Carlisle Companies Incorporated (CSL)

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Carlisle Companies Inc. (CSL)

Q2 2008 Earnings Call

July 22, 2008 09:00 am ET


David Roberts - President and CEO

Carol Lowe - CFO

Steve Ford - General Counsel


Wendy Caplan - Wachovia

Peter Lisnic - Robert W. Baird

Saul Ludwig - KeyBanc Capital Markets

Deane Dray - Goldman Sachs



Good morning. My name is Wyndis and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter ‘08 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instruction).

Thank you. I would now like to turn the call over to Mr. David Roberts. You may begin your conference.

David Roberts

Thank you very much. Good morning everyone. Attending the meeting with me this morning is Carol Lowe, our CFO and Steve Ford, our General Counsel. Since it's earnings season; I know it’s going to be a busy morning for everyone. I am going to turn this immediately over to Carol. Let her walk us through the remarks, and then we will open the meeting up for questions after that. So, Carol?

Carol Lowe

Thank you, Dave. Good morning everyone. Carlisle reported a year-over-year increase in sales of 17% for the second quarter ‘08. Organic sales growth was 8% and acquisitions contributed an additional 8%. Of the total increase in net sales of a $124 million for the quarter, volumes represented 35%, price represented 16%, and acquisitions represented an additional 49%.

Operating income increased 6% for the second quarter 2008, compared with 2007. Core business represented 92% of the total second quarter operating income and acquisitions represented 8%. Significant raw material cost increases have resulted in reduced income leverage from the company’s sales growth, as evident by our decline in operating margin from 11.4% for the second quarter 2007 to 10.4% for the second quarter ‘08.

Costs have increased across almost all of our raw material. Natural and synthetic rubber represents approximately 25% of raw material purchases. Steel and metals represent approximately 12%, resins 10% and chemical 25%. We have implemented numerous price increases today and we will pass along additional price increases during the last half of the year to move towards recovery of these raw material cost. We reported income from continuing operations of $56.9 million or $0.93 per diluted share for the second quarter of 2008.

Net sales increased 15% year-over-year for our construction material segment, and organic growth of 12% with increases in EPDM, TPO, insulation, coatings and waterproofing in international sales. The segment sales growth was primarily on volume.

Insulfoam acquisition contributed $12.6 million in sales. Construction materials, unrecovered raw material cost increases continue to result negative year-over-year margin comparison. At June 1st, price increase for the segment averaged 5% and additional price increases have been announced for the last half of the year.

The transportation product segment reported a 4% sales increase for the quarter driven primarily by our specialty trailer business. Wind energy blade haulers, heavy haul and extendable trailers contributed the strong growth at Trail King.

In our tire and wheel business, consumer outdoor power equipment sales declined 28%. This decline was offset by growth in commercial outdoor power equipment, as well as agri and construction and replacement tires. The decline in consumer OPE volume has contributed to reduce margins for the segment on lower absorption of cost.

Tire and wheel has realized second quarter year-over-year cost increases of 37% for steel, 39% for synthetic rubber, 38% for natural rubber and 24% for carbon black. Both our trailer, and tire and wheel businesses have passed along price increases, and additional increases are planned for the third and fourth quarters. Tire and wheel is also aggressively working on improving its operating costs.

Applied Technologies reported a 63% increase in net sales for the quarter with acquisitions accounting for most of the growth. We experienced growth in our aerospace wire and cable products as well in our RF/Microwave product. Our food service business net sales increased on growth for national accounts, jan/san products as well as stronger international sales.

There were several factors contributing to the year-over-year decline in margins for Applied Technologies. The push out of the 787 program by Boeing resulted in reduced margins for our wire and cable business. We added resources at the beginning of the year on projected 787 volumes, and incurred higher unobserved cost in the second quarter ‘08 as these volumes slowed. While the decline in volume is a delay and not a cancellation, we are taking steps to bring our capacity levels in one line with revised sales forecast.

SG&A expenses for both Carlyle and Dinex operations are notably higher as a percent of sales; they are our core aerospace and food service business. These expenses will be brought inline as we integrate both of these acquisitions. Applied Technologies margins were also impacted by raw material costs, and additional price increases will be affected during the third quarter.

Specialty Products grew year-over-year sales for the quarter by 16%. Off-highway brakes grew double-digit on strong Ag and mining demand. Our refrigerated truck bodies business experienced growth just under 10%. Operating income increased 19% over the second quarter of ‘07 and operating margin improved to 17.7%. The outlook for the balance of the year for both Industrial Brake & Friction and Johnson Truck Bodies is very positive.

Cash provided by operating activities of $86 million for the six months ended June 30th ‘08, compared with $41 million for the same period in '07 excluding the $150 million of proceeds in 2007 related to the securitization program. We reduced the cash used for working capital and other assets and liability for the six months of '08 by 60%, as compared with 2007.

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