Carlisle Companies Incorporated — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Carlisle is a diversified manufacturer with five reporting segments; Fluid Technologies was added following the April 1 acquisition of Finishing Brands.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Net sales | $984.6M | $859.5M | $1,693.9M | $1,509.9M |
| EBIT | $148.0M | $122.3M | $214.4M | $185.3M |
| EBIT margin | 15.0% | 14.2% | 12.7% | 12.3% |
| Income from continuing operations | $94.8M | $75.7M | $134.3M | $112.1M |
| Net income | $94.9M | $75.2M | $134.3M | $111.0M |
| Diluted EPS | $1.43 | $1.14 | $2.02 | $1.69 |
- Q2 gross profit was $285.4M and gross margin was 29.0%, up from $224.6M and 26.1%. Six-month gross margin was 27.1%, versus 25.6%.
- Q2 sales rose 14.6%; organic sales grew 6.2%, with acquisitions contributing about 10% and currency reducing sales by about 2%. Six-month sales increased 12.2%, reflecting 6.7% organic growth, acquisition growth and currency effects.
- Six-month operating cash flow was $148.8M, compared with $70.4M. Capital expenditures were $33.8M. Investing cash outflow was $611.5M, including $577.8M for Finishing Brands; financing cash outflow was $37.5M. Cash fell $501.6M to $229.2M.
- At June 30, cash was $229.2M, current assets $1,339.4M and current liabilities $510.2M. Long-term debt was $748.5M; the company reported a 25% debt-to-capital ratio. It had $600M available under its revolver and $45M under an uncommitted line, with no revolver borrowings and all covenants satisfied.
Material changes and segment performance
- Finishing Brands was acquired for net consideration of $598.4M, funded with cash. It generated Q2 sales of $61.7M and an EBIT loss of $1.0M, including $8.6M of acquired-inventory fair-value expense and other acquisition-related costs. Management expected the business to become accretive to EBIT and net income beginning in Q3 2015. The working-capital settlement remained subject to finalization; an estimated $20.6M payment was expected in Q3.
- Construction Materials sales rose 7.8% in Q2 and EBIT rose 38.2%; EBIT margin expanded to 19.4%, aided by lower raw-material costs, volume and operating efficiencies.
- Interconnect Technologies sales rose 22.3%, including LHi acquisition growth, while EBIT rose 5.9%; margin declined to 18.2%, reflecting acquisition mix and contractual price reductions.
- Brake & Friction sales fell 12.9% and EBIT fell 25.0%; margin declined to 9.5%, amid weaker agriculture, mining and construction demand and currency headwinds.
- FoodService Products sales fell 3.3% and EBIT fell 14.3%, partly due to lower selling prices and the non-recurrence of a prior-year facility-sale gain. Fluid Technologies’ Q2 EBIT included acquisition-related costs.
Outlook, commentary and risks
- For full-year 2015, management expected mid-single-digit organic sales growth; acquisitions were expected to contribute approximately 9% of sales. The stronger U.S. dollar was projected to reduce sales by about 1.7% and EBIT by about $11M, based on June 30 exchange rates. Management expected EBIT and EBIT-margin improvement versus 2014 and a 32%–33% effective tax rate.
- Construction Materials outlook reflected continued commercial roofing and insulation demand, but pricing competition could limit the benefit of lower input costs. Brake & Friction faced weak end markets; management expected lower full-year organic sales and declining EBIT and margin. CFT’s system-sales timing may cause quarterly variability.
- Management identified acquisition integration, foreign exchange, cyclical markets, raw-material costs, pricing competition and economic conditions as risks. CBF goodwill and indefinite-lived intangibles passed interim impairment testing, but further market weakness or dollar strength could lead to future impairment charges.
- Asbestos litigation was described as not expected to materially affect financial position or cash flows; insurance generally covers defense and settlement costs, excluding punitive damages. A separate employment-related lawsuit was settled for approximately $0.9M. Environmental regulation and potential liabilities remain risks, though no significant remediation accrual was reported.
Important facts for investors to verify
- Finishing Brands’ integration progress, final working-capital settlement and expected accretion from Q3 onward.
- Whether projected organic growth, EBIT-margin improvement and foreign-exchange impacts track management’s 2015 outlook.
- Cash conversion and working-capital trends: six-month operating cash flow benefited from lower cash use for working capital than the prior year, while average working capital as a percentage of annualized sales increased to 18.7% from 18.0%.
- CBF’s end-market recovery, currency exposure and assumptions underlying goodwill and intangible-asset valuations.
- Use of remaining share-repurchase authorization and planned capital expenditure of $80M–$90M for full-year 2015.