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Barnes Group Inc. (NYSE:B)

Q1 2014 Earnings Conference Call

April 25, 2013 08:30 AM ET

Executives

Bill Pitts - IR

Christopher Stephens - SVP of Finance and CFO

Patrick Dempsey - President and CEO

Analyst

Amit Mehrotra - Deutsche Bank

Peter Skibitski - Drexel Hamilton

Chris Glynn – Oppenheimer

Scott Graham – Jefferies

Matt Summerville - KeyBanc Capital Markets

Pete Skibitski - Drexel Hamilton

Operator

Good day, ladies and gentlemen. And welcome to the First Quarter 2014 Barnes Group Earnings Conference Call. My name is Patrick, and I'll be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Bill Pitts, Director, Investor Relations. Please proceed sir.

Bill Pitts

Thank you, Patrick. Good morning. And thank you everyone for joining us today. With me are Barnes Group's President and CEO, Patrick Dempsey; and Senior Vice President of Finance and Chief Financial Officer, Christopher Stephens.

If you have not received the 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’s results and our updated 2014 outlook discussion from Chris. After that, we'll open up the call for questions. Patrick?

Patrick Dempsey

Thanks, Bill and good morning, everyone. We began 2014 on a positive note with a first quarter sales increase of 18%, 4% on an organic basis and 21% increase in adjusted operating income. Additionally, adjusted operating margin reached 13.7% up 20 basis points from last year’s first quarter.

While overall performance improved year-over-year, the operating results from our businesses were mixed, some of the operations started the year off on a very strong note, while others experienced the slower than anticipated ramp.

So, jumping right into the segment discussion. After several quarters of solid sales growth, our industrial segments are essentially flat organic sales in the first quarter. A number of internal operational issues within our control contributed, allowing us to remain confident in our full year outlook.

The end markets in which we participate remain favorable with continued growth expected in both industrial machinery and global automotive production. Likewise, worldwide GDP is positive and Europe continues to be good for us. Against this backdrop we saw industrial organic orders, exceed 7% growth during the quarter, reinforcing our positive outlook.

Some operational challenges we experienced in our industrial segment during the quarter caused delays in production output. Part of these related to the organization stretching to meet aggressive production schedules on new growth initiatives, while others related to the introduction of complex manufacturing technologies and processes for new products under development.

In all of these efforts our engineering teams continue to work closely with our customers to bring innovative solutions in products to market using our leading edge manufacturing capabilities. So overall, we’re not surprised with these early challenges, as we drive our businesses to expand our pipeline of growth initiatives while embracing innovation and net product introductions.

To further enhance our development activities we are accelerating the use of the bond enterprise system to standardized and institutionalize industry leading best practices. With respect to Männer the integration is progressing extremely well and customer demand continues for the highly engineered products and services.

Our short term challenge remains increasing for production capacity and as we discussed last quarter, that constraint is improving. As a result, sales in the first quarter were 38 million as we delivered some of the elevated backlog from the fourth quarter. Well care should be taken not to annualize the first quarter sales as that was not the indicative of a natural run rate.

At the same time we do anticipate Männer's full year contribution to be higher than our previous expectation. We now forecast an annual sales contribution of approximately 125 to 130 million with a corresponding benefit to the bottom line. Chris will provide more color later.

At aerospace, our original equipment manufacturing business delivered 11% sales growth, and order activity was solid up 12% year-over-year. We continue to view the long-term prospects of aerospace OEM as very positive. Commercial aerospace market fundamentals remain strong and this should provide lift in sales over the next several years. In addition, we expect that our continued investment in new products and process introductions will solidify our position on the next generation of commercial engines coming to market.

In total, our aerospace aftermarket business saw growth in the quarter. However, our results here were mixed. Sales in our maintenance repair and overhaul business were up 14% while our spare parts business was down 5%. As it relates to spare parts sales that is our revenue sharing program or RSP programs, we saw wide variation in activity for the two engine families to make up these programs. The larger portion the CF M56 family experienced strong double-digit net sales growth whilst the CF 6 engine family was below expectations in the quarter. That said, the first quarter spare parts results do not change our full-year view of mid-single digit growth in spares for 2014.

To wrap up my prepared remarks, Barnes Group delivered a solid start to 2014 with sustained sales growth and improved adjusted operating margin during the quarter where some of the businesses were slow to ramp, at the same time, our end markets remained favorable. We’re reinvesting in our businesses to expand our engineering capabilities and manufacturing technologies, and we continue to pursue strategic acquisitions. Accordingly, I believe the Barnes Group is well-positioned for the long-term, and should deliver another year of high performance in 2014.

With that, let me now pass the call over to Chris.

Christopher Stephens

Thank you, Patrick and good morning everyone. I will begin by highlighting key points of our first quarter 2014 results and then end with our updated 2014 guidance.

Turning your attention now to Slide 2 of our supplement; first quarter sales were 312 million, up 18% over last year, driven by the contribution of the recently acquired Männer business and solid organic growth from our aerospace segment.

For the quarter, income from continuing operations was 22.8 million or $0.41 per diluted share versus $0.28 in the prior year period. On adjusted basis, income from continuing operations was $0.50 per share, up 25% from $0.40 a year ago. Excluded from the first quarter 2014, adjusted earnings from continuing operations are the impact of Männer’s short-term purchase accounting adjustments of 4.9 million pre-tax or $0.06 per diluted share and cost related to the close of the production operations at our Associated Spring, Saline Michigan facility, which were 2.8 million pre-tax or $0.03 per diluted share.

Last year's first quarter excludes 10.5 million pre-tax or $0.12 per diluted share of non-recurring CEO transition costs. As Bill previously mentioned, we have provided a GAAP reconciliation to those adjusted results as part of our press release.

Now let me add to Patrick's comments regarding segment performance beginning with industrial. First quarter sales were 204 million, up 23% driven by Männer sales contribution while organic sales were essentially flat to last year. Operating profit of 19.4 million versus 14.6 million last year, primarily benefiting from Männer’s profit contribution and includes short-term purchase accounting adjustments related to Männer and a (slowing) [ph] restructuring charges. As a reminder, last year’s first quarter included the CEO transition cost of 6.6 million that were allocated to the industrial segment. So, excluding these items, adjusted operating profit was 27 million, up 27% to 21.2 million a year ago and adjusted operating margin was 13.3%, up 50 basis points from last year.

At aerospace, first quarter sales were 108 million, up 10%. Sales increases in OEM and aftermarket repair and overhaul businesses were partially offset by lower sales in the spare parts business. Operating profit of 15.8 million was up 52% from 10.3 million last year, driven by the profit contribution of increased OEM and MRO sales, partially offset by lower profits in the spare parts business. Operating margin increased 400 basis points to 14.6%. In the first quarter of 2013, Aerospace operating profit included allocated CEO transition costs of 13.9 million. So, excluding this item, adjusted operating profit was up 11% and adjusted operating margin was up 10 basis points from last year.

Aerospace backlog was 551 million at the end of the first quarter, generally in line with levels on a year-over-year basis as well as sequentially. The company’s effective tax rate from continuing operations was 27.9% in the current quarter compared to 21.4% in the first quarter last year and 32.8% for the full-year 2013. The adjusted full-year 2013 effective tax rate was 17.5%. This excludes the tax charge of 16.4 million recorded in the second quarter of 2013.

As we discussed, the drivers of the tax rate increase include a projected mix of earnings attributable to higher tax jurisdictions, the expiration of certain tax holidays and an increase in the plan repatriation of a portion of current year foreign earnings.

Regarding share count, our first quarter average diluted shares outstanding was 56 million shares, while quarter end basic shares outstanding was 54.1 million. We did repurchase approximately 220,000 shares during the quarter for 8.4 million leaving 2.4 million shares available for repurchase under existing board authorizations.

Operating activities in the current quarter generates 70 million in cash compared to 70.7 million last year. And operating working capital increase was driven by sales growth in the current quarter and CapEx were 15 -- actually 15 million in the quarter versus 10 million a year ago.

With respect to debt, our quarter end debt to EBITDA ratio was 2.3 times unchanged from the fourth quarter of 2013.

Now let’s turn our attention to the updated 2014 continuing outlook on Slide 4 of the supplemental slides.

Our total sales growth of 14% to 17% remains unchanged. However, organic sales growth is now forecasted to be 4% to 7% which is down slightly from our prior expectation primarily reflecting industrial's flat first quarter organic sales. Offsetting that as Männer's increased sales forecast of 125 to 130 million as Patrick noted in his opening remarks.

Adjusted operating margin remains in the range of 14.5% to 15.5%. Adjusted EPS from continuing operations is now expected to be in the range of 220 to 230 per diluted share, up 20% to 26% from 2013's adjusted EPS of $1.83 reflecting the tightening of our previous expectations towards the top end of the range.

Adjusted cash conversion is still expected to be approximately 100% of net income. Our full year 2014 guidance excludes an estimated 10 million pretax or $0.13 earnings per share impact of short term purchase accounting adjustments related to Männer and approximately $8 million pretax or $0.09 EPS impact of the sling closure costs.

Speaking to Männer, given the continuing strong performance, we’ve updated our view of their 2014 EPS accretion, excluding the impact of short term purchase accounting we now see a Männer EPS contribution in the high $0.20 and this assumption is reflected in our full year guidance.

So in closing, sales, adjusted operating margin and adjusted earnings performance achieved in the first quarter, supports our expectation of another year of solid performance. Our balance sheet remains strong and that positions us to take advantage of organic investments and acquisition opportunities that should support the same long term growth and increase shareholder value.

Operator we will now open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Edward Marshall with Sidoti & Company. Please proceed sir, your line is open.

Edward Marshall - Sidoti & Company

So I want to start with the aerospace margin and I want to know if you could potentially parse out, what do you think that that range might be for the year, I know you don’t give individual segment guidance, but as I kind of look at some of the management fees, headwinds rolling off this year and I understand spares were down, but I would have assumed that that margin would have picked up a little bit more than it did on a year-over-year basis, but it was down sequentially, so maybe you can just kind of help me out with what’s going on there in the aerospace margins and may be what to expect for the full year.

Patrick Dempsey

Good question. And in terms of the full year, what we are looking at is continuing to look at proper teens, as the operating margin for the business overall. In terms of the first quarter and the sequential aspect of things, we -- coming in at 14.6 was 10 basis points on a year-over-year basis standpoint, that said, the -- as was noted I think in Q4, we did see a higher than anticipated fourth quarter margin, which again came from just a timing issue of outputs of certain programs or certain particular products in that quarter. Relative to the full year, we’re still very bullish in terms of what this business can do, the first quarter was the normal mix of new product introduction and challenges with certain accelerated developments costs that we're incurring but overall we still, in terms of the full year looking the upper teens.

Edward Marshall – Sidoti & Company

And do you mind defining kind of the upper teens range because I know that kind of jumps around, I mean is it 15 to 17, is it 17 to 19 what do you define as upper teens?

Christopher Stephens

This is Chris, so we’re probably looking at in that 16%, 17% range for aerospace margins this year. Again, the key contribution as you know, as most know, it will be the performance of our revenue sharing programs which we saw a little bit of a slight decline from the perspective was about a little less than 1 million, below our expectation. So we still forecasted that to be mid-single digit for the full year, that’s going to clearly help margin profile, but I’d say we’re in that 16%, 17%, 18% range.

Edward Marshall - Sidoti & Company

So in order to get the blended rate there, you have some catch up to do. So you anticipate kind of the next three quarters being at that higher end of that?

Christopher Stephens

We do, because you’re going to see -- we expect RSPs to kick in to get that mid-single digit growth.

Edward Marshall - Sidoti & Company

And then when I look at the industrial side and bear with me for a second but organic sales are flat. I am wondering if there is much leverage there on the flat sales. I mean did you gain any incremental margin there on the industrial side ex-Männer or is it relatively flat year-over-year?

Patrick Dempsey

I would say that very little leverage in terms of the rest of the businesses other than Männer as you suggested. We clearly saw, we had some operational challenges that I referenced in my prepared remarks around the businesses. And I think those again I see all in a positive way and so far is that they are investments, ongoing investments that ultimately will translate into improved sales growth over the course of the year. So I think in general, there is opportunity within each of our businesses for continued margin expansion especially over the first quarter.

Christopher Stephens

And in that first quarter up 50 basis point on adjusted basis of 13.3% very pleased with that delivery.

Edward Marshall - Sidoti & Company

Yes, I mean it looks like if I kind of back into it, it looks like it’s 15%, 15.5% kind of Männer margin now. I understand that there was some timing sales reference in there. But is that a good margin on a go forward? Is there stuff kind of, ex kind of short-term accounting. But is there anything else in there that we should see as a plus or a minus kind of moving throughout the year? Is that kind of high because of the timing of sales and the extra sales in Q1 or how do I think about that?

Christopher Stephens

And as you know we don’t disclose margins at the SPU level, but I could say the contribution of Männer clearly was a nice favorable lift to the first quarter, 38 million in revenue and as Patrick commented in his opening comments, clearly not indicative of full year type of run rate, but given the strong backlog ending last year up 70 million going into the first quarter for the business to be able to get the output, deliver 38 million in sales with the associated margin from that business really helped us out. I’m very pleased with our performance.

Edward Marshall - Sidoti & Company

But you anticipated would sustain that level and I know you mentioned the top line but I want to just on the margin as well.

Christopher Stephens

On the margin side, on the margin side we would expect that. I mean we’re clearly making investments in the business but from a margin profile, we don’t anticipate any differences from the business that we purchased.

Edward Marshall - Sidoti & Company

That didn’t absorb any of your fixed cost because of the higher sales base?

Christopher Stephens

Well clearly we got a little bit of leverage but I wouldn’t put any meat around that and I don’t think it’s all that meaningful.

Patrick Dempsey

I was just going to say, what we’re seeing Ed in the first quarter is a direct result of the investments we made immediately upon acquisition which was, our first priority was to expand capacity. The backlog had been building which ultimately meant that we were coming up shy in terms of meeting customers’ expectations and the immediate investments made in the fourth quarter which now translated into machinery and equipment and people on the shop floor have translated into the output that you've seen in Q1.

Edward Marshall - Sidoti & Company

And just to define that $0.20 high $0.20 range for Männer that you anticipate this year. I am curious does that include the interest expense component on the added debt for that? And does it include the lower share count?

Christopher Stephens

It would include the interest piece of it. On the share count side we’re still guiding the year 55 million, 56 million shares.

Edward Marshall - Sidoti & Company

You’re still -- you’re keeping the guidance on the share count?

Christopher Stephens

Yeah.

Edward Marshall - Sidoti & Company

Despite the 54 one coming out through?

Christopher Stephens

Right.

Edward Marshall - Sidoti & Company

And then the last question I had was the increase in repatriation, what was -- is it easiest to look at it maybe from an absolute number or maybe a percentage number of the tax rate? What kind of order of magnitude are we looking at there?

Christopher Stephens

Sure, it represents about a 2 point increase in our tax rate year-over-year. And the way to look at it from a quantifiable point of view, we did 5 million last year, we expect to do a little bit more than twice that in 2014.

Edward Marshall - Sidoti & Company

So the tax rate should stick around this range of 29 or so for the remainder of the year?

Christopher Stephens

Yes, that’s right.

Operator

Your next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed, your line is open.

Amit Mehrotra - Deutsche Bank

First question on margins, just to follow up from your last caller there, last quarter you stated that incremental EBIT margins would be in the high 20% range and it was 15% in the first quarter, so obviously the implication there, there is going to be a pretty big step up in subsequent quarters. I just want to double confirm that that is the right expectation and may be you could just quantify the operational issues you had in the quarter within industrial so we can get comfortable what the sequential improvement is going to be?

Patrick Dempsey

What I would indicate is that our guidance for the full year continues to be in the 14.5 to 15.5 range and as you look at first quarter, my confidence in the overall years outlook is based upon as I highlighted many of the operational challenges are within our control to put an immediate example on some of the issues, we clearly are developing some high precision stamping technology for critical components in our [indiscernible] business which will support a major GDI program and that GDI program is bringing the next generation of fuel injection systems to market.

There because we’re pushing the envelope in terms of manufacturing technology, we did incur two fold, one, the added expense of just the challenges being experienced and then didn’t get the output that we expected which we believe the team there is doing a wonderful job in terms of working through those and we see in Q2, Q3 the same issues not recurring.

As it pertains to Seeger as an example, again with a view to improving our overall operational effectiveness, the team went live in Q1 with a new ERP implementation which also disrupted some production output but again overall we think that has improved sequentially through the quarter from January to March to where we’re looking for a full recovery in Q2. So in general on a business by business basis there were some anomalies in Q1 which as I said, we look at all these challenges as being investments in the long term and has been within our control thus allowing full confidence in the full year outlook.

Amit Mehrotra - Deutsche Bank

Okay, that’s helpful. Just had a couple of follow-ups here, on the industrial growth side I think the comps actually get a little tougher in that segment as we progress through the year especially in the second and third quarter. So could you just give us some color on why you’re confident that that business can return to growth to obviously reach the full year target?

Patrick Dempsey

If I look across our businesses industrial and as mentioned, Europe continues to be a good story for us in terms of recovery where if I look at our Synventive business, just to use an example, we saw double digit growth in orders. For industrial overall we saw north of 7% for the full quarter and we saw that picking up progressively over the course of the three months. So in general, the businesses are bullish on the outlooks that in terms of what they’re seeing from their end markets and discussions with the customers and then of course as I mentioned, we have a number of key programs in place that have been in development for some time and we see them coming into production with the teething problems I mentioned here in 2014.

Amit Mehrotra - Deutsche Bank

Okay, last question on aerospace. On the spares business, the growth rate has sort of been all over the place, I mean it was down 5% this quarter last quarter down 12 the quarter before, down 4 the quarter before, I mean we were -- I was sort of expecting some rebound given the fact that there was no incremental management fee starting on January 1st. May be you could offer within the quarter, was there any shift in terms of the cadence of the growth rates between January, February, March, did you see some recovery intra-quarter that maybe gives you a little more confidence that the second quarter, third quarter you can be posting some positive comps in that business here?

Patrick Dempsey

Well let me first comment on what make up our RSPs and it’s made up of two primary engine families, the CFM56 and the CF6 and what we saw in the first quarter was a very nice double digit, high double digit growth on the CFM portion of the RSPs. The piece that was below expectations for the CF6 and there -- having said that, what I want to put in context is the dollar amount of what is generating the 5% shortfall. On a year-over-year basis we came up $500,000 shy of last year’s performance and $1 million shy of our 5% expected growth rates.

That said, the -- I would highlight that the CFM or the CF6 side of the business goes to market through a channel which we also believe creates a little bit of a time lag or a buffer to the actual market and that’s what we saw in the first quarter.

Operator

Your next question comes from the line of Peter Skibitski with Drexel Hamilton; please proceed sir, your line is open.

Peter Skibitski - Drexel Hamilton

Just to make sure I am clear, Patrick; you don’t think any of these industrial sort of operational issues in the first quarter are going to bleed into the second quarter at all really?

Patrick Dempsey

I think, what I would say is, that they will move into the second quarter in the context of -- they are not 100% behind us. But what I would say is that there are teething problems in ramping up to higher volumes and ensuring that those volumes are capable, that the processes are capable at those higher volumes. So where my confidence is, is in the fact that, as the teams are focused on this, they’ve made just consistently improved progress over the last three months to where we're very optimistic that we have some smaller issues that will continue into Q2 but not of the order of magnitude of Q1.

Peter Skibitski - Drexel Hamilton

Okay, got it. So moving in the right direction?

Patrick Dempsey

Absolutely.

Peter Skibitski - Drexel Hamilton

Yes, I mean it sounds like, if not for these teething issues in the first quarter, there’s a chance that maybe you could even raise the upper end of your guidance, given how hard Männer is running, and the fact you divested Saline; is that a fair statement, do you think?

Patrick Dempsey

I think, how I would categorized it is that, the reason we at the lower and not the top end was based on our flat organic sales in terms of industrial. And of course what gave us confidence to up the lower end was Männer’s strong performance. Clearly the industrial businesses overall continue to be an area that we're focused on to drive top line into the remainder of the year with what we control in terms of our current backlogs and orders and then obviously we're expecting the overall market fundamentals to remain positive as well.

Peter Skibitski - Drexel Hamilton

And then can you give us a sense of how big Saline was last year? I’m guessing it was a lower margin unit, I just want to get a sense of how…

Patrick Dempsey

In the order of magnitude it’s 20 million in revenue.

Peter Skibitski - Drexel Hamilton

Okay, and then Let me ask you, on CapEx side to you Chris, I know you’re even kind of building CapEx in anticipation of higher volumes. Is CapEx just kind of a steady grower over the next few years for you? Or does that kind of -- do you kind of complete the build out at some point and it becomes a tailwind from a free cash perspective at some point?

Christopher Stephens

Well, the way we're looking at CapEx right now is we look at it in two ways; one is from a maintenance standpoint, and then another portion from a growth standpoint. And as we continue to look at and challenge each of the businesses in terms of thinking differently about innovation and new product development, what we're very supportive of is new technologies that go hand-in-hand with that endeavor. So the challenge for us or the challenge internally with the teams is that we are supportive of the current CapEx levels which this year were indicating 60 million, of which we spent 15 in Q1. So again, run rate wise we’re on target for the 60 million. But what I would emphasize is that, internally, significant new shift in focus to ensure that that investment is not only supporting growth programs but is also driving the next level of technological advances in terms of manufacturing capabilities.

Peter Skibitski - Drexel Hamilton

Okay, got you, and no reason to think that’s going to be reduced sharply over the next couple of years?

Christopher Stephens

No, because I think also if you look at the types of businesses that we are adding to the portfolio and because they are market leaders, it’s right in alignment with our strategy that we’re going to continue to invest in this type of technology.

Peter Skibitski - Drexel Hamilton

Okay, and in terms of the aerospace OE, just a couple of questions there. Is there primarily 787 and A350 driving it for you on the OE side? And how should we think about the next-generation narrow body in terms of the -- as they come down the pike, do you have incremental content on those or the same or little or just want to clarify that.

Christopher Stephens

For first quarter, clearly 787, A350 and the backbone being the 777 continued to drive the overall growth within aero OEM. In terms of the narrow body we continued to focus on development programs or development work as it pertains to the LEAPEX and the next-generation; that said it’s still a smaller portion of our overall portfolio where we're more predominantly wide-body. But the team has been making some great strides through the NPI process in on these new programs and we’re going to continue that effort.

Peter Skibitski - Drexel Hamilton

Got it. Okay. Last question, I promised. But I think you have some union negotiations this year. I think they are up any -- do you expect any issues steaming from that?

Patrick Dempsey

No. We have -- you're correct in your statement, but we’re not expecting any issues beyond the normal negotiations that will take place.

Operator

Comes from the line of Chris Glynn with Oppenheimer. Please process your line is open.

Chris Glynn – Oppenheimer

I got booted off the call for a little bit, so I apologize, we’re done with someone but in the 4% to 7% organic, we'll be looking at aero may be a little above an industrial at the bottom of that range?

Patrick Dempsey

That’s right.

Chris Glynn – Oppenheimer

Okay. All right. And just wondering, you’ve got two large deals under your belt, just wondering what the current capacity and appetite in pipeline looks like out there?

Patrick Dempsey

What I would indicate is that we are actively pursuing and researching and doing our business development activities as it pertains to new acquisitions, it clearly is a part of our go forward strategy and so, the team internally is charged with continuing to keep a robust pipeline in place. And as we move forward, that’s going to be key part of our ongoing strategy.

Chris Glynn - Oppenheimer

Okay. And Patrick, you kind of, more exclusively focused on Männer type deals or smaller bolt-ons in the mix as well?

Patrick Dempsey

I wouldn’t exclude bolt-ons, my preference would be Männer type deals, but I would say that it spreads across a wide range of what we’re looking because we will look at not only Männer type businesses that are you know market leaders in terms of the technology and the services that they bring to market, but we’re also looking at then how to complement our existing businesses with again the new focus on technology and new focus on innovation to how we might think about bolt-ons differently they we might have in the past.

Chris Glynn – Oppenheimer

Okay. Thanks for that. And then just lastly, I think earlier guidance you had sort of presumed 50-50 EPS first half, second half if you just mark that to market?

Christopher Stephens

Yes, because, it's the same.

Chris Glynn – Oppenheimer

Obviously, looking at a heck of a second quarter then?

Christopher Stephens

Well, I’d say, typically our stronger quarters will be given the mix of the businesses will be second and fourth quarter. We commented on the order activity industrial being up in excess of 7% so we do expect that short cycle business to deliver a good solid quarter in second quarter. So, but I'd say pretty much in line, Patrick will agree in terms of 50-50.

Operator

Your next question comes from the line of Scott Graham with Jefferies & Company. Please proceed your line is open.

Scott Graham – Jefferies

So I was just curious about the some of the new product development understand of course the production issues that’s not my question at all. I am much more interested in the impact on organic that you’re expecting from some of these new products that a Seeger hanging in, if you could also update us on any content wins in aerospace that’s the essence of my question. And Chris if you wouldn’t mind telling me what the full year our tax rate would be as well. Thanks

Patrick Dempsey

So in terms of the new programs that we are current, the NPI or new product introduction, new process introduction or new production development, however you want to think about it, because we cover all three spheres of new programs within across the range of businesses. What I would indicate is that the coming into over the remainder of the year, we see each of the businesses, each of them have been challenged with pretty significant timelines in terms of bringing those new products or new technologies to market. Whilst we look at those overall, on a quarter-by-quarter basis I will highlight that they are subject to some lumpiness and that’s what I think we experienced in Q1. So still again, with a view to remaining confident over the remainder of the year. As we thinking about the aero side we have not indicated any new, say content per platform on some of the programs that we’re working on but as some of these work through the early development and now start moving into production over the next couple of years, we will actually start highlighting more a content platform on some of the newer programs.

Christopher Stephens

And Scott on the tax rate I would say approximately 28% would be a good rate to use of full year.

Operator

Your next question comes from the line of Matt Summerville with KeyBanc Capital Markets. Please proceed, your line is open.

Matt Summerville - KeyBanc Capital Markets

Couple of questions, so with the issues you had in your industrial business, how much revenue do you think you sort of lost in Q1 and what was the P&L impact from these inefficiencies or a start-up related cost with new equipment et cetera and the ERP thing. If you roll all that together, how much did it cost you?

Patrick Dempsey

Couple of million, in terms of sales volume.

Christopher Stephens

Yes, in the order of I would say 1.5 to 3.

Matt Summerville - KeyBanc Capital Markets

And then in terms of profitability? Or is that what you’re referring to Patrick?

Patrick Dempsey

I was referring to bottom line, what we were expecting was our overall guidance for the year which is in the 5 to 8, and we talked we would be in that range in Q1 and came in flat.

Matt Summerville - KeyBanc Capital Markets

So why if these processes are sort of up and running getting better, more efficient, why can’t you make up for that lost revenue if you will?

Patrick Dempsey

In some instances short cycle businesses is such that, it’s not a case of where everything moves to the right as much as it might be, you meet in some instances where we might be tool source, an alternative might provide product. But in other instances, where we’re bringing, in one instance where we’re bringing technology to the market, it is disruptive in nature, there is an existing source. And as we don’t need the ramp rates that we would hope, then it isn’t that there isn’t another supply source available.

Matt Summerville - KeyBanc Capital Markets

Got it. And then what would you anticipate the annualized savings to be associated with closing that plant in Michigan?

Christopher Stephens

Yes, Matt I would say you’re talking about a $20 million facility that was basically a breakeven on a margin basis, you’re not talking about -- you’re talking about something we needed to react to from a customer point of view and made that conscious decision.

Matt Summerville - KeyBanc Capital Markets

So will any of that capacity be moved elsewhere or are you just completely done with that set of business?

Patrick Dempsey

There is a small amount that might move but for the most part, it was a one product family, engine valve springs which met up the bulk of that business. And so it’s not a case of this moving anywhere else within associated spring.

Matt Summerville - KeyBanc Capital Markets

Got you. And then just an update on what you’re seeing in your nitrogen gas spring business, please globally?

Patrick Dempsey

I think that tool and dye industry remains to be strong. We saw some nice order pickup in Europe, we saw some decline in Asia, in Japan in particular. However we saw a nice well I would say, a good growth in China. So overall, for that business tool and dye industry continues to run at the high levels worldwide.

Operator

We have a follow up question from the line of Pete Skibitski with Drexel Hamilton. Please proceed your line is open.

Pete Skibitski - Drexel Hamilton

Chris can you give us a sense again, just remind us how the purchase accounting adjustments kind of roll through the rest of the year and any further Saline charges as well?

Christopher Stephens

Sure, good question. So when we entered the year, we talked about the 10 million, $0.13 and then in the first quarter we saw $0.06 of that. We would expect that to flush through in the second quarter in terms of the remaining balance of this day on our estimate of $0.13 impact or $10 million on the short-term purchase accounting.

Saline is still guiding for that I would say pretax charge of 8 million, we saw close to 3 million in the first quarter. There will be -- most of that will be experienced in the second quarter. We’re now working with our customers in terms of transition and execution of the exit. There may be some overlap into third quarter but the team has been charged to try to get that close to mid-year.

Pete Skibitski - Drexel Hamilton

Got it. And then just one last one may be for Patrick. Patrick how far along would you in terms of Männer, in terms of -- I know one of the big goals was taking Männer global. How far along is that and when should we see that kind of running through results? I mean results were outstanding in the first quarter already, but is there more goodness to come?

Patrick Dempsey

What I would mention is that we charged the team in terms of solidifying a go forward strategy for the Männer business. And the team as we speak, as you can imagine is priority one is focused on alleviating the current capacity constraints because of course that is going to, that has to happen in terms of ensuring that we continue to build strong relationships with our customers. Initial feedback continues to be positive in terms of offering our services on an expanded global basis. And the team is in the process and we will hold upcoming strategy reviews with the Männer business in the next few weeks in terms of the overall global expansion plan. We’re in the early innings obviously.

Operator

Ladies and gentlemen, this concludes our question and answer session. I would now like to turn the call back over to Mr. Bill Pitts for closing remarks.

Bill Pitts

Thank you. We would like to thank all of you for joining us this morning. We look forward to speaking with you next quarter. And with that this concludes our call.

Operator

Ladies and gentlemen this concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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