Apr 24, 2015
Executives
William Pitts - Director, IR Patrick Dempsey - President & CEO Chris Stephens - SVP, Finance and CFO
Analysts
Edward Marshall - Sidoti and Company Peter Skibitski - Drexel Hamilton Christopher Glynn - Oppenheimer Myles Walton - Deutsche Bank Scott Graham - Jefferies Joe Radigan - KeyBanc Josh Chan - Robert W. Baird
Operator
Good morning. My name is Jonathan and I will be your conference operator today.
At this time, I would like to welcome everyone to the Barnes Group Inc., First Quarter 2015 Earnings Conference Call. [Operator Instructions].
Thank you; and Mr. William Pitts, Director of Investor Relations, you may begin your conference.
William Pitts
Thank you, Jonathan. Good morning and thank you for joining us for our first quarter 2015 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 web site. Our discussion today includes certain non-GAAP financial measures, which provides additional information that we believe is helpful to 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.
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.
We will now open today's call with commentary from Patrick, followed by a review of our first quarter results and our updated 2015 outlook from Chris. After that, we'll open up the call for questions.
Patrick?
Patrick Dempsey
Thanks Bill and good morning everyone. Barnes Group delivered a good first quarter, setting us up for another year of solid performance in 2015.
We generated adjusted earnings per share of $0.53, 6% higher than last year's results. Our overall performance was in line with the expectation we laid out on our last earnings call, which foreshadowed only a modest increase in diluted earnings per share over last year.
During the quarter, we did see strengthening, finishing with a very strong March. Sales in the quarter were down 4% year-over-year, though organic sales were up 3% after adjusting for approximately $20 million of FX headwind in our industrial segment.
In Industrial, our performance continues to be very strong, delivering organic sales growth of 8% and organic orders growth of 6%. As we mentioned last quarter, the strengthening of the U.S.
dollar relative to the Euro, created significant headwind on the industrial revenue line, but not any meaningful impact on segment operating profit. Looking at Industrial's performance a bit deeper, if we exclude the impact of the Saline closure, organic sales and orders growth would have been 11% and 8% respectively.
So we are very pleased with our performance at Industrial, and encouraged by our Industrial end markets, which remain favorable. At Aerospace, sales were down 7% in the quarter, with mixed results among our businesses.
Original Equipment Manufacturing was down 8%, given the timing of deliveries to our customers. We do however expect our Aero OEM business to be stronger in the second half.
In fact, OEM orders were up 25% year-over-year, and our backlogs remains very healthy. In our Aerospace aftermarket business, revenues were down 3% in the quarter, primarily from lower volume.
As our customers reported to us, that they saw fewer shop visits in the quarter, that drove softness in our MRO business, which was down 10%. The base MRO business was impacted by lower volumes, though the component repair programs provided some positive offset.
Despite a slow start, we remain optimistic for healthy revenue growth in the MRO, given the full year contribution of CRP programs, and an improving aftermarket environment. A key highlight for our Aerospace aftermarket business was our revenue sharing programs, where sales were up 10%, driven by the CF6 engine family.
A good first quarter for a business that, as you know, has limited short term visibility, and can be lumpy with respect to revenues. On the whole, we are happy with our positioning, relative to the end markets we serve, and we are fully committed to executing our business strategy of delivering profitable growth and expanding our global reach.
Culturally, we have been driving innovation much deeper into the organization, and recognize that embracing intellectual property as a core differentiator, will allow us to deliver even more highly engineered solutions and services valued by our customers. In concert, we are making significant investments in our enhanced talent management systems, which is squarely focused on advancing our people and developing the next generation of leaders for Barnes Group.
At the same time, we are harnessing the power of the Barnes Enterprise System across the organization, to drive a much sharper focus on continuous improvement, and boosting our overall productivity. Collectively, these actions have allowed us to deliver improved performance, in what feels like a more challenging global economic environment.
As we continue to execute our vision and strategy, I would like to take a few moments to discuss how we think about our capital deployment priorities. First, we look to support our business operations to organic investment, allowing them to enhance our competitiveness and position for future profitable sales growth.
Since 2013, and inclusive of our 2015 expectation, we will expand approximately $60 million a year in CapEx. These expenditures include a healthy portion of growth capital, roughly half of the annual amount and target opportunities in both segments.
In addition, we are funding new products and process development activities across the enterprise. And Industrial, such investments in our business that serve transportation end markets are seeing positive results.
For example, our high speed transmission springs and GDI gas-direct-injection offerings, provide highly engineered components supportive of the drive for higher fuel efficiency. These new capabilities are benefiting from solid global automotive production increases, which are forecasted to be up 2% to 3% for 2015, and 3% to 4% growth anticipated for the next few years.
Our nitrogen gas products business continues to benefit from robust tool and die industrial end markets, driven in large part by current elevated demand of the automotive industry. You may recall in 2013, we invested in expanding our manufacturing capacity in this business, and we brought back in-house previously outsourced work to improve profitability.
NGP's organic sales were strong in the quarter, up 20% plus and our market outlook remains favorable. At Aerospace, we are positive on both the OEM and aftermarket businesses, significant backlog to Boeing and Airbus appear to be holding in today's lower oil price environment, and continue to support plant production increases on both narrow and wide body platforms.
We maintain our emphasis on securing work packages related to the new aircraft engine programs coming to market, and support this by investing in our manufacturing capabilities and overall competitiveness. In the aftermarket, we remain constructive on the underlying fundamentals of the industry over the long term.
Revenue passenger miles are increasing, load factors remain high, airline profitability steadily improves, and the commercial fleet continues to grow. All of these influences are expected to provide aftermarket growth, both in MRO services, and spare part sales.
We envision the aftermarket to ramp through the year, ending on a strong note. Our recent investments into the component repair program, demonstrate our confidence that this is a great long term market for us.
We believe these CRPs are long term profitable enhancements to our portfolio. Which brings me to the second component of our capital deployment priorities; with a commitment to enhancing our core manufacturing expertise, the transformation of our portfolio, is an integral factor in reshaping the business for the future.
When warranted, we have demonstrated our willingness to divest off a business that is not consistent with our strategy, allowing us to redeploy capital into highly engineered and differentiated industrial technologies, providing a greater opportunity to achieve the profitable growth we pursue. Our recent strategic acquisitions, have propelled us along this journey.
Our automotive hot runners business continue to perform exceptionally well, with organic sales growth in the quarter being very robust, driven by strong demand from North America and Asia. Our forecast for automotive model changes, a big driver for this business, anticipates robust growth around the globe for 2015, as market trends continue to be very positive.
Likewise, the demand for hot runners and molds for medical and personal care end markets, also remain strong, as organic orders in the quarter were double digit, with strength in North America, Europe and Asia. And finally, the third component of our capital deployment priorities, is to return capital to our shareholders, through a combination of a competitive dividend and opportunistic share repurchase.
Tied into our capital stewardship is a point I made on our last quarterly call. We fully realize that the continued execution of our growth strategy requires vigilance in the management of capital.
So while we have always been keenly focused on capital efficiency, the recent introduction of incentive compensation components for both working capital and return on invested capital, will further reinforce management's attention on the balance sheet, as well as the P&L. To wrap up my comments, let me say that we have begun 2015 on solid ground with favorable end markets and well positioned businesses.
I am pleased with the progress we have made on many fronts over the last couple of years, transforming the portfolio, building a culture of innovation, expanding our global reach and institutionalizing the next generation of the Barnes enterprise system. We also continue to execute on our profitable growth strategy, to further enhance the value of Barnes Group.
Chris will now take you through the financial details for the quarter and provide you with a current view of our full year outlook. Chris?
Chris Stephens
Thank you, Patrick, and good morning everyone. Let's start with highlights of our first quarter results; looking at slide 2 in our supplement, first quarter sales were $301 million, down 4% as organic sales growth of 3% was more than offset by an unfavorable FX headwind of 6%.
Net income, was $29.1 million or $0.52 per diluted share, compared to $22.8 million or $0.41 per diluted share a year ago. On an adjusted basis, net income was $0.53 per diluted share, an increase of 6%.
This quarter's adjusted earnings, exclude the impact Männer short term purchase accounting adjustments of approximately $900,000 pre-tax or $0.01 per diluted share. As a reminder, last year's first quarter adjusted net income, excludes the impact of Männer short term purchase accounting adjustments of $0.06 per diluted share and Saline closure costs of $0.03 per diluted share.
Now let me comment on our segment performance, beginning with Industrial; Industrial's first quarter sales were $200 million, down 2%. As Patrick mentioned, Industrial's organic sales was very strong, increasing 8%, while FX negatively impacted sales by nearly 10%.
First quarter operating profit was $31 million, up from $19.4 million in the prior year, primarily benefiting from the contribution of higher organic sales. Excluding Männer short term purchase accounting adjustments this year and last year, plus last year's Saline restructuring charge, adjusted operating profit was $31.8 million, up 18% from a year ago, with adjusted operating margin of 15.9%, which was up 260 basis points.
At Aerospace, first quarter sales were down 7% to $100 million, with lower sales in the OEM and base MRO businesses, being partially offset by incremental CRP and spare parts sales. First quarter operating profit was down 18% to $12.9 million, as compared to $15.8 million from the prior year period.
Operating profit was negatively impacted by lower sales in OEM and base MRO businesses, though partially offset by increased profit from CRPs and spare part sales. Operating margin was 12.9% in the quarter, down 170 basis points from last year, and Aerospace backlog ended the quarter at $542 million, up 4% sequentially from year end.
Our effective tax rate for the quarter was 29.2% compared to 27.9% in the prior year period and 27.6% for the full year 2014. The effective tax rate increases in 2015 over the full year 2014 rate is primarily due to the expiration of certain tax holidays.
Regarding share count, our first quarter average diluted shares outstanding was 55.7 million shares, while quarter end basic shares outstanding were 54.8 million. No repurchases were made during the first quarter and 2.4 million shares remain available for repurchase under existing board authorizations.
Our cash generation continues to be strong, as first quarter cash provided by operating activities was approximately $23 million versus $17 million last year. Free cash flow, which we define as operating cash flow less capital expenditures was $12 million versus $2 million last year.
Our quarter end, senior debt to EBITDA ratio was 1.7 times, down from 1.8 times at year end 2014, and at quarter end, under our existing debt covenants, additional borrowings of approximately $420 million of senior debt would be allowed. Turning to our updated 2015 continuing operations outlook on slide 3; we now expect 2015 organic revenue growth of 6% to 8%, with total revenue growth of 1% to 3% after consideration of 5% FX headwind, given the continued strength of the U.S.
dollar. Our current outlook assumes the Euro rate of $1.10 for the rest of the year, which is anticipated to negatively impact full year revenue, by about $60 million, which is an increase of $20 million to $25 million from our call in February.
Operating margin outlook remains in the range of 16% to 17%; GAAP earnings from continuing operations are forecasted to be in the range of $2.43 to $2.58 per diluted share, up $0.03 on both ends of the range, primarily attributable to a slightly lower tax rate than the 30% rate we discussed in February, and a small non-operational gain on the sale of fixed assets we recorded in the first quarter. Excluding $0.02 of remaining short term purchase accounting adjustments expected in 2015, adjusted diluted EPS is anticipated to be in the range of $2.45 to $2.60, up 5% to 11% from 2014 adjusted diluted earnings per share of $2.34.
We continue to forecast a stronger Q3 and Q4 with earnings weighted 55% in the back half of the year. CapEx outlook is in the range of $55 million to $60 million, and cash conversion is forecasted to be approximately 100% of net income, both of which are unchanged from our previous guidance.
So we begin 2015 on solid footing and expect to deliver another good year of financial performance. We will continue to invest in our businesses, and seek acquisition opportunities that advance our portfolio of differentiated industrial technologies.
The balance sheet is in a great position to support these investments and cash flow is forecasted to remain strong. Operator, we will now open the call for questions.
Operator
[Operator Instructions]. Your first question comes from Edward Marshall with Sidoti and Company.
Please go ahead.
Edward Marshall
Good morning guys.
Patrick Dempsey
Good morning Ed.
Edward Marshall
So you gave us that RSPs were up 10% in the quarter. I don't know that I caught the OEM, and then I guess the total MRO for the quarter as well?
Patrick Dempsey
The total MRO, Ed, was down 10% --
Edward Marshall
Does that include RSPs, or no?
Patrick Dempsey
No.
Edward Marshall
Okay.
Patrick Dempsey
So MRO, down 10%, RSP is up 10%, total aftermarket was down 3%. And then the OEM side was down 8%.
Edward Marshall
Down 8%. Okay.
Can you remind us why throughout this year, aerospace is going to be backend loaded, I guessed as a timing of specific orders. You talked a little bit about the progression as you expect for the entire business, but maybe you could kind of hone in on aerospace and kind of look at that, since that seems to be a little bit trickier than a normal year?
Patrick Dempsey
Yeah, happy to do so. So relative to Aerospace, as we foreshadowed in the fourth quarter, we saw the schedule of shipments were planned in our backlog over the course of the year.
And we mimic this year, what you've seen a little bit in the last few years, which is the second half of the year have been stronger than the first half. There is nothing in particular that is driving it other than the shipment schedules on some of the major programs that we continue to participate in.
The incremental factor also might be some of the new product developments that we are doing, and scheduled shipments of those, happen this year to be in the second half as well. That's on the OE side.
In the aftermarket side, we continue to see strengthening across the aftermarket, in terms of the fundamental to drive that industry. In particular, airline profitability, as well as increases in capacity -- with capacity again forecast to increase this year.
So overall aftermarket looks like its going to continue to strengthen throughout the year, and we believe, we will be benefactors of that.
Edward Marshall
So have you seen the MRO pickup through April so far?
Patrick Dempsey
Yes.
Edward Marshall
Okay. And then when you look at the orders, I think you said in your prepared remarks, that OEM orders were up 24%, was that year-over-year?
And how come when I look at the backlog, it doesn't necessarily translate? I know there are some orders -- there are some shipments out of that backlog, but they don't know looking at the -- with the shipments being down, it looks like its up just modestly year-over-year.
I am just curious as to, where I am missing those orders. Can you kind of walk me through that?
Patrick Dempsey
Well the backlog at the end of the March for DA is $542 million, which is $538 million primarily of it is -- its predominantly OEM, and so last year, we hit a peak of $550 million in terms of backlog. So we are almost on an all time high, as it pertains to our aerospace backlog, and that of course is intended to shift 60% over the next 12 months, is what we used as a rule of thumb, and the remainder then is beyond that 12 months.
Edward Marshall
Right. If I look though specifically the orders, so was that 24% year-over-year on the OEM, and did it hit in the first quarter or did it hit post first quarter?
Patrick Dempsey
No, it hit in the first quarter.
Edward Marshall
And it was a year-over-year number, 24%?
Patrick Dempsey
Correct.
Edward Marshall
Okay. You mentioned that guidance for tax was coming down.
Did you say -- is it going to be even with the first quarter, or is that first quarter a little chunky versus the rest of the year.
Chris Stephens
Its pretty much in line, between the 29% and 30% is what we are anticipating for the full year. And the difference between this quarter or where we are now, is we project that the full year versus -- when we put initial guidance together, is just really that mix -- that mix of earnings, how its coming through, in our outlook.
Edward Marshall
I see. And last one, with the operating guidance and revenues coming down, but minimal impact, if any, on the outline, I was curious as to why you didn't decide to raise the operating margin guidance for the year?
I assume revenues would be lower and operating profit probably stays relatively the same, and that won't imply slightly higher margins, was it just not enough to push it to the past line [ph]?
Chris Stephens
Right, a little bit confidence on the upper end of that range, but not enough to go beyond that 17, at this stage. So we will remain at that 16% to 17%.
Edward Marshall
I see. Great, thanks guys.
Chris Stephens
Thank you.
Operator
Your next question comes from Pete Skibitski with Drexel Hamilton. Please go ahead.
Peter Skibitski
Good morning guys, nice quarter.
Patrick Dempsey
Good morning Pete.
Peter Skibitski
Hey guys, would you be willing to kind of give a range for revenue for the second quarter, given that -- I think we were all a little bit surprised by the Aero number here in the first quarter, any chance we can get that?
Patrick Dempsey
What we indicated was that the year was going to be split 55% in the back half of the year, in terms of -- we normally don't give out quarterly guidance. So we are seeing a strengthening in Q2, and so its not that -- its all in the back half, but we see that sequential improvement over the course of the year.
Peter Skibitski
Okay. So if that percent is revenue, then what was EPS?
Patrick Dempsey
No, the percentage I referenced was WPS, but clearly, the back end will also be stronger, pertaining to revenue.
Peter Skibitski
Okay. And then, any sense to why shop visits were down in the first quarter?
Patrick Dempsey
Well I just came back last week from the MRO America Show, which was probably of one of the best attended that I have seen, with significant enthusiasm around that particular show. In general, how I would capture it is that, overall sentiment continues to be very optimistic, but in speaking with a number of customers, which just reinforced our own direct communications, shop visits were a little slower, a couple of factors were that -- there were some issues, I think, with supply chain in terms of certain components.
Secondly, light work scopes in the first quarter. However, in every instance, everybody remains bullish on the full year and continue to see a ramp and a strengthening as the year progresses.
In particular, as you saw in the first quarter in some of the earnings releases, the airlines are starting to report stronger profitability, and of course, that isn't -- or that was unexpected, and so we think that's going to bode well in terms of deferred maintenance being done over the course of the year as well.
Peter Skibitski
Okay, got it. Any meaningful change here, full year outlooks?
I think MRO, you are thinking up high teens for the full year, maybe mid to high single digits, that's roughly what you're still thinking?
Patrick Dempsey
Well in terms of aftermarket, our MRO in particular, having a softer first quarter. Our outlook continues now at mid-teens, we are looking at mid-teens for the full year.
In terms of OEMs, overall -- or for Aerospace overall, we are looking at mid-single digits, OEM sales, low single digits, and then MRO be in that mid-teens. RSPs had a great first quarter, up 10%.
But again we continue to remain conservative just because of the low visibility of that business, but clearly, first quarter boded well for the full year.
Peter Skibitski
Okay. Thanks guys.
Patrick Dempsey
Thank you.
Operator
Your next question comes from Christopher Glynn with Oppenheimer. Please go ahead.
Christopher Glynn
Thanks. Good morning.
Patrick Dempsey
Good morning Chris.
Christopher Glynn
So a lot of color on the Aerospace timing factors, but just wondering, what maybe you expected, and what sort of surprised you in terms of timing factors in the quarter. And then, the corollary would be, would we expect another negative quarter for aerospace, as we bridge to the second half?
Patrick Dempsey
In terms of surprises in the quarter versus expectations, overall we touched I think in the last earnings call, the fact that we saw Q1 being a lighter quarter. That was primarily going to be driven by the OE side of the house, which was a -- we could clearly see the schedules were going to be softer in Q1, than they were for the rest of the year.
I think the surprise might have been on the MRO side, been a little softer than we expected. By contrast, RSPs were stronger, so offsetting one against the other, we were down 3%.
We thought that might have been flat in the first quarter and then expected it to ramp through the year. So remain overall very positive on aerospace in general, both aftermarket and OE and I see that ramp consistently from now through to the end of the year.
Christopher Glynn
Okay. So a rate of real progression to get to mid singles for the year.
That makes sense. Yeah, there was another surprise on the top line, weren't on the positive side just in terms of timing, the industrial organic growth.
Talked a lot about the automotive strength, but maybe we could dive a little deeper into the drivers there, what's going on, on the non-automotive side, just additional complexion with industrial-organic?
Patrick Dempsey
So industrial across the board had a wonderful first quarter. I think we have provided guidance excluding FX of six to nine, and industrial came in at 8%.
As I pointed out in my prepared remarks, if you were to remove Saline, that would have been 11%. So in general, the tougher comp within our industrial was on associated spring, because we had Saline in the first half of last year, and obviously, tough comps against that business.
But in general, across our industrial businesses, in terms of end markets; nitrogen gas products, very strong quarter, and tool & die remains strong for that particular business. The medical, pharmaceutical, personal care at Männer in terms of the services and products they bring to market, they had a very strong orders quarter and we see that strength continuing.
So broad based, we were very pleased with all end markets that our industrial businesses are serving at the moment.
Christopher Glynn
Great. And how would you describe the gestation periods for the internationalization efforts around Männer?
Patrick Dempsey
Männer, as we communicated on Männer; we looked at Männer in terms of a phased approach. As we acquired the business, we clearly saw the opportunity to grow it in the short term, was integrated over the fist 12 months.
That being a significant challenge, which the team has done a wonderful job on, and has almost been seamless in terms of not only integrating the business into the Barnes systems, and the Barnes enterprise system, but also in terms of the cultural aspect and ensuring that, what was a family owned business coming into a public arena, that that wasn't without its challenges, and of course, has worked extremely well as well. So as we look at phase two of that particular integration process, we are looking at it in the context of expansion, where those plans are currently drawn up, the teams are working on them, in terms of how to phase that rollout, and we will continue to communicate that, as we actually execute.
But its actually in progress as we speak, and the planning and necessary investments are being made.
Christopher Glynn
Thanks Patrick.
Patrick Dempsey
Thank you.
Operator
Your next question comes from Myles Walton with Deutsche Bank. Please go ahead.
Myles Walton
Thanks, good morning. I just wondered if I could start with the balance sheet, so you are in a mode of reducing debt here, and it sounded like Chris you said there, $420 million additional senior debt now allowed under your covenant.
And to time that together with maybe the strategic outlook from an M&A perspective, can you comment both on the acquisition pipeline, the size, the availability and pricing that you're seeing today, and also from a priority perspective, you haven't been doing share purchase for about a year, but you have been paying down debt. Obviously, it’s a revolver, so its pretty easy to do, but can you just comment on those two aspects, about the near term use of capital and then the quality and size of the pipeline for acquisitions?
Chris Stephens
Sure, why don't we let Patrick talk to the acquisition side, I will come back to the share repurchase, etcetera?
Patrick Dempsey
Myles, on the M&A or the acquisition side of things, we continue to sustain our efforts in developing an acquisition pipeline. What is very important for us, is that we are holding a very disciplined approach in terms of the strategic criteria, on which we bet any potential acquisition.
I think, both Männer and Synventive are both indicative of the type of high quality acquisition targets that we are looking at, and as we continue to move forward, in an ideal situation, we'd like to do deals of that relative size. Having said that, as we look and continue to expand our intellectual property strategy, we are also looking at key technologies that may be incremental to our existing businesses.
So we are looking at smaller deals, as well as deals in the order of magnitude of Männer or Synventive. In terms of the strategic criteria that we continue to screen against, we are looking at businesses to provide highly engineered product systems or services, leverage IP as a core differentiator, market leaders in terms of the brands that they bring to the market, obviously are profitable to our hurdle rates, and of course, achieve our return on invested capital hurdles that exceeds our cost of capital by year three or year four.
So those criteria, we are continuing to hold a very disciplined approach on. I will say that we are looking at both Industrial as well as Aerospace.
However, the volume seems higher on the Industrial side of the equation, and will continue to be a keen area of focus, not only for myself and Chris, but the entire Barnes team.
Chris Stephens
So Myles, and I would add to that -- given the targets that we are looking, that Synventive/Männer size business, that $300 million to $400 million value, we want to make sure we preserve that. You asked about the share repurchase, just the general philosophies to offset the [indiscernible] of effective employee-based stock compensation, so you're not talking about a significant redeployment of capital in terms of a share repurchase.
We do have over $2.4 million left on board authorizations, which we have that discussion. But to Patrick's point, we are keenly focused on, when is that next opportunity from an M&A point of view, to add to our strategy, and make sure that we got capacity in place to execute on that.
Myles Walton
Okay. And then one clarification on the cash flow statement, there was a $10 million positive inflow and other financing cash flow, and then also Chris, can you clarify the size of the benefit in the quarter from the DSO [ph] or the transaction sale?
Chris Stephens
Sure. So that $10 million really, its representative of an intercompany loan, which we have -- we have U.S.
functional currency for the Euro-based loan and we were looking to cover that. So it has actually presented a little bit of coverage, that provided a benefit once we settled that, which represented $10 million, so that's just kind of intercompany financing activity.
So that's the primary driver for that $10 million. And your second question Myles?
Myles Walton
Yeah I think you mentioned a first quarter positive benefit from exiting a business or settling a --
Chris Stephens
We did, we actually had the opportunity to sell one of the buildings that we closed down during the recessionary period. So if you look at our statement of cash flows, you will see a 1.3 gain on the disposition of plant, property and equipment, that was in our industrial space.
So that small benefit is represented in their numbers for the quarter.
Myles Walton
Will that 1.3 drop through to the EBIT as well?
Chris Stephens
It would, yes. What we do, is we flow back basically all items from a corporate point of view back to the segments.
We don't have a corporate line item in our P&L. So the segments represent the entire company.
Myles Walton
Got it. Thanks guys.
Chris Stephens
Thank you, Myles.
Operator
Your next question comes from Scott Graham with Jefferies. Please go ahead.
Scott Graham
Good morning and nice quarter.
Patrick Dempsey
Good morning Scott, thank you.
Chris Stephens
How are you?
Scott Graham
Good, thank you. Just two questions for me, could you talk about your assumptions behind U.S.
and European auto build, and certainly specifically within that, you're more exposed to the model change piece of that. Could you kind of talk about those, and what are the basis of those assumptions?
Patrick Dempsey
So if you think about our businesses overall, Scott, in terms of -- European Automotive for us, we have seen strength in North America and Asia in particular. The European Auto has been more subdued.
However, having said, if you think about our businesses even in Europe, they are net exporters to the globe. So even though we serve automotive within Europe, at the same time our businesses there continue to do well, because of serving a global marketplace.
The model changes is something that is a key driver to the hot runner business that's primarily Synventive. And so model changes actually allow our businesses to actually grow at a faster rate in even overall auto production.
Scott Graham
You benefit from the build and the incrementally to that, you benefit from changes is what you're saying?
Patrick Dempsey
That's correct.
Scott Graham
Got you. Thank you.
Patrick Dempsey
We would expect to outgrow the automotive production rates that are cited in general.
Scott Graham
Understood. And then, kind of a same question on the Männer business which is not automotive.
I think someone alluded to it earlier. What are some of the drivers or why are those businesses -- you talked about personal care, some health care, what is your thinking on those businesses for the balance of the year, and what are the drivers to that business, maybe specifically the types of products that those markets are demanding right now?
Patrick Dempsey
Right. Well Männer, as you know, is a premium brand within the plastic injection molded industry, serving primary medical pharmaceutical personal care.
The types of products that Männer provides to systems in the form of hot runners, as well as molds, are types of products like inhalers or COPD or for diabetes. So some of the factors we look at, our overall trends in medical devices, and those medical devices trends are -- what are some of the primary drivers of our Männer business.
In addition to that, on the personal care, it could be products like disposable razors as an example, or highly engineered irrigation type items. So a wide range of products, but what the customer comes to Männer for, is its engineering capabilities, but being able to take something from concept to full production.
And so, one of the factors -- one of the services that Männer provides is, full validation of the actual production process, before its molds and its hot runners systems leave their facility. SO its just a plug and play at the customer, and that is yet another tremendous value add that they bring to their customers.
Scott Graham
Got you. Thank you for that.
And if I just may add this -- one last question on this, and I kind of want to stay on this business, because you guys have built a very nice platform in this area, U.S. and Europe.
And the question is simple; obviously M&A has been the lynchpin in that buildout, and I am wondering if your next acquisition is something as a -- within this category, near neighbor [ph] to it, or would you be looking to build out yet another new platform?
Patrick Dempsey
The short answer, Scott, is that we are looking at both. We are looking not only at investing further into the plastic injection molding industry, but we are also looking at a wide range of industrial technologies.
More of our focus is ensuring that, against those strategic criteria that I mentioned, which are serving attractive growth orientated end markets, strong brands, intellectual property, industrial technologies. We are looking at a broad range of possibilities.
Scott Graham
Thank you all. Appreciate it.
Patrick Dempsey
Thank you.
Chris Stephens
Yeah, thanks Scott.
Operator
Your next question comes from Joe Radigan with KeyBanc. Please go ahead.
Joe Radigan
Hi, good morning guys.
Patrick Dempsey
Good morning Joe.
Joe Radigan
My first question is on the Aerospace margins; I mean 12.9% is the lowest segment spend in a while, and obviously that's impacted by the volume decline. But you did have growth in the RSPs, which is a good margin business and you have accretion from the CRP.
So just, the decremental there seemed a little higher than I would have expected, was there any operational issues in the quarter, or is it truly just fixed cost leverage?
Patrick Dempsey
I think it’s the latter Joe, and that a large portion of the decrement to the 170 basis points over last year, was primarily driven by volume. The other factor that I look at, is productivity, and productivity was down in the quarter, primarily, as a result of those lower volumes and the leverage across the fixed asset.
Joe Radigan
Okay. And then on the RSP growth, I think Patrick you said that it was driven by CF6, which -- did you get a stock-in order there?
I think that's the -- I mean, they both can be lumpy, but isn't the CF6 more prone to kind of the bigger swings. Can you just kind of delineate the growth there between the CFM56 and the CF6 piece of the RSPs?
Patrick Dempsey
Absolutely. In terms of our 10%, it was primarily driven by the CF6 engine model, and last year, what we highlighted was that, we continued to monitor board engines and the spare parts demand to the end markets.
What we saw last year was, that we were slightly disconnected, as a result of an intermediate distributor, and what we saw, as highlighted a few times, was a destocking taking place at that distributor. What we saw in the first quarter, is that same distributors starting to restock and what that does, is it starts to put our results back in sync with the directional outline of the market.
CFM56 on a year-over-year basis, again we continue to monitor it very closely as well, I mean, we are directionally aligned with the market, in terms of the first quarter.
Joe Radigan
Okay. And then, lastly, a question on industrial around the cadence in the quarter, I think I heard you say that March ended quite strong, so can you talk about sort of what you saw there through the quarter, how you entered the quarter versus exited the quarter, because it sounds like you're actually picking up momentum in that business?
Patrick Dempsey
Well we came off the fourth quarter with strong momentum coming into Q1. In some of our business, we saw that momentum even continue to strengthen.
So as we are coming out of Q1 looking at Q2, whilst we don't see the same level of organic growth holding at perhaps that same high level of 8% every quarter, we are looking at mid single digits for Industrial, for the full year.
Joe Radigan
Okay, that's very helpful. Thanks Patrick.
Patrick Dempsey
Thank you.
Operator
Your next question comes from Josh Chan with Baird. Please go ahead.
Josh Chan
Hey, good morning guys. Just a couple of clean-up questions.
My first question is on the organic growth guidance for the year. I know that you have trimmed the top end a little bit, it would still give you very strong rate, but just wondering what you saw that, made you kind of take down the top end of that growth range there?
Patrick Dempsey
It was primarily based on the first quarter's results. What we looked at is, if we had a stronger say first quarter, then we would have been more confident in the top range.
But given where we started from, obviously we have a very positive outlook, as you have heard on the full year. But we thought it prudent to trim down by a point on the top.
Josh Chan
Okay. That makes sense.
And then just to clarify some of the comments about the cadence of OEM, Aerospace, is there a chance that OE, Aerospace would continue to be down in the second quarter compared to the last year?
Patrick Dempsey
No. we expect second quarter to be much stronger than Q1.
Josh Chan
Okay, that's good. And then lastly, just in terms of foreign currency, should we think of euro being the predominant driver, or are you guys exposed to any other currencies as well, in the industrial segment other than the euro?
Patrick Dempsey
We ship across the world, but the Euro is the primary rate that we keep our eye on. That's right, that's the primary driver.
Josh Chan
Okay, great. Thanks guys, and congrats on the quarter.
Patrick Dempsey
Thank you.
Operator
Your next question comes from Edward Marshall with Sidoti and Company. Please go ahead.
Edward Marshall
Just a quick follow-up, the FX assumptions, what denomination are you using? Is it eh 1.08 that's currently flowing [ph]?
Chris Stephens
Actually 1.10 Edward, looking at -- little volatility, we got down to as little as 1.05, 1.06 and it kind of bounced back up today, I think its up a little bit to 1.09. So 1.10 is what we are using for the balance of the year.
Edward Marshall
Okay. And it looks like on the industrial side versus where the impact is, Q4 impact was roughly 8% year-over-year, Q1 18% decline year-over-year and you've felt roughly what, 10% of that?
On Q2, it starts to get even darker in 3Q as well, although it looks like the heavier comps, or tougher comps. So if I look at the Industrial business, is this base level about 200 on an all in basis?
Kind of where you expect adding back that mid-single digit organic growth. Is that kind of where you expect this business to be for the, say 2Q, 3Q until we kind of get some fresh air in Q4?
Chris Stephens
That sounds reasonable. I mean that's not unexpected.
Edward Marshall
Okay. Thanks guys.
I appreciate it.
Edward Marshall
Thank you.
Operator
There are no further questions at this time. I will now turn the call back over to Mr.
Pitts.
William Pitts
We would like to thank all of you for joining us this morning. We look forward to speaking with you in July with our next quarterly earnings call.
So this concludes the call. Have a good day.
Operator
Ladies and gentlemen, this concludes today's conference call, you may now disconnect.