Carlisle Companies Incorporated (CSL)

CSL 
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Carlisle Companies, Inc. (CSL)

Q3 2012 Earnings Conference Call

October 23, 2012 08:00 a.m. ET

Executives

David Roberts – Chairman, President & CEO

Steven Ford – CFO

Analysts

Pete Lisnic – Robert W Baird

Glenn Wortman – Sidoti & Company

Ivan Marcuse – KeyBanc Capital Markets

Matthew McConnell – Citigroup

Neil Frohnapple – Northcoast Research

James Kawai – SunTrust Robinson

Presentation

Operator

Good morning and I would like to welcome, everyone, to the Carlisle Companies Incorporated Third Quarter Earnings Conference Call. (Operator Instructions) After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you, Mr. David Roberts, Chairman, President and CEO of Carlisle Companies, you may begin your conference.

David Roberts

Thank you, Bradley. Good morning, and welcome to Carlisle’s Third Quarter 2012 Conference Call. On the telephone with me is our CFO, Steven Ford; our Chief Accounting Officer, Kevin Zdimal; and Julia Chandler, our Treasurer.

On our website, you will find slides for today’s conference call. Those slides detail our performance in the third quarter. Before I go through a detailed review, I want to mention that we had a record-breaking quarter, both in sales and earnings. Our overall sales growth was 5%. We were able to generate 5% growth, despite many of our breaking customers adjusting their distribution channel inventory downward.

On 5% revenue growth, we generated record earnings with our earnings growing at 35%, producing third quarter EBIT margins of 12.2%. Included in our $111 million of EBIT is a $7 million charge that we took, as we began lean down our FoodService manufacturing and distribution center footprint.

Cash flow was also a highlight in the third quarter. We generated $136 million in free cash flow, converting our earnings into cash at a rate of 195%, enabling us to reduce our debt by $125 million. We’re obviously very pleased with our performance in the third quarter and in the face of a few markets that were slowing, we thought it was very good performance.

Let’s now turn to the presentation and as we do, please review Slide 3 titled Forward-looking Statements. The slide details the risk associated with making an investment in Carlisle. I encourage everyone considering an investment to read the information contained on that slide and refer to our SEC filings before making any investment decisions.

Let’s now turn to Slide 3, where we find a summary of the companies’ overall third quarter performance. Quarterly sales were $910 million, up 5% over 2011. Four percent, or 34% of our growth, came from acquisitions of PDT, Tri-Star and Hertalan. Our PDT acquisition anniversaried in August. Going forward, we will have a PDT apples-to-apples revenue and profit comparisons on a year-over-year basis. As a reminder, we’ll also anniversary the sales and profits of Tri-Star at the end of November.

Organic sales of CIT remain strong, growing at 21%. FoodService grew 3% organically, Construction Materials and Transportation Products grew 1% organically. Brake & Friction saw a negative growth, as our customers leaned out their inventory in their distribution channels.

FX had a small negative impact of 60 basis points on our sales. On those sales, we generated tremendous leverage growth, with EBIT growing 35% to $111 million. Our EBIT margins were up 280 basis points to 12.2%, as a result of CLS savings and price realization. The $111 million in EBIT is inclusive of a $7 million restructuring charge we took to reduce the cost structure at FoodService.

As I mentioned earlier, quarterly cash flow was outstanding. Cash flow was $136 million, up 50% or $45 million over 2011. Our year-to-date cash flow conversion rate is 103%. Third quarter EPS was up 27%. EPS didn’t grow at the same rate as EBIT, due to an increase in our tax rate.

Slide 4 is a sales bridge for the quarter. As you can see, acquisitions contributed 3.9% to our growth, price contributed 2.8%, while volume was negative 1.5%. FX had a 60 basis point negative impact.

Looking at organic growth by segment, Interconnect Technologies was up 21%, as the aerospace markets continue to be strong. FoodService was up 3%, as we implemented much needed price increases matching the price to cost curve. While Construction Materials and Transportation Products were up 1%, as both businesses experienced lower growth as a result of the drought conditions many regions of the U.S. encountered in the summer months. The Brake & Friction business was down 10%. As I said earlier, our customers worldwide are adjusting their inventory levels.

Turning to Slide 5, which details our margin bridge for the quarter. As shown on slide, EBIT margins grew 430 basis points through net price of raw materials, 80 basis points from COS savings, while volume was negative 40 basis points. The restructuring in FoodService, plus the other costs, negatively impacted profit margin by 190 basis points. Summing these items, margins improved 200 basis points over the third quarter of 2011.

On Slide 6, we begin reviewing the individual business segments. Starting with Construction Materials. Sales growth at CCM was 3%, with three months of Hertalan and one month of PDT contributing 2% of that growth. Price added 4% and lower volume negatively impacted sales by 3%. The volume was down in roofing membranes, while our polyiso insulation was flat with 2011. This business is still feeling the effects of the mild first quarter and the drought in the second and third quarters. Despite slower sales growth, EBIT was up 32%. We earned $80 million, compared to $60 million last year. EBIT margin increased 380 basis points to 17.4%.

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