Will Carlisle See Breakout Year On Industrials?


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Forget cloud computing and Big Data.

Carlisle Cos. ( CSL ) makes things you can see or touch: commercial roofing, specialty tires, farm-machinery brakes, food service cookware.

Those and other niche products added up to more than $3.2 billion in sales last year.

With commercial replacement roofs taking off, 2012 got off to an even stronger start.

This year could be a "breakout year for us, barring unexpected economic conditions," CEO David Roberts told analysts after first-quarter results were reported in late April.

In a phone interview this week, Roberts said: "If the economy slows, obviously, everything would slow with it."

And that might put a damper on the company's target of achieving a 15% operating margin by the end of 2014, up from 11% in the first quarter and 8% last year.

"We would have to recalculate the target. At this point we don't see that happening," he added.

Until recent dips as the market gyrated, shares have recently been trading up ahead of second-quarter results, which will be released on July 24.

All-American Business

"Investors are looking for companies that have limited European exposure, very strong cash flow and a decent opportunity for earnings growth," said Ivan Marcuse, a KeyBanc Capital Markets analyst. "And this company fits all those molds."

"It's basically a North American-centric business," he said.

Based in Charlotte, N.C., Carlisle is a diversified manufacturer, focused on niches it can dominate. It's either No. 1 or No. 2 in all five of its core businesses: construction materials, transportation, brake and friction, interconnect technologies and food service.

Since management decided four years ago to focus on business lines with good scale and strong operating margins, it shed five others.

Carlisle's roots date to 1917, when founder Charles Moomy opened Carlisle Tire and Rubber Co. to sell tire inner tubes to Montgomery Ward.

It later expanded into brake shoes, insulated wire and cable, aerospace and electronics and recreational tires, much of it through acquisitions.

The firm remains on the lookout for acquisitions, especially in construction materials, interconnect technologies and braking and friction, Roberts says.

"Management is very good at finding businesses that have strong fundamentals and market share in their categories," said S&P Capital IQ analyst Stuart Benway.

In the 1970s, Carlisle was a pioneer in rubber roofing, now part of its biggest business -- construction materials. It later added thermoplastic polyolefin roofing material. Both are more energy efficient than traditional asphalt.

Any flat-top commercial building is game for rubber or plastic membranes. Think everything from a big-box retailer such asTarget ( TGT ) andWal-Mart ( WMT ) to a school, convenience store or gas station.

"The last thing a business wants, especially a retailer, is a leaky roof," said Marcuse, who says retail chains replace at least some of their thousands of store roofs every year.

First-quarter revenue in construction materials grew 41% over the prior year to $353.9 million, making up nearly 40% of the total.

Most of the gain was from re-roofing demand rather than new construction. Higher prices also helped.

It might be North American-centric, but Carlisle has been looking for new roofing customers in Europe, despite the region's woes.

Carlisle recently acquired Hertalan, a Dutch manufacturer of rubber roofing and industrial components, for $50 million.

With that purchase and another in Europe last year, Carlisle is now one of the largest manufacturers of rubber roofing in Europe.

That is a small market in Europe since most roofs are still asphalt. But Roberts said, "We're having good success in Europe."

Marcuse says the firm's roofing business in Europe is a "growth opportunity."

Sales from outside the U.S. made up about 20% of Carlisle's total at the end of the first quarter, with about half of that coming from Europe, Roberts says. Management intends to keep growing its international footprint.

With 2010's acquisition of Cleveland-based Hawk Corp., Carlisle gained greater exposure to China, Brazil and India. Hawk makes brake and friction materials and parts that go into performance autos, trucks and big earthmoving and mining equipment.

Caterpillar ( CAT ) and to a lesser extent,Deere & Co. ( DE ), are customers for Carlisle's brakes and friction products.Boeing (BA) and other aerospace makers are customers for interconnects.

Carlisle expects to see double-digit growth this year in interconnect technologies, which include wire and cable sales to the aerospace industry for avionics systems and in-flight entertainment and communications.

"Every manufacturer of airplanes uses some of our wires somewhere in their planes," Roberts said.

Though interconnect is one of the smallest of Carlisle's business units, sales in the first quarter soared 68% over last year to $110.7 million.

Marcuse says old planes are being retrofitted with in-flight entertainment. And new planes, such as Boeing's Dreamliner, use Carlisle's wires for those systems as well.

Boeing's strong backlog "is a positive for Carlisle's interconnect technology business," Marcuse said.

Farm Power

Sales in brake and friction products were especially strong in agriculture and to a lesser degree, mining and construction. Quarterly sales grew 12% to $133.9 million.

Specialty tires are part of Carlisle's transportation segment, which saw first-quarter sales rise 15% to $231.5 million. Standouts were sales to the agricultural industry, tires for giant crop seeders, for example.

The slowest-growing unit, food service, is also Carlisle's smallest. Sales in the quarter rose 4.6% to $59.3 million. Higher raw-material costs also ate into margins.

Still, it wasn't enough to keep down overall earnings, which jumped 77% to 94 cents a share, thanks in part to management's focus on operational efficiencies. Revenue in the quarter rose 28% to $889.3 million.

Analysts expect 2012 earnings to rise 48% over last year to $4.25 a share, reports Thomson Reuters.

Carlisle is not immune to general economic weakness.

"If the economy slows, industrial companies tend to be negatively impacted by a slowdown in demand," Marcuse said.

On July 8, he downgraded Carlisle to "hold" from "buy" on possible softening demand in roofing. He said that "in the current environment, some caution should be considered."

"But if you're a North American-centric industrial company, business is probably not too bad right now," he said.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Investing Ideas
Referenced Stocks: CAT , CSL , DE , TGT , WMT

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