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Barnes Group Inc  (NYSE:B)
Q3 2018 Earnings Conference Call
Oct. 26, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Sharon, and I will be your conference operator today. At this time I would like to welcome everyone to the Barnes Group, Inc. Third Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Chris Stephens, Senior Vice President of Finance and Chief Financial Officer, you may begin your conference.

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

All right, great. Good morning everybody. I'm joined by Barnes' Group's, President and Chief Executive Officer, Patrick Dempsey, and thank you for joining us for our third quarter 2018 earnings call. 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 we provide additional information 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 Securities and Exchange Commission.

Be advised that certain statements we make on today's call, 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 SEC. These filings are available through the Investor's Section of our corporate website.

Let me now turn the call over to Patrick for opening remarks. Then I will provide a review of our third quarter results and our updated 2018 outlook. After that, we will open up the call to questions. Patrick?

Patrick J. Dempsey -- President & Chief Executive Officer

Thanks, Chris and good morning everyone. In the third quarter Barnes Group delivered solid performance as adjusted earnings per share grew from $0.66 last year to $0.78 this year, up 18%. Again we experienced another strong quarter with sustained strength in our Aerospace segment and year-over-year margin expansion in both our segments. For the company, adjusted operating margins expanded 250 basis points from prior year period to 16.4% and we ended the quarter with a total backlog of $1.2 billion.

In line with the ongoing transformation of our portfolio, we made a meaningful strategic announcement in the quarter when we entered into a definitive agreement to acquire Gimatic, a leading supplier of mission critical solutions for industrial automation and robotic applications. Gimatic designs and develops robotic grippers, End Of Arm Tooling systems, sensors and other automation components for various end markets, including automotive, packaging, healthcare and food and beverage. We expect to close the deal in the near term, and as we have done in the past, we plan to hold a separate conference call to discuss Gimatic and the strategic and financial benefits we expect to gain from the acquisition as we look to 2019.

Now a few comments about this quarter's performance, starting with Aerospace. Aerospace's impressive results have been sustained, as sales were up 8% as compared to a year ago, with OEM, up 3% and aftermarket, up 19%. Our OEM business continues to deliver growth in support of the ramp of new engine programs, primarily driven by the growing backlog of the LEAP family of engines for the Airbus A320neo and Boeing 737 MAX. These new programs are coming down the learning curve and contributing nicely to overall performance.

Our aftermarket business is experiencing robust sales growth, both in MRO and spare parts, fueled by the CFM and CF6 family of engines, as industry fundamentals remain strong. For 2018, we expect OEM sales growth to be up mid-single digits, OEM backlog remains close to the record level reached in Q2, up 14% versus prior year and orders year-to-date are up 6%, positioning us for future growth.

For our aftermarket business our 2018 outlook has improved from our view last quarter. We see MRO revenues to be up low teens, consistent with last quarter's full year outlook and we now expect spare parts to be up high teens, which is an increase from our prior view. Our operating margin outlook for our Aerospace segment is now expected to be approximately 20%, up from our previous outlook of high teens, primarily driven by the strong growth experienced in our aerospace aftermarket business throughout 2018.

Overall, in our Aerospace business, we're excited not only about our results in 2018, but also about our progress in solidifying content on a number of long term strategic aircraft and engine programs, including the GE9X and Trent 7000.

Within our Industrial segment, total sales and organic sales were up 2% over the prior year period. Sales growth was driven by continued strength in medical, personal care, packaging, and general industrial, partially offset by declines in transportation and tool and die end markets. Overall orders were down 11%, due in part to the dampening effect of lower global automotive production outlooks, and the disruptive impact tariffs are having on the timing of new projects.

At the same time, Industrial backlog remains at a healthy level at $340 million approximately, slightly higher than this time last year with a number of key customer mold projects scheduled to ship in the fourth quarter. At molding solutions, total sales increased 6% with organic sales up 8%. Overall, medical, personal care and packaging end markets served, remained robust, providing a positive counterbalance to moderating automotive hot runners. As we noted last quarter, our second half sales outlook for our mold's business is forecast to be substantially higher than the first half of 2018, due to the timing of certain program launches.

During the third quarter, the FOBOHA team successfully gained customer acceptance approvals and delivered several critical systems. Both of our mold businesses continue to work closely with our customers to meet their requirements for the balance of the year. Our forecast of molding solutions sales growth for the full year remains in the mid-single digits.

At Nitrogen Gas products, third quarter total sales were down 5%, and down 11% organically, as it started to feel the effects of a softer tool and die market. This business is coming off of historic highs with softness being experienced primarily in Europe and China. We now expect full year sales to be relatively flat, including sales from our acquisition of Industrial Gas Springs. As we noted last quarter, we're pleased to have the IGS team join Barnes Group. As a reminder, IGS is a designer, manufacturer and supplier of customized gas springs. Our combined teams have been making great progress on integration activities as well as targeting growth opportunities across a number of diversified end-markets.

For engineered components, third quarter total sales were down 2% and flat organically. Sales from automotive production were down slightly, offset by year-over-year increases in heavy truck and general industrial sales. In Europe, auto production sales and orders were affected by new EU emission standards that took effect on September 1. However, we expect that to be a temporary issue. In the quarter, we saw continued progress on cost productivity improvements within our Associated Spring business, contributing meaningfully to Industrial's margin improvement versus a year ago. Overall for engineered components, our projections for 2018 remain in line as we expect full year revenue to be flat relative to 2017.

At the Industrial segment level, we now expect 2018 full year total sales growth to be in the low-single digit range with organic growth relatively flat. Forecasted adjusted operating margin is projected to be in the mid-teens.

So to wrap up my remarks, we had a strong third quarter and remain bullish on our Aerospace end market outlook. For Industrial, we remain cautiously optimistic that global automotive markets will continue to show resilience. The current tariff related trade disputes will moderate and while the China market has taken a pause, it will continue to be a key area of growth. Despite end market dynamics, we remain committed to driving our long-term profitable growth strategy to generate increased shareholder value. And the recently announced Gimatic acquisition is just another step in that direction as we continue to transform the Barnes Group portfolio.

With that let me turn the call back to Chris for a discussion on the financial details of the quarter and an update on our full year outlook.

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

Okay, let's begin with the highlights for our third quarter results. For the quarter sales were $370 million, up 4% from the prior year period, with organic sales growth of 4%, negative FX impact of 1%, while acquisition revenues contributed 1%. Net income was $39.1 million or $0.75 per diluted share, up 15% versus last year's third quarter. On an adjusted basis EPS was $0.78, up 18% or $0.66 last year -- from $0.66 last year. And then third quarter 2018 adjusted EPS excludes $0.02 of Industrial Gas Springs short term purchase accounting adjustments and $0.01 of acquisition transaction costs, while last year's adjusted EPS excludes $0.01 of FOBOHA short term purchase accounting.

Each of these adjustments are within our Industrial segment. I also want to highlight that our quarterly GAAP results of $0.78 includes pre-acquisition costs of approximately $2 million or $0.03 per share related to the Gimatic deal.

Now moving on to our segment performance beginning with industrial. Third quarter sales were $244 million, up 2% from $240 million with organic sales of 2% -- up 2% and unfavorable FX impact was essentially offset by acquisition sales of 1%. Operating profit was $33.3 million, up 10% from $30.3 million in the prior year period, as the profit impact of higher organic sales and improving cost productivity, primarily in our engineering components business provided lift. On an adjusted basis, excluding IGS short term purchase accounting adjustments and acquisition transaction costs this year and FOBOHA short term purchase accounting adjustments and restructuring expenses last year, adjusted operating profit of $34.9 million was up 12% from an adjusted $31.1 million a year ago.

Adjusted operating margins was 14.3%, up 140 basis points and would have been approximately 15%, if you excluded the pre-acquisition costs noted earlier related to the Gimatic deal. For Aerospace the third quarter's performance continued to be very strong. Sales were $126 million, up 8% from $117 million last year. Operating profit was $25.7 million, up 39%, reflecting the profit impact from higher sales volumes in both OEM and aftermarket, and productivity improvements, partially offset by scheduled OEM price deflation. Operating margins expanded to 20.5%, up 460 basis points. Aerospace total backlog ended September at $819 million(ph), up 14% compared to a year ago, and flat sequentially. For OEM specifically, backlog was $807 million remaining near last quarter's record level and approximately 45% of OEM backlog is expected to ship over the next 12 months.

Other items to note for the quarter, interest expense increased $0.3 million to $4.1 million as a result of higher average borrowings, partially offset by a lower average interest rate. Other expense for the quarter was $2.4 million versus $1.5 million a year ago. With respect to taxes, the company's effective tax rate was 25.6% in the third quarter of 2018 compared to 19.1% in the prior-year period. The primary driver of last year's lower tax rate was the settlement of tax audits along with the closure of tax years for various tax jurisdictions. 2017's full year effective tax rate was 69.6%. Excluding the impact of discrete tax expense related to US tax reform, the effective tax rate for 2017 would have been 20.2%.

With respect to share count, our third quarter average shares outstanding were 52.1 million shares. During the quarter, we repurchased 337,000 shares at an average cost of $59.82 per share and now have 1.5 million shares available for repurchase under existing board authorizations. Through September, cash provided by operating activities were $158 million versus $168 million last year. Year-to-date free cash flow, which we define as operating cash flow less capital expenditures, was $118 million compared to $126 million last year. Year-to-date capital expenditures were $40 million, down slightly from last year.

With respect to the balance sheet, our debt-to-EBITDA ratio decreased slightly to 1.7 times at quarter end. Under our existing debt covenants additional borrowings of approximately $533 million of senior debt would be allowed, while approximately $394 million remained available on our credit facility at quarter end. Note that as a result of the anticipated deal close and funding of the Gimatic acquisition, we accessed $150 million of the $350 million available through the Accordion feature of our revolver.

Turning now to our updated 2018 outlook, please note that as it relates to the Gimatic acquisition our outlook includes the pre-acquisition spending as occurred through Q3 '18, but excludes any projected results of Gimatic's operation and acquisition-related costs. We will provide more color on the financials for 2018 and 2019 during the separate conference call to be held after we close the deal.

On slide 5, of our supplement, you will see that we forecast 2018 total revenue growth of 4% to 5%, with organic sales growth of 2% to 3%, impact of FX is expected to benefit revenues by approximately 1% and acquisition revenues at approximately 1%. Our adjusted operating margin forecast is to be approximately 16.4%. Adjusted earnings per share are now anticipated to be in the range of $3.21 to $3.26, up 11% to 13% from 2017's adjusted $2.88.

A few other update outlook items, interest expense is anticipated to be approximately $16(ph)million. Our effective tax rate for 2018, excluding tax adjustments related to IGS short-term purchase accounting, acquisition transaction costs and the second quarter US tax reform adjustment, is expected to be approximately 23.5%. Average diluted shares are forecast to be approximately 53 million. Our CapEx expectation remains at approximately $60 million to $65 million, and cash conversion is expected to be approximately 100%.

So in summary, we had a strong third quarter. We continue to benefit from the robust performance from our Aerospace business and expanding margins in both of our business segments. So with that, operator, I'd like to now turn the call over to -- open to questions for analysts that may have them.

Questions and Answers:

Operator

(Operator Instructions) Your first question comes from Michael Ciarmoli with SunTrust. Your line is open.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning, guys. Thanks for taking the questions. Figured just to start on Aero, what specifically drove down the outlook for the OEM side. I mean, can you just elaborate, maybe what's changing there, and even comment on what you're seeing in the supply chain, any constraints or challenges that might be impacting that outlook?

Patrick J. Dempsey -- President & Chief Executive Officer

Absolutely, Mike. For us what has changed over the last few months, in terms of our outlook for the full year, has been just some shifting to the right on certain programs. The backlog, as you see, remains at almost a historic high. So I'm not concerned overall but have seen some shift to the right, and to that end I would suggest that we are seeing some constraints in the supply chain as it pertains primarily to raw materials. And so there is a little bit of shortages that occur, and then it comes in somewhat lumpy. So there's been a bit of disruption, I would suggest relative to that, and I think it's been widely noted I think for the industry overall. But other than that I think in general as they will remain very positive on the OE side of things for the strategic programs that we're now well positioned on.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. Can you elaborate on the programs that are sliding to the right. Is that a result of the raw material challenges? I mean it seems like from a program perspective obviously there's been some headline challenges with engines and fuselages, which seem to be normalizing now. But can you give any more color on the programs that are sliding or shifting?

Patrick J. Dempsey -- President & Chief Executive Officer

Well, what I'd note is the fact that anything we produce, we are shipping. So there's no such thing as the supply chain is hesitating on receiving our product. Moreover it's a case of the systems, or the supply chain. I think in general from a raw material standpoint, which is forging and castings is where a lot of the constraint is. For us, we see that translate and I think across a number of the programs, whether narrow body or wide body we are seeing it on both sides.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. And then just one more from me on OE. I think you called out some OEM price deflation. Is that hitting you guys on the revenue side there or is it hitting more margins. And how should we think about that deflation going forward as you know rates might be climbing here on several of the programs?

Patrick J. Dempsey -- President & Chief Executive Officer

It's hitting sales and OE, and it is scheduled deflation as we ramp up in volumes over these programs. So it's a pretty standard protocol and any guidance we give has that deflation already baked in because we know ahead of time clearly what it's going to be from a overall program perspective.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. So does that become more of a headwind in '19 as the rates climb higher or are you already kind of feeling that deflation, just assuming you're kind of producing ahead maybe of the -- to get to those anticipated build rates.

Patrick J. Dempsey -- President & Chief Executive Officer

It will continue into 2019. The one area that I mentioned that I think the teams are doing a really nice job on is coming down the learning curve on those programs to keep out in front of this. So what our -- how we think about it is ensuring that we have the necessary operational activities occurring internally to the enterprise system to be one step ahead of any deflation that we've already signed up to.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. Perfect I'll jump out of the way here and get back in the queue. Thank you for taking the questions.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

Operator

Your next question comes from Edward Marshall with Sidoti & Company. Your line is open.

Edward Marshall, Jr. -- Sidoti & Company -- Analyst

Good morning. I wanted to talk about Gimatic, if I could. You know looking back to the molding solutions business in the acquisition that you -- when you first acquired Synventive and then how you built that business out. I'm curious if you're willing to share with us, what your plans are for automation and what your go to market strategy is and what type of businesses you might be looking for? I'm assuming that this is not a one shot deal.

Patrick J. Dempsey -- President & Chief Executive Officer

You're correct, it's not a one shot deal and it is very much based on the same thought processes as the playbook that we executed against with molding solutions. So as we entered into this space, Ed, it's been with a view to having done a significant amount of upfront analysis to ensure number one that this space met our strategic criteria and two that we felt there was a pipeline of potential future opportunities from an acquisition standpoint to continue to build out a portfolio of Industrial Technologies within that space that complemented each other.

As I mentioned in prepared remarks, we expect to close on the deal in the near term and will set up a separate call, specifically to all aspects of both the strategy and the financials, on that call as soon as we close the deal.

Edward Marshall, Jr. -- Sidoti & Company -- Analyst

Got it. Would you be willing to share maybe your timeline to kind of build that out and potentially the leverage that you're willing to increase over time, to kind of build that up? I mean we sure can't wait for that call.

Patrick J. Dempsey -- President & Chief Executive Officer

That's fair. We are excited as well. But just doesn't pacing to get the deal closed. But what I will point out is that our two sets of teams, both the Gimatic leadership team as well as the team on the Barnes side have been working closely not only through the due diligence but also since the announcement of the signing. And so our intent is to hit the ground running, the day after the deal is closed. We are -- obviously as we look forward, we've identified a number of what we think are key technologies that will complement Gimatic and associated potential acquisition targets.

In terms of timing, first and foremost as we did with Synventive, we'll look to integrate Gimatic. We see already opportunities for us to leverage the business across -- to some of the same customer base as Molding Solutions. And so, as we integrate it, we will ensure that, that is fully secured before we then take on the next base. But again, if you look at Molding Solutions, we executed it over a range of five years and as we move into the automation space, that timeframe is not unreasonable in terms of how we're thinking about it as well.

Edward Marshall, Jr. -- Sidoti & Company -- Analyst

Got it. And I guess, I wanted to ask that question in the context too of kind of looking at your Industrial margins. I mean as they start to slide to the right here, I wanted to see if you could kind of bifurcate the difference between maybe inflation and the impact it might be having, whether it's in engineered components or NGP? And then, of course, the slide in NGP business organically, I know that's a relatively high margin for you -- business for you. So coming off what was a strong second quarter and looking at the third quarter point on margin year-over-year growth, but I'm wondering if you can kind of talk about what you anticipate for that margin on a go-forward?

Patrick J. Dempsey -- President & Chief Executive Officer

Yeah. So what we communicated and continue to communicate is we're targeting mid-teens for the Industrial business. You saw us bounce back to that in Q2 and GAAP numbers reported this morning was they looked like they've pulled back a little from Q2's performance. As Chris noted, there was $2 million worth of pre-Gimatic acquisition costs, that were all basically absorbed by the Industrial business. So if you exclude that operating margin for Industrial in the second quarter, we're also approximately 15%. So that's in the target zone of what we're looking at as we continue forward with the Industrial business.

On the Nitrogen Gas Products side, we did see some slowing of order -- sales on a year-over-year basis with total sales down 5%, organic down to 11. But on an order's basis, we saw one-to-one -- one times book-to-bill. So orders continue to be -- continue -- I would say they continue to be robust. At the same time at the historic high levels that we have being operating it's not unexpected that with some of the headwinds we're seeing into the automotive industry that there's some pull back on that.

Edward Marshall, Jr. -- Sidoti & Company -- Analyst

Got it. And just a point of clarification, you said the $2 million expense, is that the same expense that was removed from the adjusted operating earnings in the press release?

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

Yeah, no, that would be separate. So that $2 million of pre-acquisitions type of spending will be a part of our GAAP results. It's not a part of our Reg G. That's separate. That's related to the IGS acquisition, which we've done in terms of the adjustments. So that was just -- that's a part of our GAAP results. That $0.02 --

Edward Marshall, Jr. -- Sidoti & Company -- Analyst

So there was nothing from Gimatic in the quarter?

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

Not in the -- on the Reg G, but there is, in just terms of our period expensing related to the pre-acquisition due diligence costs. That's the $2 million. So it's in our GAAP results.

Edward Marshall, Jr. -- Sidoti & Company -- Analyst

So, we didn't Reg G it out.

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

We didn't Reg G it out.

Edward Marshall, Jr. -- Sidoti & Company -- Analyst

Got it. Thank you very much.

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

Thank you.

Patrick J. Dempsey -- President & Chief Executive Officer

Thanks Ed.

Operator

Your next question comes from Christopher Glynn with Oppenheimer. Your line is open.

Christopher Glynn -- Oppenheimer -- Analyst

Yeah, thanks. Good morning.

Patrick J. Dempsey -- President & Chief Executive Officer

Good morning, Chris.

Christopher Glynn -- Oppenheimer -- Analyst

Yeah, congrats on Gimatic. Look forward to hear more about that. Question on the OE, we can do some pretty simple math, 45% of 807 and look at the guidance for OE backlog, sort of backs in about 10% OEM growth for next year. Is that ballpark reasonable on the kind of 45%, no?

Patrick J. Dempsey -- President & Chief Executive Officer

Yeah, Chris, I would look at -- we look at the next 12 months. So that would include the fourth quarter as well. OEM is, as we look to the backlog and the projections into 2019, we're in the mid-single digits, consistent with what we have been saying out of our OEM business. So 10% would be would be too high. I'd look more at the mid-single digit level.

Christopher Glynn -- Oppenheimer -- Analyst

Okay, and then on the aftermarket side, you're obviously having a very cloudish(ph)year this year and the key component of that is kind of the catch up in transition and the fleet demographics with the CSM. So as we think about the rapid growth this year and comps next year, is it fair to think that the baseline stable and this sort of remains a flight hours(ph)plus type of business as a generic profile?

Patrick J. Dempsey -- President & Chief Executive Officer

I think that's fair. A couple of additional comments I'd add to it Chris is that, when we look at our performance this year, what has really driven it in terms of the split between CFM and CF6, it's an 80/20 split. But the CF6 has performed, I think beyond expectations in 2018. And so the bounce back of the CF6, I think is something that may be surprised the industry overall because that aircraft, that engine were at the sunset side of their lifecycle and were expected to retire out at a particular rate. And those retirements haven't happened, to previous forecasts. So the CF6 has been a nice contributor to the strength that we've seen on a year-over-year basis.

As we move into 2019, the CFM we expect will continue to grow in terms of shop visit rates, right through to the early 2020s and maybe even into the mid-2020s. So the CFM continues to be a nice growth story. The little bit of tempering I'd put on our growth rates today would be the CF6.

Christopher Glynn -- Oppenheimer -- Analyst

Okay, and then just back to the scheduled programmatic price dynamics on some of the OE program ramps. Is it fair to consider from a margin rate perspective that the learning curve holds that more in the neutral range?

Patrick J. Dempsey -- President & Chief Executive Officer

That's probably fair. Having said that that's not anything we accept on the inside. So clearly the Aerospace team is challenged to continue to expand margins but it is -- nonetheless with the scheduled deflation, it does become a challenge. But margins we expect to continue to improve slightly. But overall when we think about the OE side, we have no guidance we have it built into the guidance that we project, which has been outstanding over the last three quarters.

Christopher Glynn -- Oppenheimer -- Analyst

Indeed. Thank you.

Patrick J. Dempsey -- President & Chief Executive Officer

All right. Thanks Chris.

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

Thanks, Chris.

Operator

Your next question comes from Matt Summerville with D. A. Davidson. Your line is open.

Matt Summerville -- D. A. Davidson -- Analyst

Thanks, couple of questions. First, just with respect to Synventive, can you comment a little more detail around what the outlook is for that business, specifically in the fourth quarter and what your early read is on new model changes, launches, introductions whatever you want to call it for 2019?

Patrick J. Dempsey -- President & Chief Executive Officer

Absolutely, Matt. For Synventive, Synventive came off of -- just to put a bit of the backdrop, Synventive came off of a record year in 2017. And the primary drivers behind that was that all three regions; North America, Europe and Asia, all hit at the same time with the primary driver being North America. What we've seen coming into, and that's relative to model changes. As we came into 2018, we've seen the pullback in North America, which was to be expected because the same rates couldn't continue, so to speak, at that elevated level. But as we go into 2019 we're looking at that business to continue to be very successful in the context of it's the market leader in the automotive hot runner space.

In 2018, what we're seeing here in the last half of 2018, or in the last quarter is some of those program launches move into the right, primarily I think because of the uncertainties associated with the tariffs. And the a lot of noise in the system, if you like, that has put some pressure on the Synventive end-markets relative to program launches, but expect a good year in 2019, not necessarily back to the levels of 2017, but clearly consistent as we move forward from 2018.

Matt Summerville -- D. A. Davidson -- Analyst

Then can you provide a little more color on NGP, you mentioned down 11% organically. Can you give a little color with that business from a regional standpoint, North America, Europe, China, how that performed around that 11%, if you will?

Patrick J. Dempsey -- President & Chief Executive Officer

So down 11% in the quarter. The region that fared best was North America. We saw pressure in Europe and most of the pressure in Asia during the quarter, and Asia, being primarily China.

Matt Summerville -- D. A. Davidson -- Analyst

Is the book-to-bill in your Asia -- and I know it's a small piece, but this tends to be a pretty reasonable leading sort of macro indicator if you will. I guess I'm curious you said the book-to-bill was 1 for overall NGP, is the book-to-bill 1 in Asia in that business, right now?

Patrick J. Dempsey -- President & Chief Executive Officer

I don't have -- I don't have it in front of me, Matt, but I can get that to you after the call, no problem.

Matt Summerville -- D. A. Davidson -- Analyst

Sure, and then just one final one. You mentioned that, I think it was you in your competitor tariffs sort of disruption. You mentioned a little bit of that may be impacting Synventive just more broadly speaking across Barnes Group. Where do you see the tariff impact being to the company in 2018 and if the step up in tariffs takes place in January of next year up to 25%. What do you sort of ballpark the P&L impact potentially being to you guys. Thank you.

Patrick J. Dempsey -- President & Chief Executive Officer

So before I talk to the specifics what I might mention is that as I think about the tariff challenges in general from a Barnes' perspective there isn't that much product we have that's moving between the US and China and vice versa. In that, our model has predominantly been local-for-local. That said we're not immune to the tariffs because we do have supply chain, which is moving across. What we said for 2018 was that we saw the headwinds of approximately $2 million that we had built into our guidance.

As we look out into 2019, I would suggest that it's in a range of $2 million or $7 million or where we're currently in the ballpark of $5 million that we're anticipating. That said the teams have been doing a wonderful job in terms of mitigating any potential headwinds that we're anticipating and that they're doing through a number of different activities including pass through of pricing, looking at the supply chain with a view to what alternative supplies we may be able to pursue. And then the third area is that of exclusion because some of our products which were shipping inter-company are getting caught in the terrorist nest, which we feel should be excluded and so we're pursuing that as well.

Matt Summerville -- D. A. Davidson -- Analyst

Thank you guys.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you, Matt.

Operator

Your next question comes from Josh Chan with Baird. Your line is open.

Josh Chan -- Robert W. Baird -- Analyst

Patrick, Chris.

Patrick J. Dempsey -- President & Chief Executive Officer

Good morning.

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

Good morning, Josh.

Josh Chan -- Robert W. Baird -- Analyst

Good morning. I think you mentioned your orders within the industrial business, but I was wondering about the orders in the moldings business specifically, and also how you're thinking about the backlog as it relates to outlook into 2019 for moldings as a whole, I guess.

Patrick J. Dempsey -- President & Chief Executive Officer

So on the molding solutions business one thing that we watch very carefully is the fact that the mold side of the business tends to be lumpy. So we're seeing -- as I've mentioned before we see major fluctuations from quarter-to-quarter on orders, because of the timing and the programmatic nature of how molds are released to us.

So as I think about Molding Solutions, I usually have a little bit of caution that I express, as it pertains to the mold side of it, because of the sizable nature and the variation quarter-to-quarter, it can throw number, distorted somewhat. But as we think about the mold side of the business right now, what I would highlight is that Manner is an example, stands at a record backlog in terms of the orders on the book, and for FOBOHA also continues to see some nice order intake over the course of the year for its products and services. So that aspect of the business, we continue to be very bullish on.

On the hot runner side of the Moulding Solutions, we see continued strength in medical, personal care and packaging, and as I mentioned previously, we saw some moderation on the automotive hot runner side of the business.

Josh Chan -- Robert W. Baird -- Analyst

Okay. Yeah, I appreciate the color. And then, if I can step back a little bit on Industrial, it sounds like some of the early cycle businesses that you have are moderating or I think you even used softening, and so, just as you think about like, 2019, how concerned or not concerned are you about, just the global Industrial backdrop overall?

Patrick J. Dempsey -- President & Chief Executive Officer

Well, from our perspective I think about the end markets -- in the context of the end markets that we're serving, as I just mentioned, medical, personal care and packaging continues to look favorable as we move into the fourth quarter and we expect that to roll into 2019. The area that we see some headwinds is on moderation of the automotive industry and the impact that might have on our -- on some of our businesses.

The Aerospace side continues to be extremely strong and we expect that to continue into 2019. And so in general, it's a cautious optimistic outlook that we have as we move into 2019, but we remain very positive overall.

Josh Chan -- Robert W. Baird -- Analyst

Okay, great. Thanks for the color. Thanks for the time.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

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

Thanks, Josh.

Operator

Your next question comes from Myles Walton with UBS. Your line is open.

Myles Walton -- UBS -- Analyst

Thanks, good morning.

Patrick J. Dempsey -- President & Chief Executive Officer

Good morning.

Myles Walton -- UBS -- Analyst

I just want to make sure it's squared(ph)around the -- your adjusted guidance now includes the $0.03 from Gimatic of pre-acquisition costs.

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

Exactly what we had in the third quarter, the third quarter spending roughly approximately that $2 million or $0.03 of EPS is reflected in our full year guidance.

Myles Walton -- UBS -- Analyst

And then the other expense, pretty steep growth, I know, year-on-year it actually looks less steep than it was sequentially. What is -- was there anything special in there and kind of what the pace that you expect for the rest of the year?

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

Myles, sorry can you say that again. Can you repeat that?

Myles Walton -- UBS -- Analyst

Yeah, the other expense line, I know it was like 900,000 year-on-year, and up $1.5 million sequentially, was there anything special in there and then also the expectation for the fourth quarter and into '19 as a run rate.

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

Sure many moving parts in other income expense and you can see we are(ph)a larger expense item this year. If I go back to the year-to-date results, remember last year we had a pretty large curtailment gain on the pension side, when we consolidated one of our facilities in Switzerland. That was a positive to last year. The negatives to this year, a couple of things primarily FX driven, FX losses that we've incurred not in the quarter but kind of on a year-to-date basis. We don't expect that to be as significant in the fourth quarter. So hopefully that dwindles down. But that's reflected in our full year guidance.

Myles Walton -- UBS -- Analyst

Do you have to include -- I'm just trying to get to your full year new adjusted EPS absorbed that extra $0.03 from Gimatic. Did it absorb higher FX losses as well?

Patrick J. Dempsey -- President & Chief Executive Officer

It did. It does reflect that. It does reflect what we anticipate in the fourth quarter, but we do not view to be -- we view third quarter to be higher than what we would expect in the fourth quarter.

Myles Walton -- UBS -- Analyst

Okay. And Patrick, you alluded to the 1 book to bill at NGP. I'm just curious if you look back last quarter at the book to bill would that have given you a heads up as to the kind of performance that you see in the third quarter here. How relevant or predictive is that metric for the business?

Patrick J. Dempsey -- President & Chief Executive Officer

It's -- if you look at book to bill for NGP in Q2, it was just shy of 1 times as well. So it is a short cycle business and so what we saw in the back half of the quarter was a slowdown in China. And I think that was commensurate with the GDP numbers that came out for that markets. We saw it translate into the back half of the quarter, as we move forward into -- as we've already continued to dialogue with the business and we saw some recovery to that in the first part of this month. And so that looks, -- that gives us some degree of optimism as to, -- hopefully it's a short-term item but something we're watching very closely.

Myles Walton -- UBS -- Analyst

Okay. And Christy, on the cash conversion side, it's splitting hairs a little bit but it was greater than 100% now, at a 100% moving around in their cash taxes or something. And then as you go into next year, are you back above 100% or presently planning on(ph)?

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

Yes, a good question. So specific to the quarter on the cash conversion side, we actually had a very strong cash generation quarter almost 130% cash conversion. As we look to the full year, mainly on working capital needs to support the growth we see going into next year, so elevated inventory levels entering in the fourth quarter, obviously a number that we expect to ship in the quarter. But even as you kind of continue that into 2019, we just see higher levels of working capital needs primarily in inventory to support that growth. And that's the area.

So this is -- it could be a greater than 100%, this could be a 98% to 102%, that's kind of our current outlook. So we just decided to be more around that 100%, versus say, it's going to be greater. But going forward as a company, we expect cash conversion to be greater than 100% every year.

Myles Walton -- UBS -- Analyst

And the inventory build, is that primarily Aerospace, OE or is it --?

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

Aerospace OEM as well as the Molding Solutions, the mold side of our Molding Solutions business. So we've got a pretty large quarter set up for molds to be shipped. Building on Patrick's comments in terms of the second half of the year, we had a very strong third quarter at the mold shipments and we expect to see the same in the fourth. But at the same time, there's additional backlog to be shipped in the first half of next year, that's building up in inventory. So it really is an inventory working capital need.

Myles Walton -- UBS -- Analyst

Got it. All right, thanks, guys.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

Christopher Glynn -- Oppenheimer -- Analyst

Thank you.

Operator

At this time I will turn the call over to Mr. Chris Stevens.

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

All right. Thank you for joining us this morning. As we mentioned, as soon as we get a chance to get the Gimatic deal closed, we plan on having a call. And we hope to get that done over the next few weeks. So we thank you for joining us this morning. We look forward to talking to you some time soon.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 50 minutes

Call participants:

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

Patrick J. Dempsey -- President & Chief Executive Officer

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Edward Marshall, Jr. -- Sidoti & Company -- Analyst

Christopher Glynn -- Oppenheimer -- Analyst

Matt Summerville -- D. A. Davidson -- Analyst

Josh Chan -- Robert W. Baird -- Analyst

Myles Walton -- UBS -- Analyst

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