Barrick Mining Corp (B) 2017 Q2 法說會逐字稿

Good morning. My name is Emily, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Barnes Group Inc. Second Quarter 2017 Earnings Conference Call and Webcast. (Operator Instructions) Thank you.

William Pitts, Director, Investor Relations, please go ahead.

Thank you, Emily. Good morning, everyone, and thank you for joining us for our second quarter 2017 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 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 our corporate website at bginc.com.

We'll now open today's call in our usual fashion with remarks from Patrick, followed by a review of our second quarter results and an updated 2017 outlook from Chris. After that, we'll open up the call for questions. Patrick?

Thanks, Bill, and good morning, everyone. Barnes Group continued to post strong total and organic sales growth in the second quarter, providing us with excellent top line results for the first half of 2017. We generated 11% organic sales growth, with double-digit organic growth in each segment for the second consecutive quarter. Adjusted operating income grew 16% compared to a year ago, with adjusted operating margin coming in at 15.6%. And for the first time, we ended the quarter with total backlog in excess of $1 billion.

During the second quarter, we realized a substantial tax benefit via consolidation of several Swiss legal entities, providing approximately $0.12 of EPS benefit in the quarter. Chris will provide some color on this later on. Including the tax item, adjusted diluted earnings per share were $0.81 in the quarter, up 29%.

As we continue our transformation, I feel very good about the progress we've made over the last 5 years. I'm confident in our profitable growth strategy and our team's ability to execute it. Our current portfolio has been reshaped to capitalize on favorable macro trends supporting the end markets in which we operate, whether they be industrial, transportation or aerospace. The tangible proof is in the organic revenue growth we are delivering. In addition, the operating profit and margin trends have shown great progress.

Let me now talk about our business segment performance in the quarter, beginning with Industrial. Industrial continues its impressive streak of consecutive quarterly sales growth, now reaching 7 quarters, as sales increased 23% compared to a year ago. Roughly speaking, organic growth reflects half of the increase, while our recent acquisitions of Gammaflux and FOBOHA account for the remainder. The end markets served by Molding Solutions and Nitrogen Gas Products remain strong, and Industrial end markets for our Engineered Components business continued to show improvement.

At Molding Solutions, sales increased almost 50% over last year's second quarter, while organic sales grew 20%. Automotive model changes driving our Synventive business remained strong, providing for good order intake and sales growth well into double digits. Other Molding Solutions markets such as medical, personal care and packaging are likewise favorable. As we spoke to last quarter, our mold business had been relatively slow, but our expectations remained positive. In the second quarter, we saw customer orders open up and the release of many mold projects that had been awaiting customer approval. Accordingly, männer sales and orders climbed well into the double digits.

Performance in our Molding Solutions business overall has been excellent. The team has done a great job building the business from its inception with the Synventive acquisition in 2012. From that initial entry into plastic injection molding, 5 other powerful brands have been added. The strategic importance of this part of our portfolio is significant. One of the more recent acquisitions is our FOBOHA business, which enhances our position as a leading global supplier of complex molding systems. As we mentioned at the time of acquisition, this is a great IT-based technology-driven business. Nonetheless, we fully expected a near-term dampening of operating margins as we work through the integration process and bring the business up to the level of our expectations. The lumpy nature of mold sales was also evident this quarter, as FOBOHA saw an almost 50% sequential improvement in revenues. While this represented a solid quarter in terms of revenues, it came with low margins. At this point, the full benefits of the Barnes Enterprise System and planned synergies have yet to be realized.

We have a detailed blueprint to improve profitability here, and a significant step forward was initiated during the second quarter. In order to optimize the performance of this business, we are consolidating some manufacturing operations and administrative functions. Consequently, we are in the process of closing FOBOHA's Muri, Switzerland location and consolidating those operations within other Molding Solutions facilities, including männer's Swiss operations. Over time, we fully expect better performance from this business as we improve its commercial and operational processes and expand its aftermarket service offerings.

To close out our Molding Solutions discussion, with sustained end market strength, we now anticipate full year organic growth in the high single digits, up from our prior outlook of mid-single-digit growth.

Our Nitrogen Gas Products business continues to see solid worldwide tool and die order intake. Second quarter organic sales growth was in the high teens. NGP started to see good growth beginning around the last -- this time last year, making for tougher comps in the second half of the year. That said, we see generally positive end markets for the rest of the year. As such, we now anticipate organic growth in low double digits, up from our prior outlook of mid-single digits.

Similar to the first quarter of 2017, our Engineered Components business delivered positive organic growth and orders, both up low single digits. Our end markets reflect mostly consistent trends with those mentioned on our First Quarter Call. General industrial markets are doing better, and the forecast for global automotive production remains modestly positive for 2017, though North American automotive production now anticipates a small decline. At our Associated Spring business, our financial results were below expectations as higher costs on certain programs continued to impact operations. Upon further detailed assessment and to address a number of these ongoing challenges, we determined that one of the most effective courses of action included the closure and consolidation of one of our smaller manufacturing plants into other existing larger operations. This allows the team to leverage current infrastructure, available capacity and engineering resources as they diligently work the necessary action plans. Albeit it has taken longer than expected, I am confident that our team will resolve these operational challenges over the next several months. With respect to our outlook, we continue to anticipate Engineered Components organic sales growth to be in the low single digits for 2017.

At the segment level, our full year revenue outlook is in the low teens, in part due to the full year contribution of acquisitions, while organic sales are now anticipated to be in the high single digits. Forecasted adjusted operating margin at Industrial remains in the mid teens, so admittedly down within that range from our prior view.

At Aerospace, total sales were up 10% as compared to a year ago. Ramping engine programs within the OEM business drove high single-digits growth, while strength in the aftermarket lifted MRO sales by 18% and spare parts sales by 23% over the prior year quarter. Operating margin of 17.5% improved 360 basis points over last year's adjusted 13.9% as the larger OE production volumes benefit our manufacturing operations and higher aftermarket margins flow through to operating profit. The Aerospace team delivered solid performance again in the quarter, achieving good productivity improvement in the midst of a substantial OE ramp and strong aftermarket volumes.

For 2017, our Aerospace outlook has improved further, and we now forecast total sales to be up in the mid teens, with OEM in the mid teens, MRO up low double digits and spare parts growing in the high teens. Our operating margin outlook is for the high teens, given the higher level of aftermarket demand.

In closing, we have positioned the business to perform well and to leverage key macro trends in favorable end markets. This is demonstrated by the strong organic growth and operating profit trend achieved to date. I'm confident in the Barnes team and that our growth strategy will further deliver increased value to our stakeholders.

One final item. We look forward to discussing our business strategy, operations and financial objectives in greater details at Barnes Group Inaugural Investor Day on September 7 in New York City. We hope to see you there.

Let me now turn the call over to Chris.

Thank you, Patrick, and good morning, everyone. Let me begin with highlights of our second quarter results on Slide 3 of our supplement and end with our updated 2017 outlook.

Second quarter sales of $364 million were up 19% from the prior year period, driven by strong 11% organic sales growth and $25 million or 8% from our recent acquisitions FOBOHA and Gammaflux. FX unfavorably impacted sales by roughly $2 million or 1%. Net income in the quarter was $45 million or $0.82 per diluted share compared to $33.2 million or $0.61 a year ago. As Patrick mentioned, the second quarter includes a discrete tax benefit of $0.12. On an adjusted basis, EPS of $0.81 was up 29% from $0.63 last year. Second quarter 2017 adjusted income excludes a $0.03 benefit from restructuring actions, which relates to a pension curtailment gain that more than offsets restructuring charges recorded in the quarter and a $0.02 charge for FOBOHA short-term purchase accounting in our Industrial segment. Last year's second quarter adjusted income excludes $0.02 of contract termination dispute charges in our Aerospace segment.

Now on to segment performance. Industrial's second quarter sales were $251.8 million, up 23% from a year ago. Organic sales were very strong, growing 12% as our Nitrogen Gas Products and Molding Solutions businesses continued to perform well. Unfavorable FX reduced sales by approximately $2 million, while recent acquisitions contributed $25 million. Operating profit was $37.4 million, up 7% from the prior year period, driven by the profit impact of increased organic sales partially offset by lower productivity, given higher costs in certain programs within our Engineered Components business. The second quarter of 2017 includes a net benefit of $1.7 million from restructuring actions, primarily pension related, as noted, and $1.2 million of FOBOHA short-term purchase accounting adjustments. Excluding these items, adjusted operating profit of $36.9 million was up 6% from $34.8 million a year ago. Adjusted operating margins was 14.7%, down 230 basis points, driven by Engineered Components and lower-margin contribution from FOBOHA.

During the second quarter, we undertook a couple of restructuring actions within our Industrial business, as highlighted by Patrick. We authorized the closure of 2 manufacturing plants, one within Molding Solutions and the other within Engineered Components, and we are consolidating their operations with other existing facilities. Pretax charges associated with these actions amounted to $5.7 million, offset by a $7.4 million in pension curtailment gains, which netted a $0.03 benefit in the second quarter. For the third and fourth quarters, we anticipate a penny or two of additional charges in each quarter related to these actions, and for the full year, inclusive of the pension curtailment gain, we expect the net charge to be 0 and these actions to result in annual savings of $5 million in 2018.

At Aerospace, second quarter sales, $112.7 million, up 10% from last year as OEM sales increased with higher volumes from new engine programs, and aftermarket MRO and spare parts each experienced double-digit year-over-year sales growth. Operating in the profit -- in the quarter was $19.7 million, up 39% from the adjusted $14.2 million in the prior year period, reflecting the profit impact from higher sales volumes and solid productivity improvements, which were partially offset by price deflation and higher employee-related costs. Operating margins improved to 17.5%, up 360 basis points from last year's adjusted operating margin of 13.9%.

Aerospace backlog remained strong at $683 million, up 4% year-over-year and down slightly as compared to the first quarter of 2017. Of the current backlog, we expect to ship just under 50% over the next 12 months.

Other items to note. Interest expense increased $700,000 to $3.5 million, partially as a result of a higher effective average interest rate versus a year ago. Our effective tax rate for the second quarter of 2017 was $15.4 million (sic) [15.4%] compared with 27% in the comparable quarter last year and 25.7% for the full year of 2016. The primary driver of the second quarter's lower tax rate is the result of merging several legal entities in Switzerland. This allowed the company to eliminate the valuation allowance on previously reserved net operating losses that would have otherwise expired unused. The impact related to this charge is a discrete benefit of approximately $6.3 million or $0.12 per share in the quarter.

With respect to share count, our second quarter average diluted shares outstanding were 54.7 million. During the second quarter, we did not repurchase any shares, so approximately 4.3 million shares remain available for repurchase under existing board authorizations.

Year-to-date cash provided by operating activities was $102 million versus $97 million last year. Included in those results are discretionary pension contributions of $5 million in 2017 and $15 million in 2016. Free cash flow, which we define as operating cash flow less capital expenditures, was $75 million, compared to $74 million last year.

With respect to our balance sheet, our debt-to-EBITDA ratio, as defined by our credit agreement, was 1.6x at quarter end, similar to the first quarter. Under our existing debt covenants, additional borrowings of approximately $530 million of senior debt would be allowed, while $460 million remained available on our credit facility at quarter end.

Turning to our updated 2017 outlook, on Slide 4 of our supplement. Given the strong first half, we now expect 2017 revenue growth of 14% to 15%, with organic growth of 9% to 10%, acquisition growth of about 5% and no meaningful impact from FX. Operating margin outlook is in the 15.5% to 16% range, lower than previous view, and our GAAP net income is expected to be in the range of $2.77 to $2.87 per diluted share. Excluding $0.03 in remaining FOBOHA short-term purchase accounting adjustments for the year, adjusted 2017 EPS is expected to be $2.80 to $2.90, up 11% to 15% from 2016's adjusted EPS of $2.53. And for the second half, we see a balanced 3Q and 4Q with respect to adjusted EPS.

A few additional 2017 guidance items. Our CapEx expectation remains at $55 million. Our effective tax rate is now approximately 24%. And average diluted shares outstanding are anticipated to be 54.7 million shares. Lastly, we now expect cash conversion to be greater than 90% of net income, lower than our previous outlook, primarily due to the noncash pension curtailment gains and discrete tax benefit as well as for increased working capital needs to support the higher growth in our outlook.

In summary, excellent top line growth and continued solid cash generation and a well-positioned balance sheet sets up nicely heading into the back half of 2017. We'll continue to make the growth investments and pursue accretive acquisitions that support our strategy to drive superior performance over the long term.

Operator, we will now open the call for questions.

(Operator Instructions) And your first question comes from the line of Tim Wojs from Baird.

This is Josh Chan on for Tim. My first question is on the Industrial margins. You mentioned FOBOHA and also Engineered Components. I was wondering if you could kind of isolate the margin softness there, and would you be able to say that NGP and the Molding Solutions margins were higher year-over-year this quarter? And then also, can you kind of talk a little bit more about the specific impacts of each of the margin headwinds.

So as we mentioned in the prepared remarks, your comments are correct in that both areas in Industrial that impacted overall margin performance were Engineered Components and FOBOHA. In the case of FOBOHA, this was something that we didn't -- it wasn't unexpected in -- from the time of acquisition. And there, the team is working a series of very deliberate actions, of which we announced the consolidation of the Swiss operations in FOBOHA into our other existing operations this quarter. The -- so we had a large increase in revenues in the quarter from FOBOHA. As I mentioned, again, indicative of the lumpiness of the business, a 50% sequential -- almost 50% sequential improvement quarter-to-quarter, but the lower margins clearly is an area that we're addressing with a very definitive set of plans. On the Engineered Components side, similarly, we mentioned in the first quarter that we had some challenges. And those challenges are around program launches that have now continued into the second quarter and continue to be a priority for the Associated Spring business. The impact for Engineered Components, again, is approximately about 1 point of Industrial margins in the quarter, and that's similar to what we experienced in the first quarter. So -- but both items have clear definitive plans in terms of addressing both issues, of which you -- as I mentioned, we took 2 deliberate, very definitive actions in the quarter.

Okay, great. And then very impressive growth on the Industrial platform overall. I mean, understandably, this moderates against the tougher comps in the second half. But just wondering, as you think about kind of a sequential progression within Industrial, is there anything unusual about what you expect in terms of the sequential cadence of the Industrial markets? Or do you expect pretty normal seasonality in the back half?

Well, we see Q3 may be somewhat challenged versus Q2, but nonetheless, the end markets, as highlighted, whether it's Molding Solutions or Nitrogen Gas Products, we remain very positive on for the full year. Engineered Components continues to see improvement on the Industrial side of its business, whilst the Automotive is tempering. Moreover, the challenge there being the margins, as we just discussed, but revenue growth-wise, we're looking at a continuing strength into the second half.

Your next question comes from the line of Christopher Glynn from Oppenheimer.

I wanted to -- just wondering what comments would be on LEAP-B and 737 MAX, if you have any updates there.

So LEAP A to C continues to be the primary area of focus for us. The LEAP-B is still we're working that program in the background, not with nearly the volume of what we are working as a priority on the LEAP-A. That said, there continues -- the team has made great progress on the LEAP-A. And the understanding as it pertains to the B is that the A and C has to perform well as the launch aircraft on the A320neo. And I think all indications for the most part is that that's tracking to expectations from an Airbus standpoint and from a GE standpoint. With the B, we are looking at -- we have certain products within the production system as we speak, whilst we also look at -- we're continually looking at the opportunity to expand upon that. But not ready for -- to announce a -- OEM sales for aircraft at this juncture.

Okay. And then on the aftermarket, obviously looking at a tremendous year. I'm wondering how to evaluate the puts and takes versus -- there are elements of a bubble here year -- bubble year here. Or is it more the fleet demographics run rates maturing and your participation programs kind of hitting a stride?

Well, as we look at our aftermarket, as you know, the primary driver are our RSP programs and our CRP programs, both of which we entered into as life-of-program deals, which are intended to have a long future in terms of 20 to 25 years product life cycles. What we're seeing with the CFM right now is that the demographics of the fleets -- of the installed fleets are reaching points where they need to come into the shops for maintenance. So we're seeing great year-over-year performance, but if you go back to '15, '16 and even '14, our conversations were about subdued or deferred maintenance. Now what we're seeing is that maintenance flowing through. All the fundamentals support a continued level of modest growth on the CFM shop visits. And we think that, clearly, it's been demonstrated into 2017 on both our repairs and our spare parts.

Your next question comes from the line of Bhupender Bohra from Jefferies.

The first question, on Industrial margin. It seems like, if we look at the first half here, pretty strong organic growth. If we look at the margins, I think you talked about Engineered Components being pretty -- a little bit weak. But when you take the guidance for the second half, I think you are expecting a little bit better on the molding side of the business. And you've kept your overall margins kind of pretty unchanged from what you had before. Can you give us some color like when you think about your better businesses, or better margin businesses, improving in the second half? How should we think about the margin progression?

So you look at Molding Solutions and Nitrogen Gas Products as being 2 of the really strong end markets and strong performers at -- in the first half. Our line of sight to the second half sees that continuing. And both of those businesses are higher-margin businesses, and clearly, we see them continuing to perform at the levels they did in the first half. The -- if I look to our Synventive business as an example, which is driven by automotive model changes, that business in the second quarter hit a number of records, whether it was backlog sales or profitability. And again, just continues to -- the team in Molding Solutions continue to convert every opportunity to translate it into revenues and corresponding margins. With our Nitrogen Gas Products business, it's now operating for a couple of quarters at peak levels. The team there has done an outstanding job in flexing up their manufacturing capacity to meet that increased demand. And so, again, we're looking at the second half of the year being consistent to the first half, albeit that it'll hit tougher comps because now we're almost moving into 5 quarters of consecutive growth as it pertains to our NGP business. So net-net, the softening parts of our outlook on margins continue to be FOBOHA and Engineered Components, of which I think we have clear actions to address that and to bring them up to expectations in line with the rest of Industrial overall. We announced the closure and consolidation of 2 businesses, one in Molding Solutions, one in Engineered Components. And as Chris mentioned, we're looking at an outlook of approximately $5 million savings in 2018 pertaining to those 2 actions.

Okay, got it. And lastly, what are the expectations for the tax rate in the second half year?

So for the full year, Bhupender, we're looking at approximately 24%. So when you take the first half -- kind of first half comparison will be in that 26%, 27% range. We had that discrete tax item, as we commented, in the second quarter, which is growing -- resulting in a lower tax rate, roughly 15% in Q2. But think of it as 26%, 27% for the second half.

Okay, and that $0.12 is in the $0.81 number here, right?

It is. That's right. Right, we have the benefit in that $0.81, yes.

Your next question comes from the line of Edward Marshall from Sidoti & Company.

Ed, are you there?

Your next question comes from the line of Myles Walton from Deutsche Bank.

I just had a few quick ones for you. First, on the working capital side. It sounded like the -- that was going to be a source of the pressure in cash conversion in the back half of the year, but I guess your second half implied revenues are actually down versus your first half revenue. So with the working capital builds for expected future growth, we're really talking about some sort of expected growth in '18? Or just can you give us more color on that, Chris?

Yes. So we just look at mainly receivables and inventory in the back half. You're right that half year of '17 compared to half year of '16, just as we look at the working capital needs, again, mainly in receivables and inventory is where we're seeing that pressure. So we think greater than 90%. We'll continue to work that aggressively to try to get that over 100%, but right now, our best view is greater than 90%. We have actions in place. And as you know, we're incentivized on an annualized basis to drive days working capital, so we're going to take all actions necessary to keep that minimal, but right now, that's kind of our best view.

So is it customer actions? Or is it -- I mean it sounds more like DSOs than inventory.

Yes -- no, true. And then it depends on where that -- the mix of sales goes to. So you think about the mix of longer terms in terms of receivables for certain customers as well as the growth that we're seeing in China, which typically has longer terms. So those, I would call it the 2 primary areas.

Okay, got it. And the other one was you mentioned $5 million benefit into next year as a result of the actions taken in '17. Is that inclusive or incremental to what you're doing at FOBOHA from their business operating model?

Yes. No, fair. We expect it to be incremental. I mean we bought this business. There are several cost and sales synergies that we were targeting. We view this one is a near-term one that we wanted to be aggressive with in terms of our actions and set this business up for better margins, more consistent margins than we'd get out of our Molding Solutions business and overall Industrial performance going forward. So that decision was made, and we expect that benefit to carry into '18.

Okay, got it. And then I apologize for this one if I missed it, but can you give us the growth rates in the quarter of the elements of commercial Aero?

The commercial Aero on OE side was up high single digits.

And then within aftermarket, the spares at MRO?

Well, aftermarket -- sorry. Aftermarket was up -- MRO was up 18%, revenue-sharing programs up 23%.

Yes, right, for a blended 20% for the quarter, year-over-year, quarter-to-quarter.

Your next question comes from the line of Edward Marshall from Sidoti & Company.

Sorry about that. So I guess, following and piggybacking on that last question about spares. Seeing that it's up 23% year-over-year, I would have anticipated, unless it's coming off of a small base, and that might be the case, but the margin in the business to be slightly stronger than what it was. Not that it was weak, but probably doesn't stack up to expectations on -- with that kind of spares number. Any thoughts?

So if you look at Q1 to Q2, I think it addresses a little bit of your commentary, which was that in Q1, we had 19.5% operating margins in Aerospace. And in Q2, we had 17.5%. Clearly, a tremendous year-over-year improvement of 360 basis points. Yet, to your commentary, the delta between the two was really a mix within the OE side of the business. So both aftermarket and comparables on a sequential basis, it performed equally as well. The delta for Aerospace in total was a mix issue within the OE side. The mix, then, to expand a little on that, was we had very strong fabrication-type work that flowed through in Q1, which came back to a more normal level in Q2. So...

Okay, when you talk -- I mean to kind of dig into that mix on the OE side. Does that have anything to do with some of the ramp-up in the newer engine programs that might have flowed through as well that could have pressured the margin there?

Well, there is a factor that, as we continue to ramp, the team is still coming down the learning curve. And to that end, there is continuing challenges there that are going to continue, I think, throughout the year. But if you look at OE -- if you look at our OE business in total, productivity improvements in the quarter were very well -- we're very pleased in, in terms of the improvements that the team has made quarter-to-quarter. At the same time, as these volumes increase over the course of the year, there is a learning curve that we're continuing to come down. And that's going to continue, I think, throughout the year.

Okay. And then stepping back, kind of bigger picture at Aero, and kind of talk about maybe what you're seeing -- obviously, you're seeing a nice ramp on the narrow with the LEAP, but as we kind of think about the wide body in the aircraft and the content flow-through there, have you seen or noticed any difference in the backlog as we kind of trend forward here as we get closer and closer to the slowdowns in the 777, et cetera?

Yes, we're seeing that -- we're seeing, I think, what are all of the -- the commentaries around the outlook for the industry is truly flowing into our backlog. So our backlog today is a very different backlog than it was just 24 months ago. And in particular, for us, that is translating into a continual decline of the GE90, which powers the 777, and a corresponding ramp in the LEAP and the XWB, the XWB powering the A350. So as we talked all through 2015 and 2016 about Barnes going -- Aerospace going through a transitional period, in that transitional period, our backlog has been turning over in alignment with the new programs.

Got it. And then just -- and when I look at kind of the margin potential of, say, the legacy GE90 versus the LEAP-B and the XWB, let's not talk about kind of initial product margins, but maybe kind of mature manufacturing margins maybe a year or 2 years from now. Do you see them comparable? Is there a difference? Is there a better pricing element, et cetera, on the newer business?

I think our expectations are that we're going to -- internally, what we have is clear hurdle rates that we've set against these new programs, and we're driving the businesses to achieve those levels of margin. So for our OE business overall, whilst there are a number of programs that make up the entire business, as we move forward, we're looking to expectations within our OE business to have comparable margins on a go-forward basis to what we've seen in the past.

Okay, and that's kind of the mid-teen to high-teen kind of focus, I'm assuming?

Well, we've not went down below the overall Aerospace segment. And the segment itself, your commentary is correct that for the segment, we've indicated mid teens as our goal in the short term. And then as we've just indicated on the call, we're now looking at high teens as a result of stronger aftermarket in the second half of this year.

Got it. [Up] to Industrials. When I think about NGP, I always thought it was a global auto business. Can you kind of talk to me about maybe what the content of Auto is within NGP versus, say, other manufacturing?

So our NGP business is really serving the tool and die industry. And the tool and die industry is anywhere where there is metal -- sheet metal being stamped, if you like. And so there are a number of end markets. Auto clearly is one of the larger ones, but there's also white goods. There's also -- in that, there are -- there is the transportation industry in total. There's agriculture, anywhere where there's metal being formed to produce an end product. An area that the business has been focused on over the last couple of years and has made great strides in is moving their particular core competencies towards adjacent markets. And there, their focus has been on how to use the nitrogen gas technology in suspensions. And so as you noticed in maybe the last couple of quarters, we've highlighted that there were some nice wins there that the team has achieved moving into that space. And -- but it's early days. But that gives you a flavor for what the overall end markets are that they're serving.

But I guess the question is what percent of the business is Auto. And then, I guess, what particularly drove it? What was particularly the strongest portion of that business in the quarter?

Primarily, I would say Automotive in Asia has been a strong driver, as well as -- but that said, they've seen strength in Automotive across all 3 regions. The Automotive piece of the business is probably 70-plus percent at -- in the current mix. And that fluctuates depending on where orders come in on a year-to-year basis, but obviously, the strength of automotive at the moment as an industry in total, Nitrogen Gas Products is clearly benefiting from that.

Your next question comes from the line of Matt Summerville from Alembic Global Advisors.

A couple of questions. First, in the Molding Solutions business, do you have figures in terms of what the book-to-bill was in Q2? Most specifically, I'm more interested in the book-to-bill in Synventive, if that's available.

Yes, so Matt, what we saw from a book-to-bill within our Molding Solutions business, it was about -- call it, 110%, actually, in terms of orders in excess of sales. And then you said Synventive specifically?

Yes.

Yes. Synventive was basically one to one, yes. We still continue to see some strength out of our Synventive business beating the model changes, mostly in North America. North America, actually, as well as China, are having very good years in our Synventive business.

And then with respect to NGP, can you talk about sort of the cadence, if you will, in that business throughout the quarter? Whether you saw sequential strengthening, flattening, weakening? And then, I guess, kind of if there's regional color there that might provide additional insights into that business, if you could comment there as well.

So building on Chris's comments. We saw a very nice trend in Asia, in particular, with the Nitrogen Gas Products business. And -- but that was also very -- coupled with very nice strength in Europe as well as North America. So the business right now leans more towards Asia in the context of what the source of its revenue streams are, because again, what they've -- the team there has done is a fabulous job in building out a distributor network across the globe. And as you know, they are the market leader in this space, so they -- in terms of the quarter, I think the strength was relatively consistent throughout, and has -- that strength, as I also mentioned, has continued now since second quarter of 2016, so we've seen a number of nice consecutive quarters of growth within NGP over 5 quarters now.

And then just to further flesh out the margin issue in Industrial. You mentioned the Engineered Components, saying it was about 100 basis points impact. Can you also quantify what the FOBOHA impact was? Or even whether or not -- I mean, was that business even accretive if you back out inventory sub costs?

Yes, so to answer your question, it was accretive. And to put a range on it, it was about 1 point as well to the Industrial margin.

Okay, got it. No, that's very helpful. And then maybe if we can just flesh out a little more what exactly is the issue in Engineered Components. You mentioned that it has to do with ramping up a new program. And I guess I want to understand why sort of combining facilities will solve that problem rather than complicate it. And then similarly, what specifically are the issues or challenges you're having with FOBOHA? And maybe kind of a time line on resolution there as well.

So addressing Associated Spring, first, and as -- if I just take a step back and I put it in the context of Barnes Group overall, as we've employed the new vision and strategy for the company to drive towards more intellectual property and differentiated solutions to create value for the customer, Matt, what I would say is that Associated Spring has been challenged on that same front that says how do our traditional businesses, which maybe don't get as much of the limelight as do some of the acquisitive -- acquisitions that we've made, but at the same time, the hurdle rates or the expectations are the same across the portfolio. That business has stepped up and embraced those challenges with a view to taking on new product lines that are, I think, a step function different in terms of complexity and in terms of technical challenges. So the issues, for the most part, I think that became evident in the second quarter was that in taking on those challenges, we need to leverage the critical mass of the total business. And so in turn, the decision was that in the smaller sites that I referenced that we closed and consolidated into the larger ones, really, we need to leverage our critical mass, and in doing so, the intent being that we will take these -- not to have them maybe overstrain a smaller site with limited resources but to leverage the critical mass of the larger ones. And so the decision, for us, was, after a lot of assessments, we initially believed that maybe the smaller plant could have taken the challenges in hand, but upon further review, we made the decision to close and consolidate. So the other aspect of as we take on these newer products, the team has been challenged to push, also, the process capabilities and the technology side of the equation. And so in turn, we're working through those. What's really driving the cost is that we're protecting the customer in the process and protecting delivery schedules, which really means that as we work through these issues, we are absorbing additional costs in the form of whether it's engineering resources, whether it's driving overtime, expediting freight and so forth. So again, to me, I see it all as goodness, as it's an investment in our skill set and the business capabilities for the future. On the FOBOHA side, really what we're looking at is the 2 primary drivers is commercial excellence and operational excellence. And as we assessed that business right from the time of acquisition, we saw the opportunity to leverage what are some excellent business processes that exist already within männer and to flow them into the FOBOHA business. So that process, business processes-wise, as well as the opportunity to globalize the business, utilizing the existing footprint that now we've built up worldwide in our Molding Solutions business, because our goal ultimately will be to expand our aftermarket offerings as it pertains to this business on a global basis, whether it be in North America, Europe or Asia. And those efforts are continuing. And great -- the team is making great progress in the background in terms of building out that infrastructure as well.

Our next question comes from the line of Pete Skibitski from Drexel Hamilton.

Yes, I guess I just have one question left. I just want to understand or make sure I understand conceptually on the guidance change, you've got the $0.12 tax benefit. The guidance went up by $0.12. So it's basically the increased revenue expected for the full year is being offset by some of the margin challenges at Industrial, and they're kind of watching out for this year. Is that conceptually what's going on?

That's right, Pete. So the $0.12 benefit to the quarter on the tax item we mentioned is reflected in our full year guidance. And you think about the overall revenue growth we're seeing and the aftermarket improvement in Aerospace, and the margin profile, which we're now guiding towards the high teens, the operating margin for Aero, is offsetting -- neutralized on the Industrial side given the discussion we had on FOBOHA and the Engineered Components in terms of the programs we're executing on. And then as we look to the second half of the year, I made in my opening comments, we look at Q3 and Q4, no real substantial change in adjusted EPS over those 2 quarters. For full year, on an adjusted-basis, guiding to $2.80 to $2.90.

Okay, got it. And then just one last one. So -- and maybe for Patrick. Patrick, on the RSP visibility, has it improved or lengthened in terms of your visibility in terms of orders coming in? Or is it just a similar -- I think you said maybe you've got a couple quarters worth of visibility typically. I'm just curious whether you see a change with traffic growth continuing to be pretty strong.

Well, to your point, Pete, the fundamentals remain positive, so traffic growth, utilization. Within our revenue-sharing programs, one thing that we would make reference to is, over the last 6 quarters, we've seen them being much more consistent quarter-to-quarter than we have previously because we -- previously they were very lumpy. We have seen a somewhat stabilizing in that. There are a number of factors, the market, plus, as you know, early on in the process, we had an intermediary distributor, which was maybe creating some volatility. But that has leveled out somewhat. We've seen clearly a marked improvement from '16 to '17 of a positive 20%-plus improvement in revenue growth. The -- under the -- I mentioned earlier the CFM56. A contributor in those as well is the CF6 engine program, which we've seen nice pickup in '16 -- or in '17 versus '16 as well. And that, I think, is driven by continued utilization of those wide-body aircraft that maybe are not retiring or not sunsetting as fast as they might otherwise would have with the current low oil prices. So we're benefiting from both. Visibility, it's still a short-cycle business, so in other -- when we receive an order, we ship it, on the revenue side, within a couple of days. And we are definitely planning for the full year, we're seeing, as we've indicated in our guidance, that strength that we've seen in the first half we believe will continue into the second half.

Got it. And just so I'm clear, on the distributor issue that you mentioned, are they just not kind of stocking and destocking kind of as radically as they were before? Or they're just smoothing it out for you a little bit?

That's correct, exactly. I think what they've done is that they've taken -- with time, and it took a little bit of time, was they've established min-max levels now that they're comfortable with. And they have a good -- a better feel of what the demand -- the real demand is from the market, and they're managing their inventory levels accordingly.

Our next question comes from the line of Michael Ciarmoli from SunTrust.

This is actually Les in for Mike. Just from a high level, I guess. On the Aerospace OE side, it's clearly seeing benefits of new engines, but what's the impact, if any, from legacy headwinds that either abate or perhaps actually get worse in the coming months?

Well, our guidance takes into account any decline that we see on the legacy side. So as we think about our Aerospace business on the OE side, we've given guidance of being up mid teens for the year, and that's taking into consideration the legacy designs. The primary program that we referenced earlier, the GE90 on the Boeing 777, that has -- if you go back 6 months ago, it was announced that they would move production down to a rate of 5 per month beginning midyear. And we believe that, that has been reflected in our outlook for the rest of the year as well.

Okay. And then, I guess, perhaps on the transition beyond the learning curve on the neo and the MAX engines, how should we think about the mix potential there?

Well, as we move forward, the LEAP program will become a significant contributor to our overall OE business, in particular the LEAP-A on the A320neo. And that program, right now we are basically deploying a lot of resources to meet and exceed the expectations as it pertains to it. The program continues to make tremendous progress from a niche -- an Airbus standpoint, from a LEAP standpoint in total. And as we move forward, we will continue to build out capacity. And we're still building out capacity even as we speak in anticipation of the higher volumes the -- as this ramp goes into '18 and '19. So again, it will become a larger piece of our overall portfolio, but also the A350 on the XWB engine is also a key element of our go-forward portfolio, as well as the -- whilst the GE90 will decline, it will not necessarily go away because the same components that we produce for the new engines will continue to be -- a number of those will continue to be produced for us to keep those engines maintained. And so there is a long tail that goes with these programs, albeit a step function down from the prior peaks.

Great. I guess the last one for me, on -- pertaining to capital deployment, perhaps M&A and maybe any kind of potential opportunities in aftermarket Aero that you're seeing.

So on the aftermarket side of Aerospace, it's an area that we keep very close tabs on. It's not one that in the short term we're thinking about deploying capital. From a capital deployment standpoint on M&A, we continue to be very active in our due diligence of not only existing spaces that we play in but also adjacent spaces. And as we move forward, if you look at our Aerospace aftermarket in particular, because you mentioned it, where we've deployed capital has not so much been in new acquisitions in bricks -- brick and mortar, but has been more into longer-term life-of-program-type deals, in particular the CRP and the RSP, which we just talked about.

That concludes the question-and-answer session. I will now turn the call back over to Mr. William Pitts.

Thank you all for joining us this morning. We look forward to speaking with you next as part of our Inaugural Investor Day on September 7.

And operator, we will now conclude today's call. Thank you.

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