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Barnes Group Inc (NYSE:B)
Q1 2020 Earnings Call
Apr 24, 2020, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Barnes Group, Inc. First Quarter 2020 Earnings Conference Call and Webcast. At this time, all participants are in listen-only mode. [Operator Instructions].

I would now like to hand the conference over to your speaker today, Bill Pitts. Please go ahead.

William E. Pitts -- Director, Investor Relations

Thank you, Marcella. Good morning and thank you for joining us for our first quarter 2020 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 and 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 financial results. After that, we'll open up the call for questions. Patrick?

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you, Bill, and good morning, everyone. For the first quarter, Barnes Group's performance exceeded expectations shared with you on our February call, driven by record performance in our Aerospace Aftermarket business. While total sales ended a little lighter than our forecast, adjusted operating profit and margin were better. The achieved results in the face of significant uncertainty and the global COVID-19 challenge demonstrates the benefits of our transformed business portfolio and our strong leadership team, who took and continue to take proactive, often difficult, actions to manage through the ongoing crisis.

To start, 2020 first quarter sales decreased 12% with organic sales down 8%. Adjusted operating income decreased 5% compared to last year while adjusted operating margin improved 110 basis points to 15.6%.

Positioning the businesses for the lower first quarter sales expectation allowed us to proactively manage costs and deliver the improved margin. Adjusted earnings per share were $0.71, unchanged from a year ago.

As a company, given the magnitude of the disruption from the coronavirus, we delivered solid first quarter performance. However, as you would expect, the subject of most interest is not necessarily what happened in the quarter, but rather of where the current business environment stands. As such, my discussion today will focus primarily on where we are versus what we accomplished in the quarter.

I believe it is important to let you know how we see our businesses and end markets progressing from here, and the actions we are taking to adapt, likewise, while providing the customary color on the quarter's financial performance. Later in the call, Chris will discuss, in much greater detail than usual, our liquidity position and capital priorities.

Relative to the current environment, let me begin by saying that the majority of Barnes Group's manufacturing facilities around the globe are currently operating, albeit at reduced levels. Our plants manufacture essential components and systems for several end markets, some of which are directly engaged in the fight against COVID-19.

In keeping our facilities open to provide these essential services, our primary concern is the safety and well-being of our employees and their families, our customers and our suppliers. To that end, we've instituted many additional precautions to protect them, including enhanced deep cleaning, staggered shifts, temperature checking, use of face masks, practicing social distancing, and limiting non-employees at our locations among other steps.

Most of our office workers in our manufacturing facilities, as well as the corporate and segment headquarters are also working remotely where possible.

Additionally, we've undertaken many aggressive steps to better manage costs in concert with the current environment. While incredibly difficult, these actions are necessary to position the company to manage through the crisis and to best position us for recovery.

These actions include but are not limited to, temporary reductions in compensation for all salaried employees, including company officers and Board Directors, employee furloughs, short workweeks, and reduction of discretionary expenses.

With respect to our global supply chain, our procurement team continues to monitor and manage our ability to operate effectively. To-date, we have not experienced any significant disruptions, so we are constantly maintaining ongoing discussions with our suppliers to identify and mitigate risks.

Let's now move to a discussion of what's happening within our segments, beginning with Industrial. Challenging end markets fueled mostly by the COVID-19 pandemic have significantly impacted first quarter order intake and subsequently have reduced our expectations for 2020. Manufacturing PMIs have faded into contraction territory for North America and Europe, with China just flowing back to a neutral 50.

Many automotive manufacturing plants in most geographies have been or remain closed, with China just beginning to restart production. And given customers self-imposed capital investment restrictions and lower production levels, general industrial markets remained soft. One bright spot remains are medical end markets, which have remained strong throughout this time period. With that backdrop, Industrial's book-to-bill was just under 1 times in the first quarter.

At Molding Solutions, the team delivered performance which was better than our previous expectations. As we noted in our February call, we forecasted first quarter shipments will be lower than last year and organic sales did decline 6%, slightly better than what we had anticipated.

For our Automotive Hot Runner business, we saw weak first quarter in Asia due to COVID-19, but expect to see a pickup there beginning in the second quarter.

In North America, 2020 was off to a respectable start and quoting activity was good. However, given the suspension of auto manufacturing mid quarter, we saw the corresponding disruption impact orders. European markets remain very slow due to the closure of OEM and Tier 1 suppliers. So, the onset of a restart has already begun.

With respect to our Multicavity Molds business, quoting activity has been high. However, due to existing uncertainties, many customers have put their capital spending on hold, leading to the deferral of new projects. This behavior has served to further extend weakness we had already been seeing in Personal Care and Packaging demand. As mentioned, our Medical Mold Systems continue to see heightened interest.

At Force & Motion Control, organic sales declined approximately 20%, as sheet metal forming end markets, primarily auto and industrial related were impacted by the customers suspended or reduced operations and deferred or canceled new programs. In the quarter, sales in China and Europe were particularly hard hit.

Moving to Engineered Components, organic sales declined 16%, driven by lingering weakness in auto production and the onset of the COVID-19 pandemic. The Engineered Components management team has been very proactive in managing costs and addressing the fallout from the pandemic. And while there is still more work to be done, the team has been making solid progress adjusting to the lower demand.

In our Automation business, it was a relatively good story in the first quarter, posting positive organic sales growth of 4%. This business has seen favorable trends in medical and pharmaceutical end markets and signs of stabilization in food packaging, all of which are targeted growth markets.

Not unlike our other industrial businesses, challenges in automotive end markets persist. All-in, a mixed story for our industrial end markets with our larger end-markets under considerable pressure heading into the second quarter. As we think about how things may progress through the year, it's important to keep in mind that in the current environment, it's extremely difficult to make definitive calls on the pace of recovery.

Across industrial, we anticipate a poor second quarter followed by gradual recovery, as many of our customers come back online. For general industrial markets, we expect manufacturing PMIs for Asia and North America to improve and help lift sales in our Engineered Components and Force & Motion Control businesses.

With auto manufacturers restarting production, we expect to see a turn toward sequential improvement across our auto component and hot runner end markets.

Medical end markets have been good, and we don't envision a change there. We expect automation to benefit from global economic stabilization and the release of delayed projects by its customers.

Across the segment, we forecast sequential improvement from Q2 to Q3 and then again from Q3 to Q4. However, we do anticipate year-over-year organic sales declines in each quarter.

Moving now to our Aerospace business. All things considered, Aerospace delivered a very good first quarter with improved operating profit and margin on slightly reduced sales. Total Aerospace sales were down 2% with OEM down 7% versus a year ago, driven by lower shipments related to the Boeing 737 MAX.

Aftermarket sales were up 8%, with both MRO and spare parts seeing similar growth. Due to the strong aftermarket contribution, Aerospace operating margin of 23.9% was a record performance. Aerospace OEM backlog ended the quarter at $703 million, down 12% from the end of 2019.

We expect backlog to be impacted by the industry's evolving production schedules with net orders highly variable until the uncertainty settles. As a result, backlog may ultimately settle below the quarter-end level.

Aerospace performance has been very strong over the last few years, benefiting from a favorable OEM and aftermarket, and excellent performance from our Aerospace team. However, with the global COVID-19 pandemic, aerospace markets have come under immediate intense pressure. We anticipate our OEM business to see the impact of lower aircraft demand and production cuts at Boeing and Airbus. In the aftermarket, some substantial reductions in aircraft utilization, growing levels of parked aircraft and reduced airline profitability are expected to impact our business for some time to come.

There is no doubt the aerospace industry is in unchartered territory with the duration and depth of the disruption not totally clear at the present time. That said, I have full confidence that our Aerospace team will adapt as necessary to deal with whatever challenges the industry faces as we move forward.

Before wrapping up, I would like to take a moment to highlight several of the many ways that Barnes Group's employees are actively engaged in the COVID-19 fight through the many products we manufacture.

Across Industrial, our manufacturing capabilities in plastic injection molding, metal forming, specialty springs another component parts are being used in a variety of medical applications. Examples include, blood testing devices, medical dispensing equipment, ventilators, oxygen masks and test kits to name just a few.

At both Industrial and Aerospace, our additive manufacturing capabilities have been employed to produce critical PPE parts, such as the frames used to make face masks.

On behalf of all Barnes Group's employees, I want to express our sincere thanks to all the medical staff on the front lines of the pandemic.

So to conclude, we are unquestionably in a different place and situation than what we all had envisioned 2020 would look like. As we address the realities of today, our primary concern remains the well-being of our employees, suppliers and customers. We appreciate all their collective efforts during this time.

From a business standpoint, we've taken aggressive and necessary actions to adjust our costs. And through the disciplined application of the Barnes Enterprise system, we continue to adapt to the structural changes taking place in some of our end markets.

Our focus on driving commercial, financial, and operational excellence is as important as ever. At the same time, we will continue to make the necessary investments in our future, by moving forward on our innovation and research and development efforts. Despite current challenges I have every confidence that the Barnes team will overcome this crisis, as we've done so many times before over our long 163-year history.

When we get to the other side of this pandemic, I anticipate Barnes Group will be in an even stronger position to compete in its markets and profitably grow once again.

Now, let me turn the call over to Chris for a discussion on the financial details.

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

Thank you, Patrick, and good morning, everyone. Let me begin with highlights of our 2020 first quarter results. For the first quarter, sales were $331 million, down 12% from the prior year period, with organic sales declining 8%.

The divestiture of the Seeger business had a negative impact on sales of 3%, while FX had a negative impact of 1%.

Operating income was $49.3 million as compared to $50.6 million in last year's first quarter. On an adjusted basis, which for 2020, excludes $2.4 million of Seeger's divestiture adjustments and, for 2019 excludes $4 million of Gimatic short term purchase accounting adjustments, operating income was $51.7 million, a decrease of 5% from $54.6 million in the prior year period. Adjusted operating margin was 15.6%, up 110 basis points.

Interest expense decreased $800,000 to $4.3 million, primarily from a decrease in average borrowings outstanding and a lower average interest rate. The company's effective tax rate for the first quarter of 2020 was 31.5% compared with 23.4% for the full year 2019. The increase in the first quarter effective tax rate from 2019s rate is primarily due to the recognition of tax expense related to the Seeger divestiture, partially offset by a benefit related to a refund of withholding taxes and a reduction of the statutory tax rate at one of our international operations.

Net income for the first quarter was $0.58 per diluted share compared to $0.65 a year ago. On an adjusted basis, net income per share was $0.71, unchanged from last year.

Adjusted net income per diluted share in the first quarter excludes $0.13 of Seeger divestiture adjustments, while last year excluded $0.06 of Gimatic short term purchase accounting adjustments.

Let's now move to our segment performance, beginning with Industrial. First quarter sales were $199 million, down 18% from a year ago. Organic sales decreased 12%, primarily related to volume declines in certain of our end markets, the impact of COVID-19 pandemic and the absence of a favorable $2.6 million commercial settlement of a patent related matter in last year's first quarter.

Seeger divested revenues had a negative impact of 4%, while unfavorable FX decreased sales by 2%. Operating profit in the first quarter declined 17% to $17.9 million, with the decrease driven by lower sales volumes, the absence of last year's commercial settlement and Seeger divestiture adjustments.

As a partial offset, cost productivity and the non-recurrence of Gimatic short-term purchase accounting adjustments recorded last year were favorable factors. Excluding the just referenced Seeger adjustments this year and Gimatic's adjustments last year, adjusted operating margin -- adjusted operating profit was $20.3 million versus $25.5 million a year ago. Adjusted operating margin was 10.2%, down 30 basis points.

At Aerospace sales, were $132 million, down 2% from last year. OEM sales decreased 7% primarily due to the lower shipments related to the Boeing 737 MAX, while aftermarket sales increased 8%. Operating profit was $31.4 million, up 8%, primarily reflecting the profit impact of higher aftermarket volumes. With the favorable aftermarket mix, operating margins improved 220 basis points to 23.9%. Operating margin was a quarterly record. However, as Patrick mentioned, we anticipate challenges going forward in aerospace as a result of the COVID-19 disruption.

Cash provided by operating activities was $47 million, down approximately $6 million from last year's first quarter, while free cash flow was $35 million versus $39 million last year. capex of $12 million was down about $2 million from a year ago.

With respect to the balance sheet, our debt-to-EBITDA ratio was 2.4 times at quarter-end, unchanged from December 2019 level. Barnes Group has liquidity of approximately $430 million, consisting of $110 million in cash and $320 million of undrawn revolving credit facility. We have not drawn further on our credit lines to secure cash nor do we have current plans to do so, as the availability of these funds are not believed to be at risk.

The company is in full compliance with all covenants under the revolving credit facility, which matures in February 2022. We maintain open lines of communication with our banks and we will continue to monitor the credit landscape and the company's cash needs.

Our first quarter average diluted shares outstanding was 51.5 million shares. During the quarter, under our pre-existing 10b5-1 plan, we repurchased 396,000 shares at a cost of $15.5 million. With the full execution of our 10b5-1 plan, we have now suspended share repurchase activity. While there remains 3.7 million shares available for repurchase under the Board's 2019 stock repurchase authorization, we do not have an expectation for when share repurchases will recommence.

With respect to our customary annual outlook, heightened levels of uncertainty and the current environment make it difficult to forecast performance with any reasonable precision. Accordingly, we continue to suspend our full-year 2020 outlook. When the depth of the disruption and the pace of recovery in our critical end markets become clear, we will reiterate our full year outlook.

Related to that uncertainty, the company has decided to postpone its planned Fall 2020 Investor Day until next year. We'll look to provide further details of the rescheduled event at a later time.

However, even with limited visibility, we do anticipate a challenging second quarter significantly impacted by the COVID-19 pandemic. Our best view at the current time is that organic sales will be lower than last year's second quarter by approximately 30%. Operating margin is forecasted to be between 8.5% and 10%. Adjusted earnings per share for the second quarter and are anticipated to be in the range of $0.20 to $0.30.

With respect to capital priorities in the current environment, the company has a well-positioned balance sheet with reasonable leverage. Nonetheless, proactive management of our cost structure will continue. We'll continue to invest in our business, though anticipate 2020 capital expenditures of approximately $45 million, lower than the $55 million average annual spending over the past few years.

While an acquisition or divestiture in the near term is unlikely, given the current business environment, we continue to analyze potential acquisition targets and end markets that meet our strategic criteria with an emphasis on proprietary, highly engineered Industrial technologies.

At present, our quarterly dividend remains unchanged. However, if the economic disruption intensifies or last deep into the year, the Board would consider a dividend change.

To close, I'd echo Patrick's comments, while the first quarter results were generally better than our expectation, the challenge now is to continue to effectively weather the global disruption caused by COVID-19.

For Barnes Group, while our balance sheet and liquidity profile are in good standing, we'll focus on the judicial use of our cash. As highlighted, several actions have been taken and others will be taken as conditions dictate. We'll look to effectively manage working capital, especially inventory, where the trade-off between building inventory and potential future supply chain interruptions will be closely managed. Capex will be focused on maintaining our operations and ensuring we're positioned to take advantage of an eventual recovery.

Operator, we will now open the call 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 -- Analyst

Thank you. Good morning and good luck here in the next few quarters. It looks like you're doing a lot of work on the margins there. I was curious about the behavior of the aftermarket. Did that kind of like hit a wall two, four weeks ago, or has it been kind of progressively creeping in?

Patrick J. Dempsey -- President & Chief Executive Officer

As you mentioned, Chris, clearly, aftermarket will definitely see the impact of what's current right now in the airline industry. Our experience through the first quarter was a pleasant surprise in terms of it holding up, as well as it did. And as you know, from the call or from the script, we actually achieved record operating margins in the quarter as a result of aftermarket.

What we've seen in the last couple of weeks is a significant slowdown in terms of input of orders. One, our major customers across the board have basically turned off the spigot in terms of their cost controls. And definitely, with parked aircraft right now, airlines are just looking to conserve cash in every way possible. And so, it's flowing through and we expect it to be significant in the second quarter.

Christopher Glynn -- Oppenheimer -- Analyst

Okay. And how do you see the OE side rolling in? That slow down, imagine that's a little more progressive just because it takes a little more cycle time to slow down, if you could kind of characterize what you're seeing there?

Patrick J. Dempsey -- President & Chief Executive Officer

Which side?

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

OEM

Patrick J. Dempsey -- President & Chief Executive Officer

Sorry. Yes, definitely, with OEM, it's a longer cycle business. So, adjustments there are more gradual, as you noted. And to that end, what we are doing right now is communicating daily with all of our large OE customers. As you know from just the public arena, some of the airlines -- our aircraft manufacturers, Airbus, have been pretty vocal in terms of what they're indicating as potential future rates, while on the other side, Boeing has been a little bit more muted. All-in, what we're doing is, of course, keeping very close contact with the engine OEs to understand how they are anticipating and adjusting their schedules relative to the coming year.

To that end, what I would say is, I think, definitely a significant pull back. We're seeing tremendous volatility in terms of the order intake and the EDI runs that are recurring across the board. And so, again, Q2, we anticipate a slowdown, not as significant as aftermarket or as immediate as aftermarket, but nonetheless, preparing for lower demand Q2 and through the rest of the year.

Christopher Glynn -- Oppenheimer -- Analyst

Thanks.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you. Thanks, Chris.

Operator

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

Myles Walton -- UBS -- Analyst

Great, thanks. Thanks and good morning.

Patrick J. Dempsey -- President & Chief Executive Officer

Good morning, Myles.

Myles Walton -- UBS -- Analyst

Patrick or Chris, maybe you could start with any more color on the shape of the two end markets in that 30% decline in the second quarter. And then conversely, with the comment about recovery in 3Q and 4Q, I think you're pretty explicit that that was going to be more an industrial recovery than aerospace. I just want to clarify, I just want to clarify those two points, if you could?

Patrick J. Dempsey -- President & Chief Executive Officer

No problem. Relative to being down, what we're projecting for second quarter, which is basically the extent of the visibility that we're putting out there because of the uncertainty of Q3 and Q4 or the full-year. We've indicated down 30% for Q2, in total, for Barnes Group. Industrial, we see in the low '20s; and Aerospace, within that we see in the high '30s from an organic sales perspective.

And in terms of the outlook for Q3 and Q4, what we're seeing right now on our Industrial side is the fact that things are coming back online, some of our customers are coming back online, albeit at reduced levels. So, you're seeing that China, in particular, we saw starting to pick up after a very hard hit Q1. We're expecting that to continue into Q2.

In Europe, you're hearing already of different OEs beginning to come back in terms of production back online this week. And so, as things start to come back online and production starts to ramps back up, albeit great uncertainty to what levels, we expect that there will be gradual improvement sequentially from quarter-to-quarter.

Myles Walton -- UBS -- Analyst

Okay. And then, Chris, on the leverage liquidity and covenants; are you comfortable that the rest of the year you'll be cash flow positive for the remaining three quarters? And then secondly, as it relates to the senior debt or the total leverage ratios, are you comfortable that you won't need to renegotiate those in 2020 or that they'll be relatively straightforward to do so?

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

Yes. No, at this stage, we are pretty confident in our ability to maintain compliance with covenant ratios. The actions we have taken so far, comments we've talked about for purpose of capital, capital deployment and the pullback of capex, we would expect to see just operationally the operating working capital improvements as you're shipping less, less inputs on the material side and you're collecting those receivables. So, we expect to get additional improvements out of working capital.

But we literally -- we're managing it weekly. I mean, we're in a very much a weekly mindset as it relates to cash decisions that need to be made. As a senior leadership team, we're meeting daily, seven days a week, to just manage through this crisis. And we're making decisions real time and making sure we plan accordingly to make sure we avoid any covenant issues. But as we look out the next three quarters and even into the first quarter of 2021, which seems like a long time from now, right now we are not too concerned. We'll adjust accordingly as things progress. But taken second quarter -- a significant drop in the second quarter and somewhat of a recovery, not an aggressive recovery in the third quarter and fourth quarter based on our current view. We still would remain in compliance and we stay in constant dialog with our banks and make sure they know exactly where we are and we get a feel for where they are.

Myles Walton -- UBS -- Analyst

Thanks, guys.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Tim Wojs from Baird. Your line is open.

Timothy Wojs -- Robert W. Baird -- Analyst

Hey, gentlemen, good morning.

Patrick J. Dempsey -- President & Chief Executive Officer

Good morning, Tim.

Timothy Wojs -- Robert W. Baird -- Analyst

Maybe just back on -- back on aftermarket, just maybe more of a bigger picture question. If there is a ramp in retired aircraft, is there any way to just kind of frame what longer-term impacts on both, maybe spares and CSPs might be?

Patrick J. Dempsey -- President & Chief Executive Officer

So, if there is an increase in retirement, what that ultimately tends to happen in the industry is it would translate into tear downs at some juncture. And so, the concern always that would be speculated upon is what the impact of that surplus material would mean as it came into the market.

For Barnes Group, obviously it would -- it's something we will watch very closely and something that has both a good side and a bad side to it. It's a good side, because all that surplus material has to be overhauled before it could be reused for the most part. And so that would be a positive to our MRO business, albeit that that may not overcome the drop in overall airline demand or maintenance.

On the spare parts side of the equation, if that surplus material comes in, there is always the concern that it's competing with new spare parts. For the most part there, what I feel confident in terms of a positive for Barnes Group is that most of our spare parts are consumable in nature. So that the opportunity to repair the components economically doesn't, in many instances, makes sense because the spare part, the cost to repair them may in turn not be feasible or economic. So, but nonetheless decremental in the bigger scheme of things for spare parts in general.

Timothy Wojs -- Robert W. Baird -- Analyst

Okay. That's helpful. Thanks. And then just maybe on the cost side, could you just help us maybe frame into -- I don't know if you can frame in terms of dollars maybe some of the actions that you've taken in response to the end market weakness? And then specifically in Industrial, how should we think it's just the decrementals and volume?

Patrick J. Dempsey -- President & Chief Executive Officer

So, we've been very proactive and aggressive, I would suggest, in terms of our cost reduction efforts. As we came off of the end of last year fourth quarter, we saw a softness coming into the first quarter, independent of the extent of which the coronavirus took hold. And so, to that end, I think we were being very proactive.

Within the Barnes Enterprise System, one of the things that we have instituted as a discipline is scenario playing. And so as we entered into the year, we scenario played the extent of which we saw softness in the first quarter and responded accordingly, which allowed us I think to achieve the margins that we did in terms of our first quarter results.

As we move forward, what is currently our outlook for the second quarter, which is what we're driving toward is a margin profile of between 8.5% and 10%. And to that end, we're clearly looking to manage costs just as aggressively. And depending on the extent of which this becomes protracted or doesn't recover as fast as any of us would like, then we will continue to look at what the other alternatives are.

Today, we've instituted salary reductions across the Board. We're furloughing our direct and indirect employees. We have taken all over time out of the system, all discretionary spending, all travel, all of those things which some of which we had a choice in, some you don't, given the current pandemic. But all-in, I would say that the team has done a really outstanding job in terms of trying to stay in front of the situation with a view to keeping a keen focus on margins as we move forward.

Timothy Wojs -- Robert W. Baird -- Analyst

Okay. Thanks for all the color here and good luck over the next couple of quarters.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

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

Thanks, Tim.

Operator

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

Edward Marshall -- Sidoti & Company -- Analyst

Hey, guys. How is it going? Patrick, Chris, Bill.

Patrick J. Dempsey -- President & Chief Executive Officer

Good morning, Ed.

Edward Marshall -- Sidoti & Company -- Analyst

Hope you and your families are all doing well and safe.

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

Likewise and thank you.

Edward Marshall -- Sidoti & Company -- Analyst

Thank you. Just following up, knowing that you had some salary cuts, what does the 2Q SG&A number look like? What's embedded in that guidance from $0.20 to $0.30 for 2Q, just curious?

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

Sorry. You broke up a little bit there. Can you repeat that?

Edward Marshall -- Sidoti & Company -- Analyst

Yes, I'm looking at the potentials. You've cut salaries. I'm wondering what the SG&A component looks like for Q2, what's embedded in your guidance there?

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

Yes. SG&A is going to get somewhat of a benefit, not significantly. Recognized sales are coming down quite meaningfully. Where, as we walk our second -- more importantly, walk our first quarter performance and then to second quarter, we felt it was important to provide investors and shareholders a look at what we know, and that's providing guidance for Q2. Specifically to SG&A, the actions we're taking are both in the cost of goods sold as well, as well as SG&A. I don't have a specific number for you but I can tell you in the quarter we're driving $3 million to $5 million of actions on the headcount side, salary side, over time side etc., to be able to post margin profile of 8.5% to 10%.

Edward Marshall -- Sidoti & Company -- Analyst

That $3 million to $5 million is total across both COGS and spend --

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

For the company -- yes, exactly for the company, impacting all of the cost of goods sold as well as SG&A. I don't have a specific SG&A number for you.

Edward Marshall -- Sidoti & Company -- Analyst

Got it, got it. So, an airframe OEM manufacturer mentioned that they expect 20% to 25% declines in the OE production this year or their revenue for OE this year. Your backlog implies 12% on a year-to-year comp. I think that's -- I think you mentioned that the backlog continued to deteriorate through the end of the quarter. I just wanted to kind of get a sense as to maybe what the comments of another OEM manufacturer might have mentioned for their kind of expectations this year versus what you think, and what the backlog implies? Thanks.

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

Thanks. Relative to Barnes Group, at the end of the quarter, what we saw was a -- our OEM backlog was approximately $700 million. And that was down, I think about 12% since the end of the year. So, as we look at the volatility in terms of the orders and EDI runs that we've been receiving then, the communications, we expect that it will drop further than that in the coming weeks.

Relative to how we're looking out toward -- for the full year, the biggest piece of that drop in backlog came from the narrow-body aircraft, particularly our backlog as it pertains to the LEAP program. And so again, that gives you an indication of where the OEs have been very proactive in terms of C&D and media [Phonetic] aircraft that we're going to be impacted.

At the same time, right now we're seeing movement on the wide-body aircraft as well in terms of the backlog. But it wasn't that dramatic in the first quarter, because I think again the airlines were holding or the aircraft OEs were holding to see how things were going to transpire. So, ultimately right now we are, -- it's a very fluid situation I would suggest. We, internally, are managing it with our own judgment against the feedback we're receiving. And what we're looking to do is adjust our capacity to a given level for the rest of the year. And that may involve some inventory build and it may involve that we may need to increase slightly, if we've understated what we think the full year is going to look like. But again, it's going to be a real time dynamic, I think, assessment on a week-to-week basis.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. And that 20% to 25% number, does that -- is that kind of right with what you're thinking, what's your -- maybe your rationalization and your facilities have been?

Patrick J. Dempsey -- President & Chief Executive Officer

It is for the second quarter and so far is that -- and it also obviously entails what our current outlook is for the rest of the year in the sense of the adjustment down in volumes that we're anticipating on the OEM side.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. When I look at the impact on rentals in the industrial business of just 12%, I understand some of that Seeger-Orbis and the divestiture there. Can you true-up maybe what the comp looks like year-over-year, so I kind of get a sense as to what may be the Industrial decrementals are doing?

Patrick J. Dempsey -- President & Chief Executive Officer

Yes, you can look at -- think about Seeger delivering about $15 million of revenue last year. It's a lower margin business that we divested, so you got a few million dollars in OP, if you're just trying to walk quarter-over-quarter. But it would be $15 million in sales, call it $2 million or $3 million in OP, if that answers you question.

Edward Marshall -- Sidoti & Company -- Analyst

Yes, I think I can get close enough. And orders for cash, priority for cash, has anything changed? I don't know if you mentioned that.

Patrick J. Dempsey -- President & Chief Executive Officer

Conserve it. In a nutshell, I mean just conserve cash. Actions we're taking across the board on the headcount side, just the cost side will help us meaningfully in terms of how we look at the next several quarters, as I answered the question earlier. But the cash priorities will continue to remain. We're going to continue to invest in our business. I mean, although, we're going to reduce capex, we're not -- we are still operating. Our businesses are operational. Now, it's going to be more focused on maintenance capex versus growth, but we're not going to not invest in our businesses that way.

You get to the other deployment actions, I do expect, we do expect working capital to continue to improve. As you know, we are incentivized to make sure we try to maximize that as much as possible.

Anytime you go through a downturn, you'll collect those receivables faster and you make sure you're managing inventory at a lower level kind of coming in. You're going to get the benefit of cash on the operating cash side.

So, in my prepared remarks, we just wanted to highlight our three priorities of capital deployment. And then again, that's around capex, it's around acquisitions and it's around the dividend and share buyback.

We did buy back shares. It was a pre-existing 10b5-1 prior to things getting pretty ugly. And that was executed and we're going to hold off on doing anything more at this stage. And then I did comment about the quarterly dividend. We do talk about our -- do talk with our Board about that. We've got actions literally laid out in priority of what we would do, when we would do it if certain conditions were make us back to the scenario planning and triggers we would pull.

So, at this stage, I'm not too concerned about Barnes Group's ability to generate cash and remain in compliance with covenants. I may say something different a quarter from now, but right now it's -- we're all over it.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. And I just want to get a sense of something [Technical Issues] as I'm thinking, looking at your model, I just want to make sure I get this right. The drop-off in margin, April, I mean it was sudden and sharp and I think your business is still reacting. You're adjusting your cost structure. As I and -- but you talked about some reinvigoration in some of the markets, call it China, call it may potentially Europe restarting and so forth. So, as we step back and we think about 2Q, do you see that as kind of a trough scenario for you this year? Is that the expectation? Is that what you're building into your full-year outlook or full year expectations?

Patrick J. Dempsey -- President & Chief Executive Officer

Yes. Short answer is yes. In that we see -- we're looking at Q2 as being the trough for this more severe quarter at this juncture. The bright spots there providing some outlook or upside in terms of even the second quarter is, as I mentioned, we're seeing activity pick up, order activity in China, particularly where it's -- I would argue it's one quarter ahead of the rest of the world, in that Europe and North America we're seeing clearly going to be impacted and slow to come online in Q2, while we're seeing some nice order activity in terms of China in particular.

Also, the other bright spot for us that has held steady throughout this entire crisis has been our medical side of the business. And there, we've seen increased quoting activity, some of which is on a fast track. In other words, the customer's asking us to expedite particular products in the fight against COVID-19. And at the same time, we're seeing a lot of activity that potentially hasn't been released because of concerns over the uncertainty and restrictions that have been put on capex. But at the same time, it's signaling, I think, a little bit of pent-up demand because those quotes are clearly in the indicative of projects that we knew are in the pipeline and are continuing. They're continuing to be proactive, if you like, in terms of doing the groundwork before ready for release once they get the right signals to do so.

Edward Marshall -- Sidoti & Company -- Analyst

Got it. I appreciate your comments, guys. Thanks very much and stay safe, be well. Thank you.

Patrick J. Dempsey -- President & Chief Executive Officer

Thanks. You as well.

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 my questions. Good to hear from you and hope everyone is safe and well.

Patrick J. Dempsey -- President & Chief Executive Officer

Thanks, Mike. Thank you.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Just, Patrick maybe more on the Aerospace, I'm just trying to reconcile is -- are you confident that 45% of the backlog is going to be shippable over the next 12 months? Or is that kind of fluid and subject to change?

Patrick J. Dempsey -- President & Chief Executive Officer

I think it's somewhat fluid. But at the same time, it's a best estimate to where we see. It obviously is down. We normally would suggest 50%. We're talking about 45%. In that also recognize that I indicated that the $700 million, we expect that backlog potentially to come lower. So, the 45% will be potentially 45% of a lower number. So, what we're projecting is the application of our best judgment to the many different signals and inputs that we're getting right now.

And though, it's not even that the inputs are consistent, I think they're variant significantly week-to-week, sometimes day-to-today. So, there is a aspect, I think of the industry as a whole is looking to try and get its arms around where demand ultimately is going to settle. I think a big portion of this, of course, is going to clearly go to the flying public and how passenger traffic comes back online and the rate of which that happens is going to be a big determinant.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. And then I mean -- yes, the demand side of the equation is one thing. Obviously, we've gone from supply chain constraints here to turn the spigot off. Do you guys have good line of sight into inventory in the channel? Do you think there is a lot of buffer stock within the engine supply chain that has to be removed as the supply chain realigns itself that could be even additive to a weakened demand environment that might add further pressure?

Patrick J. Dempsey -- President & Chief Executive Officer

I think there are adjustments that are going to take place for sure. And I do think that, at a lower level, there is going to be some amount of inventory in the channel, so to speak, that are in the supply chain that's going to need to adjust accordingly.

The one aspect that we look at from a Barnes' perspective is always the fact that it's been in -- it's in crisis like this or in downturns that we've always stood strong as a very formidable partner to the OEs. And so, if there is going to be some shakeout, we expect that we will be in a very good position as a strategic long-term partner to take, maybe even in some instances to take share if not all the competition makes it through these turbulent times.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. And then just on the aftermarket. I mean, obviously, some of these engine inductions, they've spent some time in the shop, the repairs can go up to 90 day or 180 days. But I would imagine inductions, clearly down right now. I mean, could -- in your scenario, I mean, should we think about aftermarket being down 60%, 70%, 80%, just in line with utilization here in the short term? I mean, can you guys give any sort of color around what you're assuming for aftermarket revenues?

Patrick J. Dempsey -- President & Chief Executive Officer

Well, as a baseline, we're utilizing a 50% reduction, and then we are scenario playing off of that. And so, we're looking at Q2 being at that level, or -- and as I said, then scenario playing if we were down 60%, if we were down 70%, or if we were down 40%. So accordingly, it obviously creates a lot of judgment calls in terms of walking a tight rope and monitoring it real-time.

We're look -- the team is doing a great job or an excellent job of trying to adjust capacity in alignment with that demand, and also managing the cost side of this equation. At the same time, I will also note that we're continuing our NPI efforts on some of the key projects that we're in process and continuing to make those investments. So while in the short term this holds true for both sides of our business, Aerospace and Industrial, while we're managing costs very aggressively commensurate with current demand, we're also keeping our eye on the long term with a view to how to position and come out of this stronger by continuing to invest in those key innovations that we believe are going to be needed by our customers irrespective in the future.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Got it. Helpful. Thanks, guys, and stay safe.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you. You too.

Operator

Your next question comes from the line of Pete Skibitski from Alembic. Your line is open.

Pete Skibitski -- Alembic Global -- Analyst

Quick one on China. Patrick, just to expand on what you were talking about, are virtually all of your manufacturing workers in China back to work now? Are you almost fully staffed essentially in China?

Patrick J. Dempsey -- President & Chief Executive Officer

We are, and it took a multiple of months. Because what happened was, as you know, what happened in Q1 was with the Chinese New Year, most of the workforce is migratory, so it moved back to their own home provinces. And then as this onset of COVID-19 took place, they got trapped there because the country froze, and in particular, the provinces of Wuhan. In that, what happened was, mobility in the country froze for a period of time. And so, ultimately, we closed our operations initially because we didn't have the workforce even if we wanted to stay open, and the demand froze simultaneously.

So, over the last weeks and months, we're probably back to 90% to 95% in terms of our workforce right now, with only a handful of outstanding items, if you like. And so, again, very pleased that our workforce in China has been healthy and safe throughout this, albeit that they were quarantined in their respective homes. As they've come back to work, we've been very fortunate.

Pete Skibitski -- Alembic Global -- Analyst

Okay. Sounds good. And then I had another question on medical. I think, typically you guys kind of have talked about combined medical and kind of personal care and packaging being almost a core of Industrial revenue. Just because medical is up, I think the personal care and packaging are down. Is medical -- are you thinking that's roughly 10% to 15% of Industrial revenue? Just to get a sense.

Patrick J. Dempsey -- President & Chief Executive Officer

Yes, about 15%, I would put it that for Industrial. And again, had a very -- just relatively speaking, our medical business had a strong first quarter year-over-year. And you know the -- as we move into Q2, we're very optimistic that medical is going to continue with the heightened level of quoting activity that we're seeing. The unknown will be the release of those orders and the timing of it.

As I said, it's definitely taken a prioritized set of sequences in that. Anything that's touching a product or a service related to COVID-19 is on a fast-track and anything, even though it's medical, that isn't COVID-19 related is a little bit on the back burner is how we're seeing the customers prioritize their release of orders.

Pete Skibitski -- Alembic Global -- Analyst

Okay. And just last one from me. Coming -- you touched on this, Patrick, but coming into the year, you talked about $5 million incremental internal R&D investments. It sounds like that's still the plan. You're sticking to that, you want to continue to invest through the downturn?

Patrick J. Dempsey -- President & Chief Executive Officer

We will invest through the downturn. What I would indicate is that the $5 million may be modified slightly. And so far, is that we had anticipated brick-and-mortar in that $5 million and an investment of some capex. In turn, what we're doing right now is we have continued full speed with the hiring of the necessary resources to continue with our R&D efforts. But rather than set up a separate location, we've housed them in one of our existing facilities and are utilizing our existing equipment.

So there is a slight modification in light of the current environment, but full speed ahead, so to speak, in terms of the projects that we've identified. And there, I would say that what we're looking to -- and something I'll give credit to, which I think is a unique strength of Barnes Group, is the involvement and the participation of our Board in the current dialogues. We've held two out of session, out-of-cycle Board meetings in the last couple of months. And there the emphasis from our Board has been very much set of discussions around how to defend and protect, first and foremost; how to preserve liquidity, secondly; thirdly, the importance of looking to make the continued strategic investments that we've been making; and then fourth, challenging us to look out beyond the horizon and to anticipate those new strategic opportunities after this storm has passed. So, we're trying to balance what is a very difficult situation, but position ourselves to come out of it even stronger.

Pete Skibitski -- Alembic Global -- Analyst

Thanks, guys. I appreciate the color.

Patrick J. Dempsey -- President & Chief Executive Officer

Thanks, Pete.

Operator

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

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

Thanks. Morning. Couple of questions. First, with respect to incoming order rates in the quarter in Industrial, can you maybe give a little bit of quantification around how that looked both on a year-over-year and sequential basis?

Patrick J. Dempsey -- President & Chief Executive Officer

So, on a year-over-year basis, overall, what I said was that we were just below, slightly below 1 times in terms of book-to-bill within Industrial as a whole. The strength in there was just over 1 times was Force & Motion Control. Engineered components was at about 0.85 times. And our Molding Solutions business was just at around the same levels.

So, overall, what we saw was definitely a fall-off in orders significantly in terms of Asia, in the first quarter, impacting our Molding Solutions business. And to some degree, I would suggest, Force & Motion Control held up reasonably well in the quarter. Going into Q2, we expect that to change across the Board, depending on which business we speak to.

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

With respect to the Automotive Hot Runner business, can you maybe give a little bit of color in terms of how that business performed in China in Q1? And if indeed you are seeing that piece of the business start to rebound? At least, I'll say probably not year-over-year, but at least on a sequential basis, have you indeed seen that?

Patrick J. Dempsey -- President & Chief Executive Officer

Yes, we've seen on this business which -- the Hot Runner business, we've seen that improve into Q2. It did, clearly, it was impacted in Q1 by everything I've mentioned earlier with respect to the freeze basically that took place within China in terms of quarantine. We've seen -- if you look at our three regions overall, I would suggest that, for the Hot Runner business, Automotive Hot Runner business, North America has stayed pretty consistent throughout 2019 and into the first quarter of 2020 with -- as I've mentioned a few times, we've seen releases continuing to come out or trickle out, if you like, across North America, which has been positive.

Europe is pretty -- has been slow, and I would suggest has been depressed. In Asia, a very tough first quarter for that business. And as I said, seeing light at the end of the tunnel right now as we've entered into second quarter with activity picking up. But I still think it's going to be a tough environment even within China, because right now most of the activity we're seeing is domestic rather than the internationals.

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

Got it. And then just one more follow-up, as you think about, I think Chris mentioned $3 million to $5 million of cost related savings anticipated in Q2. Is there a full year number you're able to give around that, Chris? And then similarly, guys, what would you need to see to think about taking more structural related actions, including in Aerospace, but also further in Industrial? Thank you.

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

Yes, Matt, so specific to 2Q, like you mentioned, we're in an environment where we're managing, I would call it daily if not weekly, in terms of decision-making. And even going out with providing, like I said, investors a look at Q2. We felt we're about one month into the quarter. We know what we know today. That's going to change next month. It may change next week.

So, that's where we have literally no confidence in being able to put anything out beyond that, including savings. I mean, actions we've taken related to furloughs, relative to demand, we need to increase that, we need to accelerate that versus pulling it back because demand comes in. It's very fluid. So, I'm going to air on the side of not providing any color around a full-year savings number. All we can do is look at what's here now.

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

And then as my follow-up to that, was what you would have to see in the business to contemplate doing things that are more structural in nature, including in Aerospace, it's indeed -- we're looking at something that is maybe more U or L-shaped as opposed to V-shaped?

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

Yes, good point. I mean, I look at the -- when we look at our Aerospace business, the backlog we know today, the order activity from the OEMs has been pretty volatile. As you can see, the backlog is going from 800 to 700. We could see a 650, we could see 600. But at the same time, it can go back. What we're looking at is the next 12 months and trying to somewhat ignore the volatility that happens on the back half of that, call it year two, year three.

From a global footprint point of view, we don't feel we're in a situation to have a capacity concern for purposes of a restructuring and consolidation. The way we're well positioned in the U.S., as well as in Asia on the manufacturing side, we're not having those conversations now on the Aerospace side. We do -- we're pretty confident that this will come back, it's going to be slow. It's going to be protracted in terms of a year or two, but right now we want to make sure we maintain the continuity to satisfy customer demand.

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

Got it. Thank you, guys.

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

Thank you.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

Operator

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

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Hey, guys. Thanks for taking the follow-up. Just on -- on the Aerospace aftermarket, can you comment what you've seen in April? I know, I think you said you were kind of planning for that 50% baseline reduction. But can you comment on -- since the airlines have obviously seen activity dropped to near zero in April, can you give us a sense of what the aftermarkets looking like right now in terms of order flow or kind of daily activity?

Patrick J. Dempsey -- President & Chief Executive Officer

We've seen that 50% that I said we were using as our baseline, we've seen that become a reality in April. And so, it's almost immediate in terms of the spigot being turned off as it pertains to the aftermarket side of the equation. So as I said, we're scenario playing off of that and we'll adjust accordingly.

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Okay, perfect. Thanks guys.

Patrick J. Dempsey -- President & Chief Executive Officer

Thank you.

Operator

There are no further questions at this time, I'll turn the call back over to your host.

William E. Pitts -- Director, Investor Relations

Thank you, Marcella. 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 2020 Earnings Call.

Operator, we'll now conclude today's call. Thank you.

Operator

[Operator Closing Remarks]

Duration: 69 minutes

Call participants:

William E. Pitts -- Director, Investor Relations

Patrick J. Dempsey -- President & Chief Executive Officer

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

Christopher Glynn -- Oppenheimer -- Analyst

Myles Walton -- UBS -- Analyst

Timothy Wojs -- Robert W. Baird -- Analyst

Edward Marshall -- Sidoti & Company -- Analyst

Michael Ciarmoli -- SunTrust Robinson Humphrey -- Analyst

Pete Skibitski -- Alembic Global -- Analyst

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

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