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Here's Why You Should Avoid Investing in Barnes Stock Now
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Barnes Group Inc. (B - Free Report) has failed to impress investors with its recent operational performance due to weakness across the Industrial segment and high cost of sales. Also, given the company’s extensive international presence, foreign currency headwind is an added uncertainty.
Based in Bristol, CT, Barnes is a global diversified manufacturer and supplier of highly engineered products, innovative solutions and differentiated industrial technologies. It boasts a diverse range of market-leading brands like Seeger Orbis and Associated Spring Raymond.
Business Weakness: Barnes is witnessing weakness in the Industrial segment owing to the softness of its motion control solutions and automation businesses. Demand for products like multi-cavity molds has been particularly weak. Continued softness in the transportation, personal care and packaging end markets is likely to impact the segment’s performance in the near term. Weakness in the China region is another concern. Amid these challenges, its second-quarter revenues declined 24% on a year-over-year basis.
Rising Costs: Barnes has been dealing with the adverse impacts of the high cost of sales. Increases in the cost of labor, materials, fuel, freight and shipping are pushing up the cost of sales, which surged 14.9% year over year in the second quarter of 2024. This drove up the cost of sales as a percentage of revenues by 120 basis points to 67.5%. This follows the trend established in the preceding three quarters, wherein expenses increased 32.6%, 44% and 21.5%, respectively.
High Debt Level: High debt levels raise financial obligations and hurt the company’s profitability. Barnes exited the second quarter with a long-term debt of $1.15 billion. The high debt level was primarily attributable to the funds raised for the MB Aerospace acquisition.
An high debt level also implies substantial interest expenses. Barnes’ interest expense was $45.6 million in the first six months compared with $11.8 million in the year-ago period. The increase was attributable to a higher average interest rate, given the recapitalization of its debt structure. It is worth noting that most of the second quarter’s 36% year-over-year decline in adjusted earnings per share was attributable to the high interest rate.
Barnes currently carries a Zacks Rank #4 (Sell). In the past year, the stock has gained 3.1% compared with the industry’s 19.2% growth.
Image Source: Zacks Investment Research
Forex Woes: B’s international presence keeps it exposed to the risk of adverse currency fluctuations. This is because a strengthening U.S. dollar is likely to require the company to either raise prices or contract profit margins in locations outside the United States. Thus, adverse currency movements are a worry.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Ferguson Enterprises Inc. (FERG - Free Report) currently carries a Zacks Rank of 2. FERG delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Ferguson’s fiscal 2025 earnings has remained steady.
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Here's Why You Should Avoid Investing in Barnes Stock Now
Barnes Group Inc. (B - Free Report) has failed to impress investors with its recent operational performance due to weakness across the Industrial segment and high cost of sales. Also, given the company’s extensive international presence, foreign currency headwind is an added uncertainty.
Based in Bristol, CT, Barnes is a global diversified manufacturer and supplier of highly engineered products, innovative solutions and differentiated industrial technologies. It boasts a diverse range of market-leading brands like Seeger Orbis and Associated Spring Raymond.
Business Weakness: Barnes is witnessing weakness in the Industrial segment owing to the softness of its motion control solutions and automation businesses. Demand for products like multi-cavity molds has been particularly weak. Continued softness in the transportation, personal care and packaging end markets is likely to impact the segment’s performance in the near term. Weakness in the China region is another concern. Amid these challenges, its second-quarter revenues declined 24% on a year-over-year basis.
Rising Costs: Barnes has been dealing with the adverse impacts of the high cost of sales. Increases in the cost of labor, materials, fuel, freight and shipping are pushing up the cost of sales, which surged 14.9% year over year in the second quarter of 2024. This drove up the cost of sales as a percentage of revenues by 120 basis points to 67.5%. This follows the trend established in the preceding three quarters, wherein expenses increased 32.6%, 44% and 21.5%, respectively.
High Debt Level: High debt levels raise financial obligations and hurt the company’s profitability. Barnes exited the second quarter with a long-term debt of $1.15 billion. The high debt level was primarily attributable to the funds raised for the MB Aerospace acquisition.
An high debt level also implies substantial interest expenses. Barnes’ interest expense was $45.6 million in the first six months compared with $11.8 million in the year-ago period. The increase was attributable to a higher average interest rate, given the recapitalization of its debt structure. It is worth noting that most of the second quarter’s 36% year-over-year decline in adjusted earnings per share was attributable to the high interest rate.
Barnes currently carries a Zacks Rank #4 (Sell). In the past year, the stock has gained 3.1% compared with the industry’s 19.2% growth.
Image Source: Zacks Investment Research
Forex Woes: B’s international presence keeps it exposed to the risk of adverse currency fluctuations. This is because a strengthening U.S. dollar is likely to require the company to either raise prices or contract profit margins in locations outside the United States. Thus, adverse currency movements are a worry.
Stocks to Consider
Some better-ranked companies from the same space are discussed below.
Flowserve Corporation (FLS - Free Report) currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 2%.
Ferguson Enterprises Inc. (FERG - Free Report) currently carries a Zacks Rank of 2. FERG delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Ferguson’s fiscal 2025 earnings has remained steady.