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Carlisle Companies Incorporated (CSL)
Q1 2013 Earnings Call
April 24, 2013 8:00 am ET
David A. Roberts - Chairman, Chief Executive Officer and President
Steven J. Ford - Chief Financial Officer, Vice President, Secretary and General Counsel
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
Matthew W. McConnell - Citigroup Inc, Research Division
Glenn Wortman - Sidoti & Company, LLC
Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division
Neil Frohnapple - Northcoast Research
Joel Gifford Tiss - BMO Capital Markets U.S.
James Kawai - SunTrust Robinson Humphrey, Inc., Research Division
Ajay Kejriwal - FBR Capital Markets & Co., Research Division
Robert Crystal - Goldman Sachs Asset Management, L.P.
Previous Statements by CSL
» Carlisle Companies' CEO Discusses Q4 2012 Results - Earnings Call Transcript
» Carlisle Companies' CEO Discusses Q3 2012 Results - Earnings Call Transcript
» Carlisle Companies' CEO Discusses Q2 2012 Results - Earnings Call Transcript
I will now turn the conference call over to David Roberts, President and CEO of Carlisle Companies. Please go ahead, sir.
David A. Roberts
Thank you, Tamara. Good morning, and welcome to Carlisle's First Quarter 2013 Conference Call. On the phone with me is our CFO, Steven Ford; our Chief Accounting Officer, Kevin Zdimal; and our Treasurer, Julia Chandler.
On our website, you will find slides for today's call. These slides detail our performance in the first quarter.
Before we begin our review of each business segment, let me set the stage for that conversation. We knew that comparison to 2012's first quarter record sales and earnings was going to be difficult, but that was before we encountered one of the wettest winters in history in the U.S. and Europe and before 2 of our Interconnect Technologies customers had technical issues with their products, delaying the ramp-up and rollout of the product we supplied to them.
During the quarter, the wet weather kept roofers off roofs, which impacted the Construction Materials business sales. The weather also kept farmers out of their fields, which negatively impact demand for agricultural replacement tires and belts, which we manufacture in our Transportation Products segment.
On top of the wet weather, we had technical issues facing 2 of our aerospace customers. I am sure you're aware of the highly publicized battery issue with the Boeing 787, which delayed the ramp-up of the aircraft build schedule, but we also had a delayed introduction of a new in-flight entertainment system at another one of our large customers. Both situations slowed the first quarter growth in Interconnect Technologies.
Couple these issues with continued soft demand for our Brake & Friction products and slow restaurant traffic, we had the recipe for lower sales overall in the first quarter. The silver lining in the storm cloud that shrouded the first quarter growth is that we believe no market share was lost.
Spring has finally arrived, except perhaps for small regions in the upper Midwest, and our roofing contractors have very healthy backlogs. They are now preparing to get on the roofs. As they do, demand for our roofing membrane and insulation products will be very strong.
Also, the break in the weather, farmers are now in their fields, and we expect to see increased demand for replacement tires and belts. As a result of the FFA (sic) [FAA] approval of Boeing's fix for the lithium battery issue, we have been told to expect an increase in 787 build rate to 7 in September and 10 in December, and the delivery of our products usually precede the ramp-up of their production.
While demand is expected to be flat in Transportation Products and FoodService, both are margin stories. We had not -- had we not reduced our overall cost structure over the past years in both businesses, our reported profit would have been significantly lower in the first quarter. Our EBIT was lower than we generated in the first quarter of 2012 due to lower volume and our focus on inventory reduction. The $70 million we earned this quarter was the second highest level of earnings we have generated in the first quarter in the company's history.
We knew the sales shortfall was a short-term issue, and we could have softened the earnings hit by building inventory. We elected not to do that. Because of strong commitment to reduce working capital, we decided to reduce our inventories. Historically, our inventories grow in the first quarter. This year, we reduced our inventories by 4% or nearly $25 million.
I remain optimistic about 2013. Other than Transportation Products, which may have a difficult time recovering from the outdoor power equipment sales that didn't materialize in the first quarter, and Brake & Friction, which will remain soft but has stabilized at its current level of sales, I think 2013 still has the earmarks to be a good year.
Let's now turn to the presentation. I encourage everyone to read Slide 2, titled Forward Looking Statements. Slide 2 details the risks associated with making an investment in Carlisle. I also encourage anyone who is 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 3, you will see that overall company sales in the first quarter declined 4% to $857 million and EBIT declined 27% as we earned $70 million.
Organically, our sales were down 7%, primarily due to the harsh weather not only in the U.S. but also in Europe. The weather had the greatest impact on Construction Materials and Transportation Products.