Carlisle Companies Incorporated — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012; unaudited, compared with Q1 2011. Carlisle is a diversified manufacturer operating in construction materials, transportation products, brake and friction, interconnect technologies, and foodservice products.
Financial performance
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net sales | $889.3 million | $693.6 million | +28.2% |
| Gross profit / margin | $211.2 million / 23.7% | $147.1 million / 21.2% | Margin +2.5 percentage points |
| EBIT / margin | $96.2 million / 10.8% | $55.2 million / 8.0% | EBIT +74.3% |
| Income from continuing operations | $60.0 million | $33.3 million | +80.2% |
| Net income | $60.0 million | $33.4 million | +79.7% |
| Diluted EPS | $0.94 | $0.53 | — |
| Interest expense, net | $6.5 million | $5.1 million | +27.5% |
Sales growth comprised 22% organic growth and a 6% contribution from acquisitions. Volume rose 15% and pricing contributed 7%; foreign-exchange impact was negligible. Management attributed stronger earnings to higher volumes, pricing that offset raw-material costs, and operating efficiencies.
Segment results
| Segment | Sales | EBIT | EBIT margin |
|---|---|---|---|
| Construction Materials | $353.9 million, +40.8% | $42.0 million, versus $18.0 million | 11.9%, versus 7.2% |
| Transportation Products | $231.5 million, +15.3% | $19.7 million, +45.9% | 8.5%, versus 6.7% |
| Brake & Friction | $133.9 million, +12.4% | $25.2 million, +27.9% | 18.8%, versus 16.5% |
| Interconnect Technologies | $110.7 million, +68.5% | $16.7 million, +87.6% | 15.1%, versus 13.5% |
| FoodService Products | $59.3 million, +4.6% | $5.5 million, unchanged | 9.3%, versus 9.9% |
Cash flow, balance sheet and liquidity
- Operating cash flow was $48.3 million, versus cash used of $0.3 million in Q1 2011. The company cited stronger earnings and lower working-capital cash use; receivables nevertheless used $95.6 million of cash.
- Investing cash outflow was $49.5 million, including $49.6 million for acquisitions and $22.0 million of capital expenditures, partly offset by $22.1 million proceeds from the PDT Profiles sale. Financing cash outflow was $5.9 million, primarily reflecting dividends of $11.2 million.
- Cash was $68.9 million at March 31, down from $74.7 million at year-end. Cash flow from operations less capital expenditures was approximately $26.3 million.
- Total debt was $766.4 million, including $162.1 million classified as short-term and $604.3 million long-term. The company reported a 33% debt-to-capital ratio and compliance with debt covenants.
- The $600 million revolving facility had $360 million drawn and $240 million available. A further $45 million was available under an uncommitted line. The company expected to roll over $200 million of facility borrowings for more than one year; $160 million was presented as current.
- Current assets were $1,285.4 million and current liabilities $645.5 million; reported working capital was $639.9 million. Average working capital as a percentage of annualized sales was 22.3%, down from 23.4% a year earlier.
- Planned 2012 capital expenditures were approximately $120 million. Cash held outside the United States was $53.1 million, including $16.4 million in China; management generally considered foreign cash permanently reinvested, and repatriation could incur U.S. taxes.
Material changes, outlook and risks
- On March 9, Carlisle acquired Hertalan, a European EPDM roofing business, for approximately $49.2 million net of acquired cash. Preliminary goodwill was $20.6 million. Hertalan contributed $3.3 million of sales and a $2.1 million EBIT loss through quarter-end, including $2.3 million of acquired-inventory fair-value cost.
- Tri-Star, acquired in December 2011, contributed to Interconnect Technologies growth. Carlisle completed the $22.1 million sale of PDT Profiles on January 2, with no gain or loss. Preliminary acquisition valuations remain subject to change.
- Management expected full-year 2012 sales growth from organic growth and acquisitions in the mid-teens and continued margin improvement. It forecast a full-year effective tax rate of approximately 33%. It cautioned that growth for the remaining quarters could be lower than Q1’s, particularly in Construction Materials.
- Management cited uncertainty around raw-material costs and availability, ability to recover costs through pricing, global economic conditions, and the pace of recovery. Additional risks included defense-spending reductions, weaker emerging-market growth, competitive pricing, and acquisition integration.
- Transportation Products goodwill was tested at March 31: estimated fair value exceeded carrying value by about 14%, but remained sensitive. A 1% increase in the discount rate or a 1% decrease in the EBIT-margin assumption would each reduce estimated fair value by approximately $60–70 million and could cause carrying value to exceed fair value.
- Asbestos claims relate to historical brake products; the company reported insurance coverage and did not expect remaining claims to materially affect its financial position, though charges in particular periods remain possible. Environmental compliance costs had not been material to date, but historical operations could give rise to liabilities.
- On April 19, 2012, Carlisle agreed to settle contingent consideration related to a 2010 specialty trailer business sale for $3.75 million; it expected to recognize the gain in discontinued operations in Q2 2012.
Most important facts for investors to verify
- Whether organic growth, pricing, and improved segment margins persisted after a particularly strong first quarter, including the contribution from acquisition-related sales.
- Progress in integrating Hertalan and Tri-Star, and final purchase-price allocations, goodwill, and acquired-asset valuations.
- Working-capital conversion and receivable collections, given the quarter’s large receivables cash use and management’s expectation of stronger cash generation later in the year.
- Refinancing or rollover of the $360 million revolving-facility balance, liquidity availability, and continued covenant compliance.
- Transportation Products goodwill-test assumptions and the potential impairment sensitivity described by management.
- Raw-material inflation, supply constraints, and whether price increases can offset costs without weakening demand or margins.
- Whether the stated mid-teens full-year sales-growth outlook, margin improvement, and approximately 33% tax-rate expectation remain achievable.