Carlisle Companies Incorporated — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Carlisle is a diversified manufacturer with four reportable segments: Construction Materials (CCM), Interconnect Technologies (CIT), Fluid Technologies (CFT), and Brake & Friction (CBF). Unless stated otherwise, amounts are in millions of dollars.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $1,071.9 | $984.7 | +8.9% |
| Gross margin | $288.6; 26.9% | $249.4; 25.3% | Margin +1.6 percentage points |
| Operating income | $114.7 | $94.7 | +21.1% |
| Operating margin | 10.7% | 9.6% | +1.1 percentage points |
| Continuing-operations income | $77.4 | $57.9 | +33.7% |
| Diluted EPS from continuing operations | $1.33 | $0.92 | +44.6% |
| Net income | $79.4 | $309.6 | Down; prior-year amount included a major divestiture gain |
| Operating cash flow | $109.8 | $33.2 | Increase of $76.6 |
| Capital expenditures | $23.3 | $42.5 | Decrease of $19.2 |
Revenue growth reflected 5.9% price/volume growth, a 3.9% acquisition contribution, and a 0.9% foreign-exchange headwind. Management reported 5.9% organic revenue growth and COS cost savings equal to 1.3% of sales. Price realization was positive across all four segments. Higher volumes, pricing, and cost savings supported margin improvement, partly offset by labor, freight, restructuring costs, and product mix.
Q1 2018 net income and EPS included discontinued operations, principally the sale of Carlisle FoodService Products: discontinued-operations income was $251.7, including the sale gain. Q1 2019 discontinued-operations income of $2.0 related to settlement of prior tax positions. Continuing-operations results are therefore the more comparable earnings measure.
Segments
| Segment | Revenue | Operating income | Year-over-year revenue |
|---|---|---|---|
| CCM | $671.1 | $92.9 | +12.1% |
| CIT | $246.4 | $30.6 | +9.9% |
| CFT | $63.1 | $6.4 | -0.6% |
| CBF | $91.3 | $6.5 | -7.1% |
CCM benefited from roofing demand, pricing, and Petersen acquisition revenue. CIT grew on aerospace, test-and-measurement, and space-and-defense demand. CFT revenue was broadly flat, with strength in automotive refinish and general industrial offset by transportation softness and currency effects. CBF revenue declined on weaker heavy-equipment and aerospace volumes and currency headwinds.
Cash, debt, and liquidity
Cash and equivalents were $516.6 at March 31, 2019, down from $803.6 at year-end. Operating cash flow was $109.8, including a $33.3 working-capital use. Investing cash outflow of $224.4 included $202.0 for Petersen, net of cash acquired, and $23.3 of capital expenditures. Financing cash outflow was $173.1, primarily $157.1 of share repurchases and $23.3 of dividends.
Long-term debt was $1,588.5. The company had no revolver borrowings and $1.0 billion available under its revolving credit facility; it reported compliance with debt covenants. Management said available resources were sufficient for business needs for at least the next 12 months. Quarterly dividends were $0.40 per share. Carlisle repurchased $157.1 of stock during the quarter.
Outlook, developments, and risks
- Management described the start to 2019 as positive and remained optimistic, while citing uncertainty around China trade negotiations and Brexit. Vision 2025 objectives include exceeding 5% organic growth, COS-driven efficiency gains, acquisitions, and more than $3 billion of capital expenditures, repurchases, and dividends.
- 2019 segment revenue outlook: CCM low-double-digit growth, including acquisitions; CIT mid-to-high-single-digit growth; CFT mid-single-digit growth; CBF flat. CCM results are typically seasonal, with greater activity in the second and third quarters, and may be affected by weather, labor availability, competition, and input costs. CBF outlook reflects customer inventory adjustments.
- On January 11, Carlisle acquired Petersen for estimated consideration of $207.2; it contributed $35.5 of revenue through quarter-end. Purchase-price allocations were preliminary. On April 1, after quarter-end, Carlisle acquired MicroConnex for approximately $46.0 cash; its results are expected in CIT beginning in Q2.
- Restructuring and exit costs were $6.8 in Q1, versus $3.1 a year earlier. The CIT California facility relocation was expected to take 12–18 months; the filing gives differing cost estimates across sections ($8.5 in the note for the stated project versus approximately $20.3 in MD&A), which investors may wish to clarify. CBF’s Tulsa-to-Ohio project had approximately $1.5 of expected remaining costs.
- Other risks include cyclical markets, competition and pricing pressure, raw-material inflation, acquisition integration, foreign exchange, litigation, and environmental obligations. Management reported no material changes to previously disclosed risk factors and no significant environmental remediation accruals.
- The company adopted the new lease standard on January 1, 2019. It recognized $69.6 of operating-lease right-of-use assets and $73.7 of lease liabilities; management said adoption did not materially affect net income or cash flows.
Investor verification priorities
- Separate ongoing continuing-operations performance from the prior-year divestiture gain when comparing earnings and EPS.
- Track organic growth, segment margins, and whether management’s 2019 segment outlook is achieved, particularly in CBF and CCM.
- Assess cash conversion and working-capital needs alongside acquisition spending, share repurchases, dividends, and the reduced cash balance.
- Clarify the CIT relocation cost estimates and monitor restructuring charges, Petersen integration and final purchase accounting, and MicroConnex contribution.
- Review debt maturities, covenant headroom, and potential exposure to litigation, environmental matters, trade uncertainty, and foreign-exchange changes.