Barnes Group Inc

NYSE:B

Earnings Call Analysis

Barnes Industrial Outlook Erodes; Aerospace Grows

Barnes Group faces headwinds as their industrial segment weakens due to softening demand, inflation, and lower volume from a key distributor. The third quarter saw a net loss of $21.7 million, with an adjusted net income per share down to $0.19 from $0.49 year-over-year. The dip in adjusted earnings per share (EPS) was largely driven by interest and tax impacts from the MB Aerospace acquisition. Overall, they expect organic sales to grow 5-6% for the year, with adjusted operating margins between 11-12% and an adjusted EPS in the range of $1.57 to $1.67, down from $1.98 in 2022. The company anticipates a net debt-to-EBITDA ratio of approx. 3x by the end of 2024 and continues transformation actions to position for long-term value.

A Challenging Quarter with a Drastic Turn in Profitability

Investors face a stark contrast as the company reported a net loss of $21.7 million this quarter, a drastic shift from the net income of $17 million a year ago. This decline includes several one-off restructuring and acquisition-related charges. Adjusted net income per share dropped from $0.49 to $0.19 when these items are set aside.

The Aerospace Surge and Caution in Industrial Performance

Organic sales in Aerospace are flying high, expected to grow in the high teens, thanks to robust OEM and MRO demand. However, the Industrial segment isn't sharing this growth trajectory, anticipating a flat performance for the year.

Navigating Through Industrial Headwinds Towards Stability

Despite the challenges, the Industrial segment plans for steady operating margins of around 8.5%. This demonstrates the company's strategy to maintain profitability even when sales aren't climbing.

Refined Expectations Amidst a Transforming Landscape

With a precise eye on the future, the company has updated its forecasts, eyeing an organic sales increase of 5% to 6% for the year, and targeting adjusted operating margins between 11% and 12%. The adjusted earnings per share are expected to settle between $1.57 to $1.67, reflecting the ongoing adjustments and impacts from recent transactions.

Productivity and Financial Rigor as Keys to Future Growth

Management emphasizes continued top-line growth with diligent capital management to enhance profitability. While productive efforts in Molding Solutions face constraints requiring capacity expansion, the company remains committed to resolving operational and commercial challenges and leveraging its robust synergy plans, especially within the recently acquired MB Aerospace.

Investment Outlook and Financial Forthcoming

Investors are primed for capital investments around $50 million, with share counts stable at approximately $51 million. Free cash flows are looking promising at approximately $70 million, paving the way for potential debt reduction and strategic allocation.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and welcome to the Barnes Third Quarter 2023 Earnings Conference Call and webcast. [Operator Instructions]

I will now turn the conference over to Bill Pitts, Vice President of Investor Relations. Please go ahead.

[William Pitts, executive]

Thank you, [ JL ]. Good morning, and thank you for joining us for our third quarter 2023 earnings call. With me are Barnes President and Chief Executive Officer, Thomas Hook; and Senior Vice President, Finance and Chief Financial Officer, Julie Streich. 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 onebarnes.com, that's O-N-E-B-A-R-N-E-S.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 on 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 onebarnes.com.

Let me now turn the call over to Tom for his opening remarks, then Julie will provide a review of our financial performance and details of our updated 2023 outlook. After that, we'll open up the call for questions. Tom?

[Thomas Hook, executive]

Thank you, Bill, and good morning, everyone. It was a particularly intensive third quarter in which we made significant progress towards several strategic objectives. We have aggressively moved Barnes to a more balanced, value-driven business through execution of our strategic priorities to drive core business execution, scale aerospace and optimize industrial.

While we are pleased with progress in several areas, our success to date is unfortunately been asymmetric. Across the organization, overhead remained stubbornly high, and while it is being methodically addressed, it has been a slower-than-desired pace. Aerospace has demonstrated it's on the right path convincingly. While performance is generally strong, it is not perfect given two struggling aerospace manufacturing facilities.

Industrial has proven to be much more challenging than originally anticipated. Structural changes needed to integrate, consolidate and rationalize that portion of our portfolio are well underway, including additional initiatives commenced in the third quarter. There remains considerable work to complete, leveraging the foundational elements we have painstakingly put in place. However, progress will not be linear. Our strategy to enhance and grow our aerospace business took a major leap forward.

During the quarter, we successfully recapitalized the company's debt and completed our acquisition of MB Aerospace earlier than expected. We welcome the MB Aerospace team to Barnes and celebrate the largest acquisition in the company's history. It is a major step to establishing a more balanced portfolio overall for Barnes. We're off to a fast and effective start integrating MB Aerospace and have established traction to deliver the synergies we referenced when we announced the acquisition.

The emphasis on driving integration and synergies from day 1 is a significant shift from our previous acquisition practices. The benefits are already apparent in how the teams are engaging and the pace of integration is progressing on all fronts. This approach will set the standard for future deals to ensure success. With respect to aerospace performance, last quarter, we identified 2 facilities operating inefficiently and weighing on our results. One of the facilities an OEM location is starting to turn the corner as we head into the fourth quarter. The other, an aftermarket facility continues to face challenges. The ultimate fix for this facility requires a ramp in commercial activities to build a robust pipeline that generates additional bookings.

Continued corrective actions and investments are being implemented to bring these facilities to higher levels of performance as we move into next year. The previously announced transformation products touching aerospace are making steady progress to increase capacity and capabilities. These investments secure our ability to grow across our aerospace end markets with all customers. Our fourth quarter forecast looks solid, and we believe that we are well positioned heading into 2024. In addition, we recently announced 2 extended long-term agreements with Safran. The first agreement is for the repair and overhaul of components for the LEAP and CFM engine programs, reflecting Barnes Aerospace expertise in machining and assembly of complex-engine components.

In the second agreement, we extended a CFM56 component repair agreement, which will secure this mutually beneficial program over the long term. Combined, we expect these to represent over $65 million in future revenues.

To close my remarks in Aerospace, one of the more promising developments with our now larger business is new commercial opportunities. Customers recognized our expanded capabilities and have already engaged with our combined commercial and engineering teams to identify work packages that we have not participated in previously. We look forward to sharing more details on these new opportunities with you at the appropriate time.

At Industrial, our core business execution is unacceptable, which is driving a very strong mandate for continued change. This includes cost rationalization efforts within motion control solutions and restructuring within Molding Solutions. My direct involvement in industrial operations leadership, which began in May is providing first-hand appreciation of the need for ongoing strategic, operational and leadership changes. These changes are actively being made to streamline excessive overhead, strengthen commercial go-to-market strategies and improved manufacturing and capacity and capability.

Our integrated consolidated rationalized products are generally delivering expected results. However, we are seeing leakage of these benefits due to ongoing pressures of the weak China markets and continued inflation in labor and materials. We have made progress on our manufacturing facility optimization products with the closure of manufacturing plants in Molding Solutions and Motion Control Solutions. This includes the closure of our associated spring plant in Bristol, Connecticut.

Additionally, some smaller underperforming technology and service centers in our automation business have also been shut down. At Molding Solutions, we implemented a restructuring product with objectives to integrate the business comprehensively and streamline the organization. These changes included integrating our commercial capabilities to more aggressively sell our systems and services globally, optimizing the effectiveness and efficiency of our global manufacturing footprint, accelerating our technical leadership and bringing new products and services to market and streamlining back-office business processes and analysis.

During the quarter, we took an additional restructuring charge to accomplish the above. These changes include and also coincide with several leadership changes. We reduced the size of the leadership team at Molding Solutions and implemented additional overhead reductions across the business, significantly reducing complexity and expense.

I am also pleased to share that earlier this week, we appointed a new President of Molding Solutions. Marcello Vendemiati, who has led the transformation of our automation business over the past 2 years will move into Molding Solutions President role full-time effective November 1. This move created an opportunity for an additional internal promotion. Emanuele Orlando, who is instrumental in reinvigorating the growth for multi-cavity business, will now transition to lead the automation business.

Our Motion Control Solutions business which manufactures auto component parts is feeling the effects of the ongoing United Auto Workers strike. While the third quarter impacts were isolated, we expect shipment delays and lagging orders in the fourth quarter. Our preliminary estimate is $6-plus million in revenue impact and a $1.5-plus million profit impact in the fourth quarter.

However, the unpredictability of the strike may also require additional layoffs or furloughs to mitigate additional impacts. If the duration of the work stoppage continues, there is a risk of broader [ contagion ] to our nitrogen gas products and automotive hot runner product lines.

At Automation, we continue to anticipate full year growth despite a large distribution partner significantly lowering volume in '23. The year-over-year growth offsetting this major headwind speaks to the effectiveness of our refreshed commercial strategies. We are also working closely with our distribution partner to course correct demand trends. The distributor is projecting a 2024 recovery in core product lines and is also adding our vacuum product line to their sales channel.

Overall, however, as we look to the fourth quarter, our industrial outlook is eroded on industry dynamics, softening demand and inflationary pressure. In closing, we are aggressively moving Barnes to a more balanced value-driven business through execution of our strategic priorities to drive core business execution, scale aerospace and optimize industrial. Significant progress has been made in strategically adding to our aerospace business with the addition of MB Aerospace in the quarter. Progress towards previously announced restructuring actions continues as planned across all businesses. And in industrial, major structural changes are being implemented to reduce costs and enhance our commercial capabilities. While industrial progress is not moving at the desired pace yet, specific targeted actions are underway and our commitment to achieving the industrial turnaround remains very strong.

Let me now pass the call over to Julie for a discussion of our third quarter performance as well as some end market color.

[Julie Streich, executive]

Good morning, everyone, and thank you, Tom. Let me begin with highlights of our third quarter results on Slide 4 of our supplement. Third quarter sales were $361 million up 15% from the prior year period, with organic sales increasing 4%, acquisition revenues contributing 8% and foreign exchange adding 3%. Adjusted operating income was $39 million this year, which is the same as a year ago and adjusted operating margin of 10.8% was down 160 basis points.

Net loss was $21.7 million or negative $0.43 per diluted share compared to net income of $17 million or $0.33 per diluted share a year ago. On an adjusted basis, net income per share of $0.19 was down from $0.49 a year ago. Adjusted net income per share in the third quarter of 2023 excludes $0.19 of restructuring and transformation-related charges, $0.31 of acquisition-related charges and $0.12 of MB Aerospace acquisition short-term purchase accounting adjustments.

Third quarter interest expense was $22.8 million versus $3.4 million a year ago. The key driver of the increase was the MB Aerospace acquisition. At the time of closing, we recapitalized Barnes with a fresh $1 billion revolver and a new $650 million term loan B. I'll discuss our new debt structure and leverage momentarily, but suffice it to say that a higher average debt balance and a higher average interest rate in the quarter contributed to the increase in interest expense. In addition, onetime bridge financing fees of $9.5 million were incurred in anticipation of the acquisition, which are included in interest expense and excluded from our adjusted earnings as acquisition-related charges.

Other income was $900,000 versus other expense of $2.4 million a year ago, primarily driven by nonoperating pension income. The effective tax rate in the third quarter of 2023 was negative 82% compared to 30% in the year-ago period and approximately 65% for the full year 2022.

The unusual tax rate in the third quarter this year is driven by effects from the nondeductibility of a portion of our interest expense, transaction costs associated with the MB Aerospace acquisition that are capitalized for tax, and the change in the geographic mix of forecasted earnings. The unusually high 2022 tax rate is primarily due to a goodwill impairment charge, which is not tax deductible and limitations on executive compensation deductions.

Now I'll turn to our segment performance, beginning with Aerospace. At Aerospace, sales were $156 million, up 41% from a year ago. On an organic basis, sales increased 17% in the quarter while the MB Aerospace acquisition increased sales by 24%.

OEM organic sales increased 24%, and aftermarket organic sales increased 7%. Operating profit was $3.6 million versus $21.2 million a year ago. Excluding restructuring and transformation-related charges of $3.9 million, acquisition transaction costs of $7.8 million and short-term purchase accounting adjustments of $8 million, adjusted operating profit of $23.4 million was up 12% from a year ago.

Adjusted operating margin was 15%, a decrease of 380 basis points from prior year. Adjusted operating profit benefited from the contribution of higher organic sales volumes, inclusive of pricing and the contribution of MB Aerospace sales partially offset by productivity. Keep in mind that operating margins will be impacted by both short-term purchase accounting adjustments and long-term intangible amortization from the MB Aerospace acquisition.

While the short-term purchase accounting impacts are excluded in adjusted results, the long-term intangible amortization is not. This will have a meaningful impact on reported margins. Legacy OEM orders were up 29% in the quarter, and book-to-bill was 0.6x. With the combined Barnes and MB Aerospace business, our OEM backlog now stands at $1.25 billion, and we expect to convert approximately half of this backlog to revenue over the next 12 months.

Our 2023 organic sales growth outlook is up high teens for OEM, high teens for MRO and low double digits for spare parts. Collectively, Aerospace full year organic sales growth is expected to be in the high teens, which is consistent with our July outlook. Our forecast for Aerospace adjusted operating margin is approximately 15.5%, driven in part by long-term intangible amortization, OEM aftermarket mix of the combined entity and the ongoing recovery process in two of our facilities.

At Industrial, third quarter sales were $205 million, up slightly from the prior year period. Organic sales decreased approximately 3%, while favorable foreign exchange was a positive 4%. Industrial's operating profit was $6.4 million versus $8.8 million a year ago. Excluding restructuring and transformation-related charges of $9.3 million, adjusted operating profit of $15.6 million was down 14%, and adjusted operating margin of 7.6% was down 130 basis points.

Adjusted operating profit was impacted by lower organic sales volumes, unfavorable mix and lower productivity, partially offset by positive pricing. With respect to orders and sales for the quarter across industrial, Molding Solutions organic orders decreased 7%, while organic sales decreased 2%. Trends that have been in place for several quarters persist. Our multi-cavity mold systems delivered organic -- excuse me -- delivered orders and sales growth primarily driven by packaging and personal care. These were offset by weakness in our hot runner product line serving automotive end markets.

For 2023, we now expect Molding Solutions organic sales to be approximately flat. At Motion Control Solutions, organic orders and sales both decreased by 5% in the quarter. As has been the trend, we saw good orders and sales driven by transportation-related end markets in our legacy Engineered Components business. However, as Tom mentioned, we expect that to turn negative in the fourth quarter with the ongoing UAW work stoppage. Sheet metal forming end markets remain stubbornly soft, especially in China. We now forecast flat organic sales growth for MCS in 2023.

At Automation, organic orders were down 18%, while organic sales were approximately flat. We expect mid-single-digit organic sales growth for automation in 2023, a bit lower than our prior view. For the Industrial segment, we anticipate flat organic sales growth for 2023 with adjusted operating margin of approximately 8.5%.

Before moving on to cash, I'd like to take a moment to walk our adjusted EPS from the third quarter of last year to the third quarter -- to the current year quarter on Slide 6 of our supplement. As mentioned, there are a lot of moving pieces in the quarter, and I want to isolate performance drivers of adjusted EPS.

In looking at the graph, it becomes clear that MB interest and tax impacts are what drove the majority of the year-over-year decline in adjusted EPS. With respect to cash performance, cash provided by operating activities was $71 million year-to-date versus $43 million in the prior year period. The primary drivers continue to be from lower paid incentive compensation in 2023 relative to 2022 and a lower investment in working capital compared to the prior year.

Free cash flow was $34 million versus $22 million last year, and capital expenditures were $37 million, up approximately $16 million from prior year.

As I mentioned earlier, with the MB Aerospace acquisition, we have recapitalized the company to provide the financing needs to close the deal and to ensure sufficient capital for our ongoing needs. The new capital structure consists of a $1 billion revolving credit facility with a 5-year term and a $650 million term loan B with a 7-year term. Each facility uses SOFR as the base with the revolver having an interest spread ranging from 1.375% to 2.5% based on leverage and the term loan having a fixed 3% spread.

At quarter end, approximately $660 million of the revolver was drawn. Within that, approximately $320 million of the revolver debt is Euro bar based and comes with an approximate 160 basis point lower average rate. All in, our new financing structure has an average interest rate of around 7.7% before swaps. In order to reduce exposure to rising interest rates, we have hedged approximately $865 million of debt, creating a debt profile that is approximately 65% fixed and 35% variable.

With the interest swaps in place, the average interest rate on our debt all in is approximately 6.8%. With our balance sheet, the net debt-to-EBITDA ratio, as defined by our new credit agreement was 3.8x at quarter end. We now anticipate being around the same level at year-end and approximately 3x at the end of 2024.

Turning to Slide 7 of our supplement. We'll move to our updated 2023 outlook. We now expect organic sales to be up 5% to 6% for the year, with adjusted operating margin of between 11% and 12%. We forecasted adjusted EPS in the range of $1.57 to $1.67 down from 2022's adjusted earnings of $1.98 per share.

2023 adjusted earnings per share are anticipated to exclude $0.70 related to restructuring and transformation-related activities, $0.36 related to acquisition transaction costs and $0.34 of short-term purchase accounting adjustments. With the changes in interest and tax rates, the latter largely driven by interest expense disallowance, we now forecast the impact of the MB Aerospace transaction to be approximately 40% -- $0.40 dilutive in 2023 and remain dilutive in 2024.

A few other outlook items. Interest expense is anticipated to be approximately $50 million, excluding the $9.5 million of bridge loan fees, other income to be approximately $3 million, excluding $1.1 million of pension income attributable to restructuring activities, we anticipate a full year adjusted effective tax rate of between 31% and 32%.

CapEx of approximately $50 million, average diluted shares of approximately $51 million and free cash flow of approximately $70 million. In closing, we executed several major transformational actions during the quarter to better position Barnes for long-term value generation.

As Tom mentioned, our announced restructuring efforts remain on track, and we continue to see green shoots from our commercial efforts. Delivering improved industrial performance remains the most significant operational challenge we face. Given our core business execution focus, we will turn the corner and deliver results reflecting the underlying potential of the business.

Operator, we will now open the call for question.

[Operator]

[Operator Instructions] Your first question comes from the line of Peter Osterland of Truist.

[Peter Osterland, analyst]

Keeping the first -- I appreciate the chart on the year-over-year EPS was. So along similar lines for Aero margins, when we look at the year-over-year decline in the quarter there, how much of that was from the impact of the acquisition and how much is organically related to productivity or mix or anything else meaningful that you call out there? Just trying to get a sense for what the main drivers could be for improvement moving forward.

[Julie Streich, executive]

Sure. So the most significant driver by far is the impact of the intangible amortization, the long-term purchase accounting -- long-term purchase accounting items that we have. And just to give you a sense, on a quarterly basis, that will be around $6.3 million a quarter going forward. So that's a significant impact. It was $2.1 million impact for the September month where MB was in the numbers. The second thing is the introduction of the OEM mix, MRO mix with MB as well as our own growth in OE and MRO. It's excellent that they're both growing, and they're there. They just don't carry the margins that the RSP business does. And then the final impact would be from the productivity initiatives, which are there, but are at the lower end of the impacts.

[Peter Osterland, analyst]

Okay. Great. Very helpful. And then one, just switching to Industrial, specifically on demand, was the downward revision for industrial sales guidance largely driven by expectations in the automotive market? And what are you seeing based on order patterns or customer conversations about demand across your other industrial end markets?

[Thomas Hook, executive]

Yes, Peter, excellent question is, that the automotive end markets that we can see because we sell directly into them. We can see that the UAW strike has definitely had an effect. But for many of our product line areas, particularly nitrogen gas products portion of MCS since we sell through a distribution network, we don't have to look down through into the end markets. So there, the demand picture is a little bit more opaque.

We do know there's a UAW strike effect, but we also know that the weak China markets were as an important market for us have definitely tempered demand. So it's an unclear picture on the MCS portion that goes through distributors. But clearly, the UAW strike is having an effect, and that's obviously, we've quantified the -- our best estimate for that in the fourth quarter. But we're planning conservatively and obviously expecting with some of the news coming with the potential resolution of the UAW strike that will allow us to recover that. But right now, we see orders being pushed out and demand softening. And we're watching very carefully, but we're planning conservatively going into the fourth quarter in '24 because we have unclear effects as what would be driving those.

[Operator]

Your next question comes from the line of Myles Walton of Wolfe Research.

[Myles Walton, analyst]

So maybe, Julie, just to be clear, can you -- what drove the dilution from the MB deal to $0.40 from the $0.25 that was in the announcement when the deal closed. Maybe if we could just start there.

[Julie Streich, executive]

Yes. The primary driver was that was the order of magnitude of the interest expense disallowance that we actually hit once the final numbers came in, and we got the full geographic impact. We're seeing what's going with rates -- going on with rates, that is the primary delta.

[Myles Walton, analyst]

Okay. Great. So that -- when you say rate, you mean just the interest rate, not the tax rate.

[Julie Streich, executive]

Exactly the interest rate environment, exactly.

[Myles Walton, analyst]

All right. And then maybe just on taxes. I mean, I know you're not ready to guide to '24, but can you help us just get aligned for what normalized tax rate should be as we kind of look forward versus what it is this year versus what the guidance was previously.

[Julie Streich, executive]

So I would love to be able to do that for 2024. I just don't know at this point in time that I'm ready to put a number out there. There's a lot of moving parts and pieces at this point in time. So I apologize for that.

[Myles Walton, analyst]

No. That's fine. And then maybe just on the commercial OE, like you said, definitely good to see it strong for you guys and for MB. It's causing some dilution, that's understandable. But I just want to make sure it does look like the guidance did come down. It was a strong quarter, but I don't know if anything changed because I think you were looking for 20% plus guidance for the year and now I think it's high teens.

[Julie Streich, executive]

Yes. The biggest mover beyond that, and Tom can build on my comments was the change in our outlook for our industrial forecast. As a result of UAW as a result of ongoing challenges that we're facing in Chinese demand and also the softness Tom mentioned in our nitrogen gas products that flows through Motion Control Solutions. Our outlook for industrial deteriorated, also contributing to the full year guidance decline.

[Myles Walton, analyst]

Sorry, Julie, I was talking within aerospace, commercial.

[Julie Streich, executive]

Oh, withing aerospace. I apologize. I heard that. No. There's no other performance expectations that have changed within the aerospace market that caused us to decline. We're feeling very good about that business. It's all an impact of the mix, of the products that have come into the portfolio and then the amortization that we talked about earlier.

[Operator]

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

[Matt Summerville, analyst]

A couple of questions. First, I want to talk about Molding Solutions and the order activity you're seeing there. Can you maybe parse that out a little bit in terms of what inbound orders look like in some of the more material end markets to that business like personal care packaging versus medical versus automotive, et cetera? And then I have a couple of follow-ups.

[Thomas Hook, executive]

Certainly, Matt. This [ Tom ] is, obviously, very close to Molding Solutions, having been the temporary President for the past 4 months. Personal care packaging, medical, all strong, and particularly for our mold sales. We are about 52 weeks lead time quoting on molds and delivery due to capacity limitations. So I find on the mold side, we're very healthy. We have to increase capacity and capability to get more of the orders remitted and off into the customers so we can continue to book strongly there.

Our challenges have been in the automotive end markets for hot runner systems, particularly in China, where we have been struggling with some of the shift from ICE-derived customers to EV customers. We have not been successful in our commercial go-to-market strategies there to manage that trends in well. So that's where we're seeing a large portion of the pressure is on those hot runner product lines to the end markets, to mobility and transportation. That is an operational commercialization challenge as well as a market weakness shift that's in China that's occurring in combination.

Of course, the UAW strike is a dark cloud on the horizon, but it is not affected, and it is not a reason for that outlook being a little bit more conservative and pessimistic. I would say that, as we're repositioning molding solutions and integrating it and streamlining its management significantly, it will allow us to focus more sales resources on our principal zone structure in terms of sales and marketing to help get us more commercial market traction.

And that includes whether it's automotive or personal care packaging medical. It's a tough transition to make over the third quarter, but it's long overdue and needed to get the business on to a more fundamental track to sell strongly into those markets.

[Matt Summerville, analyst]

And then as one of my follow-ups, it would be helpful if you can sort of bridge to the extent you can, Julie, how you get from 3.8x levered coming out of year-end '23 all the way down to 3. How much incremental EBITDA are you expecting MB to add in '24 over '23. It's a little tough for me to see mathematically how you get down to 3 by the end of next year.

[Julie Streich, executive]

So if we look at what's happening from obviously a cash generation perspective as well, we would continue to see a decrease in the investment in working capital with our -- with the assistance of excellent management on those fronts, which will contribute. We'll continue to see the top line growth. We have noncash charges that are flowing through the P&L that also contribute to that pay down. So while we're not prepared to talk about what our EBITDA is for 2024 on either side of the business in looking at the data that we have available today, we see a path with our cash generation and with expected top line to get the leverage to that level.

[Matt Summerville, analyst]

Okay. And then I'll just ask one more. So productivity challenges in Aero. Can we kind of underline that a little bit and talk about where that's at versus where it was 90 days ago, specifically what you're doing to fix those issues? And then if you can kind of recap the go-forward restructuring savings you're expecting in '24 and '25 and what these incremental actions the impact that may be having on those numbers, I would assume they're moving up. But if you can give a little more detail on those topics, that would be great.

[Thomas Hook, executive]

Certainly. So for Aero, Matt, is in the legacy Barnes Aerospace. We've had two facilities we've spoken to, one of those OEM facility has had operational performance challenges and specifically plant output. There, we have in the third quarter started to turn the corner with changes in leadership at that facility as well as in the -- how we're actually running the facility, and that has started to turn the corner into a positive direction. Of course, one month does not make a trend. So we're watching it very closely with the new leadership in place, but it has turned the corner from the kind of headwinds that it was facing.

The second facility we highlighted that has operational performance issues in aerospace and the legacy Barnes is an aftermarket facility that is continuing to have challenges. There are commercial challenges based on its performance and reputation historically. The solution set is a commercial engagement with customers to bring business in that facility so that it can put itself on a growth trajectory, that is in process. It is premature to call it turning around since we still have work to do heading into Q4 and into 2024 to improve that situation. It does involve leadership changes as well, both operationally and commercially to improve it. So those are also being put in place by [indiscernible] reason to improve that situation.

The last piece I would highlight really is relating to MB Aero. In the month of September, one of the facilities had a typical month performance which is really just an isolated item and is not something that's persistent that kind of affected that productivity of that specific individual facility. But it was kind of a one-off instance. There was a productivity impact and it's not expected to continue going forward. It was just one particular project that was asymmetric.

So as we move into 2024, there is a transformation -- comprehensive transformation program going on in aerospace that we -- part of the phased communications have already provided guidance on. We will add to that transformation project, the integration and synergy savings that we also highlighted for the MB Aerospace acquisition together and -- so those 2 things are just individual items, but they're now being combined in terms of management, but the impact of those 2 things together will equal to some of those 2 parts.

And we -- when we provide 2024 guidance, we'll provide a refreshed view of what those look like, but no changes now with regards to those programs. It's still consistent with what we had in our overall transformation activities for aerospace.

[Matt Summerville, analyst]

And then my follow-up on restructuring savings cadence, Julie and what's incremental from the new actions you're talking about today?

[Julie Streich, executive]

So the cadence of the previously announced actions is, has not changed. So we're still tracking towards that annualized run rate savings of around $22 million. These new actions should generate run rate basis of around $3.5 million to $4 million annually, some of which were implemented at -- already at the beginning of the fourth quarter. So we'll reap a portion of those benefits this year, although, clearly, just a couple of months worth. And that's another thing, Matt, to follow up on your prior question that will help us next year. We've had significant cash outflow this year in support of the restructuring activities that tapers off next year, also giving us greater ability to pay down debt at an accelerated pace.

[Operator]

And your next question comes from the line of Christopher Glynn of Oppenheimer.

[Christopher Glynn, analyst]

Did you say -- Tom, did you say you had a 52-week lead times for multi-cavity and what's the impact on win rates with that kind of lead time?

[Thomas Hook, executive]

Chris, great question. In Molding Solutions, Emanuele Orlando, who has been the multicavity mold leader that has restructured our sales team globally has been extremely successful in driving engagement of that business. Our win rates have been high. We're a very unique high-end provider of those molding systems globally. And we effective -- very effectively with the work that he has done booked up our capacity within the company. We're making capacity investments as part of the Molding Solutions efforts and investments to increase the global capacity of that to get the lead times back down again. Our win -- our pricing has been very good, and our win rates have been very good. As you know, in those product lines, there is a percentage of completion accounting that is done for those as we're building the molds. So despite the long lead time, we will see some of that into our P&L as we move forward. But our primary focus is to leverage that commercial momentum is get operating output for remittance right now.

So it's a good situation where we have good pricing flow through, good customer engagement, good win rate percentages, but it's focused in asymmetry and molding solutions and we need more mold capacity. Unfortunately, just happening at the same time of seeing the hot runner product lines in mobility and transportation, particularly in China, be weak. And the capacity limitation is hurting our ability to offset the full effect of the hot runner weakness.

So we're going to work both sides of that equation. But what is it, I expect capacity improvements on the mold output side moving into '24, but we have a lot of work to -- one is an operational set, one is a commercial solution set. So they're different.

[Christopher Glynn, analyst]

Okay. So it sounds like customer expectations as they come for bid and quote and RFP aren't all that different from what your actual lead times are. You're not seeing a rub there or a friction.

[Thomas Hook, executive]

I'm seeing a lot of friction there. Chris, as customers want lead times in the 20 to 25 weeks for us to be really world-class. 52 weeks is way too long. And with the market demand is there, certainly, our products and technologies are in very high demand. And we -- at the end of the day, we want to take advantage of those favorable market conditions. It's not commercial activities holding us up. It's squarely manufacturing output. So that's where those investments are concentrated.

And like I said, on the flip side and the hot runners, it's the other way around. We have plenty of manufacturing capacity. We need commercial market engagement to ensure that we're penetrating into the markets, particularly in mobility, transportation, automotive to get better engagement with customers, different operating challenges and molding solutions.

And of course, as you know, that is happening at the same time as a considerable amount of operational consolidation and facility rationalization. So it's tough to do all those at the same time, but needed.

[Christopher Glynn, analyst]

Okay. And then in terms of MB Aerospace, as we think about 2024, we heard it will still be dilutive on the one hand, maybe more so given the 12 months instead of 4, 5, but also, you'll be doing some integration and normalization there. And anything directional relative to the $0.40 that we would expect for dilution next year even directional.

[Julie Streich, executive]

So we're still working to fine-tune those numbers and I wouldn't want to -- I really wouldn't want to put something out there because the team is still continuing to work through a lot of the complicated accounting elements.

[Christopher Glynn, analyst]

Does that mean that the $6.3 million a quarter amortization, that's in flux, I take that to [indiscernible] .

[Julie Streich, executive]

No, it will be...

[Thomas Hook, executive]

No, that will not be a variable, Chris. That's going to be constant. But as you know, we have a rather robust synergy plan for the MB Aerospace. And as that is implemented that would obviously buffer significantly over the course of the year towards the end of the year, it being less dilutive. So there's given you more qualitative statements here. But we have a lot of work to do from a planning perspective to give Cognizant guidance for '24 on this to give you more than just kind of qualitative statements here, kind of more definitive information.

[Christopher Glynn, analyst]

Okay. That makes sense. And something that might be a little easier to guide directionally. Any parameters we can put on free cash flow. Obviously, the accounting is going -- on the P&L, the GAAP and the adjustments is going to be a little bit of a pin the tail on the donkey exercise for us today. But in terms of free cash flow margin or some way to ring fence expectations even with caveat that things are still getting worked out and you have consolidations which might move working capital. What should be free cash flow margin for Barnes Enterprise in '24?

[Thomas Hook, executive]

Yes. Chris, excellent question. We know we need to provide that information heard it from Peter's question as well. We need to provide a walk on kind of deleveraging and cash flows. I think the two things have to be provided together to give you the visibility you're looking for.

We have a preliminary view of it. We're not ready to share it. And we know when we provide our 2024 guidance for investors, that has to include a clearer picture of the cash projections, not just what historically we've done in terms of EPS because of the differential between the amort and other deal-related expenses. So we take that Peter's question as well as yours, as we will come back and provide information with a clearer picture on EBITDA/cash. So you can understand what that picture looks like for '24.

Suffice it to say that operationally, we plan on 2024, putting ourselves in a position to be able to deleverage and drive cash operationally as well as through working capital reduction and the synergy and consolidation plans, so we've got the levers to do it.

We just have to give you the -- how we're getting there and what the magnitude of each one is, so you can understand the walk. And we'll take that as an action item to provide at the beginning of next year.

[Operator]

There are no further questions at this time. I will now turn the call back to Bill Pitts for closing remarks.

[William Pitts, executive]

Thank you, [ JL ]. We'd like to thank all of you for joining us this morning, and we look forward to speaking with you next in February with our fourth quarter and full year 2023 earnings conference call. Operator, we will now conclude today's call.

[Operator]

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