Carlisle Cos. (CSL) Tops Q3 EPS by 5c

October 25, 2016 3:48 PM

Carlisle Cos. (NYSE: CSL) reported Q3 EPS of $1.74, $0.05 better than the analyst estimate of $1.69. Revenue for the quarter came in at $991 million versus the consensus estimate of $1.03 billion.

CEO Comment

D. Christian “Chris” Koch, President and Chief Executive Officer, said, “Carlisle continued its solid performance this year with strong operating earnings growth and further investments connected to our core strategies. Adjusted EBIT (earnings before interest and income taxes) grew 10% in the quarter as we continue to realize significant leverage from our operating efficiencies. COS continues to be the driver of operational excellence throughout Carlisle and was a significant contributor to margin results at all our segments. We achieved another quarter of record EBIT margin on an adjusted basis, which increased 140 basis points over last year to 18.0%.

“We are very pleased with our record operating performance for the third quarter. However, at our CBF segment, we recognized non-cash pre-tax impairment charges of $141.5 million, reflecting further degradation in the global off-highway equipment markets. These markets are now expected to take longer to recover.

“Carlisle Construction Materials (CCM) net sales increased 1.4% in the third quarter on mid-single digit growth in demand for commercial roofing in the U.S., partially offset by lower international sales particularly in Canada. Selling price in the commercial roofing market, while lower than the prior year, was stable on a sequential basis. CCM achieved EBIT growth of 14% and an EBIT margin increase of 250 basis points to 22.8%, reflecting favorable raw material dynamics and a relatively stable selling price environment, savings from operating efficiencies through COS and higher net sales volume.

“CCM recently announced a 5% price increase on its polyiso insulation applications to cover increased raw material costs, effective January 1, 2017, further reflecting our commitment to price leadership in the marketplace. CCM remains on track to achieve record sales and earnings results in 2016.

“CIT continued its impressive performance this year with net sales up 7.9% in the third quarter, reflecting 4.5% contribution from the acquisition of Micro-Coax and 3.4% organic growth, driven by high single digit growth in commercial aerospace, and 10% growth in medical applications. Growth in the aerospace and medical markets reflected higher demand, as well as gains from new product development and vertical integration. CIT maintained an EBIT margin of 19.3% in the quarter, despite incurring $1.2 million in plant startup expense and $1.2 million in costs attributable to the Micro-Coax acquisition. We continue to expect net sales growth at CIT for the full-year 2016 to be in the high single digit percent range, including contribution from acquisitions.

“We were pleased to add Star Aviation, Inc. (Star Aviation) to the CIT business on October 3, 2016. Star Aviation designs and manufactures satellite communications (SatCom) products, including adapter plates for the aerospace satellite communications connectivity market. In combination with CIT’s recently launched SatCom adapter plate solution, the acquisition of Star Aviation positions CIT as a vertically integrated leader in SatCom adapter plates and wiring provisions, and increases CIT’s access to the growing line fit and retrofit sectors. Star Aviation’s team of FAA designated engineering representatives will contribute significantly to CIT’s new product development in the commercial aerospace market. The leading position CIT has developed in Satcom is expected to add significant cumulative new product revenue over the next few years.

“The integration of the Micro-Coax acquisition at CIT, which expands our high performance radio frequency (RF)/microwave applications, is also progressing very well. With the Micro-Coax acquisition, we are expanding our presence in another growing market – space connectivity. Synergies identified through deployment of COS at Micro-Coax have exceeded initial expectations.

“The strategic acquisitions made this year, of both Star Aviation and Micro-Coax, are expected to provide further growth and EBIT accretion in 2017 and beyond, as benefits from participating in new high tech aerospace markets and integration activities continue to be realized.

“CIT also continues to effectively execute on its strategy to expand its medical platform, investing in new product development and capitalizing on its vertical integration capabilities to increase business with leading medical suppliers. As part of its growth strategy for the medical market, CIT started production at our new manufacturing facility in Dongguan, China. Production at this state-of-the-art facility will ramp up over the next year to meet demand expectations in the medical market.

“At CFT, net sales increased 1.6% in the third quarter reflecting the acquisition of MS Powder and organic sales growth of approximately 1%. Higher demand in China and the U.K. in the current quarter was offset by a large systems order in Asia in last year’s third quarter. CFT’s EBIT margin of 13.8% in the third quarter declined 110 basis points from the prior year due to the ongoing integration activities centered on investment in sales personnel, footprint rationalization, and vertical integration. CFT remains focused on its key integration activities through the remainder of 2016.

“Carlisle FoodService Products (CFS) recorded its fifth consecutive quarter of year-over-year sales increase, with net sales growth of 1.4% in the quarter. CFS’ EBIT grew 17% and its EBIT margin increased 190 basis points to a record 14.3%. CFS has done an excellent job over the last several quarters executing on its multi-year improvement strategy, including its successful use of COS and Lean/Sigma principles. CFS continues to be a very reliable and profitable contributor to our results, and the recent return to sales growth is a significant positive trend. We expect CFS to achieve low single digit sales growth for the full year 2016.

“CBF’s net sales declined 11% in the third quarter due to continued weakness in off-highway equipment markets tied to lower demand for commodities. As previously stated, pre-tax impairment charges of $141.5 million recognized in the quarter, resulted in an EBIT loss of $141.3 million reported at CBF in the quarter. Excluding the impairment charges, CBF achieved positive EBIT of $0.2 million, reflecting little EBIT degradation on a dollar basis, compared to prior year third quarter EBIT of $0.5 million, despite the double digit sales decline. Throughout this downturn, CBF has aggressively addressed its challenging markets by realigning its cost structure. The CBF team has worked diligently to weather this downturn and remains focused on new sources of revenue, cost reduction, operational efficiency, and positive cash flow generation. We remain committed to the long-term profitability and success of this business.

“During the third quarter, on a consolidated basis, we invested $31.4 million in capital expenditures and returned $43.2 million in capital to shareholders through dividends and share repurchases. We also received authorization to repurchase an additional 4.1 million shares to support our ongoing share repurchase program. We repaid $150 million for bonds that matured during the quarter using cash generated by our operations. We ended the third quarter with $355.4 million in cash and $600 million of availability on our credit facility. Earlier this month, we used $82 million in cash for the acquisition of Star Aviation. Full year capital expenditures will be approximately $110 million. With additional cash generation expected from our businesses in the fourth quarter, we remain committed to using our liquidity to pursue growth opportunities organically and through acquisitions, and to return capital to shareholders.”

Koch concluded by stating, “We are on track to deliver another record year at Carlisle and continue to execute on our well established strategies and goals we set out to achieve in 2016. Our expectations for sales growth remain in the mid-single digit percent range. Exclusive of the impairment at CBF, we expect significant earnings leverage for 2016. We continue to focus on growth across our businesses, on driving operational excellence through the Carlisle Operating System, and increasing value for our shareholders.”

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