Carlisle Companies Incorporated (CSL)

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Carlisle Companies (CSL)

Q4 2012 Results Earnings Call

February 8, 2013 8:00 a.m. ET


David Roberts – Chairman, President & CEO

Steven Ford – CFO


Pete Lisnic – Robert W Baird

Matt McConnell – Citi

Glenn Wortman – Sidoti & Company

Ivan Marcuse – KeyBanc Capital Markets

Neil Frohnapple – Northcoast Research

James Kawai – SunTrust Robinson Humphrey

Ajay Kejriwal - FBR Capital Markets



Good morning. At this time, I would like to welcome everyone to the Carlisle Companies Incorporated fourth quarter earnings conference call. [Operator instructions.] I will now turn the call over to your host, Mr. David Roberts, chairman, president, and CEO of Carlisle Companies. Sir, you may begin.

David Roberts

Good morning, and welcome to Carlisle fourth quarter and 2012 year end conference call. On the phone with me is our CFO, Steven Ford; our chief financial officer, Kevin Zdimal; and our treasurer, Julie Chandler.

On our website, you will find slides for today’s call. Those slides detail our performance in the fourth quarter and for the full year 2012. I will review our overall performance for 2012 later in the presentation, but let me start by saying we are extremely pleased and proud of our 2012 results.

During the year, we established new record highs for annual sales and earnings, with sales growth of 13% and EBIT growth of 54%. This is the second year in a row we have established sales and earning records.

I can’t say enough about the performance of our employees throughout 2012. Their ability to generate sales of $3.6 billion and earn $424 million earnings before interest and taxes, was nothing short of remarkable.

Let’s now turn to the presentation. I encourage everyone to read slide two, titled “Forward Looking Statements.” Slide two details the risks associated with making an investment in Carlisle. I also encourage anyone who’s considering an investment in our company to also review our SEC filings.

Let’s now move on to the details of the quarter. Turning to slide three, you see that our sales in the fourth quarter grew 7% to $845 million, while EBIT was up 46% as we earned $77 million. This was a new fourth quarter record for sales and earnings, despite continued weakness in our braking business.

Organically, we enjoyed 4% growth, with interconnect technologies, construction materials, and transportation products all contributing to our organic growth. An additional 4% of growth is attributable to the acquisitions of Tri-Star, which we completed late in 2011, Hertalan, which was acquired in early 2012, and Thermax, which we purchased on December 17 of 2012.

Food service grew as a result of price increases, but volume was down 1%. Brake and friction was down 25% as our customers continued to lean out the inventory in our finished goods channels. Quarterly earnings were up 46%.

Included in the 46% growth was a $5.6 million charge for a lump sum distribution pension payment made to former employees and a $2.9 million business development cost charge that we took. These two charges negatively impacted EPS by $0.08 after taxes.

Margin was up 240 basis points as a result of improved selling price realization, improvements in operating efficiencies and transportation products and COS savings compared to the fourth quarter of 2011.

For the fourth quarter, we generated free cash flow of $116 million, compared to $41 million in 2011, for a cash conversion rate of 241%. Our cash conversion rate for the year was 128%, as we generated free cash flow of $346 million, compared to $112 million in 2011.

Slide four provides you with a sales bridge for the quarter. Our 3.6% organic growth was from price, volume, and other mix changes. 3.7% of our growth came from acquisitions, and a minor 20 basis points negative effect was felt because of FX.

On slide five, you will find our EBIT margin bridge. The pension and corporate development costs reduced our profitability by 100 basis points while net price, and the impact of raw material costs, was at 150 basis points positive impact. Volume contributed 10 basis points, COS savings 110 basis points, and acquisitions and other operating improvements added 70 basis points. As I said earlier, we earned $77 million in the quarter, which is a fourth quarter record.

On slide six, we begin the review of our individual business segments, starting with construction material. Sales grew 10% in the quarter as our sales rebounded from a slow second and third quarter. The growth we enjoyed is real growth, and was not specific to one region.

While Superstorm Sandy helped our results as we sold repair materials to waterproof roofs that were damaged by the storm, it wasn’t the only driver of growth. New construction in the Southeast, Southwest, and West, along with reroofing activity and higher polyiso demand contributed to growth.

The Hertalan acquisition added 2% to our growth, price and mix added 3%, and volume added 5%. EBIT was up 46% as we earned $66.3 million. Margin increased 400 basis points, generating EBIT margins of 16%. I don’t think this level of earnings will become the norm for fourth quarter at CCM, but competitive price discipline, cost savings, and outstanding manufacturing execution in the quarter helped bolster our margins.

In 2012, we began the construction of two new polyiso plants. Both of these plants will be in full production by the second half of this year. The Seattle facility has been producing a polyiso since the end of 2012, and will be in full production later in the second quarter, followed by the startup of our Montgomery, New York polyiso plant in the second quarter.

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