Carlisle Companies Incorporated — Q1 2011 Form 10-Q
Quarter ended March 31, 2011; consolidated financial statements are unaudited. Amounts are in U.S. dollars, millions except per-share data.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Net sales | $693.6 | $547.3 | +26.7% |
| Gross profit / margin | $147.1 / 21.2% | $112.0 / 20.5% | Margin +0.7 percentage points |
| EBIT / margin | $55.2 / 8.0% | $38.8 / 7.1% | EBIT +42.3% |
| Interest expense, net | $5.1 | $1.9 | +168.4% |
| Continuing income, net of tax | $33.3 | $23.1 | +44.2% |
| Net income | $33.4 | $24.3 | +37.4% |
| Diluted EPS | $0.53 | $0.39 | +35.9% |
| Operating cash flow | $(0.3) | $(16.9) | Less cash used |
| Capital expenditures | $16.9 | $8.4 | Higher investment |
Revenue growth reflected $76.2 million from the Hawk acquisition and 13% organic growth, primarily from higher volume; price increases also contributed. Higher Hawk contribution, volume, pricing and operating efficiencies supported earnings, while sharply higher raw-material costs were a partial offset. The effective tax rate fell to 33.5% from 37.4%, principally because Q1 2010 included a discrete prior-year tax adjustment.
Balance sheet and liquidity
- At March 31, cash and cash equivalents were $104.2 million, including $81.8 million held by foreign subsidiaries. Current assets were $1,077.7 million and current liabilities $477.4 million.
- Short-term debt, including current maturities, was $110.7 million; long-term debt was $405.2 million. The company reported a 27% debt-to-capital ratio.
- $359 million was available under the $500 million revolving credit facility, and the full $55 million uncommitted line was available. The company reported compliance with its debt covenants.
- Cash increased $14.8 million during the quarter, to $104.2 million. Financing cash flow was $29.6 million, including $100.7 million net borrowing activity and the $59.0 million redemption of Hawk notes; dividends paid were $10.5 million.
- Working capital and other assets and liabilities used $60.5 million of cash, mainly reflecting higher receivables and inventory, customer rebates and payment of a prior-period asbestos settlement.
Material changes and segment results
- The December 2010 Hawk acquisition substantially changed Brake & Friction’s year-over-year comparison. The segment reported sales of $110.8 million versus $22.5 million and EBIT of $18.2 million versus $2.1 million; Hawk contributed $76.2 million of sales and $13.3 million of EBIT in Q1 2011.
- Construction Materials sales rose 16.1% to $251.3 million, but EBIT declined 6.7% to $18.0 million; margin fell to 7.2% from 8.9%, mainly due to higher raw-material costs.
- Transportation Products sales rose 10.3% to $209.1 million and EBIT increased 30.4% to $15.0 million. Higher volume, pricing and efficiencies were partly offset by raw-material inflation.
- Interconnect Technologies sales increased 6.1% to $65.7 million and EBIT increased 14.1% to $8.9 million. Aerospace growth was partly offset by weaker military demand.
- FoodService Products sales were nearly flat at $56.7 million; EBIT declined 15.4% to $5.5 million amid higher raw-material and freight costs and continued market weakness.
- Q1 2011 included $2.4 million of exit and disposal costs, mainly for Transportation Products’ tire-manufacturing consolidation. The company expected a further $0.8 million of consolidation costs in Q2 2011.
Outlook, risks and contingencies
- Management expected organic sales growth to continue for the rest of 2011; Transportation Products expected growth at levels similar to Q1. The filing provides no specific consolidated full-year revenue or earnings guidance.
- Management cited uncertainty from elevated raw-material costs, economic and market conditions, and the company’s ability to recover costs through pricing. Construction Materials also cited limited supply of certain inputs and weakness in new construction.
- Transportation Products’ Jackson, Tennessee tire-facility consolidation was substantially complete; remaining closures and start-up activity could disrupt customers or increase costs. Expected annual savings were approximately $16 million by 2012, including an estimated $8 million in 2011 and $8 million in 2012.
- The March 2011 Japan earthquake and tsunami had no immediate material effect on the company’s sales, operations or supply, but longer-term effects were unknown.
- Other cited risks included possible Boeing 787 delays or cancellations, potential U.S. defense-budget cuts, integration and synergy execution for Hawk, shipping constraints, and changes in global economic conditions.
- The company continued working with U.S. Customs and Border Protection on classification of certain imported tires; any additional duties, fines or penalties could not be determined. Management did not expect the matter to materially affect consolidated financial position.
- Asbestos claims and environmental obligations remain potential sources of costs. Management did not expect pending asbestos claims to materially affect overall financial condition, results or cash flows, but acknowledged possible period-specific charges. Environmental compliance costs had not been material to date; future liabilities were uncertain.
Important facts for investors to verify
- How much of reported growth and earnings improvement is sustainable organically versus attributable to Hawk and acquisition accounting.
- Whether pricing and productivity gains can offset raw-material inflation, and whether segment margins—especially Construction Materials and FoodService—recover or weaken.
- Execution of Hawk integration and realization of the stated tire-consolidation savings, including remaining costs and potential operational disruption.
- Debt, revolver usage and liquidity after the Hawk-note redemption, along with the availability of cash held outside the United States.
- Developments in the customs classification matter, asbestos claims, environmental exposures and the longer-term effects of the Japan disaster.