Carlisle Companies Incorporated — Q3 2010 Form 10-Q
Business context and period. Diversified manufacturer reporting for the quarter and nine months ended September 30, 2010. Results are compared with 2009 figures, which the filing says were revised for presentation and classification changes. Continuing operations comprise Construction Materials, Engineered Transportation Solutions, Interconnect Technologies, and FoodService Products.
Financial performance
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Net sales | $665.9 million | $604.2 million | $1,900.8 million | $1,733.8 million |
| Gross profit / margin | $143.6 million / 21.6% | $144.1 million / 23.8% | $399.2 million / 21.0% | $378.1 million / 21.8% |
| EBIT / margin | $66.5 million / 10.0% | $74.0 million / 12.2% | $169.3 million / 8.9% | $184.3 million / 10.6% |
| Continuing-operations net income | $46.8 million | $47.1 million | $108.7 million | $119.2 million |
| Net income, including discontinued operations | $50.5 million | $46.6 million | $113.4 million | $108.7 million |
| Diluted EPS | $0.81 | $0.75 | $1.83 | $1.76 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $62.4 million | $333.4 million |
Q3 sales rose 10.2% year over year; organic growth, excluding acquisitions and currency, was 7.9%, mainly from 7.5% higher volume. Nine-month sales rose 9.6%, with 6.6% organic growth. Q3 diluted continuing-operations EPS was $0.75 versus $0.76; nine-month continuing-operations diluted EPS was $1.75 versus $1.93. Dividends declared and paid were $0.17 per share in Q3 and $0.49 for the nine months.
Q3 EBIT fell 10.1%, as higher raw-material costs—particularly in Construction Materials and Engineered Transportation Solutions—more than offset volume growth, pricing actions, and operating efficiencies. Nine-month EBIT declined 8.1%; the 2009 period included a $27.0 million fire-insurance gain. Gross margin also contracted, notably in Q3, due to raw-material inflation.
Liquidity, debt, and cash flow
At September 30, 2010, cash and cash equivalents were $114.8 million, versus $96.3 million at year-end 2009. Current assets were $983.9 million and current liabilities $359.5 million. Long-term debt was $156.2 million; the company reported an 11% debt-to-capital ratio. The $500 million revolving credit facility had $469 million available, and the company reported compliance with its covenants. It also had a fully available $55 million uncommitted line of credit.
Nine-month operating cash flow was $62.4 million, down from revised 2009 cash flow of $333.4 million. Management attributed the 2010 working-capital and other asset/liability cash use of $102.3 million principally to increased receivables and inventory as sales activity improved. Average working capital as a percentage of annualized sales improved to 21.6% from 25.1%. Investing cash outflow was $20.7 million, including $46.8 million of capital expenditures and $20.6 million of proceeds from the refrigerated-truck-bodies sale. Financing cash outflow was $23.5 million, primarily dividends. Cash increased $18.5 million over the period.
Segment changes and performance
- Construction Materials: Q3 sales increased 4.3%, but EBIT declined 10.4% and margin fell to 15.2% from 17.8%, reflecting higher raw-material costs and lower year-over-year pricing. Nine-month EBIT rose 7.1%.
- Engineered Transportation Solutions: Q3 sales rose 17.4% and EBIT 10.5%; margin was 4.5%. Nine-month sales rose 10.1%, while EBIT fell 50.3% to $31.2 million, principally reflecting the prior-year fire gain and 2010 raw-material costs.
- Interconnect Technologies: Q3 sales increased 42.5% and EBIT 67.3%; nine-month sales rose 47.2% and EBIT 88.0%. Growth included acquisitions of Jerrik and Electronic Cable Specialists, as well as stronger aerospace-related demand.
- FoodService Products: Q3 sales rose 1.6%, but EBIT fell 25.0% amid higher material and transportation costs. Nine-month sales declined 2.0%, while EBIT increased 3.3%.
Outlook, material events, and risks
- Management expected moderate sales growth to continue through the remainder of 2010, but gave no quantified earnings or sales guidance. It cited uncertainty around raw-material costs, economic recovery, and credit availability as potential pressure on future EBIT.
- Engineered Transportation Solutions expected approximately $20 million in annual savings by 2012 from facility consolidations, with about $2 million expected in 2010 and $9 million in 2011. The projects were expected to cost approximately $25.7 million in total; $17.7 million had been incurred through September 30.
- On October 4, 2010, Carlisle sold its specialty trailer business for $35 million in cash. It estimated a $6.3 million gain for Q4; final proceeds remained subject to a working-capital adjustment and potentially up to $5 million based on future earnings.
- On October 15, 2010, Carlisle agreed to acquire Hawk Corporation for $50 per share, with expected cash consideration of approximately $413 million and estimated transaction costs of $9–$12 million. The company expected a Q4 close, funded with cash and its revolving credit facility, and expected to remain covenant-compliant after the acquisition.
- A U.S. Customs investigation concerning tire import classifications was terminated by ICE in August 2010. Carlisle continued discussions with Customs and Border Protection; potential additional duties or penalties were not determinable. Management did not expect a material adverse effect on consolidated financial position.
- Other disclosed risks include raw-material price increases that may not be recoverable through pricing, competitive pressures, restructuring-related customer disruption, shipping and product availability, acquisition integration, market cyclicality, and economic and foreign-exchange conditions.
Most important facts for investors to verify
- Whether volume growth and operating efficiencies can offset raw-material inflation and sustain margins.
- How working-capital investment affects operating cash conversion as sales grow.
- Hawk’s final purchase price, funding mix, closing, integration costs, and resulting leverage and covenant headroom.
- Final specialty-trailer sale adjustments and any contingent proceeds or additional gain or loss.
- Progress, costs, savings, and any customer disruption from the Engineered Transportation Solutions consolidations.
- Any financial exposure from the ongoing Customs classification work, and the potential effect of uncertain economic, pricing, and market conditions.