 on the Boeing 777, which, again, as you look out over the next few years, clearly it will transition from this base model to the 777X. And as it does, there will be a transition. And what we are looking at is the Airbus A350, as well as narrow-body applications, as being the mechanism that will allow us to make that transition smoothly.

Okay. Thank you, guys.

Thank you.

Bhupender Bohra, Jefferies.

Good morning, guys.

Good morning.

I just wanted to -- if you can talk, Patrick, about the engineered component, the business unit which you guys created last quarter? It consists of all the Associated Spring and Hanggi and all those. What happened? Last quarter, you said there was some slowdown. You were looking at the end markets. And this quarter basically you're saying the slowdown actually accelerated, right? Just give us some sense on what happened, like, was it like exposed to China, was it local demand over there?

So if you think about our engineered components business in total, it really is a tale of two cities because you have the general industrial piece, as well as the transportation piece. And so, to speak to engineered components, we did see a slowdown in terms of organic sales in the quarter in the low-single digits. That said, with regards to the overall portfolio, the primary drivers on the general industrial side were North America, softening relative to prior quarters. And there, as I mentioned, agriculture and construction being one of the primary, as well as white goods. So we saw that broad based. We have a range of different customers, some of which have reported on earnings already this quarter and signaled similar experiences.

On the automotive side, we have again a mix of various end markets there between North America, as well as Europe, and we also have pockets of strength. So, our GDi program continues. That business, based in Switzerland, is doing nicely in terms of positive growth on a year-over-year basis, but has been offset in the mix of engineered components with regards to the total portfolio.

Okay. And on the transportation side, on the auto side, do you have any exposure to Volvo?

Not -- I'm sure we do indirectly or directly, but it's not in the top customers. So, not something that is significant in terms of our radar.

Okay. So just parsing out the numbers here, like you lowered the guidance if you look at the 4Q number, and keeping your operating margin unchanged, so are we -- any additional cost-cutting? Do you plan in 4Q like going into 2016 are you thinking about because you talked about how you are not going to see major improvement at least in the first half of 2016 from the North American industrials? Anything which you are thinking right now or have planned -- any numbers?

So, for us, what I mentioned was that we have attempted to be very proactive as we look at any deterioration in the top line. And in that, the businesses have been -- have done a wonderful job in terms of contingency planning. And then only acting as necessary where you balance a softening top line to meeting the customers' needs. So with that, I think that we are continually focused on productivity, and continually going to focus on ways to streamline the operations given the -- whatever the market conditions might present.

Okay. Thanks.

Thank you.

Tim Wojs, Robert W. Baird.

Hey, guys. Good morning.

Good morning.

I guess just, not to harp on it too much, but in the nitrogen gas product business, did you see some of the distributor orders at least -- the activity at least flatten out as the quarter came to a close, or was it pretty even pace through Q3?

I think two primary end markets that we saw softening with NGP. One being China, and it's enjoyed great success there over the last few years in terms of expansion. So we saw that contracting somewhat in the quarter -- over the course of the quarter. And the other area that we saw softening was in North America. Europe also was not that it was unaffected, but not as significant as we saw in China and North America.

Okay. So do you get the feeling that at least the destocking is at least over?

I think that we're remaining optimistic that the worst of any destocking is behind us. We are talking and in close communication with the distributors. And they are clearly sizing their inventories to what they believe the go-forward demand is. And they are indicating that they feel comfortable with where they are after adjusting to in Q3, but are going to keep a cautious eye towards any feedback from the market as they move forward.

Okay. And then just in the OE business, just with revenue expected to be down there now this year, is it fair to assume that OE EBIT margins are down? I think you mentioned there was some employee productivity in the quarter. Is it possible that OE EBIT margins are actually up this year, even though revenue is down?

As you know, we don't provide margin at that level, but of course, they would be down, and we are seeing that, given the softness on the top line. But as Patrick mentioned earlier, the commentary around cost management and just managing headcount as we go through this period of reduction, that continued to be able to continue to preserve margins. But yes, we are seeing the impact on the operating margin line for OEM.

Okay. Thanks, appreciate it.

Thank you.

Pete Skibitski, Drexel Hamilton.

Good morning, Patrick and Chris.

Good morning.

Good morning, Pete.

Hey, guys, I just want to -- just not to belabor industrial, but just want to fully understand it again. So, nitrogen gas was the worst performer in the quarter. It was down double digits. Then you said engineered components was down low-single digits or up low-single digits?

Engineered components was down low-single digits.

Okay. And for nitrogen gas products, the China softness was auto or general industrial?

General industrial and auto, I think two combined.

Okay, both of them, okay. Understood. And plastics continues to grow at a moderated but still attractive rate?

Right. If you think about our plastic molding solutions, as we refer to it now, they are continuing to enjoy very strong demand for the products on the medical market side of the equation. On the automotive side, North America continues to do very well, and that new product introductions continue on the North American side. And then overall macroeconomic conditions in China have seen a slowdown. We continue to grow but at a decelerating rate.

Okay. Okay, and then on the Aero side, on the issue with the parts production troubles in the quarter, was that also 787 did you say or was that a different platform?

No, different platforms. One thing that I want to mention relative to the performance of the OEM side of the Business in Aerospace, the team there done a magnificent job in terms of the complexity of components that we work on, and how they have brought them to final completion. The programs at hand are a combination Airbus A350, the LEAP, and B2 military programs. These particular programs constitute probably what are some of the more complex components in our history. And the teams have just done an outstanding job in terms of overcoming some of the challenges. That said, unfortunately they didn't get to where they had planned on until late in the quarter, and that, coupled with the necessary customer approvals on these complex parts, had them slip out of the quarter.

Okay. You feel you're out of the woods now in terms of perfecting those processes at rate at this point, do you feel like, or you're not quite there yet?

We're not quite there yet. I think that there's going to be challenges for the next couple of quarters as we continue to work on them. We are perfecting them part by part, so there is visible improvements, visible efficiencies being gained on a part-by-part basis, but there are a range of different components, some of which are further along than others. So it's a mixed bag, and I think it's fair to say that we have work to do still in the coming quarters.

Okay. Understood. And then this last question -- do you still expect an opportunity on the A320neo here? I guess we're supposed to get first delivery by the end of the year?

The way we think about it entering into service is more into early 2016, Pete. And so as we -- as it enters into service, then our standard practice is that we will continue to provide content for platform on the aircraft as it enters into service.

[Great, thanks, guys].

Thank you.

Edward Marshall, Sidoti & Company.

I just had a quick question on Aerospace. I mean, I've had some conversations with some clients, and they are sharing some concerns that maybe we're seeing the top here. And your backlogs don't seem to suggest that, but the quarter itself does. And I'm just curious what your perspective is on the pull so far from the OE side? Have you seen any signs whatsoever that maybe we're -- certainly in the mature level, but it's starting to roll over at all?

I think what we are seeing relative to the quarter, I wouldn't read anything into that in terms of the overall outlook for Aerospace as an industry or relative to the cycle.

That makes sense, yes.

I think what we saw were just [heating] problems as we continue to bring what are very complex parts to final readiness for shipment to the customer. As we look forward into the cycle, I think what you have is a number of moving parts where the demand against the narrow body remains robust. The question will be: Will it expand in terms of production rates that have been discussed? And that, I think, will be tempered as time goes on to where the OE -- the Airbus and Boeing will both adjust accordingly to what the economy or the overall cycle does, yet I think it will remain at healthy levels.

Okay. And then on the guidance on margin for Industrial, and I'm referring specifically to the fourth quarter -- I know you don't give quarterly guidance, but as it's the last quarter of the year. I am just curious, with the acquisitions you've brought in, and you generally don't have disruptions, but if there are, they're stronger dollar and seasonality and maybe auto. I'm just curious, you talked about a continuation of the margin there in the high teens. Do you think that -- do you think there's at risk at all or have you given yourself a lot of movement there with some of the costs that you have made?

First, I just clarified mid-teens is the guidance we're giving against Industrial. And as we move into --

What's the definition of mid-teens, by the way? Not an exact number, but what would be the range?

(Laughter) We can debate that, but let's take the mid-point and go plus or minus 1. How is that?

That's fine.

The team has just met over the last few days on the Industrial side and had a fabulous working session. Feedback from it is that the team remains -- is confident in the full-year outlook. Clearly, there are some unknowns that may come at us from an overall macroeconomic perspective. But that said, the team remains confident in the full-year outlook, and that's as I just communicated.

Okay, and as we sit here today, as we exit 2015 into going into 2016, are you as confident in the Business as you were going from 2014 and 2015? I assume you're not, but I just want to get your perspective on the potential for outlook for 2016, if I could?

I am confident in Barnes Group and the -- clearly how we're positioning the Business for the long term. As we continue to execute the strategy to change the portfolio towards engineered products and industrial technologies, and you see that already translating into our results to where, as we hit these headwinds from the economy, clearly for us we are -- we're weathering them this year far better than we ever would have in the past. So as I think about 2016 in general, I think of it as a low-growth environment continuing to grow but in the low digits.

Single digits is what you mean?

Bingo.

Yes.

Okay. Thanks very much, guys. I really appreciate it.

Thank you.

Thanks, Ed.

There are no further questions at this time. Mr. William Pitts, I turn the call back to you.

Great, thank you, Shawn. We would like to thank everyone for joining us this morning. We look forward to speaking with you once again in February with our fourth-quarter and full-year 2015 earnings call. At that point, we will provide our initial expectations for 2016. With that, this concludes today's call.

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