Carlisle Companies Incorporated (CSL)

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Carlisle Companies Incorporated (CSL)

Q2 2011 Earnings Call

July 26, 2011 10:00 AM ET


David Roberts – Chairman, President and CEO

Steve Ford – CFO


Peter Lisnic – Robert W. Baird

Ivan Marcuse – NorthCoast Research

Wendy Caplan – SunTrust

Stuart Benway – Standard & Poor’s

Jessica Mullin – Citi Investment

Rob Crystal – Goldman Sachs



Good morning. I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Incorporated Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I will now turn the call over to Mr. David Roberts, Chairman, President and CEO of Carlisle Companies. Sir, please go ahead.

David Roberts

Good morning and welcome to the Carlisle’s second quarter 2011 conference call. On the phone with me are Steve Ford, our CFO and Kevin Zidmal, our Chief Accounting Officer. We provided slides for your convenience and they can be found on our website under the Investor Relations tab titled Presentations.

The slides will provide you with the backup data that is being presented in today’s call. As we are prepared to get started, please look at slide two, titled forward-looking statements. We encourage you to review this slide before making any investment decisions.

Now, turning to slide three, as in the first quarter, our second quarter sales were up 27%, 14% of our growth was organic, 12% was the result of the Hawk acquisition, and slightly less than 1% was FX. Organically, we continue to see strength in the Construction Materials business, Interconnect Technologies, and Braking businesses. The growth experienced in our Transportation Products and FoodService segments were driven by price increases that were implemented to offset rising raw material cost.

Companywide, EBIT was 33% in the quarter. Our EBIT margin percentage in Construction Materials was 13.2%, down 160 basis points. Frankly, we consider 13.2% margin as good performance considering what raw material was doing during the quarter. Margins in Braking were 16.2%, up 510 basis points and margin within Interconnect Technologies were 16.3%, up 670 basis points. Margins were flat within Transportation at 3.3% and down 190 basis points of FoodService to 8.4%.

Our earnings per share from continuing operations were $0.87, up 40% over 2010. Tuesday of last week we announced we entered into an agreement to purchase PDT, a German manufacturer of single-ply EPDM roofing. PDT will add approximately $110 million to $115 million annually in sales and if we close by mid-August as planned, we’ll realize about $25 million to $30 million of those sales in 2011. This acquisition provides our Construction Materials business the manufacturing foothold and a distribution channel in Europe not only to sell the existing PDT products, but also our current Construction Material products.

Slide four is the sales bridge, which illustrates the $183 million increase we enjoyed in the second quarter. 10% of our growth came from volume, 12% came from the Hawk acquisition, 4% from price, and slightly less than 1% was FX.

We look at slide five. It details our margin bridge for the quarter. Raw material had a 4.6% negative impact on margin. We were able to offset approximately 70% of the raw material cost increases with price. Aiding the increase in margin was volume, COS savings and the acquisition of Hawk.

Our margin dollars grew $21.4 million from $64 million to $85.5 million for a 33% increase. This increase occurred despite intense raw material pressures we encountered during the quarter. The intensity of raw material prices has lessened a bit in the latter part of the second quarter, with the rate of cost increases slowed rather than abated. We have not seen any significant reductions in our cost of raw materials. The future is uncertain as to what the remainder of the year holds as we are unsure of the slowing of cost increases is just the pause before they head upward again of if they are leveling out at this range. Our segments that had the highest raw material dollar impact incidentally which was $36.5 million was our transportation product segment and our construction materials segment.

Turning to slide six, we begin the review of business segment by business segment. Starting with Construction Materials we had an excellent growth quarter at 19% as re-roofing demand remained strong in the quarter, included in that 19% was 2.5% price growth. This is the first quarter we had seen any price growth in CCM. You may recall we had negative price in Construction Materials in the first quarter of this year.

CCM EBIT margin, or margin was up 6%. We are not getting any leverage we would expect in our 19% sales growth and the reason is basically raw materials which were negative $23 million in the quarter and $34 million for the year. As our factories are all performing at a high level of efficiency, we did see increases in our raw materials, EPDM was up 35%, carbon black 24%, and TPO resin 10%.

Let’s switch to Transportation Products, slide seven details our sales and margin performance in the quarter. Our sales were up 6% led by price of 9%. We did see higher unit volume in agricultural and power sports markets offset by lower demand in outdoor power equipment and construction markets. Our margins remained over the quarter and we were down sequentially 390 basis points.

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