Ian Reason: Certainly on the mix, RSP is a big part of the driver there. And of course, we’re bringing MB in which doesn’t have an RSP program, that’s going to drive our overall margin down. But of course, it’s a good story. It’s just that the RSP is a bit of a heavy weight there in terms of its profit contribution. But looking forward, we expect to see margin accretion. Some of the productivity challenges that I talked about earlier on the OEM side of the business as we work through those and we get the work through the factories, those sales fall to the bottom line in a very predictable way. So we expect to see incremental margin expansion. And on the aftermarket side, yes, we expect to see higher growth levels than the average level.
It’s very difficult to predict. The aftermarket business is something that is very cyclical, but we are seeing a very big up cycle and demand certainly in Q1 across RSP and our repair shops have been phenomenally high. So we’re seeing that come strong. But that continues strong throughout the year. Do we see cycles, we don’t know, but we’re expecting to see solid growth year-on-year in the aftermarket side and then growth on the OEM side as production rates start to ramp, particularly on the narrow bodies.
Myles Walton: Okay. And last one, Julie, on cash flow. The conversion, I see on the slide is 140% of GAAP, but obviously, you’ve got a very large adjusted number in there that had sounded to the answer to Chris’ question was largely noncash. And so I’m curious, from a working capital perspective, I’m backing into something like a $40 million consumption, is that correct?
Julie K. Streich: $40 million consumption from what area?
Myles Walton: In 2024 to get to $75 million to $90 million of free cash flow, what is the working capital outlook that you have for 2024?
Julie K. Streich: The working capital outlook, let me get to that one. It is — let me get back to you on that on the follow-up call. I do have it. It’s just not right in front of me.
Myles Walton: Okay, no worries. Thanks again.
Operator: Your next question comes from the line of Michael Ciarmoli from Truist Securities. Please go ahead.
Michael Ciarmoli: Hey, good morning guys. Thanks for taking the questions. Just a couple of follow-ups for clarity first. Julie, did you say MB is now expected to be neutral to accretive, I guess by the end of this year? And then I think I heard the operational impact from the divestitures is $0.28 and I think you called out maybe 50 bps of margin impact from the divestiture, so I guess you’re losing $200 million at maybe a 4% margin, the $0.28 sounded high, so did I have that right?
Julie K. Streich: Yes. You have that approximately right from what’s falling out of the portfolio. And you did hear correctly that we anticipate MB will be exiting the year neutral to accretive.
Michael Ciarmoli: Okay. What’s the $0.28 operational impact, it doesn’t seem to reconcile with the 50 bps margin?
Julie K. Streich: So from a dollar perspective, it’s about a $20 million outflow of operating income. And remember, the reason it might not be reconciling for you is that we have a quarter of the — we have one quarter performance in the outlook for the year. So that reflects three quarters of a year. Hopefully, that helps triangulate your math.
Michael Ciarmoli: So you’re losing $20 million of operating income on that. That seems to be fairly high margin then. What’s actually in all of that operating income, that just — I thought this was more of a margin-dilutive business that you were selling?
Julie K. Streich: Yes. So in 2020, it — in the range of our margins it was absolutely on the low end of our margin portfolio. In 2023, we experienced some benefits in the business, which temporarily inflated that margin as we were closing the Bristol facility. We had the Ford final buys, and we had some other final type sales, which supported the profitability of the business in 2023 that would not be recurring if the business remained in our portfolio. And that’s probably what’s skewing what you’re thinking about.
Thomas J. Hook: Basically, Mike, just the end-of-life programs for the transfers that — what the Bristol associates bring Bristol shutdown ran out and the onetime benefit onetime revenues for 2023, and they weren’t going to repeat under any circumstances prospectively.
Michael Ciarmoli: Okay. Got it. And I guess just shifting to industrial. The outlook for the year on low single-digit organic, what gives you the — I know you gave a lot of color originally to Matt’s question but I think the organic order flow was down 11%. I mean what gives you the confidence in that industrial organic outlook?
Thomas J. Hook: Mike, going out of industrial, as you know, and I’ll focus my comments away from — even though there’s a quarter of Associated Spring and Hänggi in here, I’m going to focus on Molding Solutions, Motion Control Solutions and Automation. Each of those pieces we’ve kind of done some streamlining in the — what we call the integrated consolidated rationalize industrial. So we’ve made a lot of investments there to streamline our approach to the businesses, focused management teams, and commercialization initiatives. And with the reduction in G&A, we’ve been able to put more feet on the street and focus on sales funnels. We have seen multiple places where that’s been very successful. Certainly, in multi-cavity molds, we’ve been highly successful last year seeing that initiative, and we’ve been rolling that out more broadly into the industrial go-to-market teams, more resources, and the additional one for Molding Solutions is selling the entire portfolio globally.
We don’t typically sell comprehensively in North America for Molding. That’s a big pickup opportunity for us. We’ve appropriately looked at upsides and downsides to be balanced in providing our guidance. We know we also have more full year effects of some of the commercial investments in 2023 coming through in 2024, which would be pricing for a full year effect. So we’re starting to see more full year benefits and also see some of the returns in those prospective views from the investments we’ve made in the second half of last year when I was running the Molding Solutions business. And we’ve got good stable leadership in place, and we’re kind of beyond those integrated consolidate initiatives that have already been completed. So we’re going to end up seeing the benefits of those come through.
We understand and have — and are recognizing that the markets may not be as favorable in 2024 as they were in 2023 in some of these markets. So we’ve tempered our expectations accordingly based on the information we have from competitive and market information. So I think we’ve ended up with a very balanced view, but also a growth perspective that kind of supports the investments we have already made to improve those businesses and make sure we get the performance and returns that we are expecting.
Michael Ciarmoli: Okay, got it. And then just last one. On the Aerospace LTAs, I know historically, you guys made some upfront investments in the RSPs and CSPs. Is there any nuance to these new LTAs or extensions where you have to make any upfront investments or are these — should we think of it as more traditional kind of industry orders that went out any upfront investment?
Ian Reason: Thanks for the question, Michael. No, there’s no significant investments required for any of the LTAs. Most of them are follow-on with some new work in there and some volume expansions. But no, these are just normal orders and not requiring any significant investments at all.
Michael Ciarmoli: Okay, perfect. I will jump back in the queue.
Julie K. Streich: Hey, and this is Julie. I just wanted to hop in and follow up on Myles’ question on working capital. We actually have working capital expectations to be approximately flat year-over-year as we continue to work through backlog reserves — excuse me, inventory reserves we have that we’re still working down and as we continue to drive additional productivity. So we despite sales growth and growth in some of our AR areas are looking and working with the business very closely on driving down working capital overall. So it’s a net neutral in the year.
Operator: Your next question comes from the line of Matt Summerville from D.A. Davidson. Please go ahead.
Matt Summerville: Thanks. I just want to clarify one item, kind of getting back to Mike’s question and maybe a question prior. How much in operating income dollars are you foregoing in 2024 for the nine-month period, you will not own Spring and Hänggi and if you need to normalize that, if it was over earning in 2023, can you please make that normalization, I just wanted to be crystal clear how much OP dollars you’re foregoing? Thank you.
Julie K. Streich: So in the back three quarters of 2024, we’ll forego approximately $155 million in sales and approximately $20 million in operating margin. Normalizing that, I don’t want to throw out a number that is directionally incorrect for you. So when we have our follow-up call, I’ll — we can dissect that a bit. Because I know you’re trying to use this for modeling purposes, and I just don’t want to give you incorrect information, but there was — there was a meaningful increase in our sales this year as those end-of-life programs came in, and happy to get you the figures when we have our follow-up.
Matt Summerville: Perfect. And then just a final one on pricing. Tom, can you maybe talk about how much price you were able to realize in industrial in 2023 and how much incremental price capture we should be thinking about for 2024? Thank you.
Thomas J. Hook: Yes. I’ll give a qualitative answer, and then I’ll let Julie give the analytical answer. The short answer is not enough to my satisfaction. We’ve been hit with a lot of inflation, energy, freight, labor, materials, supply chain disruption, longer lead times. So offsetting all that has required a comprehensive across all of industrial even the Associated Spring and Hänggi businesses go to reach out to customers to pass on those inflationary pressures and to either reprice the book of business we have or to price business prospectively for future orders. That has been a battle, as you can imagine, across the portfolio that’s been our primary — over the last — since my 18 months in this company has been one of the primary customer interface negotiation points.
I’ll let Julie give the analytics behind it. We were late in getting started. We only partially mitigated this in 2022 and 2023. I would say today, we passed the even keel point, and now we’re really in a position of recovering price and making up for inflation that we’ve already experienced, but we were late in responding and only partially in mitigating it. So I would say that we’ve done an incomplete job there but prospectively better balance. And certainly, the curing supply chains and the lower inflationary environment make that normalization in equilibrium better. But I’ll let Julie give the analytics behind those qualitative statements to help out.
Julie K. Streich: Yes. Thanks, Matt. For pricing, we realized approximately, and this is a gross number, approximately $30 million of price in the year that was used, as Tom said, to largely offset what we saw in terms of inflation and mix impacts and other productivity challenges that we faced. And that’s across the whole portfolio. Not just — that’s not just industrial, that’s across the whole portfolio, of which about $19 million was industrial.
Matt Summerville: Okay. And then how much incremental price capture should we be thinking about it in 2024 across total Barnes and then Industrial as a subset? Thank you.
Julie K. Streich: Yes. So for total Barnes, we’re looking at a number that’s around the $20 million range at this point. And that would be skewed towards aerospace with industrial, call it, 7 to 10.
