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Barnes (B) Down 39.3% In a Year: What's Hurting the Stock?

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Shares of Barnes Group, Inc. B have lost 39.3% compared with the industry’s decline of 25.1% over the past year. The decrease in share price primarily reflects the adverse impacts of tough end-market conditions and other challenges on its operational performance.

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Zacks Investment Research

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The company has a market capitalization of nearly $1.6 billion. It currently carries a Zacks Rank #4 (Sell).

Factors Affecting the Company

Barnes has been experiencing persistent softness in automotive and industrial end markets owing to the supply chain constraints and pandemic-related issues in some parts of China. This has been adversely impacting the company’s Industrial segment’s performance of late. In the first quarter of 2022, its industrial segment’s sales declined 4% year over year, owing to the end-market and supply-chain challenges. B expects global automotive production and supply chain issues to persist, which might affect its Industrial segment’s performance in the near term.

Escalating costs and operating expenses have been a major concern for Barnes over the past few quarters. In the first quarter, the company’s cost of sales increased 6.4% year over year to $207.2 million, while selling and administrative expenses were high at $74.1 million. In the quarter, its adjusted operating margin decreased 50 basis points year over year. Inflation in costs, shortages of raw materials and high freight costs are likely to continue affecting its margins and profitability in the quarters ahead.

The company’s high capital expenditure is also expected to hurt its short-term liquidity. For 2022, B expects to incur capital expenditure of $50-$55 million, suggesting an increase of 54% on a year-over-year basis. Also, high effective tax rates will be worrisome for the company. For 2022, Barnes predicts a 24-25% rate, suggesting a rise from 21.9% recorded in 2021. This is expected to adversely impact its earnings for the year.

Given its extensive regional presence, the company is exposed to geopolitical risks and headwinds from unfavorable movements in foreign currencies. In first-quarter 2022, unfavorable foreign exchange movements hurt its Industrial segment’s sales by 3%.

The Zacks Consensus Estimate for Barnes’ earnings is pegged at $2.20 for 2022 and $2.75 for 2023, marking declines of 4.8% and 3.5% from the respective 60-day-ago figures. Notably, there have been three downward revisions in estimates for both 2022 and 2023 in the past 60 days.

Key Picks

Some better-ranked companies from the same space are discussed below:

RBC Bearings Incorporated ROLL presently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. ROLL’s earnings surprise in the last four quarters was 3.4%, on average.

In the past 60 days, the stock’s earnings estimates have increased 9.9% for fiscal 2023 (ending March 2023). The same has declined 9.2% in the past year.

IDEX Corporation IEX presently has a Zacks Rank of 2. IEX delivered a trailing four-quarter earnings surprise of 2.8%, on average.

IDEX’s earnings estimates have increased 3.2% for 2022 in the past 60 days. Its shares have declined 20.3% in the past year.

Nordson Corporation NDSN presently carries a Zacks Rank #2. Its earnings surprise in the last four quarters was 4.5%, on average.

In the past 60 days, NDSN’s earnings estimates have increased 3% for 2022. The stock has declined 11% in the past year.

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