Barnes Group Inc. (B) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.26.13 | About: Barnes Group (B)

Barnes Group Inc. (NYSE:B)

Q2 2013 Earnings Call

July 26, 2013 8:30 am ET

Executives

William Pitts - Director of Investor Relations

Patrick J. Dempsey - Chief Executive Officer, President, Director and Member of Executive Committee

Christopher J. Stephens - Chief Financial Officer and Senior Vice President of Finance

Analysts

Edward Marshall - Sidoti & Company, LLC

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

Peter J. Skibitski - Drexel Hamilton, LLC, Research Division

Christopher Glynn - Oppenheimer & Co. Inc., Research Division

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

R. Scott Graham - Jefferies LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the your second quarter Barnes Group Earnings Conference Call. My name is Cathy, and I'm your operator for your call today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. The topic of -- the host of your call today is Mr. William Pitts, Director of Investment Relations. Please go ahead, Mr. Pitts, and have a good call.

William Pitts

Good morning, and thank you for joining us today. With me are Barnes Group 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.

I want to remind everyone that certain statements we make on today's call, both during the opening remarks and during the question-and-answer session, may be forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Please consider the risks and uncertainties that are mentioned in today's call and are described in our periodic filings with the Securities and Exchange Commission. These filings are available through the Investor Relations section of our corporate website at bginc.com.

Before we begin our prepared remarks, I want to remind everyone that our financial results discussion is based on continuing operations. So let's now open today's call with remarks from Patrick, followed by a more detailed review of the quarter and our 2013 outlook discussion from Chris. After that, we'll open up the call for questions.

Patrick?

Patrick J. Dempsey

Thanks, Bill, and good morning, everyone. This morning, Barnes Group reported second quarter results that continue to demonstrate our progress in driving profitable growth. I'm pleased with the solid performance achieved in the quarter and would like to highlight some of the key factors that led to increased sales and improved operating margins.

Sales increased 24% in the second quarter, propelled by the contribution of our acquired Synventive business and organic growth from both our Aerospace and Industrial segments. In fact, organic sales growth for the company exceeded 4% in the quarter, the highest quarterly increase since the first quarter of 2012.

More notable is the sustained progress in margin expansion, as both segments improved operating margins in the quarter by 180 basis points over last year's second quarter. Total backlog remains strong, standing at $664 million at quarter end, up 4% from last year and slightly down from the first quarter.

In Aerospace, we continue to experience growth in OEM, and aftermarket is showing signs of improvement. OEM sales were up 5% in the quarter, while aftermarket sales were down 3%. We did see sequential improvement over the first quarter of 2013 of 5%.

Our view of the current commercial Aerospace environment mirrors many of the themes that came out of the Paris Air Show in June. With Boeing and Airbus continuing to book new orders into already record levels of backlog, the OEM side of Aerospace remains very upbeat.

Market demand is becoming -- market demand is coming from both fleet growth and replacement needs. Additionally, widebody commercial aircraft platforms are well positioned within the current OEM cycle, a good sign for us, as our OEM business is more heavily weighted towards wide bodies.

With respect to the aftermarket, industry expectations for a second half recovery remain. Aftermarket commentary originating from the Paris Air Show suggests that market participants were seeing a sequentially better second quarter, which was consistent with our experience. Overall, we continue to have a positive outlook, with respect to commercial Aerospace. However, with aftermarket's softness persisting in Q2 and our updated expectation for a slightly down year in aftermarket business, we now see Aerospace sales growth in the high single digits for 2013. If the aftermarket were to strengthen above our expectations in the second half, we could see some upside here.

Our Industrial performance is a very positive story in the second quarter. We achieved organic sales growth of 5%, our margins further expanded as a result of volume leverage, being more selective on new business and a disciplined approach to managing costs. Our Industrial end markets generally remain favorable.

Global automotive production, with the exception of Europe, remains solid. And the tool and die market demand continues at a high level. Interestingly, our European manufacturing businesses experienced strong order intake during the second quarter.

Collectively, order intake for these businesses was up double digit, both year-over-year and sequentially, a positive sign given the challenging headwinds that some of these businesses have endured. Certain markets, such as heavy-duty trucks and construction equipment, still remain difficult, but overall, a very good story for our Industrial segment.

To wrap up my prepared remarks, our second quarter performance continues to demonstrate that our strategy to deliver profitable growth is driving results, both on the top and bottom line. With expanded revenue, enhanced profitability and increased cash flow, we're able to increase the investment in our existing businesses and target strategic, value-enhancing acquisitions, the combination of which enables us to extend our reach into global markets, grow into a more intellectual-property-based business and enhance shareholder return.

Now, let me pass the call over to Chris to go through the financial details. Chris?

Christopher J. Stephens

Good. Thank you, Patrick. Good morning, everyone. I'll start by highlighting key points of our second quarter results, and then finish with an update of our full year 2013 guidance.

Turning to Slide 2 of our supplement. Sales were $267 million in the quarter, up 24%, primarily driven by the contribution of the Synventive acquisition and organic sales growth from both our segments, as noted by Patrick. Income from continuing operations was $9 million or $0.17 per diluted share. However, 2013's second quarter income from continuing operations included a tax charge of $16.6 million or $0.30 per diluted share, associated with the April 16, 2013, U.S. Tax Court's unfavorable decision, arising from an IRS audit for the tax years 2000 through 2002. Excluding this charge, adjusted income from continuing operations per diluted share was $0.47, up 34% over last year's second quarter. We have provided a reconciliation of these adjusted results to the appropriate GAAP measures as part of our press release.

Operating margins of 13.5% achieved in the second quarter were up 150 basis points over a year ago, with both Aerospace and Industrial delivering improved performance.

Let me now turn to segment performance, beginning with Aerospace. In the second quarter, Aerospace sales were $97 million, up 3% from $94 million in the same period last year. As Patrick mentioned, OEM growth was offset in part by aftermarket, where MRO was down 5%, and our spare parts program, the RSPs, were essentially flat. RSPs benefited in the quarter from unit volume growth, although net sales were impacted by mix and scheduled management fees.

Operating profit of $15 million was up 17% from $13 million in the prior period. Aerospace operating profit benefited from higher OEM sales and improved productivity, partially offset by the impact of lower sales in aftermarket. Operating margins in the quarter was 15.7%, up 180 basis points.

Aerospace segment backlog remains strong. At the end of the second quarter, Aerospace backlog was $536 million, up slightly from last year's second quarter. And it's anticipated that about 60% of this backlog will shift within the next 12 months.

At Industrial, sales were $171 million, up 40% from $122 million in last year's second quarter. Synventive contributed $43 million in sales during the quarter, while organic sales, which benefited from favorable pricing, exceeded 5%. Operating profit of $21 million was up $8 million, or 64%, from last year, reflecting the profit contribution from Synventive and the profit benefit from higher organic sales. Operating margin in the quarter was 12.3%, up 180 basis points.

The company's effective tax rate from continuing operations for the second quarter of 2013 was adversely impacted by a tax charge of $16.6 million, as I noted earlier. Absent that item, the company's effective tax rate from continuing operations for the second quarter of 2013 was 20.5% compared to 16.3% in the second quarter of 2012 and 13.5% for the full year of 2012.

The remaining increase in the second quarter 2013 effective tax rate versus the full year 2012 rate was mainly due to certain discrete foreign tax-related items in 2012: an increase in the company's effective tax rate in Sweden; and the projected mix of earnings attributable to higher taxing jurisdictions. Related to the Tax Court case, we expect to make a cash payment of approximately $13 million by the end of the year.

Regarding share count, our second quarter average diluted shares outstanding was 54.8 million, and during the second quarter, we repurchased approximately 1.7 million shares for $48.6 million. Year-to-date, we have repurchased 2.1 million shares for $61.4 million. We have 2.9 million shares available for repurchase under the existing board authorization at the end of June. The Board authorizations permits us to repurchase shares in the open market, including through the utilization of a 10b5-1 plan and in privately negotiated transactions.

2013 full year guidance assumes we buy back up to 3 million in total by year end, which would provide a weighted average diluted share count of approximately 54 million shares and a year-end share count of approximately 52 million shares. This also assumes we do not realize another strategically important cash need, such as an acquisition.

Cash generation continues to be strong, as year-to-date cash provided by operating activities was $66 million versus $34 million in last year's first half. Free cash flow, which we define as operating cash flow less capital expenditures, was a positive $46 million year-to-date versus $18 million last year. Given the strong cash flow performance this week, our board authorized a 10% increase in our quarterly dividend, which now stands at $0.11 per share.

With respect to debt, our total debt-to-EBITDA was 1.4x at the end of the second quarter. However, please note that cash taxes of approximately $145 million for the gain on the BDNA sale, and the U.S. Tax Court decision, will be paid by year end and result in an increase in debt.

Discontinued operations in the second quarter of 2013 were $200 million net of tax, or $3.65 per share, which includes both the gain on the BDNA sale and the net operating results for BDNA. While 2012's second quarter discontinued operations reflect the after-tax operating results of BDNA.

Now let's turn our attention to the updated 2013 outlook on Slide 3 of our supplemental slides. Our 2013 guidance is based upon continuing operations, therefore, it excludes the results of BDNA, which are now reported as discontinued operations. In addition, our adjusted full year guidance excludes the company's CEO transition costs accounted for in the first quarter and the tax surcharge recorded this quarter.

For 2013, we now expect sales from continuing operations to grow 17% to 19%, with adjusted operating margins in the range of 13.5% to 14%. Adjusted EPS from continuing operations is expected to be in the range of $1.85 to $1.95 per diluted share, up 22% to 28% from 2012 adjusted earnings per share of $1.52.

For our continuing operations, depreciation and amortization is expected to be roughly $64 million, and $35 million of that reflects our outlook for depreciation, given higher CapEx spending of about $45 million this year. And we expect the 2013 effective tax rate from continuing operations to be in the low 20%, which excludes the impact of the tax charge.

As has been our belief, over the last several quarters, key factors that could impact our 2013 adjusted guidance include the following. To reach the higher end of the range, we would expect to see Aerospace aftermarket strengthen in the second half, better volume leverage and stronger productivity. At the lower end of our range, we would assume the impact of weaker demand in certain Industrial end markets, softer European automotive production and a slowdown in the global economy.

In closing, sustained focus on increasing profitability across our businesses has provided for a good first half start, and our second half outlook remains positive. Additionally, our balance sheet has strengthened, following the divestiture of BDNA, positioning us to benefit from organic and acquisitive opportunities to deliver long-term growth and shareholder value.

Operator, we will now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Mr. Edward Marshall from Sidoti & Company.

Edward Marshall - Sidoti & Company, LLC

So the first question I had was on Aerospace, which I think I would've expected to see slightly higher, not just this quarter but just so far this cycle, revenue gains. And looking at your largest customer, saw equipment orders up 12%, spares up 21%. And I understand there's some management fees going into your revenue line there. But kind of piece together what seems to be the disconnect between, say, maybe just using your largest customer versus kind of your performance over the last quarter or 2?

Patrick J. Dempsey

Yes. Thanks, Ed. What I would highlight is that, overall, we continue to be very confident on the outlook for Aerospace. Our backlog continues at all-time high levels. And, of course, as you know, commercial Aerospace production schedules continue, also, to be robust. We're very confident in the full year and not surprised, necessarily, by schedule fluctuations from one quarter to another. As we laid out the year, we had a stronger back half of the year plan versus the first half. And that's truly a reflection of just various programs that we've been working and new product introductions coming online. And there has been on behalf of just some of the approvals a slight slippage from second quarter to third quarter on one of those initiatives, so -- but overall, very confident with our backlog at record highs.

Edward Marshall - Sidoti & Company, LLC

It sounds consistent with what I think you said that you expect to see high double -- high, single digits for the full year in that business, so that assumes a ramp up in the back half of the year?

Patrick J. Dempsey

What we have was the high, single digits is still based on double digits in our Aero OEM. But based on the performance of aftermarket, have been a little bit lower than we had anticipated. Ultimately, that's what's putting a damper on the full year, but still, high single digits for total Aerospace being projected.

Edward Marshall - Sidoti & Company, LLC

Despite maybe just the, call it the okay revenue performance in that business, on a sequential look, it looks like Aerospace margin actually performed pretty well on down sales. Sequentially, it was actually up. And sequentially, meaning from first quarter '13. The margin was actually up nicely. Was there something specifically that went through there? I mean, aftermarket was down, so it wasn't that, or at least, the spare parts were down. What happened there?

Patrick J. Dempsey

Well, on our Aerospace side, the teams there continue to drive a high focus across the businesses in terms of improved productivity. In particular, our Barnes Enterprise System is starting to really take hold across the Aerospace side of our business. And as you know, even recent -- in the last couple of years, we were recognized by the Shingo award for manufacturing excellence. So overall, the business continues to make great strides. And, of course, we're leveraging volume as well in terms of the OE side.

Edward Marshall - Sidoti & Company, LLC

Now, I'll give you a chance to kind of maybe gloat a little bit, but the Industrial business itself is actually performing quite well, especially with its exposure to Europe. And I know you talked about the order book, but that's future order -- that's future revenue. I mean, what happened? I mean, is it -- what end markets -- and I think you touched on a few different products, but what end markets, in particular, are performing better than expected right now for you on your Industrial side?

Patrick J. Dempsey

Well, we had a very solid quarter in terms of our Nitrogen Gas Products business, with them achieving very nice sales improvement in the quarter. We also continue to be extremely pleased with the solid fundamentals in the hot runner end markets. In particular, obviously, the automotive hot runners, because we think that the CAFE standards are driving continued focus on lighter-weight vehicles, and in turn, driving demand for our hot runners. And then, finally, I would say that we've seen pick up across our European businesses, in terms of the fact that -- was Europe itself seems to be stabilizing as those businesses serve a global marketplace through their customers.

Edward Marshall - Sidoti & Company, LLC

Did you give an organic revenue expectation for the that business, similar to what you did in Aerospace?

Patrick J. Dempsey

We had indicated, I think, mid-single digits for the year.

Operator

And your next question comes from the Mr. Peter Lisnic from Baird.

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

First question, just to continue on Industrial, you mentioned the strong hot runner demand. I'm just wondering, now that you've got your arms around Synventive and it's pretty well integrated, can you maybe speak to the longer-term organic growth opportunities and how you think about that business. I know it's a relatively stronger growth business, but I'm wondering if we could narrow it down a little bit more or maybe talk about what -- any sort of difference that you see in the business post your acquisition of from it from a growth perspective?

Patrick J. Dempsey

Yes, happy to do so. In terms of Synventive, as we continue to integrate the business into Barnes Group, we continue to be very pleased with the progress being made, as well as the continuing work and endeavors of the management team running the Synventive business. So, overall, as I mentioned, the outlook for the business continues strong, with the overall hot runner business being driven by lighter-weight vehicles, increased global competition, more new models and refreshes, as well as continuing identification of new applications for plastics. So in general, the high-quality, high-premium service that Synventive provides to its customers, we believe, continues to be something that keeps them as a market leader in this end market. And, in turn, is continuing to drive demand for their services.

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

Okay. All right. And then I just want to clarify, the double-digit order growth that you saw in Europe, you gave a little bit of color there, both up year-over-year double digits and sequentially. But I'm wondering, was there a particular vertical, or is it just broadly export-based business? It seems just a little bit surprising, given what we've heard so far through earnings that we would see that kind of comparison. So I'm wondering if there's perhaps a share gain initiative there that you're benefiting from? Or if there's a particular vertical where you're really well positioned that's driving that growth?

Patrick J. Dempsey

In terms of the European businesses, what I would highlight is that Nitrogen Gas Products continues to do very well in terms of penetrating its end markets in terms of the tool and die industry. We also saw strength from automotive end markets, in particular, for our Seeger business, which again, is serving not only a customer base that is located in Europe, but also global in nature, so continued expansion in China in terms of their end markets. And then, in terms of our Heinz Hanggi business, the main contributor was a program that we've continued to have in new product introduction for the last couple of years is now starting to ramp into production; in particular, gas direct-injection program that we've been developing for some time.

Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division

Okay. Perfect on that one. And then the last question, just on the profitability of that segment. In that case, it actually went down a little bit sequentially, so I was just wondering if there's a little bit of adverse mix there that caused that, if you look at the operating margin, first quarter versus second, it's down around 50 bps, but you're revenue's up a bit so, any sort of color there would help.

Patrick J. Dempsey

I think one of the primary contributors is our NGP business sells into the Japanese market, and FX was a contributor in terms of the strengthening of the U.S. dollar.

Operator

And your next question comes from Mr. Pete Skibitski, and company is Drexel Hamilton.

Peter J. Skibitski - Drexel Hamilton, LLC, Research Division

I just want to clarify something on the cash flow, in terms of the proceeds from the distribution sale. It looks like you got all $540 million in this quarter, but the net proceeds are expected to be $400 million. And I'm just wondering where the $140 million tax bill -- I guess, that came out of cash from ops this quarter, is that correct?

Christopher J. Stephens

Yes. Actually, the cash payment is not going to happen until -- by the end of the year, we'll make that cash payment. But that's the way to think about it, Pete, is we've got roughly after-tax cash proceeds of $400 million.

Peter J. Skibitski - Drexel Hamilton, LLC, Research Division

Okay. Will that all in one quarter the tax will be paid, or you pay that ratably over the fourth quarter?

Christopher J. Stephens

We expect it. We would expect that right now probably, I would say, targeting towards third quarter.

Peter J. Skibitski - Drexel Hamilton, LLC, Research Division

Okay, okay, got it, got it. And then Chris, I mean, the working capital management, H1 over H1 is definitely greatly improved. And I'm just wondering, are there further opportunities for working capital take out, as you look forward? And could we expect a similar [ph] performance here going forward?

Christopher J. Stephens

That's a good question. We do constantly stay focused on working capital management, trying to drive better improvement across the board. I would not say that there's any one big item that would change it significantly. We continue to manage it over time. Well, obviously, we look at total free cash flow generation from the business would include working capital, very pleased with the overall cash performance for the company and guiding around the cash -- free cash flow conversion of 100%.

Peter J. Skibitski - Drexel Hamilton, LLC, Research Division

Got it. I guess, just one last one for Patrick, maybe. Patrick, your prior peak margins in Aerospace, if you look back to 2007, were close to 19%. You're, essentially, I think, the same business in Aerospace. So I'm just wondering, as you look out, what you see as the potential peak margins for Aero as you get to the top of the cycle in Aerospace, maybe 3 or 4 years out?

Patrick J. Dempsey

What I would highlight back in the 2007 timeframe as the prior peak, what we were looking at -- or what you saw there was the impact of the Revenue Sharing programs which, at that time, were not being impacted by the management fees. As they have come into play, that has been a factor. However, with that said, as we look out for our Aerospace business, we're looking at mid- to high-teens as the targeted margins.

Operator

And your next question comes from Mr. Christopher Glynn and the company is Oppenheimer.

Christopher Glynn - Oppenheimer & Co. Inc., Research Division

Just a couple of questions on your acquisition outlook here. Just as Synventive has been with you for a couple of quarters, what are the bright spots and the challenges you're seeing there, how is that all playing out? And then on the forward pipeline, how's that looking? And what's your current appetite with Synventive? Still pretty young with you.

Patrick J. Dempsey

Christopher, yes, I would highlight there that we continue to place a large focus on filling a pipeline of acquisition targets that we feel meet our overall strategy and the key criteria that we've laid out. In other words, the focus is on businesses that have a high level of intellectual property, such as design engineering, applications engineering, as well as the manufacturing aspect. And then, in terms of favorable end markets, we're extremely pleased with the injection plastic molding industry that we embarked upon with our acquisition of Synventive. So that remains a key area of focus. But we're pleased with the pipeline and continue to drive our focus in that area.

Christopher Glynn - Oppenheimer & Co. Inc., Research Division

Okay, and with Synventive being young, that -- still, that doesn't kind of play into your thinking on potential timing?

Patrick J. Dempsey

I think we are continuously looking and if the right opportunity comes along, that premium business meeting our criteria, we would look seriously at it.

Christopher Glynn - Oppenheimer & Co. Inc., Research Division

Great. And just tax years other than 2000 to 2002, any possibility of any other issues? Or are you looking at any components of your current tax structure?

Christopher J. Stephens

No, Chris, good question. But just for clarity, no, this is a kind of a, I would say, unique issue for us in 2000, 2002 time frame, but doesn't repeat through the remaining part of the years.

Operator

And your next question comes from Mr. Matt Summerville, and that's from KeyBanc Capital.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

A couple of questions. First, on -- Patrick, you mentioned some slippage in your Aerospace business on the OE side, can you get more specific about that in terms of the program and magnitude and whether we should feel good about that getting recaptured in the back half?

Patrick J. Dempsey

Yes, good question. One of the things, as we continue to do new product introductions, Matt, across our Aerospace business is that, as much as we're aggressive in the schedules that we put in place and then forecasting those particular initiatives coming online, there is, just as a natural part of the industries, some slippage. That slippage, for us, just was a second quarter to a third quarter item. But nothing out of the ordinary in terms of what we would expect in terms of new product introductions. So we're optimistic in terms of recovering that in the second half. And of course as I mentioned, we have, as a result, a stronger second half, outlined for the full year.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

What are your assumptions in the second half in terms of OE revenue growth versus aftermarket?

Patrick J. Dempsey

We believe, overall, for the full year, a high, single digit for all of Aerospace. And on the OE side, that translates to low double digits.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Okay. And then, speaking with Aerospace, there's been another company or 2 talking about some of the engine OEMs specifically, Rolls and UTX [ph] destocking. Are you seeing any of that? Is that a concern? Are you hearing any of that?

Patrick J. Dempsey

No, in general, I don't think we've seen any impact from destocking. We are clearly continuing to focus on the major programs that make up our strategic backlog, and they are the 777, the 787, and we're not seeing any destocking effects from that.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

So as I think about just getting -- trying to get comfortable with this back half scenario, I mean, your sub-$100 million, the numbers you're talking about imply $110 million, $115 million, something like that, per quarter in the back half of the year. What programs are contributing to that incremental ramp on the OE side of the business? I mean, you're really talking about a big jump in the second half versus the first half.

Patrick J. Dempsey

Yes, we have a number of programs. Obviously, the 777, which makes up a large part of our Aerospace backlog, is key in that. But also, we have a number of programs that are being introduced today, where we do not own the product lines. Through our new product development initiatives, they will come online. So not necessarily new programs, it may be increased volume on 777, 787, GE90 in particular, as an example. But we also have then a large B-2 military contract, which also is scheduled for shipment in the second half.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Okay. And then just trying to close the loop here on the spares business. I think GE mentioned on their call that their daily spares rate was up about 20%. Historically, what has been the magnitude of disconnect between the experience in your business versus the experience in their business? And should we view that number from your big customer as looking more upbeat for the back half of the year, as it pertains to you guys?

Patrick J. Dempsey

What I would highlight, Matt, is that it's -- directionally, as our large customer business goes then, our RSP programs, as an example, are on the CFM56 and on CF6. So there's a mix factor, but directionally, we're in the same trend. For our RSP program in the second quarter, we saw a nice tick up as well in terms of unit volume. However, that was offset by management fees and mix.

Operator

And your last question at the moment is from Mr. Scott Graham from Jefferies.

R. Scott Graham - Jefferies LLC, Research Division

So the questions, I had a couple of sort of housekeeping items. Could you give us the backlog dollars by segment?

Christopher J. Stephens

Sure. We had, total company was $664 million. For Aerospace, it was $536 million, and Industrial $128 million, for the end of the second quarter.

R. Scott Graham - Jefferies LLC, Research Division

Okay. Now a couple of questions on the Aerospace aftermarket industry expectations. Can you kind of size them for us for the second half. I know that we've kind of maybe danced around this question a little bit. I'm just wondering if -- is the view kind of pinched from double-digit down to 5% to 10% in the second half? Am I in the ballpark there?

Patrick J. Dempsey

In terms of aftermarket, Scott, what I would highlight is that we remain cautiously optimistic relative to the timing being the second half of 2013. That said, the overall leading indicators of the market continue to support a recovery in that passenger traffic continues to grow, load factors remain at all-time highs, capacity continues to grow and the overall outlook for airline profitability continues to improve. So all of the leading indicators support a recovery. We saw nice -- I think, across the industry, I would suggested that Q2 saw a nice uptick in terms of aftermarket, in general. And so that bears well for a continued positive outlook.

R. Scott Graham - Jefferies LLC, Research Division

Got it, okay. So when it comes to margins, you had still a negative mix in Aerospace, yet that margin rose pretty strongly in the quarter. And I was just kind of wondering maybe if you can give us a little bit about what's behind that productivity? I know, but maybe, specifically within productivity, what you guys are doing to boost the margin that much with mix a bit of a headwind for you?

Patrick J. Dempsey

I think, Scott, it really centers around the same dialogue as before. In that, whilst we're looking at all of our programs across the board, there's been an increased focus and attention, not only in terms of driving productivity, but also in a disciplined cost management. And that has all emanated from the discipline that we're putting into the businesses from the Barnes Enterprise System. And so, we continue to be pleased and continue to remain laser focused in driving those initiatives.

R. Scott Graham - Jefferies LLC, Research Division

Okay, great. The other question I had for you was on the Industrial margin. Now, I don't know how much Synventive boosted the margin, but I guess maybe this is a question for you, Chris, was the Industrial margin in the second quarter up even without Synventive?

Christopher J. Stephens

Yes, the businesses are contributing across the board within Industrial trying to -- the whole focus has been on margin expansion in each of our businesses. And Synventive clearly contributed to that. But when you look, over all, at Industrial, the only, I would say, negative that I would highlight is what we commented before in terms of the Japanese yen and what our Nitrogen Gas Products contributes into Japan, in terms of sales into Japan. But when we look at it, we feel -- we actually felt very good about the margin performance in the quarter. It's reflective of what we would expect out of the industrial segment. And in that low double-digit margin is what we -- our outlook in terms of our margins expectation for the full year.

Patrick J. Dempsey

I would also just add to that, that the Associated Spring business has done a tremendous job also in terms of refining its product lines and ensuring that they're focused on those products which create the greatest value for the customer, and in turn, higher margins for Barnes.

R. Scott Graham - Jefferies LLC, Research Division

Okay, last question. This is more for you, Patrick, and someone alluded to it earlier. As you look at the M&A environment, I know that there's a continuing desire to move the portfolio up, margin wise. Would you say that the pipeline of opportunities that you're looking at is more skewed toward Industrial or more skewed toward Aerospace? And the second question would be, can we expect something to occur. Because I think you guys mentioned it a couple of times that about, like for example, share repurchases, would be -- with the caveat being a deal. Are you optimistic that you can close something before the end of the year or so? The 2 questions, please.

Patrick J. Dempsey

In terms of where we're focused, I would say that we continue to look at both Aerospace and Industrial for potential opportunities with more of a leaning at this point towards the Industrial side of the business. And that's truly driven by valuations in the marketplace at the moment because of the Aerospace side being extremely heated in terms of how people are looking at valuations there. In terms of our overall outlook on M&A activity, we don't comment, obviously, on any deals that are in the works. But, clearly, we're focused on driving and filling the pipeline to meet the criteria that we've outlined in terms of our overall strategy and where we continue to be very pleased with our business development side and that is towards those efforts.

Operator

We do have a follow-up question. That's from Matt Summerville from KeyBanc Capital.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Just 2 quick follow-ups first, Patrick, I think in your prepared remarks, you mentioned that a portion of the 5% organic growth you saw in Industrial was pricing? First, how much price are you getting? And which businesses do you feel now that you have pricing power?

Patrick J. Dempsey

What I would highlight, Matt, is that it was approximately 1% of the 5% was pricing. And what we're looking at is those businesses where we own the design, we own the applications engineering and we own the manufacturing, lend themselves to pricing discussions much more than perhaps our traditional businesses.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

Patrick, have you historically been able to get price in Industrial? Is this sort of a new focus?

Patrick J. Dempsey

I would suggest that it's a key area of focus. And it's in a very selective and specific way, in that it's not new overall, but it is something that we continue to challenge our businesses to look at, in terms of where we create significant value-added services for the customer to ensure that we're also looking at the pricing aspect of those services.

Matt J. Summerville - KeyBanc Capital Markets Inc., Research Division

And then related to a question I asked a few minutes ago. I want to make sure I'm clear. Did you say that you've gained incremental content on the GE90 and on the 787?

Patrick J. Dempsey

What we continue to indicate is approximately $1 million content on the 777 and $300,000 on the 787. What I highlight is that, as we continue to work with our customers on both of those programs, we're looking at, always, where new product introduction may allow Barnes to bring a new set of manufacturing expertise or technologies to allow us to continue to expand that product offering.

Operator

That does conclude your conference call for today, ladies and gentlemen. Thank you for your participation in today's conference call. Please enjoy the rest of your day. Thank you.

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