Barnes Group Inc. Reports First Quarter 2008 Financial Results

Business Wire, May 2, 2008

Barnes Distribution

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Barnes Distribution's 2007 Project Catalyst organizational and operational initiatives have begun to generate improvement during the first quarter of 2008. The goals of Project Catalyst are to accelerate the efficiency and effectiveness of customer service by leveraging Barnes Distribution's expertise with the vendor-managed inventory (VMI) model, and focus the business on growing profitable organic sales and achieving improved operating margins. To that end, we believe we have established a firm foundation for consistent, sustainable, and predictable results.

Barnes Distribution achieved sales of $141.0 million in the first quarter of 2008, an increase of approximately 1 percent over the first quarter of 2007. Barnes Distribution's organic sales decreased $5.1 million, or approximately 4 percent. The lower organic sales were due to softness in certain markets in North America, primarily the transportation-related and certain manufacturing segments, and sales force disruption in the United States and the United Kingdom. A decrease in the number of U.S. sales personnel was anticipated as a result of various Project Catalyst initiatives. Sales in Europe and Canada, as reported in U.S. dollars, were favorably impacted by the strength of the local currencies, increasing sales by approximately $6.3 million in the first quarter of 2008.

Barnes Distribution's operating profit for the first quarter of 2008 increased approximately 12 percent to $7.0 million and resulted in an operating margin improvement of 0.4 percentage points to 4.9 percent. This improvement is attributable to the favorable impact of Project Catalyst initiatives in North America. These initiatives are improving value pricing and sales productivity, and contributed to a net reduction in distribution costs. The positive impact on operating profit in North America was partially offset by the profit impact of lower organic sales and lower profit levels in Europe.

Barnes Distribution's North American business made substantial year-over-year progress, and achieved the highest quarterly margin since 1998. Improvements have been made through a rigorous attention to servicing customers, sales of globally sourced items over higher cost domestic product, and the market segmentation strategy. Activities in North America are focused on executing the fundamentals and fully effecting the market segmentation strategy. Driving the business forward and taking advantage of the momentum realized in the first quarter are imperatives for success during the remainder of 2008.

Barnes Distribution's overall results, while positive, underperformed expectations as the European business did not realize the necessary operational improvement during the first quarter. A number of steps were undertaken to stabilize and begin to advance the business in Europe. First, a new leader with international experience has established a new European management team with increased focus on profits and operational inefficiencies. Second, lean enterprise experts have been deployed to accelerate the improvement. With the global sourcing processes and procedures firmly established for the North American operations, the European business will now have the opportunity to leverage the full complement of global sourcing activities.