Oct 24, 2014
Executives
William Pitts - Director, IR Patrick Dempsey - President & CEO Chris Stephens - SVP, Finance & CFO
Analyst
Christopher Glynn - Oppenheimer Edward Marshall - Sidoti & Company Matt Summerville - KeyBanc Myles Walton - Deutsche Bank Peter Skibitski - Drexel Hamilton Scott Graham - Jefferies Tim Wojs - Robert W. Baird
Operator
Welcome to the Third Quarter 2014 Barnes Group Earnings Conference Call. My name is Lisa and I'll be your operator for today.
(Operator Instructions). I would now like to turn the conference over to your host for today Mr.
William Pitts, Director, Investor Relations. Please proceed, sir.
William Pitts
Thank you Lisa. Good morning and thank you for joining us for our third quarter 2014 earnings call.
With me are Barnes Group's, President and CEO, 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 that we believe is helpful to our investors.
These measures have been reconciled to the related GAAP measures in accordance with SEC Regulations. You'll find a reconciliation table on our website as part of our press release and in the Form 8-K submitted to the SEC.
I want to remind everyone that certain statements we make on today's call both during the opening remarks and during the question and answer session maybe forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected.
Please consider the risks and uncertainties that are mentioned in today's call and are described in our periodic filings with the Securities and Exchange Commission. These filings are available through the Investor Relations section of our corporate website at bginc.com.
Before we begin our prepared remarks I want to remind everyone that our financial results discussion is based on continuing operations. I'll now open today's call with remarks from Patrick, followed by a more detailed review of the quarter's results and our 2014 outlook discussion from Chris.
After that we will open up the call for questions. Patrick?
Patrick Dempsey
Thanks Bill and good morning everyone. Barnes Group achieved excellent performance this quarter.
Orders and sales growth were impressive and operating margins further expanded. These results demonstrate our continued progress towards being a global provider of highly engineered products and innovative solutions, generating superior value for our customers and stakeholders to energized and passionate workforce.
These are the elements that form our corporate vision and our profitable growth strategy is the blueprint to get us there. Our strategy focuses on transforming our existing portfolio of businesses and acquiring new businesses.
This strategy provides our customers a combination of engineered products and differentiated industrial technologies. It means developing and optimizing intellectual property as a true competitive advantage, growing and favorable end markets and expanding our global access.
In short we’re using our 157 year history of being a high precision manufacturing company as the foundation upon which to build a truly differentiated company. Our Barnes Enterprise System or BES embodies the fundamental way we do business on a daily basis [Technical Difficulty] comprised of four main elements to promote a culture of employee engagement empowerment, reflecting our strong corporate values, ensure alignment across the organization around the common vision, foster continuous improvement and innovation in all our business processes and achieve results that drive sustainable profitable growth.
None of our success could be achieved without the contributions of the 4400 dedicated and talented women and men across our company. Turning to Q3 results, we delivered very strong sales growth of 18% with robust organic growth of 8% and expanded operating margins to 16.5% on an adjusted basis.
Chris will discuss additional details on our financial performance shortly but let me take a moment to provide some color on our segment performance and the end markets they serve. Our industrial segment had another terrific quarter.
Sales growth was achieved across the portfolio excluding Associated Spring with the closure of Saline Michigan facility. Segment orders were very robust increasing 28% overall and up 11% if you exclude Männer and the impact of saline.
Our European based businesses again generated meaningful revenue growth this quarter fueled by continued strength in the tool and dye, global automotive and medical end markets. A few new records were also achieved in the quarter.
Nitrogen gas products have record sales with the majority of this growth coming from Asia. Synventive had a record quarter of both orders and sales, the second quarter in a row for such a distinction driven by strength in automotive model changes.
Also worth noting is Männer delivered another solid quarter and order activity remains strong. Their results are driven by favorable personal care and medical end markets in both Europe and the U.S.
Our aerospace business delivered solid sales growth and backlog remains healthy. Our long term outlook for OEM remains bullish and significant backlogs of Boeing and Airbus support planned increased production rates for both narrow and wide-body aircraft.
Our elevated investment in new product introduction or NPI over the past few years is beginning to pay off. For example we're excited to be a key supplier on the Airbus A350 and its Rolls Royce Trent XWB engine and we’re very pleased to announce that we have content of approximately 550,000 for A350 aircraft.
With the opportunity to grow our content as the program moves forward. We also continued to be very positive about the underlying fundamentals of the aftermarket industry over the long term, revenue passenger miles continue to increase, load factors remain at all-time highs and airline profitability steadily improves.
All of these factors coupled with a growing install base are expected to generate aftermarket growth for the next decade both in MRO services and spare parts sales. As mentioned last quarter, our confidence in the aerospace aftermarket was demonstrated by our investment into a second component repair program.
Let me take the time to go into greater details on the expected benefit from CRPs. First we have a long standing relationship with General Electric.
This relationship creates opportunities for us to enter into mutually beneficial agreements like our revenue sharing programs and more recently CRPs. CRPs provide Barnes aerospace the right to provide overhaul and repair services on critical components for the CF6 and CFM56 over the life of these engine programs.
The programs consist of three primary sources of revenue. First the growing component repair demand from GE's engine overhaul shop, second Barnes revenue rights from existing GE contracts with other and customers, and third, the license to provide component repair services to worldwide Airlines and independent overhaul shops as a GE authorized repair source.
An important aspect of the CRPs is that the repair services we perform are on critical high-performance components within the hot section and are highly instrumental to the overall efficiency of the engine. So we expect continuous growing demand for the repair services we provide as the installed fleet matures.
It should also be noted that we already have in place a well-established direct aftermarket sales team with highly qualified technical skills, strong customer relationships and an established worldwide sales representative network. Regarding growing demand, note that the install base of the CFM 56 engine estimated at over 21,000 engines today is still growing and not expected to peak until 2018 and the [Technical Difficulty] MRO activity is not expected to peak until 2022.
So with that as additional background you can see we're confident these programs will provide a meaningful revenue stream at improved MRO margins over the long-term. So before I turn the call over to Chris, let me say that we continue to demonstrate that successful execution of our strategy provides for profitable growth and strengthening our portfolio differentiated products, processes, systems and services, positions us well for the future.
The outlook for our fourth quarter remains positive and we look to exit 2014 with the momentum to deliver another great year in 2015. Chris?
Chris Stephens
All right. Thank you, Patrick and good morning everyone.
Let me start by highlighting a few key points on our quarterly results and then with our updated 2014 earnings. As you can see on slide 2, third quarter sales were $318 million up 18% over last year driven by a 8% organic sales growth and the contribution of nearly $30 million from Männer.
FX impact decreased sales by $2 million or 1%. For the quarter income from continuing operations was $34.3 million or $.62 per diluted share compared to $.39 in the prior year period.
Please keep in mind that in the third quarter of last year 2013 income from continuing operations included an $8.6 million pretax inventory valuation charge in our aerospace segment. On an adjusted basis third quarter income from continuing operations was $0.64 per diluted share which excludes the impact of Männer short term purchase accounting and saline restructuring charges, each item worth about one penny per diluted share.
And Bill mentioned we have provided a couple reconciliation to these adjusted results as part of our press release. Now let me add to Patrick's comments regarding segment performance beginning with industrial.
Sales were $207 million up 24% driven by Männer's sales contribution and strong 7% organic sales growth partially offset by unfavorable FX of 1%. Operating profit of $33.2 million was up 59% from $20.9 million last year primarily benefiting from Männer's profit contribution.
These results include Männer short term accounting adjustments and saline restructuring charges. So ex-these items adjusted operating profit was $34.6 up 66% from a year ago with adjusted operating margins of 16.7% up 430 basis points.
A really strong quarter for our industrial segment. At aerospace third quarter sales were $110 million up 9%, driven by a 12% sales increase at OEM, a slight reduction in MRO sales and flat spare parts sales.
Segment operating profit grew to $17.7 million benefiting from the profit contributions of increased OEM sales, higher profits in the MRO business, and the absence of the inventory valuation charge recorded last year. These benefits were partially offset by increased employee related costs.
And operating margins expanded to 16% for the quarter. Aerospace backlog of $511 million down slightly from the end of second quarter but remains healthy and in a good position to support next year's increased sales plan.
As Patrick mentioned -- let me add a few financial points related to our CRPs as highlighted on slide three of our supplement. The investment of 107 million is an intangible asset on our balance sheet and will be amortized over the expected life of the programs as a reduction to sales.
While it is very early profit performance from CRPs has been in-line with expectations and although MRO sales in the quarter were down slightly, MRO order activity was actually up 10% year-over-year with a strong rebound in September. During the quarter investors asked us how we value the program and as with any major investment we use a discounted cash flow analysis to determine the program IRR.
We believe our model is assumptions include capturing additional third party volumes claims where appropriately conservative. And as previously noted this third party revenue stream is expected to take a few quarters to ramp and we anticipate our returns on our investment will exceed the cost of capital in year 3 or 4.
For CRPs in 2015 our first full year of both programs we anticipate an EPS conservation in the range of $0.08 to $0.10 per share. As previously noted RSP sales this quarter were flat to prior-year however we did show 5% growth sequentially.
A few comments on RSPs as noted on slide three. We are the exclusive provider of certain spare parts for the CFM56 and CF6 family of engines, with the CFM56 making up approximately 80% of net sales of these programs.
Our quarterly net sales from RSPs can and will be impacted by the mix between the two engine families and may also be impacted by what was considered customer buying patterns as well as inventory management, given the scope of engine repairs and the use of surplus material. But despite these variables that will have either a positive or negative impact to quarterly results we feel very good about the long term benefits, these high margin programs will continue to provide.
The effective tax rate from continuing operations in the quarter was 28.1% compared to 15.8% [Technical Difficulty] and 32.8% for the full year 2013 which included a tax charge as a result of the April 2013 U.S. tax court's unfavorable decision.
Excluding this charge the full year 2013 adjusted effective tax rate was 17.5%. Given anticipated further growth in earnings from higher tax jurisdictions and the scheduled expiration of certain tax holidays in 2015, we do expect our tax rate to increase to approximately 30% next year.
Regarding share count our third quarter average diluted share outstanding was 55.5 million shares while quarter end basic shares outstanding were 54.4 million. We did not repurchase any shares during the quarter and 2.4 million shares remain available for repurchase under existing board authorizations.
Cash generation continues to be good as year-to-date cash provided by operating activities was approximately $122 million. Free cash flow which we define as operating cash flow less capital expenditures was approximately $78 million year-to-date versus an adjusted 74 million last year.
Our year-to-date total expenditures were 44 million through September 2014 versus 34 million last year. Last week our Board authorized a 9% increase in our quarterly dividend which now stands at $0.12 per common share per quarter.
With respect to debt our quarter end debt ratio was two times down from 2.3 times in the second quarter and during the quarter we redeemed our remaining convertible notes for approximately 71 million in in cash using our revolver and last week we announced that we issued a $100 million of private placement notes at a fixed rate of 3.97%. These senior unsecured notes due October 2024 create capacity under the existing credit facilities to support our growth strategy and provide long term debt financing at favorable rates, and diversifies our funding profile.
Now let's turn to our updated 2014 continuing (indiscernible) outlook on slide four. We now expect total sales growth of 15% to 16% and organic sales growth of 5% to 6%.
Adjusted operating margins is forecasted to be approximately 15.5% and adjusted EPS from continuing operations is expected to be in the range of $2.30 to $2.35 per diluted share, up 26% to 28% from 2013's adjusted EPS of $1.83 reflecting strong year-to-date performance, the incremental contributions from CRPs and generally favorable end markets. Adjusted cash conversion is projected to be approximately 100% to net income in 2014.
Our full year 2014 guidance continues to exclude an estimated $10 million pretax or $0.13 EPS impact of short term purchase accounting adjustments related to Männer and approximately $7 million pretax or $0.07 EPS impact of Saline closure costs. So in summary a solid quarter for Barnes Group.
Our performance to-date gives us increased confidence in the fourth quarter outlook and the overall expectation of a very good year for BGI in 2014. Operator, we will now open the call for questions.
Operator
(Operator Instructions) And your first question comes from the line of Christopher Glynn with Oppenheimer. Please proceed.
Christopher Glynn - Oppenheimer
I want to understand industrial margins a little better. It looks like the quarter had the record incremental and then sequentially revenues were down mainly Männer driven which I believe is pretty accretive to the segment yet margins and profit were up sequentially.
Was there some otherwise unusual mix or anything else going on there?
Patrick Dempsey
Yes Chris I would say that -- you're right in the Männer conservation in the quarter was very strong and exceeded expectations. We kind of looked at the month of August being a little bit slower but the reality is as we were able to work our work schedules to get additional product out which ended up to be a great quarter for Männer.
So their contribution is very good. At the same time as Patrick mentioned our nitrogen gas products business delivered a record quarter, higher margin profile business and Synventive as well.
So I would say that each of our business within industrial segment had a nice contribution to the quarter.
Christopher Glynn - Oppenheimer
And then on the Aero OEM if you look at your content by platform and the build schedules, are you able to offer an early look on what the OEM should do next year?
Patrick Dempsey
Well we don't give guidance is until later in the year or early part of next year. What I would indicate is that we're very pleased with the healthy backlog that we have in place and we think that positions is extremely well to meet our increased sales plan next year.
Chris Stephens
Chris I would add that the fact that the A350 is going to be building over time and that we're out with content of 550,000, we like the dynamics of that given the fact that the GE90 and 777 which is an owned item will be coming down over time. So we like how that's going to help us fill that void.
Operator
Your next question comes from the line of Edward Marshall with Sidoti & Company.
Edward Marshall - Sidoti & Company
It good to see those margins that you put up in both businesses and I'm curious if you might talk about maybe some of the puts and takes around that maybe from a long term and long run targets that you have for both businesses as it relates to Aero and Industrial.
Patrick Dempsey
Okay well what we've indicated always is that our target margins for the industrial are in the mid-teens and we always indicated that Aero we would see in the high teens. The high teens of course being contributed to by the RSPs to achieve those types of numbers.
As we move forward clearly this quarter demonstrates extremely solid performance on the industrial side and also strong performance on aerospace. What I would indicate is that what is a very interesting is that even with our RSPs being flat on a year-over-year basis, historically that would have impacted Barnes Group overall and what you see now is our reliance on those as we continue to expand our strategy continues to put us in a great place.
Edward Marshall - Sidoti & Company
When I look at the guidance for revenue for the year, I look into Q4 -- organic sales appear to be down. First is that right?
Chris Stephens
No. We would show organic sales growth for purpose of the fourth quarter, recognize that we've got the contribution of -- we closed on the transaction with Männer at the end of October timeframe.
So as we look to our full year guidance of 15% to 16% organic of 5% to 6%, we're feeling the effects somewhat of FX given the (indiscernible) down to 126 - 127 level. But that’s how we're looking at the full year given that the year-to-date performance.
Edward Marshall - Sidoti & Company
It implies a 300 to 315 in revenue for Q4?
Chris Stephens
That's not unreasonable right.
Edward Marshall - Sidoti & Company
And you're getting what a contribution of maybe 20 million from the stub period of say two months for Männer.
Chris Stephens
That’s a little high, in terms of last year, yes; they contributed 20 million last year.
Edward Marshall - Sidoti & Company
$20 million last year in the fourth quarter
Chris Stephens
Exactly, yes. We had the benefit of November and December in our results so they had a partial quarter.
Edward Marshall - Sidoti & Company
Secondly interest target for the year? Do have that?
Patrick Dempsey
You saw on the fact that we were able to -- I'm very pleased with being able to issue private placements helps fix some of our longer term debt and support our growth plans. So we're glad that we will be able to get that done.
We don't see much in the way of change in our interest expense, so kind of in that 11 million range for the full year recognizing that's going to be up a little bit going into next year and now that we have that private placement in place.
Edward Marshall - Sidoti & Company
And then finally if I look at this 500,000 per ships on the A350 and I just think back to kind of what happened with the 787. I know you've been very conservative about giving the number for some time.
My sense is that’s a good number, we're not going to see additional insourcing or any kind of changes as we moving forward. That's kind of in all in at this point, is that right?
Patrick Dempsey
We're very confident in that number and as you said we held off issuing it until such time as that confidence level was high and we remain even more confident that it may increase in the future.
Edward Marshall - Sidoti & Company
And that's in all three variances? Is that right?
Patrick Dempsey
Well it's on the initial variance and a lot of those components will transfer. They may be subject to some engineering changes over time but that will remains to be seen.
Operator
Your next question comes from the line of Matt Summerville with KeyBanc. Please proceed.
Matt Summerville - KeyBanc
Couple of questions. First, can you talk about just how we should think about product mix and the industrial business going forward?
The sustainability of the margin performance you had this quarter and then Chris can you also talk about your FX sensitivity on the bottom line meaning for every one point move in the dollar, what sort of EPS impact good or bad we can expect from that?
Patrick Dempsey
Relative to the margins as I indicated earlier we're targeting mid-teens for industrial overall. Clearly we had a very strong quarter, this particular quarter above what our own targets were.
So what I would highlight is that it's not business as usual at our legacy units either. So all of our businesses contributed to this quarter's results and we’re challenging each of the leadership teams to think about their businesses very differently and asking them to focus on what are the critical factors that truly drive their overall sales and profitability.
So we continue to be very positive on runway with margins on the industrial side. We will see a seasonality drop in the fourth quarter which is the norm on a number of our industrial businesses but over the long term continue to target mid-teens.
Chris Stephens
Yes Matt on the FX side I would say that with the Euro at 126 - 127, really what's more meaningful to us is going to be the translation side in terms of the top line. Given our business base we don't necessarily see that -- not materially impacting our bottom line if it gets down to that [Technical Difficulty].
Matt Summerville - KeyBanc
And Chris I'm sorry the call was breaking up there a little bit, can you repeat that?
Chris Stephens
Sure Matt. So it relates to FX, your question on FX.
I would say it's more related to a top line impact. So the strength of the dollar is going to impact on the translation level.
We don't necessarily anticipate or see much pressure on the bottom line from an EPS point of view. Not a material impact based on where the euro is today.
Matt Summerville - KeyBanc
And then if interest rates were to stay where they are at currently what would happen to your pension expense next year?
Chris Stephens
I'm glad you brought that up. If you think about 2015, and the items I will call them below operating profit, the tax rate we do anticipate that to increase to roughly approximately 30% next year as best we say.
We’re going through the planning process obviously with our businesses. Interest expense will also provide a little bit of headwind going into next year and then lastly it's just pension expense.
And with anticipated reduction in the discount rate, we do expect a few million dollars of pension expense headwind going into next year. Obviously we’re not going to know that until 12/31 but that is an area that we're paying close attention to for planning and for guiding 2015 which we will do in February.
Matt Summerville - KeyBanc
And then just lastly for me with respect to the industrial business again, if you could maybe spend a few more minutes talking about the relative performance around that 7% organic growth and kind of the outlook between Associated Spring, nitrogen gas Hanggi, Seeger, the various business units there. If you can just give a little more granularity as to what you're seeing that would be great
Patrick Dempsey
So basically across our industrial businesses we saw strong performance in Q3, both on sales and orders front. We clearly are cognizant of the backdrop of global economies and at the same time we see Synventive being driven by model changes with them achieving record sales and orders in the quarter.
Nitrogen gas products continues to see to tool and dye industry at an all-time high and benefiting from that. We see that continuing strong into the fourth quarter based on orders received as well.
In terms of Männer medical devices and personal care are the main drivers behind that business and we see continued demand for their high precision molds and (indiscernible) systems. Associated Spring has done well in the quarter in that excluding Saline was flat on a year-over-year basis.
And they continue to be focused clearly on driving continued improvement in their margins which they have done a wonderful job on. And so end markets wise, whether it's transportation industrial or aerospace, we remain very positive in terms of the outlook for fourth quarter and 2015.
Operator
Your next question comes from the line of Myles Walton with Deutsche Bank. Please proceed.
Myles Walton - Deutsche Bank
I was hoping to start on Aero and the more underlying margin performance. I think Patrick, you were alluding to it that the margins are strong despite the lack of growth in the underlying spares business and MRO being down and yet the margin performance still really strong.
So a couple of questions underlying that, one is are you seeing implied, are you seeing an increase in the OEM margin rates, your productivity? Are you seeing better pricing in your mix of spares firstly?
And then the second question is, what is the spares expectation for the full year at this point?
Patrick Dempsey
So relative to margins in aerospace, what I referenced in my prepared remarks was the Barnes Enterprise System and nowhere more than aerospace have they embraced the whole philosophy of driving our Enterprise System with a keen focus on driving productivity. We saw the benefit of that coming into the third quarter and as you highlighted RSPs were flat.
We also remain very positive for the future outlook. When I talk about the spare parts what I would reference is the fact that we entered into the RSPs as a key strategic part of the aerospace business and we entered into them as long term investments spanning 25 years plus.
With regards to the underlying fundamentals of the after markets we believe that they will -- have been and will continue to be a tremendous conservation to aerospace. And so our margins can only improve as RSPs sales improve.
Chris Stephens
Yes and I would just add the contributions of our component repair programs, right. They are going to help the MRO margins which we saw slightly this quarter and we expect that to continue to improve.
Patrick Dempsey
In terms of the outlook for the full year you asked on the RSPs, we see them to be down in mid-single digits for the full year.
Myles Walton - Deutsche Bank
Okay. Is that the driver for the reduction in the underlying top end of the sales range?
Is that the only driver?
Patrick Dempsey
In terms of overall BGI or?
Myles Walton - Deutsche Bank
Yes
Patrick Dempsey
No, I would say FX -- the FX impact on the fourth quarter is primarily a driver as well and just the seasonality of our business being fourth quarter -- shutdowns as expected kind of the mid-December timeframe especially in Europe -- especially in Männer as an example. So those are the primary drivers.
Nothing fundamentally different but we feel good about the orders activity, we feel good about the strength of our end markets that we're serving and I would just say reasonable seasonality.
Myles Walton - Deutsche Bank
Okay. And then last one for me is you’ve been about a year since your last deal it's been successful certainly on Männer.
What is the outlook for M&A as you sit here today? Was the deal space look like in terms of price, availability and your general interest level?
Patrick Dempsey
We remain very active in looking at potential acquisition targets that align with our overall strategy and that strategy being of course to create a portfolio of highly differentiated businesses that specialize in engineered products and industrial technologies. As demonstrated by our last two acquisitions, I think everyone would agree -- we have set our standards high and we’re continuing to seek out acquisitions of that caliber meeting our specific acquisition criteria
Operator
Your next question comes from the line of Peter Skibitski with Drexel Hamilton. Please proceed.
Peter Skibitski - Drexel Hamilton
On Männer I might have missed it, are you still expecting 125 to 130 for the full year?
Chris Stephens
I would say it's a little north of 130 actually. Yes, we're coming off of a very strong third quarter.
We're in this 130ish range roughly, so on the higher end of that, Pete.
Peter Skibitski - Drexel Hamilton
And then I'm just trying to think about industrial. I know most of the segment is doing tremendously and Associates Spring, I know you have been focused I think for two or three quarters now on higher-margin business.
And I think that has brought down the growth rate and at some point I think that's going to annualize for you and the comps will get easier. So I'm just wondering the way things have been going for industrial this quarter versus the first half -- are you thinking next year you're going to see accelerated growth at industrial given the comps and Associates Spring should be easier?
Patrick Dempsey
I think that's a fair statement and that Associated Spring also will have this year as we closed our Saline plant, that has clearly created headwind in terms of the top line. On an absent Saline we see slight to increased growth next year.
What I would indicate again is that Associated Spring has done a magnificent job in terms of driving their focus on creating value for the customer and focusing on those products that drive its overall bottom line performance and to that end it has done a wonderful job.
Peter Skibitski - Drexel Hamilton
Yes margin was great this quarter. And then one for Chris, Chris on the GAAP tax rate, the guidance that you gave, how should we think about cash taxes?
What you're expecting them to be this year? And then on a cash tax rate would that go up also in 2015?
Chris Stephens
Yes. So we’re now host the BDNA [ph] divestiture and use of NOL, so we’re a cash tax payer.
I don't see a much in the way of a significant increase going into next year not a substantial change, Pete. We're going through the planning period now, trying to take a look at all of 2015 including cash taxes.
But I don't view it as a major driver.
Peter Skibitski - Drexel Hamilton
Okay, and last one maybe for Patrick. Patrick on -- I think it was Männer that I think initially when you bought the company the plan was to really take it more globally.
I believe that was the acquisition. Can you talk about the progress there and the plan and how far along that is?
Patrick Dempsey
What I would highlight from Männer is that where we put in tremendous amount of our focus in the first 12 months is making it a seamless integration. And also as we looked at the business in the early due diligence process we recognized that there was truly untapped potential even before we went global in the context of capacity.
I just came back from Europe, I spent time with our Board of Directors actually in Männer last week. And the team there have done an outstanding job in terms of increasing that capacity.
It's been reflected directly into the results as you see and the team now is working on the next phase which is an alignment with that global expansion.
Peter Skibitski - Drexel Hamilton
So more goodness ahead.
Patrick Dempsey
More goodness ahead
Operator
Your next question comes from the line of Scott Graham with Jefferies. Please proceed.
Scott Graham - Jefferies
You guys did a great job of putting together this third page of your handout and I want to make sure we do it justice particularly on the CRP side. Patrick, you talked about the three avenues of revenue growth.
I'm hoping you can kind of maybe reiterate that and give us a little more detail on those avenues with respect to what you've laid out here. Sort of free format if you wouldn't mind with a little bit more detail on this off of this handout page if you wouldn't mind.
Patrick Dempsey
Okay -- relative to the three revenue sources the first one was component repair demand from GEs engine overhaul shop. And there what we see again in terms of the outlook for the CFM56 engine is that it will not peak until 2022.
So in terms of a 10 year outlook for that particular engine program of which the CRPs I would remind you’re on board the CF6 and the CFM56. We see shop visits increasing over that timeframe of which we will benefit on the first revenue stream from GEs engine overhaul shops.
The second stream is the revenue streams relative to the contracts that GE had in-place with certain customers and there while we’re looking to do is of course take over as the GE authorized repair source and we will continue to provide those services. As you may be aware there is a tremendous push in the industry relative to driving OEM approved repair sources as well as spare parts both of which benefit -- will benefit and do benefit our CRPs as well as our RSPs.
And a great example of that at the moment is GE's true engine program. Third revenue is our access to the third party market or the open overall world's airlines and independent overhaul shops.
Up to this point we were excluded from that under the contract arrangements that preceded the CRP. And as I’ve mentioned we have a very well-established sales force globally that is already in a lot of negotiations with all of the world's airlines in terms of offering that service.
Scott Graham - Jefferies
So that third thing that you just said is essentially the third bullet point?
Patrick Dempsey
The third bullet point is the license to provide component repair services to worldwide airlines and independent overhaul shops as the GE authorized repair source.
Chris Stephens
That's right Scott, so that allows access to serve global market as an OEM certified prepared service, that’s the third bullet point.
Scott Graham - Jefferies
Do you guys have numbers on -- you say GE contracts with customers that you take them over as their authorized repair source. Was there a 2003 number that GE benefited from these contracts from that you now benefit from?
Patrick Dempsey
I don't understand the question. What was the -- can you repeat it?
Scott Graham - Jefferies
Well sure, you’re saying that you are taking over as an authorized repair source for GE. So prior to that I assume GE was doing it?
On the point to that you’re making here. And I'm wondering what that -- can you tell us what those revenues were for GE last year that you have an opportunity to capture going forward?
Patrick Dempsey
On that point, now we’re not in a position to highlight actual revenues. What I will say is that we see this as a key offering as part of our CRP program that we will offer to those customers on a go forward basis and expect them to see an immediate impact.
Scott Graham - Jefferies
Last question is more housekeeping. Did you give us an MRO sales number for the quarter?
I didn't catch that.
Chris Stephens
We just commented that that was slightly down for the quarter, Scott.
Patrick Dempsey
And slightly down is not that we are necessarily concerned about it and that's what you see in the third quarter of any year, it's a seasonality of impact was where it's extremely positive on is the fact that orders were up 10% in the quarter and then in addition to that we saw them up even higher in September.
Operator
And your next question comes from the line of Tim Wojs with Baird. Please proceed.
Tim Wojs - Robert W. Baird
Just a couple of questions for me, I guess broadly on capital allocation you talked about M&A in the prior question. How should we think about buybacks looking forward?
Is that something you would look to do just to offset dilution or would you look to maybe get a little more aggressive?
Patrick Dempsey
No, we generally look at buybacks as we commented in the opening comments. We got 2.4 available under the Board authorization to buyback.
It's really to offset dilution from equity-based compensation primarily. At the same time we'll be opportunistic and we've been authorized with our Board to do that.
So from a capital allocation we do look at buybacks, we increased our dividend as we announced. Recently the Board authorized an increased dividend.
I would say from the rest of the capital allocation we like the fact that we put the private placement in place, we like the fact that our capacity is expanding. We've got $250 million available in the quarter in our revolver.
If an opportunity came up and we're going to continue as Patrick mentioned -- I mean as a strategy for the company is to continue focus accretive M&A type of activities, you know acquire Synventive, Männer quality type business.
Tim Wojs - Robert W. Baird
And I guess just looking at FX next year, is there any way to ballpark with the revenue impact might be at this point just using current FX rates?
Patrick Dempsey
I would say at this 126 -- 127 level categorize it at a roughly $10 million kind of headwind. Going into the next year, that’s kind of how I would calibrate right now but you know it is -- you know got down to the 125 and now it's back up to 127 or so.
I mean it is volatile, but for purposes of the guidance what we will do is we will clarify that in February, it's how we’re looking at next year in our revenue projections for the year.
Tim Wojs - Robert W. Baird
And then I guess just on the spares business any color just on inventory levels in distribution that you might see how that looks going forward?
Patrick Dempsey
Well right now what we're seeing in terms of our RSP performance is that there are two factors that are impacting our current results. One is the mix of revenue between the CFM56 and CF6 and the second is the intermediate distribution channel that came into place over the last couple of years.
What that has created is a volatility, and buying pattern and so in any given quarter now what we're seeing is effectively a destocking within the distribution channel that is impacting our comps on a year-over-year basis. That said the underlying demand -- we understand to be up and so what over time it will work itself out.
Having said that we do not expect the volatility to go away in terms of the buying patterns based on our understanding of how the distribution channel is going to work.
Chris Stephens
Yes I mean our quarterly sales will -- you know they are just going to be lumpy. We try to highlight what we get visibility to literally every week in terms of that order activity but what we do feel great about is the fundamentals of the growth of the shop as it occurs around CFM which makes up the majority of our sales.
So good long term program for Barnes Group.
Operator
There are no additional questions. At this time I would now like to turn the presentation back over to Mr.
William Pitts for closing remarks.
William Pitts
Thank you. We like to thank all of you today for joining us.
We look forward to speaking with you next quarter and so with that we will conclude today's call.
Operator
Ladies and gentlemen, that concludes today's conference. Thank you for your participation.
You may now disconnect. Have a great day.