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Barnes Group (NYSE:B)
Q4 2018 Earnings Conference Call
Feb. 22, 2019 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Marcela, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Barnes Group, Inc. fourth-quarter and full-year 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. Bill Pitts, you may begin your conference.

Bill Pitts -- Investor Relations

Thank you, Marcela. Good morning and thank you for joining us for our fourth-quarter and full-year 2018 earnings call. With me are Barnes Group's President and Chief Executive Officer Patrick Dempsey and Senior Vice President of Finance and Chief Financial Officer Chris Stephens. 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 provide additional information, we believe, is helpful to our 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, 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 SEC. These filings are available through the Investor Relations section of our corporate website at bginc.com.

Let me now turn the call over to Patrick for opening remarks. Then, Chris will provide a review of our fourth-quarter and full-year results and our 2019 outlook. He will also provide an update on our 2020 financial targets, which we issued in September of 2017. After that, we will open-up the call for questions.

Patrick?

Patrick Dempsey -- President and Chief Executive Officer

Thanks, Bill, and good morning, everyone. The Barnes Group team delivered a very successful 2018 with outstanding financial results, setting many records in the process, and making impressive progress along several strategic initiatives. With respect to financial performance, we achieved record orders, revenues, and operating profits and ended the year with a backlog near all-time highs. In addition, we grew adjusted operating margins.

Full-year revenues grew 4% with organic sales up 2%. Adjusted operating margins increased 90 basis points to 16% and adjusted earnings per share grew to $3.22, up $0.12 -- 12% from a year earlier -- a year ago. Additionally, we have stepped up our capital deployment to better position the company to perform well as we power forward. Organically, we invested $57 million in capital expenditures, much of which targeted growth programs and technology advancements.

In aerospace, we invested in our super plastic forming of titanium capabilities to support new strategic programs such as the Boeing 737 MAX. At the same time, we expanded our manufacturing and MRO capabilities in Singapore to support the growing global aerospace market. While at industrial, our investments are targeted toward our innovation initiatives and new technologies to maintain our market leading positions and drive future organic growth. Acquisitions likewise remain a critical element of our growth strategy and we've actively demonstrated our commitment to reshape the portfolio for long-term success.

With respect to portfolio transformation, we acquired two businesses in 2018, investing over $400 million in the process. In July, we acquired Industrial Gas Springs, IGS, a designer, manufacturer, and supplier of customized gas springs for end markets, which include general industrial, transportation, aerospace, and medical. IGS was integrated with our Nitrogen Gas Products business, where it's complementary and diversified end markets and strong customized product application engineering allow us to scale and broaden our gas spring technology portfolio and customer base. In a related move, we recently aligned our Raymond business from engineered components to nitrogen gas products.

Raymond provides engineering expertise and customized solutions for motion control, pressure and vibration, and other applications, and is very complementary to that of IGS. With these changes and given the broader solutions focus of the combined businesses, we are now renaming the SBU, Force & Motion Control. In doing so, this will establish this new strategic business unit as a market leader in the development of gas springs, gas hydraulic suspensions, and precision custom struts, providing innovative force and motion control solutions to customers in a wide range of metal forming and other industrial end markets. Our second acquisition during the year was Gimatic, forming the basis of our automation SBU.

Our goal here is to replicate over time the same playbook we employed to create our molding solutions SBU, which today is half a billion in revenues post the combination of six acquisitions in the plastic processing space. As we noted on our investor call in November, Gimatic is a strong strategic fit with our portfolio and well aligned with our strategy of pursuing differentiated industrial technologies and intellectual property-based solutions that capitalize on our core manufacturing capabilities. As a leading player in the fragmented market of mission critical robotic tooling solutions, Gimatic designs and develops robotic grippers, advanced end-of-arm tooling systems, sensors, and other automation components. While acquisitions have been the transformation route for our industrial segment, for aerospace we continue to invest organically in the next-generation of aircraft and key aftermarket opportunities.

During the second quarter, we entered into an agreement covering dual-use spare parts within our existing revenue sharing program. This represents an attractive addition to a highly profitable and growing part of our aftermarket business. Lastly, with respect to capital deployment, this year we returned over $170 million of cash to shareholders through an increased dividend, our fifth in the last six years and share repurchases. With all of these items considered, our balance sheet remains very healthy with sufficient capacity and flexibility to continue value-generating capital deployment in 2019.

From an operational business perspective, 2018 saw ongoing maturity regarding the Barnes Enterprise System, reinforced by our strategic enablers of innovation and talent management. Throughout the year, significant emphasis was placed on standardizing our business processes to drive commercial, operational, and financial excellence across the enterprise. By continuously leveraging the Barnes Enterprise System to power excellence, we look to excel at selling, delivering, and realizing the value we bring to the marketplace. Also as the central part of the Barnes Enterprise System, we advanced our enterprisewide innovation efforts with a spotlight on intellectual property.

Several examples are depicted on Slide 5 of the supplement. For instance, at aerospace, we enhanced our competitive position by leveraging advanced machining techniques used in program optimization software, and automation, employed smart machine technology in our fabrication manufacturing, and developed new products using additive manufacturing with one of our key customers. With similar enthusiasm at industrial, smart-connected factory projects have been implemented to leverage digitalization and increase asset utilization and productivity. Our talent management program continues to develop and expand the skills of our existing and future team members.

In 2018, we unveiled our Manufacture Your Dreams, a Barnes campaign to promote our global apprenticeship programs and create the next-generation of skilled workforce. Taken together, I'm pleased with the progress made on positioning our company for the future and the performance results achieved in 2018. Now I would like to take a moment to discuss the current business environment. At industrial, end markets such as personal care and medical within molding solutions and general industrial and non-automotive transportation markets within engineered components remain healthy.

In automotive-related markets, however, we're seeing softness in light-vehicle production rates impacting engineered components, while ongoing tensions due to tariffs are impacting our Force & Motion Control and molding solutions businesses. Global automotive production declined 1% in 2018, and the expectation for 2019 is relatively flat. North American automotive production has essentially plateaued with a slight downward bias over the next three years. A further concern is if incremental auto parts and light vehicle tariffs are implemented, we would expect additional pressure on automotive end markets.

With respect to automotive model changes and new model introductions, given the high level of uncertainty due to ongoing tariff disputes, we see the delay of many projects by several of the auto manufacturers, which is impacting our automotive top runners and tool & die end markets. At present, we see such weakness persisting through the first half of 2019, yet remain optimistic that current trade negotiations will be successful resulting in improved second half of the year. At our automation business, our integration efforts are on their way and progressing well. We have laid out our growth initiatives, which include global expansion in multiple geographies, development of new end-of-arm tooling technologies, and deleveraging of customer relationships through our molding solutions businesses.

So as we look out over 2019, we see our industrial segment growing total revenues in the mid-single-digits with organic sales approximately flat and adjusted operating margin in the mid teens though to the lower end of that range. With auto production weakness, we anticipate engineered components sales to be down in low-single-digits both total and organic. In our Force & Motion Control SBU, we expect sales to be up mid-single-digits, primarily from the IGS acquisition and sales growth of Raymond, and organic sales are anticipated to be low-single digits. For molding solutions, we foresee total sales down in the low-single digits with organic sales approximately flat.

Lastly, we anticipate automation sales to be in the range of $62 million to $65 million, up double digits from their 2018 levels. Moving to aerospace, our team had an exceptional year. Both OEM and aftermarket businesses continued to deliver strong financial performance the fourth-quarter sales up 9% over the prior year. Our OEM business is benefiting from the ramp of new engine programs, primarily driven by the LEAP engines for the Airbus A320 and Boeing 737 MAX.

OEM orders were strong in the quarter, up nearly 50% over last year. For the full year, orders grew 15%, leading to a record OEM backlog of $845 million. Our aftermarket business delivered strong sales growth in the quarter with MRO up 15% and spare parts up 12%. Aerospace market fundamentals remain very supportive and we expect a solid year again in 2019.

The OEM growth cycle is anticipated to continue with narrow-body platforms leading the charge. On the aftermarket side, strong passenger demand persists, and with that, continuing high utilization of new and older aircraft. These factors, among others, contribute to our belief that aftermarket will see further growth in the upcoming year. So for 2019, we expect our aerospace revenues to increase in the mid-single digits with operating margins of approximately 20%.

OEM sales growth is anticipated to be up high-single digits; MRO, up low-single-digits; and spare parts, up mid-single-digits. Overall, continued solid growth on top of strong 2018 performance. A final point on aerospace, the 2019 estimates of OEM sales per aircraft of our existing major programs are unchanged from our prior view. One last item, before I conclude my remarks and turn the call over to Chris, I'd like to welcome to Barnes Group, Pat Hurley, our new senior vice president and chief technology officer.

In this newly created position, Pat will develop, lead, and implement strategies that accelerate the adoption of new technologies, product development, and innovation to drive company growth. He brings to Barnes a wealth of diversified industrial experience and proven leadership in the development of new technologies and creative innovation. So to conclude, I would like to once again thank the entire Barnes team for an outstanding year. We are excited about our prospects for 2019 and what the longer-term future holds as we continue to build a world-class company.

Our determination to create long-term profitable growth for Barnes Group and superior value for our customers has never been stronger. At this point, let me turn the call over to Chris, for a discussion on the financial details.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Thank you, Patrick, and good morning, everyone. Let me begin with highlights of our fourth quarter results on Slide 7 of our supplement. I'll also speak briefly on the full-year results, our initial outlook for 2019, and then end with a discussion on our 2020 financial targets. For the fourth quarter, sales were $384 million, up 3%.

Organic sales growth was 2% with negative FX impact of 2% and positive 3% from acquisitions. Net income was $38.8 million or $0.75 per diluted share, compared to a net loss of a $1.10 per diluted share a year ago. On the adjusted basis, EPS was $0.84, up 18%. 2018 fourth-quarter adjusted EPS excludes $0.11 of IGS and Gimatic short-term purchase accounting and acquisition cost adjustments in our industrial segment, and $0.02 per share benefit related to U.S.

Tax Reform. For the fourth quarter of 2017, adjusted EPS excludes a $1.79 charge related to U.S. tax law changes and $0.02 per share charge related to restructuring actions within our industrial segment. For the year, Barnes Group generated sales of $1.5 billion, up 4% from 2017.

Organic sales were up 2% while acquisitions and favorable FX each provided 1%. Net income was $166.2 million or $13.15 per diluted share, compared to a $1.09 per diluted share a year ago. On an adjusted basis, EPS was $3.22, up 12%. Adjusted EPS for 2018 excludes $0.12 of IGS and Gimatic short-term purchase accounting adjustments and transaction costs in our industrial segment and favorable tax adjustments of $0.05 per share related to U.S.

Tax Reform. For 2017, adjusted EPS excludes a $1.77 charge related to tax law changes, $0.03 of [Inaudible] short-term purchase accounting adjustments, and $0.01 benefit from restructuring actions. Moving on to our segment performance beginning with industrial. In the fourth quarter, sales were $255 million, up slightly from last year.

Organic sales decreased 1%, primarily due to the softness in our automotive end markets that Patrick noted. Unfavorable FX decreased sales by 3% while IGS, and Gimatic contributed combined 5% of acquisition revenues. Operating profit was $26.4 million, down 5%. The impact of lower organic sales volume and acquisition-related costs drove the decrease while lower incentive compensation partially offset the decline.

Excluding short-term purchase accounting adjustments and transaction costs in the current quarter, and restructuring actions last year, adjusted operating profit of $32.8 million was up 13% and adjusted operating margins were 12.9%, up 140 basis points. For the full-year, industrial sales were $995 million, up 2% from 2017. Organic sales were down 1% while acquisitions contributed 2% and favorable FX added 1%. Operating profit was $130.4 million, up 6%.

And on adjusted basis, operating profit was $138.3 million, up 4%, and operating margin was 13.9%, up 30 basis points. Moving on to aerospace, fourth-quarter results continued to be very strong, extending a run of excellent performance by the aerospace team with sales $129 million, up 9%; OEM sales increased 7%, given the ramp of new engine programs; and aftermarket sales increased 13% from sustained strength in both MOR, MOR -- MRO and spare parts sales. Operating profit was $25.8 million, up 13%, given the impact of higher sales volumes, partially offset by scheduled price deflation and higher incentive compensation. Operating margin was 20%, up 80 basis points from 19.2% a year ago.

For the full-year, sales were $501 million, up 8% from 2017. Operating profit was $101.4 million, up 21% and operating margins was up 210 basis points to 20.2%. Aerospace total backlog ended the year at a record $858 million, up 19% compared to a year ago and up 5% sequentially from the end of third quarter. For OEM specifically, backlog ended 2018 at $845 million of which we expect to ship approximately 45% over the next 12 months.

Other items to note for the fourth quarter, interest expense increased $800,000 to $4.8 million, primarily due to the Gimatic acquisition funding. Other expense was $2.3 million versus $0.1 million a year ago, primarily driven by FX losses this year versus gains last year. With respect to taxes, the company's 2018 full-year effective tax rate was 19.9% versus 69.6% for 2017. The effective tax rate for 2017 was driven by the significant impact of U.S.

Tax Reform. If you exclude this impact, the effective tax rate would have been 20.2% in 2017. So while there are a number of puts and takes, the adjusted effective tax rate is essentially flat on a year-over-year basis. One further point on taxes, we did realize a lower 2018 effective tax rate than our third quarter outlook due to the granting of a China Tax holiday in the quarter, which contributed $0.07 of EPS improvement.

With respect to share count, our fourth-quarter average diluted shares outstanding were 52.1 million shares, and we did not repurchase any shares in the fourth quarter. For the full year, cash provided by operating activities was $237 million versus $204 million last year. Year-to-date free cash flow, which we define as operating cash flow less capital expenditures, was $180 million, compared to $145 million last year, up 24%. 2018 capital expenditures were $57 million and cash conversion ended strong at 110%.

With respect to the balance sheet, our debt-to-EBITDA ratio increased to 2.6 times at year end, up from 1.7 times from the third quarter, primarily due to the Gimatic acquisition. Under our existing debt covenants, additional borrowings of approximately $330 million of senior debt would be allowed. Turning to our initial 2019 outlook on Slide 8 of our supplement. For 2019, we expect total revenue growth of 4% to 6% with organic sales growth of 1% to 3%.

FX is expected to negatively impact revenues by approximately 1% while acquisitions are anticipated to contribute 4%. Operating margin is forecasted to be in the range of 16% to 16.5%, adjusted EPS is expected to be in the range of $3.25 to $3.40, up 1% to 6% from 2018's adjusted EPS of $3.22. We expect our earnings to be weighted to the second half of the year with a 45% first half, 55% second half split. Also, we envision the first quarter of 2019 to be the lowest EPS quarter of the year, with performance a few cents below last year's first quarter, given the lower auto-related orders received in the fourth quarter and what we have experienced starting out in 2019.

A few other 2019 outlook items: interest expense is anticipated to be between $24 million and $25 million; the effective tax rate is forecasted to be between 23.5% and 24.5%; our CAPEX expectation is for $60 million to $65 million; average diluted shares are forecasted to be between 51 million and 52 million shares; and as is our standing expectation cash conversion is forecasted to be greater than 100%. Turning to Slide 9, let's take a moment to discuss our progress on our three-year financial targets introduced at our inaugural Investor Day in 2017. Collectively, we are driving toward achieving these 2020 targets with a number of variables to highlight. Relative to our September 2017 view, we've seen a stronger aerospace aftermarket, an improved view of the molds business, benefits of global tax management actions, and the benefit of incremental share repurchases.

For the downside, automotive end markets are weaker. There is a heightened level of uncertainty weighing on global trade and we see the China's economy, and its contribution to our growth, slowing. So taken together, our current view, which excludes the impact of our recent acquisitions as well as U.S. Tax Reform benefit, has us generating 2023 organic sales CAGR of 3% to 4%, adjusted operating margins of 17% to 18%, and adjusted three-year EPS CAGR in the high-single digits.

Our cash conversion and ROIC targets remain unchanged. So in summary, we are very pleased with our financial performance in 2018. With the ongoing solid cash generation of our business, we were able to strategically deploy a greater level of capital across the organization, and increase the cash return to shareholders. Notwithstanding the significant capital deployment of 2018, we ended the year with a well-positioned balance sheet that remains supportive of continued growth investments.

And in 2019, we'll continue to seek value-enhancing opportunities to drive further growth and enhance returns. Operator, let's turn the call over to questions. 

Questions and Answers:

Operator

[Operator instructions] Your first question comes from the line of Christopher Glynn from Oppenheimer. Your line is open.

Christopher Glynn -- Oppenheimer and Company Inc. -- Analyst

Thanks. Good morning, guys.

Patrick Dempsey -- President and Chief Executive Officer

Good morning.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Good morning, Chris.

Bill Pitts -- Investor Relations

Good morning.

Christopher Glynn -- Oppenheimer and Company Inc. -- Analyst

So yes, cut to your comments on industrial margin outlook for next year, I don't know if you stated one for aerospace but curious as we look at 2019. I think you have positives from volume and learning curve and then you're contending with maybe a slight mix shift toward OEM price deflation but your margin run rates pretty status quo there at aerospace?

Patrick Dempsey -- President and Chief Executive Officer

Yes, what we indicated was that operating margins for 2019 in terms of our guidance would be 20% -- approximately 20%.

Christopher Glynn -- Oppenheimer and Company Inc. -- Analyst

OK. Thank you for that. And then for the industrial mark -- margins for 2018, it looks like the emergence from some of the footprint moves was a bit more halting than expected. I know there was a little bit of end market turmoil but what's the status of productivity and how the footprint performance has come out of a couple of the production moves that started in 2017?

Patrick Dempsey -- President and Chief Executive Officer

So as you reference, we made a decision in 2017 or early 2018 to make a footprint consolidation with respect to one of our associated Spring facilities and move that into some of our other locations that has effectively been completed at this point. Overall, the team did a very nice job, achieved the productivity that we had hoped for. But coming up a little shy, I would say, in terms of the targets we've set against them. But net-net, it's pretty much behind us now and the business is completely ingested into the other locations.

Christopher Glynn -- Oppenheimer and Company Inc. -- Analyst

OK. And then [Inaudible]?

Patrick Dempsey -- President and Chief Executive Officer

[Inaudible] continues to be a great story in terms of its integration into Barnes over the last couple of years with margin improvement continuing into 2018. And had been on target to the goals we've set out, which, as you know, there we had also identified from the very onset a roadmap to margin improvement, including the consolidation there as well of one facility and a purging of backlogs that had been in the system at what we felt was below market pricing.

Christopher Glynn -- Oppenheimer and Company Inc. -- Analyst

Great. Thanks for that color.

Patrick Dempsey -- President and Chief Executive Officer

Thank you.

Operator

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

Myles Walton -- UBS -- Analyst

Thanks. Good morning. Maybe --

Patrick Dempsey -- President and Chief Executive Officer

Good morning, Myles.

Myles Walton -- UBS -- Analyst

First, Patrick, can you comment on how you're looking at the recovery or just how you're looking at the auto market through the course of the year? It sounded like you may be building an improved outlook for second half but you're building into the first quarter kind of the softness you saw in fourth quarter continuing. So just how much improvement are you building into the expectation for the 2019 outlook?

Patrick Dempsey -- President and Chief Executive Officer

So, as Chris mentioned, what we're looking at in terms of the full year is a split in terms of our guidance of 45% in the first half, 55% in the second half. Around that, the primary driver is reflected in our outlook on the automotive end markets. The challenge we saw in the fourth quarter was not so much auto production, albeit that was a factor in our engineered components businesses but it was moreover the impact of trade tensions and the tariffs issue on our businesses that are impacted by module changes and/or product launches. And there, what we saw was a holding back by a number of the OEM manufacturers with programs that were in the pipeline but have not been launched.

And I think everybody is waiting for the dust to settle, so to speak, in terms of the current negotiations to give that much more certainty. So subsequently, we're looking at a softer first half and a stronger second half with a view to the fact that those programs would be released assuming that trade negotiations are successful, which we're optimistic about.

Myles Walton -- UBS -- Analyst

OK. So that molding solutions flat out like organically, particularly in [Inaudible] that some of this tension in the system around model changes relaxes and we kind of go back to what the plans originally were for model changeovers in the second half?

Patrick Dempsey -- President and Chief Executive Officer

That's correct. And on the other side of it, within molding solutions, we see strength in the mold side of the business, where orders have continued to be strong and backlog remains healthy to support the 2019 outlook.

Myles Walton -- UBS -- Analyst

And then just one other one, so the 2020 margins of 17% to 18%, do you -- I mean it seems like most of that heavy lifting would have to be in industrial between '19 and '20. Where is that going to rise itself from to make you kind of feel comfortable getting to the 17% levels?

Patrick Dempsey -- President and Chief Executive Officer

Yes, so relative to the 2020 targets, what you saw in our earnings supplement was the identification of what we saw with the key drivers to the upside and the downside. And in that, the assumptions are that aerospace will continue its strength, which is being a wonderful story for us, and really was part of the outlook for the 2020 targets right from the onset. The area, I think, that provided headwind into our outlook for 2020 and has required us to come down a little on the margin outlook is on the industrial side, primarily around the automotive end markets. As we look to 2020 and we're -- and we look at the current headwinds been experienced, a big area of focus for us is the management of productivity and costs.

And so even though we might expect some headwinds in terms of top line, the teams are working aggressively to manage the overall cost structure with a view to driving and maintaining improvement in margins.

Myles Walton -- UBS -- Analyst

OK. And last one, Chris, on the tax rate at this rate for 2019 good to be using for 2020 as well?

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Yes, it's in that ballpark maybe a little bit of pressure based on the global mix of earnings but I would say it's a pretty decent rate to use for 2020.

Myles Walton -- UBS -- Analyst

OK. Thanks, guys.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Thank you.

Patrick Dempsey -- President and Chief Executive Officer

Thank, Myles.

Operator

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

Edward Marshall -- Sidoti and Company -- Analyst

Hey, guys. How are you? Good morning.

Patrick Dempsey -- President and Chief Executive Officer

Good morning, Ed.

Edward Marshall -- Sidoti and Company -- Analyst

So I wanted to touch on the consolidated margin outlook that you have, flat to up 50 basis points for 2019. And I'm curious how much of that is, say, mix higher aero, higher molding solutions as a portion of the mix? Looking at 1% to 3% growth, I'm not assuming you're getting much absorption, so I just kind of want to walk through maybe some of your thoughts to what might be driving that improvement aside from mix that we can kind of -- we can highlight here today. Thanks.

Patrick Dempsey -- President and Chief Executive Officer

So the mix is a factor in that clearly we're looking at the flat side of things being associated with lower -- a lower start to the first half of the year within two of our higher margin businesses being the auto molding business as well as the Tool & Die business. With that, we're looking at as strengthening over the course of the year, in alignment with the commentary, I just made around tariffs. The other area that is the primary driver outside of flow-through from any top line is -- and mix is the emphasis on productivity and costs given the challenge on the top line.

Edward Marshall -- Sidoti and Company -- Analyst

OK. So it sounds like the majority of that, which is a noticeable increase 50 basis points on the flattish organic outlook, is really related to mix, it sounds like, with some productivity enhancements in across the businesses. Is that fair?

Patrick Dempsey -- President and Chief Executive Officer

That's fair.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Yes. And I would add that the strength of our aerospace business and the continued strength of aftermarket and the margin profile, we're clearly counting on for the full year and there's no reason to believe that CSM and CSX actually are not going to continue that strength throughout the year. So we've got the top line in terms of MRO being low-single digits, RSPs mid-single-digits. So aerospace is looking green.

There's nothing that causes us pause. On the industrial side, of note, is just the settlement of what we mentioned before. We are working in as we do every year, the cost productivity actions and just leveraging our Barnes Enterprise Systems to drive margin enhancements. So although this year is 16% to 16.5%, it is not so much dependent on volume as we're indicating, it's basically valued on the productivity actions that we drive throughout the organization.

Edward Marshall -- Sidoti and Company -- Analyst

Great. That's what I thought -- I hope you would say. On the Gimatic, I don't know that we've talked too much about it today. I want to see if we can get some -- what was the performance for in the fourth quarter and ultimately the forecast for 2019.

Is that $62 million to $65 million all Gimatic? Thanks.

Patrick Dempsey -- President and Chief Executive Officer

Yes, the $62 million to $65 million is relative to the Gimatic business. We -- under our ownership of the business, did approximately $9 million in the last couple of months of the year. We continue to be very pleased with the integration efforts of that entire business with the Barnes team. And again, what we're excited about is the plans that we've put in place relative to driving continued growth of that business, especially in terms of working with the molding solutions sales force as a lot of the customers overlap and we see that as an added benefit and advantage in the two teams working together.

Edward Marshall -- Sidoti and Company -- Analyst

Could you highlight maybe the margin contribution for that business for '19 and maybe what's embedded from an accretion standpoint in your EPS outlook?

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Yes, so let me take that. So from an acquisition point of view, the contribution of Gimatic is a 40-plus percent EBITDA margin business. And operationally, what we see going into 2019 is we're very consistent with what we communicated in the November time frame. So it's going to be a nice lift.

And we -- I would categorize the $0.08 to $0.12 a little bit on the lower end of that range, primarily to items that are below the line -- below their operating performance contribution. It has to do with taxes interest expense, other things that are really non-operational. But that that assessment of EPS performance for Gimatic's contribution to our 2019 guidance is reflected in our outlook.

Edward Marshall -- Sidoti and Company -- Analyst

Got it. And the final question from me, I want to just take a longer look at aerospace, as we tried to look out with the 9X, GE9X coming. I wanted to put it in terms of maybe the GE90, if I could. Now you've got about 900,000 in content was up as high as 1.1, but where did that program start, the GE90? And is there any reference that we could use from that that might relate to the GE9X?

Patrick Dempsey -- President and Chief Executive Officer

Well, as you highlighted, the GE90, in its day was one of the most successful programs in Barnes with that million dollar approximate OEM sales per aircraft. As we think about the GE9X, we're not in that same ballpark in terms of outlook, and the reason being is because that the GE9X differently -- different to the Base GE90 was parceled out on the risk and revenue sharing programs to partners, who subsequently in doing so, took a portion of the volume that originally belonged to GE and that we were the primary source for -- took that off the table. So we're continuing to work the GE9X, it's still a opportunity that we're excited about, but just relative terms not in the same vein as the base GE90 content wise.

Edward Marshall -- Sidoti and Company -- Analyst

Got it. Is there anything to kind of infer from that discussion that your relationship with that OEM might be changing due to some of the near-term problems that they've had or just giving you kind of the opportunity to do any --

Patrick Dempsey -- President and Chief Executive Officer

None whatsoever. There's no correlation there whatsoever. Our relationship, I believe, is stronger than ever and continued to build on the past performance and relationship, and we couldn't be more excited about the strategy in terms of moving forward as a strategic partner on both the LEAP, the GE9X and other programs that we continue to work.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

In fact, I would add on the -- although the GE9X engine is a different kind of outlook as it relates to relationships with partners that GE is pursuing, these risk revenue sharing program partners provides us an opportunity, not necessarily to win that work directly with GE, but actually our relationships with the risk revenue sharing partners as well. So we're very conscious of what's out there and looking to the aerospace team looking at opportunities.

Edward Marshall -- Sidoti and Company -- Analyst

Great. That's good insight. Thanks, guys. I appreciate all your comments today.

Thank you.

Patrick Dempsey -- President and Chief Executive Officer

Thanks, Ed.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Thanks, Ed.

Bill Pitts -- Investor Relations

Thanks, Ed.

Operator

Your next question comes from the line of Michael Ciarmoli from SunTrust. Your line is open.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Hey. Good morning, guys. Thanks for taking the questions here.

Patrick Dempsey -- President and Chief Executive Officer

Good morning.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Good morning.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Chris or Patrick, I mean, I'm just -- I'm looking at the outlook here, more second half weighted in 2019, it would just optically appear you, guys, are calling for more strength in the face of a slowdown. I mean, industrial fundamentals are weakening. I'm looking at the backlog for you, guys. That was down 21% sequentially.

There's a lot of unknowns outside of tariffs between Brexit, global elections. I mean, I'm just trying to get a sense. Is this more of an optimistic view or do you have a good line of sight into the order flow that's going to give you the second half strength, especially in industrial and then even on Aero, I know everything looks good today but what happens if traffic decelerates? I mean, we're seeing profit warnings from the airlines already, so aftermarket tends to turn on a dime when it does. So I'm just trying to figure out what kind of visibility you have into that second half.

Patrick Dempsey -- President and Chief Executive Officer

Yes, good question, Michael. And what I think how I'd address it is if you break down the business into how we look at it which is both a long cycle and short cycle businesses. The longer cycle businesses within our portfolio there are some within industrial and some with -- and obviously some within aerospace. In the aerospace side of the equation clearly we have good visibility for this year and next with respect to our OEM side of the equation, so the new production side.

On the aftermarket to your point, it is a shorter cycle business and is subject to turning. So the visibility there is a little less than on the OEM side. That said, what we look at is the strength of the two programs that we're operating on which is the CFM56 is the primary driver of our aftermarket. And that program, as you know, is the workers of the narrow-body aircraft.

And so, flight hours against that engine continued to be robust and outlook relative to shop visits also look at a trajectory of mid-single-digit growth between now and the mid-2020s. So again subject to an exogenous event, all the fundamentals continues to remain positive for the aerospace side. On the industrial side, it's a mixture of long cycle and short cycle but nowhere near long cycle as it pertains to aerospace because what we're looking at as long cycle in industrial businesses is six to nine months. And that backlog is primarily around the Molds business because of the nature of that product line and the lead times with product launches.

There's a more visibility given to that side of the business. The opposite side of the business is the short cycle, which is what we're experiencing now in terms of some of the headwinds. So as automotive has taken some pressure in the fourth quarter and into the start of the year, it's reflecting almost immediately into our auto molding businesses as well as our Tool & Die businesses. And so to your point, we are looking at those recovering in the second half in our outlook, primarily driven by feedback we're receiving from customers, who have expressed hesitancy and pause relative to the uncertainty around tariffs.

And so once that clears, the general feedback we're receiving is that that will allow the release of some of the product launches and model changes that are in the pipeline.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

OK. OK. And then what about, I mean, even I just want to make sure I have the math correct here, on the 2020 target, you take the organic revenue CAGR to 3% to 4% but if I've got the numbers and I know you did 11% in '17 but, I guess, the year or that forecast period started in 2018, you did 2% at the mid- or 2% you're going to do 2% at the midpoint. I mean, you're going to have to see growth acceleration on organic level at 5% plus to make that obviously it's a ways out.

But given what you just said on the GE90, the shift to the 777X, you're going to have probably an [Inaudible] OEM headwind there, not sure what are the rate increases would materialize. We're going to be at 57 on the 777, is that -- am I looking at that the right way that that organic growth needs to accelerate up to 5% or higher to get to that forecast zone?

Patrick Dempsey -- President and Chief Executive Officer

Well, the growth rates that we've indicated, we think can support the margins that we're also indicating, but it will come from a combination of contribution from some top line as Chris referenced earlier also with a key focus on management of productivity and costs, those two factors. The -- relative to your comments on some of the headwinds pertaining to, say, the GE9X or so forth, the GE9X at this juncture represents upside to us not necessarily downside because what we have -- what you see reflected in our current revenues is the decline of the Base GE90 down to levels now that are very low but seem to be stabilizing. Subsequently at those lower levels it's been offset by the increase in volumes in the LEAP program. So the team has done a wonderful job of what could have been a challenge to our aerospace top line over a transition from older aircraft to newer aircraft to actually power through it very successfully.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. All right, guys. Perfect. I will jump back in the queue here.

Patrick Dempsey -- President and Chief Executive Officer

Thank you.

Operator

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

Josh Chan -- Robert W. Baird and Company -- Analyst

Hi. Good morning, Patrick, Chris, and Bill.

Patrick Dempsey -- President and Chief Executive Officer

Good morning.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Good morning.

Bill Pitts -- Investor Relations

Good morning, Josh.

Josh Chan -- Robert W. Baird and Company -- Analyst

Hi. Good morning. So I just wanted to ask about the margins in Q4 because, I guess, looking at your guidance as of Q3 and what transpired, it seems like margins were a little softer in the quarter than you had envisioned. So just wonder, if you can talk about what drove that and maybe that'll give a little bit of color on whether some of the headwinds might dissipate into '19?

Patrick Dempsey -- President and Chief Executive Officer

Sure. Well, fourth-quarter margins in particular relative to our business was industrial was the area that we saw pressure. And the primary driver there was the automotive end markets where really the impact on volume and the corresponding flow through of that and subsequently us coming up a little shorter on productivity than we had anticipated as a result of that top-line pressure as well.

Josh Chan -- Robert W. Baird and Company -- Analyst

OK. And then, I guess, within auto markets probably being softer entering into the first half of '19 that that phenomenon likely continues. Is that the right way to think about it?

Patrick Dempsey -- President and Chief Executive Officer

Yes. I would say that our margins will be under pressure compared to our run rates in the first half of the year with a view to improving as we execute on actions that have been laid out for the full year as well as the planned uplift in the second half, as I highlighted, around the proposed resolution of tariff dispute.

Josh Chan -- Robert W. Baird and Company -- Analyst

OK. That makes sense. And then kind of following up on a previous question about sort of the cadence of the year, I guess, relative to the flat forecast for Molding for 2019, I guess, how weak is the first half and then how strong is the recovery that you're expecting in the second half? Just some kind of ballpark would be helpful. Thanks.

Patrick Dempsey -- President and Chief Executive Officer

Yes, so the businesses have collectively looked at the full year relative to their interactions with different customers and so again it really is a case of where on both the auto molding side as well as the Tool & Die side the outlook for second half is a step-up over first half, driven primarily by the release of those programs that I mentioned. It's not insignificant in terms of the fact that we did see all the auto molding and Tool & Die received the biggest impact in Q4 and that the decline that we saw was primarily driven by those two businesses. So again as we move into the first half, those two are buoyed by the strength in our molds, which is the offsetting part of the industrial business.

Josh Chan -- Robert W. Baird and Company -- Analyst

OK. All right. And then, lastly just a modeling question for Chris, relative to your comment about the Q1 EPS, is the tax rate that's assumed in Q1 similar to the full year or is any dynamic to note there on the tax rate in Q1?

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Yes -- no, no, no change on that one, similar rate.

Josh Chan -- Robert W. Baird and Company -- Analyst

OK. All right. Thanks for your time.

Patrick Dempsey -- President and Chief Executive Officer

Thank you.

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Thanks, Josh.

Bill Pitts -- Investor Relations

Thank you.

Operator

[Operator instructions] There are no further questions at this time. I turn the call back over to the presenters.

Bill Pitts -- Investor Relations

Thank you. We would like to thank all of you today for joining us and we look forward to speaking with you next in April with our first-quarter 2019 earnings call. Operator, we will now conclude today's call.

Operator

[Operator signoff]

Duration: 55 minutes

Call Participants:

Bill Pitts -- Investor Relations

Patrick Dempsey -- President and Chief Executive Officer

Chris Stephens -- Senior Vice President of Finance and Chief Financial Officer

Christopher Glynn -- Oppenheimer and Company Inc. -- Analyst

Myles Walton -- UBS -- Analyst

Edward Marshall -- Sidoti and Company -- Analyst

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Josh Chan -- Robert W. Baird and Company -- Analyst

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