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Barnes Group Inc  (NYSE:B)
Q1 2019 Earnings Call
April 26, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Barnes Group Inc. First Quarter 2019 Earnings Conference Call. (Operator Instructions) Thank you. Bill Pitts, Director of Investor Relations, you may begin your conference.

William Pitts -- Director of Investor Relations

Thank you, Casey. Good morning, everyone, and thank you for joining us for our first quarter 2019 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 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 Securities and Exchange Commission. 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 first quarter results and our updated 2019 outlook. After that, we'll open up the call for questions. Patrick?

Patrick J. Dempsey -- President & Chief Executive Officer

Thanks, Bill, and good morning, everyone. To begin 2019, Barnes Group generated a solid quarter in the face of challenging headwinds in certain of our important end markets. The ability of the company to deliver such performance speaks to the strength of our growth strategy and to the benefits derived from our ongoing portfolio transformation. Our focus on being a world-class provider of highly engineered products, differentiated industrial technologies and innovative solutions across many industries allows us to weather such challenges.

And while we're not immune to economic or market pressures, efforts to broaden our end markets into new applications such as personal care, medical, packaging and automation allow us to power forward. In the first quarter, that dynamic is clearly evident as strength in our Aerospace segment and certain end markets in our Industrial segment helped to offset softness in other parts of Industrial. First quarter revenues grew 3% with organic sales up 1%. Adjusted operating income declined 4% while adjusted operating margin fell 90 basis point to 14.5% given market softness experienced in some of our better-margin businesses. Adjusted earnings per share were $0.71, down $0.01 from a year ago.

Let me now talk about our business performance in various end markets, beginning with Industrial where total sales were down 1% and organic sales declined 4%. At Molding Solutions, sales declined 10% over last year's first quarter while organic sales declined 3%. Softness in demand for automotive hot runners was driven by delays in automotive model changes and new model introductions primarily as a result of uncertainty caused by ongoing trade and tariff concerns.

Accordingly, order activity has been muted although March quoting activity has improved and our expectation is for that momentum to build throughout 2019. Our internal view aligns with industry expectations for second half improvement following the soft start at the beginning of the year. Our molds business, on the other hand, continues to benefit from strong demand in personal care and medical markets. Collectively, these businesses achieved over a 20% increase in organic sales over last year's first quarter and strong sales performance is expected to continue throughout the year. So for Molding Solutions overall, we continue to anticipate full year organic growth to be approximately flat as compared to 2018.

At Force & Motion Control, this newly formed SBU serves 2 primary end markets: tool and die, approximately 60% of sales; and general industrial, approximately 40% of sales. Within the tool and die end market, delays of new programs have resulted in softness. Providing a commercial buffer, our general industrial end market has shown strength. Overall orders are down year-over-year and organic sales were flat. However, on a sequential basis, relative to the fourth quarter, both organic orders and sales have improved. Our expectation is that the market is stabilizing and we anticipate improvement in the second half. For 2019, we now anticipate total sales to be up low single digits and organic growth to be approximately flat, both slightly lower as compared to our previous outlook. At Engineered Components, organic sales declined 7% as the auto production market weighed on performance.

While global auto production remains at a relatively high level, we do expect 2019 production to be down approximately 1%. Our 2 largest regions, North America and Europe, are both expected to see a second consecutive year of modest decline. Offsetting auto softness, to a degree, are general industrial and other transportation markets. For 2019, our revenue outlook anticipates organic growth to be down low single digits, consistent with our prior view. At Automation, our integration efforts are progressing well. We are diligently working our global growth initiatives, advancing new end-of-arm tooling technologies and leveraging customer relationships through our Molding Solutions businesses. We continue to work our pipeline of potential acquisition opportunities in automation as we look to expand our business in this market. In early 2019, we've seen lower-than-anticipated revenues primarily from softness in new automotive programs. For the full year, we now expect Automation sales to be approximately $62 million, at the lower end of our previous range.

Overall, our full year organic revenue outlook for the Industrial segment remains in line with 2018 levels. Forecasted adjusted operating margin is expected to be in the low teens, down slightly from our prior view. To wrap up my discussion on Industrial. Our ongoing analysis on the demand environment has our teams squarely focused on upside opportunities while closely managing costs. In order to better align our production with current market conditions, this has necessitated the implementation of a wide range of cost-saving initiatives including adjustments to the workforce. We will continue to analyze our competitive position in the industries we serve and we look to take further actions as needed. Moving to Aerospace. Excellent execution and strong industry fundamentals have provided another quarter of record revenues and operating profit. Total sales were up 11% as compared to a year ago as ramping LEAP engine programs drove OEM growth in the high single digits, while strength for both MRO and spare parts drove mid-teen sales growth in the aftermarket.

Operating margin in the segment was very strong at 21.7%, up 160 basis points from last year. We continue to be confident about the aerospace market and our position within the industry as strong commercial aircraft deliveries are forecasted to continue over the next several years and demand for aftermarket services and spare parts, especially on programs like the CFM56 remain robust. For OEM, as it relates to the grounding of the Boeing 737 MAX, we do not anticipate any meaningful impact in the short term. For this aircraft, most of our content is on the LEAP B engine for which our customer expects no changes in production cadence at this time. However, we will continue to monitor the situation closely. For the full year, we forecast Aerospace revenues to increase in the mid- to high single digits with operating margins in the low 20% range. OEM sales growth is anticipated to be up high single digits, consistent with our prior view.

For the aftermarket, MRO growth is now anticipated to be up mid-single digits and spare parts up mid- to high single digits, each stronger than our February outlook. So to conclude, we believe that 2019 overall will be another year of revenue growth for Barnes Group. Sustained Aerospace strength is expected to continue while improvement with Industrial is anticipated to gain momentum in the second half. We'll continue to strategically invest in our businesses, looking to support growth opportunities over the long term and enabling us to respond quickly to improving conditions. Our resolve to deliver on performance commitments and to create long-term value for our stakeholders remains steadfast. Now let me turn the call over to Chris for a discussion on the financial details.

Christopher J. Stephens --

Thank you, Patrick, and good morning, everyone. Let me begin with highlights of our first quarter results on Slide 4 of our supplement and then move to a discussion on our updated outlook for 2019. For the first quarter, sales were $377 million, up 3% over the prior year period. Organic sales growth was 1% with a negative FX impact of 3% and a positive 5% contribution from our IGS and Gimatic acquisitions. Operating income was $50.6 million, down 11%. Excluding $4 million of Gimatic short-term purchase accounting adjustments, adjusted operating income declined 4% to $54.6 million.

Adjusted operating margin was 14.5%, down 90 basis points. Interest expense was $5.1 million, up $1.2 million from a year ago due to an increase in our outstanding debt as a result of the Gimatic acquisition partially offset by a lower average interest rate. Other expense of $1.8 million was essentially unchanged from last year. With respect to taxes. The company's effective tax rate was 22.3% for the first quarter of 2019 as compared to 23.9% for the prior year period. Net income was $34 million or $0.65 per diluted share, compared to $38.8 million or $0.72 per diluted share a year ago. Excluding $0.06 of Gimatic short-term purchase accounting adjustments in the current quarter, adjusted net income per share was $0.71, down 1%.

With respect to share count. Our fourth quarter average diluted shares outstanding was 52.2 million shares. We did not repurchase shares in the first quarter under our existing authorization but on the related note, this week, Board of Directors authorized a repurchase of up to 5 million shares of Barnes Group common stock and this action adds an additional 3.5 million shares to the remaining 1.5 million shares under the 2016 stock repurchase authorization. For the quarter, cash provided by operating activities was $53 million versus $30 million last year primarily driven by working capital improvements, which was a source of cash this year versus a use of cash a year ago. Free cash flow, which we define as operating cash flow less capital expenditures, was $39 million compared to $19 million last year.

First quarter capital expenditures were $13.7 million, up $2.5 million over last year. With respect to the balance sheet. Our debt-to-EBITDA ratio was 2.5x, down slightly from year-end. Under our existing debt covenants, additional borrowing of 340 -- of approximately $340 million of senior debt would be allowed. One detailed item related to the balance sheet is with the adoption and of the new lease accounting guidance, you'll note a $30 million increase in other assets for the establishment of right-of-use assets and a corresponding increase in accrued and other liabilities to reflect the lease liability. Moving now to our segment performance, beginning with Industrial. In the first quarter, sales were $243 million, down 1% from last year. Organic sales decreased 4% primarily due to continued softness in our automotive end markets, both production oriented and model changes.

Unfavorable FX decreased sales by 5% while IGS and Gimatic contributed a combined 7% of acquisition revenues. In the current quarter, we received commercial settlement of a patent-related matter benefiting revenues by $2.6 million. Operating profit was $21.5 million, down 34% primarily driven by the impacts of lower organic sales volumes, unfavorable productivity driven by the costs associated with the workforce -- a reduction in workforce and short-term purchase accounting adjustments. As noted in our press release the operating profit benefit of the commercial settlement in Force & Motion control substantially offset the workforce reduction costs in the quarter. Excluding Gimatic short-term purchase accounting adjustments in the current quarter, adjusted operating profit of $25.5 million was down 21%. And adjusted operating margin was 10.5%, down 270 basis points. Moving to Aerospace. First quarter results were once again very solid with sales of $134 million, up 11%. OEM sales increased 9% given the ramp of new engine programs. And aftermarket sales increased 16% from sustained strength in both our MRO and spare part businesses.

Operating profit was $29.1 million or 20% from the profit contribution of higher sales volumes. Operating margin was 21.7%, which was up 160 basis points from 20.1% a year ago. So a very clean quarter, with sales leverage delivering the performance. Aerospace total backlog ended the quarter at $817 million, up 10% compared from a year ago and down 5% sequentially from 2018 year-end. For OEM specifically, backlog decreased to $804 million from $845 million at year-end, though remains very healthy. We did see some out-year order activity moving around, which we view as normal customer order management and anticipate much of that to come back.

We expect to ship approximately 50% of our Aerospace backlog over the next 12 months. Turning to our updated 2019 outlook on Slide 5 of our supplement. We continue to expect total revenue growth of 4% to 6% with organic sales growth of 1% to 3%, FX to negatively impact revenues by approximately 1% and acquisition revenues to contribute approximately 4%. Adjusted operating margin is now forecasted to be in the range of 15.5% to 16%, down slightly from our previous view. Adjusted EPS is now expected to be in the range of $3.23 to $3.35, approximately flat to up 4% from 2018's adjusted EPS of $3.22.

We still expect our earnings to be weighted to the second half of the year with a 45% first half-55% second half split. Interest expense is anticipated to be approximately $20 million, a bit more favorable than our prior view. A few other items, none of which have changed from our previous guidance is 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 in the range between 51 million and 52 million shares. And cash conversion is forecasted to be greater than 100%. So in summary, the sustained strength of our Aerospace is helping to overcome softness in some of our Industrial end markets as necessary actions have and will be taken to ensure the business' cost structure for today's economic realities. We have deep conviction in our growth strategy. And with strong cash generation and ongoing investments to propel growth, we believe that Barnes Group is well positioned to perform as certain of our Industrial end markets regain strength and build momentum. Casey, we will now open the call for questions.

Questions and Answers:

Operator

(Operator Instructions) And your first question comes from Edward Marshall with Sidoti & Company. Please go ahead, your line is open.

Edward Marshall -- Sidoti & Company -- Analyst

Hey, good morning guys, how is everyone? So I wanted to start with Industrial and specifically the margin. With the productivity within Barnes enterprise and your end market mix and maybe some higher-margin businesses including the Automation, I'm surprised you came in around 10.5% in Q1. One, is there anything isolated to the Q1 numbers? I did -- I think I heard you say kind of low teens for the full year, which suggests maybe this is the low point. But can you kind of walk me through some of the dynamics that may have impacted Q1 and your outlook for the full year?

Patrick J. Dempsey -- President & Chief Executive Officer

Absolutely. So Q1, Ed, I would suggest was impacted primarily by our automotive hot runner business as well as tool and die to a lesser extent with -- so 2 higher-margin businesses, which saw some significant pressure in the quarter and subsequently what you see is, in the margins, that flowed through to the overall results. What you have with Synventive, which is the hot runner business -- automotive hot runner business, they are the market leader in that space. And as a result, with the deferral of model changes and new model introductions, they really took the brunt of it, so to speak. So those two are really the contributor and the corresponding impact of those lower volumes from a top line perspective flowing through to the bottom.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. And you talked about a second half improvement in both hot runners as well as in the tool and die kind of comments. As you worked through the quarter, January through March, and maybe even now that we're into April, can you talk about the cadence of orders? Have you seen kind of at least the -- maybe the flattening out of the decline and/or pickup for the second half of the year?

Patrick J. Dempsey -- President & Chief Executive Officer

It's a great point. And what we saw, specifically in our tool and die business, was effectively a stabilizing effect throughout the quarter. And so that, coupled with continued feedback from the customer base, is such that the general consensus is -- one of which is first quarter represents what they think is the low point. And at that low point, as you said, throughout the quarter, we saw a stabilization in terms of orders. On the Synventive, our hot runner side -- the automotive hot runner side, what we saw was a slow start to the year in January or February and then a pickup began in March in terms of quoting activity. So we saw an uplift toward the end of the quarter, but clearly, a slow start in January and February.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. And the low teen guidance that I think you said for the margin on the Industrial, how much of that -- do I call it a recovery? I don't know. But how much of that is related to the market? And how much of that is related to maybe your cost-saving programs? I'm just trying to get a sense as to where to build the confidence behind those things.

Patrick J. Dempsey -- President & Chief Executive Officer

Yes. Well, to your point, there's a -- it's a combination of the two. And as noted in our prepared remarks, you see that we did take some charges in the first quarter in terms of looking to align the businesses commensurate to what we see as the outlook for revenues for the rest of the year. So with that, we will see savings come back through the end -- through the rest of the year. And also, we'll continue to monitor that closely.

So as we continue to monitor performance over the course of each month and if that doesn't align with what our expectations are, we will act accordingly. That said, we are looking to the back half of the year as an uptick in terms of the market as well primarily within the automotive side of the business, particularly in terms of model refreshes and model launches being released. And we've gotten good indications from our customers in that respect as well where the teams are actively engaged with the customers talking about programs that they want to bring to fruition to the second half of the year and they want to be sure that we're prepared for them.

Operator

Your next question comes from Michael Ciarmoli with SunTrust. Please go ahead, your line is open.

Michael Ciarmoli -- SunTrust -- Analyst

Hey, good morning guys. Thanks for taking the questions. Maybe not the hard part on it, but I'm probably going to stay on the same line of questions as Ed here. I mean just -- can you guys -- I think when you gave the initial guidance for 2019 last quarter, you talked about embedding some sort of resolution on trade and tariffs. Is that still the expectation for this year in kind of driving some of that second half improvement?

Patrick J. Dempsey -- President & Chief Executive Officer

Good morning.Yes. We believe that the current disputes and the ongoing negotiations with another delegation heading away at the end of this week, as you know, and then subsequent Chinese delegation expected here in the first couple of weeks of May, we're encouraged by that level of activity. And so we are in the camp that there will be a resolution to some of these disputes. And with that, not that there will be an immediate lift of those tariffs but that there will be a lift of the uncertainty that's hanging over our customer base with a view to them moving forward with more confidence in terms of their business investments.

Michael Ciarmoli -- SunTrust -- Analyst

So when do you guys need to -- when does the lack of a trade resolution become a risk to the guidance?

Patrick J. Dempsey -- President & Chief Executive Officer

We'll continue to monitor -- yes, we'll continue monitor throughout the year, but right now we have -- it's baked in into the second half of the year, has been a contributor to the uplift and that's in our guidance.

Christopher J. Stephens --

And Mike, I would add to that, that it's relatively shorter-cycle businesses so we would, both from our Nitrogen Gas Products business that's being impacted as well as the automotive hot runner side is that when that spigot turns on, if you will, we would expect the order activity to increase. And you're talking anywhere from maybe 3 to 6 months of us realizing the benefits of that uptick. So we're coming here to the end of April. May and June will be very important. We clearly are still relying on that second half recovery, which is our 45%-55% split on the EPS side. But I did just want to reiterate that, that is shorter cycle, not terribly long cycle, and we would expect that could bounce back pretty quick. At least that's our expectation.

Michael Ciarmoli -- SunTrust -- Analyst

Okay. It just seems like some of the other bigger bellwethers out there are calling for continued pressure and I'm just trying to get a sense. You're calling it short cycle. So I guess there still isn't much visibility into that second half. I mean, you've obviously got the Aero backlog, but most of this is going to be shorter cycle that could move in flux with the global markets here?

Patrick J. Dempsey -- President & Chief Executive Officer

So if you look at what makes up our business, Mike, relative to our outlook in terms of where the strength is coming from and where the confidence is coming from in end markets that we're serving, what you heard me mention was that in the first quarter, we saw a 20%-plus organic growth in our mold side of the business within Molding Solutions. And there, that's been driven by medical and personal care end markets. So we're seeing some really nice strength coming from that business. And continued order activity as well, which it's a little longer cycle than the short-cycle businesses Chris referenced. But nonetheless, the team is -- remains very confident in terms of the order activity that's coming through and the quoting activity in that business. And because we have a stronger backlog on the mold side versus the hot runners, which are more short cycle, we get a little bit more -- greater visibility in that regard. And then with the Aerospace side of the house, as you know, we've gone from strength to strength and the team there has just executed flawlessly and they expect that to continue throughout the year as has the aftermarket continued to be buoyant as well and that clearly has helped.

Michael Ciarmoli -- SunTrust -- Analyst

Okay. And then last one and I'll get out of the way here, just on Industrial, geographically, any notable changes in Europe, in APAC? I mean, are you seeing any -- based on current booking rates, are you seeing improvements in any geographies? Are you seeing continuation in trends? Any erosion? Any color you can provide there?

Patrick J. Dempsey -- President & Chief Executive Officer

Sure. With regard to the 3 regions, North America, I would argue, has been the most stable in terms of just continues to be where we see general industrial, as an example, continuing to hold on its own. We've seen downward pressure in Europe. And in the fourth quarter, coming into the first part of the year we saw a lot of pressure in China. The good news with China again is that we're seeing that activity pick back up toward the back end of the quarter. And so in terms of where we've seen the most pressure, I would categorize it as Asia, Europe second; and to the positive, North America.

Michael Ciarmoli -- SunTrust -- Analyst

Got it. Thanks a lot guys. I'll jump back in queue.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

Operator

Your next question come from Christopher Glynn with Oppenheimer. Please go ahead, your line is open.

Christopher J. Stephens --

Yeah. Thank you. Good morning.

Patrick J. Dempsey -- President & Chief Executive Officer

Good morning, Chris.

Christopher J. Stephens --

Good morning, Chris.So curious about your comments about Synventive getting good indications from customers with respect to the second half. Curious how you characterize how tangible those conversations tend to be versus speculative element because the customers stay engaged with what they might do as well as what they're going to do.

Patrick J. Dempsey -- President & Chief Executive Officer

I think the teams -- our sales teams and the business leaders are actively engaged with the major customers in each of the regions on a weekly basis. And to that end, they feel confident that these discussions are grounded more in intent to move forward as opposed to the speculative side of ensuring the capacity is there. I think the question of capacity isn't an issue. It's whether will our business and will the industry be ready once there is an uptick as opposed to having maybe contracted or restrained itself to the extreme.

Christopher J. Stephens --

And if it pushes out further, would you describe prospective linearity as that much more in 2020 on a hypothetical basis?

Patrick J. Dempsey -- President & Chief Executive Officer

I would suggest that as we look toward -- and again, recognize we're looking to just a certain number of our businesses that touch particularly the automotive end market. And there, those businesses are making adjustments on multiple fronts. So I talked about managing costs and utilizing the Barnes Enterprise System even more with a view to driving internal productivity. But then also in terms of outlook, if we see a shift -- we see that shift moving into 2020 in the sense of, if you're saying that it doesn't come, in other words, we're not seeing any -- or have any conversations around cancellations. It's more about delays or deferrals.

Christopher J. Stephens --

Okay. And then switching to the Aero aftermarket. Your 16% growth compares to 19% the prior year and even stronger from the first quarter of '17. Clearly, momentum is very resilient and ongoing here. It suggests the guidance is conservative. I'm wondering if you're seeing a CF6 correction coming maybe? And also if there is any particular quarter we should be aware of where the run rate comes to aftermarket or an obvious disruptive 3 months?

Patrick J. Dempsey -- President & Chief Executive Officer

Well, to your point, we saw another great quarter in the first quarter of '19 with mid-teens for aftermarket overall. How that broke down was high teens to the spares side of the business and low teens to the MRO side. In each then, I would say that both aspects of the industry fundamentals that are driving those results continue to be positive. As you know, our heavy emphasis -- or volume comes from the CFM. In our guidance, we do hedge a little bit against the CF6 because it has been stronger than what I would suggest was anticipated from an industrywide perspective. And that, of course, is a result of the CF6 aircraft -- powered aircraft being pulled back into service given the high volumes of both freight and passenger that's occurring over the last couple of years. So how long will that go is a -- has a question mark on it. Nonetheless, the CFM we see it as continuing from strength to strength with a view to it peaking in the early to mid '20s.

Christopher J. Stephens --

And any particular quarters to be aware of where the comps just fundamentally, just for modeling purposes, anything -- any particular quarter we need to dial down the growth estimate?

Patrick J. Dempsey -- President & Chief Executive Officer

I think the Q1 was, I thought, was a stronger quarter than we even anticipated. And so to that end, we've moderated our expectations into the final 3 quarters of the year. But there's no one quarter that has any seasonality to it, if you like. But we clearly are starting to patch it up on our own comps. As you know, we've had 2 strong years and so the comps have moderated to kind of sustain at the levels that's been going.

Christopher J. Stephens --

Okay. And my last one here. You commented on the press release about adapting as needed to deliver on commitments. Seems to be you're suggesting you feel the updated guidance ringfences the risk. I think you've learned a lot about the automotive markets in the last 3 or 4 months and the linearity there. So wonder if you could react to the notion of ringfencing the risks pretty well there?

Patrick J. Dempsey -- President & Chief Executive Officer

I would say that, as I mentioned before, we're going to continue to monitor closely all aspects of our business whether it's Aerospace and/or whether it's Industrial. And to that end, I'd reference because, it is front and center, even on the Aerospace side you do have the one Boeing 737 situation that's there and so I didn't want to suggested that we're unscathed by that if it continued. That said, as you know, it's smaller piece of our portfolio. With the Industrial side, we're looking at the current projections. We've worked diligently with the businesses in terms of the buildup to our guidance with, I think, a fair reflection of both risks and opportunities. And to that end, I think we have it ringfenced. At the same time, I did put out there that we will -- if we see anything to the positive or negative, we'll react accordingly.

Operator

Your next question comes from Myles Walton with UBS. Please go ahead, your line is open.

Myles Walton -- UBS -- Analyst

Thanks, good morning.

Christopher J. Stephens --

Good morning, Mike.

Myles Walton -- UBS -- Analyst

Patrick, maybe as a whole end market on auto, can you talk about what it was down in the quarter and then what you expected for the full year? And then also maybe address the notion that I think you've talked previously about the Molding Solutions or the product model changeovers is being more resilient to downturns. Is that playing out or not here? It does seem like Molding Solutions auto exposures may be down more than the production side?

Patrick J. Dempsey -- President & Chief Executive Officer

Yes. So I would suggest that our automotive business overall has seen, for the complete portfolio, we've been in the mid- to high-teens down. And then within the portfolio, there are other parts of the businesses that have been down in the 20s-plus dollars, have been in the low teens. Relative to -- and I would suggest that, that's been across-the-board regionally between North America, Europe and China. With China, a little bit more under pressure when I reference the 20s because just what we saw slowdown-wise over the fourth quarter bleeding into the first quarter. So as we talked about, the automotive hot runners being more resilient than direct production.

Clearly, what we've seen in the last number of months is that the model changes have -- I would argue have been impacted more severely than auto production as a result of the tariff and the trade concerns that are existing. And so what we've seen is a pullback by the OEMs with respect to launching programs that have been well into the whole design process, but just haven't released. And so I think there's been an alignment of factors that in this current period has actually impacted the model changes greater than actual auto production and subsequently why our automotive hot runners business has seen the brunt of that as supposed to even we've seen a lesser impact on our direct auto production businesses and our tool and die business.

Myles Walton -- UBS -- Analyst

And that mid-teens declines in auto is a market you've kind of seen this past quarter. Do you expect that to exit the year at a flat paced so kind of in line with the down 1% production? Or kind of what's baked in, in terms of maybe the slope of your recovery here?

Patrick J. Dempsey -- President & Chief Executive Officer

We're looking at a modest increase in Q2 and then a sequential improvement in Q3 and Q4.

Myles Walton -- UBS -- Analyst

Okay. And then the other one, the 2020 margin targets you updated last quarter, should we roll through the 50 basis point reduction from this year into those targets? Or do you anticipate you'd be able to recover all of the -- all that back and maintain the 17% to 18% you talked about last quarter?

Christopher J. Stephens --

Yes. No. That's a good question. We look at the continued strength at Aerospace, the adjustments we've made to our outlook and operating margin with Aerospace now being in the low 20% range, but at the same time industrial now being more in the low teens. We still have that outlook to hit what we had said in February time frame, continue to manage those costs. Clearly, some of the end markets in this particular case, which is dominating the phone call here is the automotive end market needs to recover, needs to rebound and we need to build that momentum. Evident that if that does not, for whatever reason, that puts pressure on that 2020 objective. But we're still focused on achieving it.

Operator

Your next question comes from Matt Summerville with D.A. Davidson. Please go ahead, your line is open.

Matt Summerville -- DA Davidson -- Analyst

Could you give a little bit more order granularity in the Industrial business, perhaps talk by SBUs what you saw in terms of incoming order rates in the first quarter and then about the backlog in Industrial was at the end of Q1?

Patrick J. Dempsey -- President & Chief Executive Officer

So relative to orders, and I'll talk orders to sales relative to each of the businesses for the first quarter, what we saw in Engineered Components was a book-to-bill of 0.95; in Force & Motion Control, a book-to-bill of 1; and in Molding Solutions, a book-to-bill of 1 with that -- for Industrial, in total, also been a book-to-bill of 1.

Christopher J. Stephens --

Yes. And Matt, I would add that our backlog as we kind of ended Q1 on Industrial compared to the fourth quarter was flat. It was in line, which kind of complements the 1:1 book-to-bill ratio.

Myles Walton -- UBS -- Analyst

And then I think you've said, and I apologize if you already gave this number, I think you've said that within Molding Solutions, the mold only side of the business saw a 20%-plus organic growth in the quarter. How much then was the automotive hot runner business down in Q1?

Patrick J. Dempsey -- President & Chief Executive Officer

It was down in the 20s,

Matt Summerville -- DA Davidson -- Analyst

Okay. so as we think about Qs 2, 3 and 4 and if we start off down 20, what is the reasonable sort of progression because I mean the whole key year-to-year basically sounds like it's, in a nutshell, Synventive. So in that regard, I guess, as we move through the rest of the year, how do you expect those year-over-year comps to look?

Patrick J. Dempsey -- President & Chief Executive Officer

So relative to -- your comment is anchored in so far as that a heavy part of the Molding Solutions recovery throughout the year is dependent on automotive hot runners with continued strength projected within the mold side of the business. And that, as you stated, was reflected in the performance of Q1. The automotive hot runner side of the business is looking to sequentially improve over -- quarter-to-quarter throughout the year. It's looking for improvement in Q2 over Q1. And so we're looking at that coming primarily from the Asian markets as well as, to a lesser degree, North America and Europe albeit that we're looking at improvement over where we feel we've bottomed out in those 2 regions as well.

Matt Summerville -- DA Davidson -- Analyst

You mentioned, I think it may have been in your prepared remarks, that it sounded like March perhaps in China you started to see more quoting activity in auto, which I believe would have pertained to the Synventive business. Have those order -- or have those quotes, excuse me, started to translate into orders at this point? Or are we still waiting to see how that plays out in light of the ongoing sort of negotiations?

Patrick J. Dempsey -- President & Chief Executive Officer

No, it's been a combination of both, Matt, in that they've seen orders and quoting translate into hard orders but also a number of them are still pending. So it's a combination of both, but clearly, an uptake over what they experienced on the back end of 2018 and to the earlier part of the start of the year.

Matt Summerville -- DA Davidson -- Analyst

And just to stick with Industrial. I want to talk about the margins for a moment. If you kind of look at either the sequential performance or year-over-year, are you able to kind of bucket how much of the degradation was related to maybe mix if that was an issue versus the costs associated with restructuring, which sounded like it was offset by this patent thing, so if you could put numbers around that, that'll be helpful. And then how much was volume related? Is there a way to parse out kind of the margin downturn here?

Christopher J. Stephens --

Sure. Matt, let me take a stab at that. So on the -- let's just start with the volume because we did talk earlier that the volume reduction we saw in Q1 in Industrial, and I'll talk quarter-over-quarter, we can even talk sequentially, is the higher-margin businesses for us that saw a greater decline, which clearly impacts that flow-through in terms of our ability to get that volume leverage. So that's quite significant. And as a result, those -- that lower production activity has put a strain in terms of our overhead cost structure, but not getting the absorption. And that's the reason for us to be proactive on the cost reduction side out of those 2 businesses and from a, call it, severance-related charge, little over $2 million, but then the offset with that in the quarter was the favorable commercial settlement that we had that's noted in our press release and we made in our prepared remarks, which was the $2.6 million. So that's how we look at it. It is a -- it is the fact that we're impacted by those higher-margin businesses and now guiding instead at the mid-teens in terms of margin out of Industrials being in the low teens. However, to offset that, and we'll just get back Aerospace strength, I mean we look at the outlook for the year to now being the low 20% range. So we're shaving off 0.5 point from our overall BGI margin profile. The upside to that could potentially be the automotive trade war, if you will, settles quicker than expected and we're all hoping, and I think I'm sure many companies are hoping for that to occur in the near term, and we could see a nice bounce back. We definitely expect there to be pent-up demand, decisions to be made, and if they release, we will see the benefit.

Matt Summerville -- DA Davidson -- Analyst

Just with the production-facing piece of Industrial, how do you think Barnes fared versus the overall global production numbers that are out there for Q1? Maybe even talk about by region. I guess I'm trying to get a sense of how market share may be trending, the magnitude of price pressure you may be seeing in that business, et cetera.

Patrick J. Dempsey -- President & Chief Executive Officer

Well, organically, if you think to what is our direct auto production-facing businesses, they are encased within Engineered Components and organic sales there were down 7%. How that translates to global auto production was -- the numbers we looked at are North America global auto production was down around 3%, Europe 6% and China in the mid-teens. So for a total worldwide auto production decline in the high teens -- high single digits, around 8%. So with that, we feel that our concentration is primarily in North America and Europe more so than China in terms of direct auto production. And so there, we're pretty much in line I would say in terms of what we saw as a decline to auto production in general in those 2 regions.

Matt Summerville -- DA Davidson -- Analyst

Thank you, guys.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

Operator

Your next question comes from Josh Chan with Baird. Please go ahead, your line is open.

Josh Chan -- Baird -- Analyst

Just 2 quick ones for me. The first one just on Industrial demand, could you just kind of talk about like how it trended versus like what you were expecting? Where you saw demand weaker than you thought or maybe a little bit stronger?

Patrick J. Dempsey -- President & Chief Executive Officer

I would say on the Industrial side what we saw was continued strength in terms of our Molding Solutions business on the mold side of the equation. Where we saw little weaker rebound was in our automotive hot runner side of Molding Solutions. At the same time, I think Engineered Components are the -- direct auto production was pretty much in line with expectations. And tool and die markets I would suggest were pretty much in line with our expectations, which was to see stabilizing throughout the quarter.

Josh Chan -- Baird -- Analyst

Okay, yes. That's helpful. And then second one is on Gimatic. How is that business performing relative to your expectations, I guess, with the integration and also profitability versus what you were thinking?

Operator

Great. I'm glad you brought it up. So relative to the Gimatic acquisition, that has been progressing extremely well in terms of our integration efforts. And what the teams have done, and it's a great example of where we pulled together the resources from around the Industrial business to quickly understand the capabilities of Gimatic with a view to leveraging our existing relationships with the broad base of Molding Solutions customers that today have the potential to be Gimatic customers and haven't been in the past.

So the -- in particular, in Germany and in China, the 2 teams there are working extremely close together to look to leverage those existing relationships. The other area that the team is very excited in terms of where they're focused on is continuing to develop new product lines in terms of new end-of-arm tooling technologies. And so they're one of the most innovative and creative teams that we have in the organization. And as we learn more about how they go about understanding their market, understanding the voice of the customer and understanding where there's potential opportunities in a very entrepreneurial way, the team there has done -- had done nothing but impressed us in terms of how they go about driving their business. They have, as I mentioned, been impacted. And so a little bit shy of expectations in the first quarter to where we expected the year to start, primarily as a result of the fact that they do sell into the automotive industry as well. And so the slow start in automotive, they couldn't necessarily escape that.

And there are no further questions. At this time, I will turn the call back over to Mr. Bill Pitts for any closing remarks.

William Pitts -- Director of Investor Relations

Great. Thank you, Casey. We would like to thank all of you for joining us this morning, and we look forward to speaking with you next in July with our second quarter 2019 earnings call. Casey, we will now conclude today's call.

Operator

Thank you. And ladies and gentlemen, this concludes today's conference call. You may now disconnect.

Duration: 54 minutes

Call participants:

William Pitts -- Director of Investor Relations

Patrick J. Dempsey -- President & Chief Executive Officer

Christopher J. Stephens --

Edward Marshall -- Sidoti & Company -- Analyst

Michael Ciarmoli -- SunTrust -- Analyst

Myles Walton -- UBS -- Analyst

Matt Summerville -- DA Davidson -- Analyst

Josh Chan -- Baird -- Analyst

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