Carlisle Companies Incorporated — 2019 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2019. Carlisle is a diversified manufacturer operating four segments: Construction Materials (CCM), Interconnect Technologies (CIT), Fluid Technologies (CFT), and Brake & Friction (CBF). CCM is the largest segment, focused primarily on commercial roofing. The company’s strategy emphasizes organic growth, operating efficiencies through the Carlisle Operating System, acquisitions, and shareholder returns.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $4,811.6 million | $4,479.5 million |
| Gross margin | $1,371.7 million; 28.5% | $1,174.7 million; 26.2% |
| Operating income / margin | $654.2 million / 13.6% | $509.0 million / 11.4% |
| Continuing-operations income | $473.7 million | $358.6 million |
| Net income | $472.8 million | $611.1 million |
| Diluted EPS, continuing operations | $8.21 | $5.88 |
| Diluted EPS, total | $8.19 | $10.02 |
| Operating cash flow | $703.1 million | $339.2 million |
| Capital expenditures | $88.9 million | $120.7 million |
| Cash and cash equivalents | $351.2 million | $803.6 million |
| Total debt, including current portion | $1,591.6 million | $1,587.8 million |
- Revenue increased 7.4%; the filing attributes the change to acquisitions (+5.1%), price and volume (+2.8%), and foreign exchange (-0.5%). Management reported 2.8% organic revenue growth.
- Gross and operating margins expanded, reflecting price realization, COS savings, favorable raw-material costs, and higher CCM volumes, partly offset by wage and labor costs.
- CCM generated $3,233.3 million of revenue and $576.0 million of operating income. CIT reported $972.9 million and $131.6 million, respectively; CFT $278.4 million and $24.0 million; CBF $327.0 million and $21.3 million.
- 2019 net income was below 2018 because 2018 included a $296.8 million pretax gain on the sale of Carlisle FoodService Products (CFS). Continuing-operations income and EPS increased year over year.
- Fourth-quarter 2019 revenue was $1,144.3 million versus $1,077.3 million in fourth-quarter 2018; operating income was $141.3 million versus $114.6 million, and continuing-operations income was $104.0 million versus $89.1 million.
Liquidity, debt, and capital allocation
- Operating cash flow rose substantially, with working-capital uses of $9.5 million in 2019 compared with $224.9 million in 2018. Investing activities used $694.9 million, principally for acquisitions; financing activities used $461.2 million.
- At year-end, the company had $351.2 million in cash and $1.0 billion available under its revolving credit facility, with no revolver borrowings outstanding. It reported compliance with debt covenants and stated it expected adequate resources for at least the next 12 months.
- Senior notes included $250 million due in 2020, $350 million due in 2022, $400 million due in 2024, and $600 million due in 2027. The company subsequently extended the revolving facility’s maturity to February 2025 on February 5, 2020.
- Share repurchases totaled $382.1 million and dividends paid were $102.9 million in 2019. The annual dividend was $1.80 per share; a $0.50 quarterly dividend was declared in February 2020.
Material changes, outlook, and commentary
- Carlisle acquired eight businesses during 2019, deploying more than $600 million. Major acquisitions included Petersen Aluminum for $207.2 million, MicroConnex for $46.2 million, and Providien for $332.1 million. Providien’s purchase-price allocation was preliminary at year-end.
- CCM benefited from robust North American non-residential roofing demand and Petersen’s contribution. CFT and CBF revenues declined, reflecting weaker end-market volumes; CBF’s operating result improved from a loss in 2018, partly as restructuring costs fell. CIT’s results included acquisition contributions and continued aerospace-related headwinds.
- Management’s Vision 2025 targets are $8 billion revenue, 20% operating margin, 15% return on invested capital, and $15 EPS. Long-term priorities include 5% organic growth with leverage, annual COS savings of 1%–2% of revenue, and substantial investment in acquisitions and shareholder returns.
- The filing forecast 2020 total revenue growth in the mid-single digits. Segment outlook: CCM mid-single-digit growth; CIT high-single-digit growth; CFT low-to-mid-single-digit growth; and CBF a mid-single-digit decline. Drivers included a healthy North American construction market and price discipline, alongside expected 737 MAX-related aerospace volume impacts and customer inventory adjustments. Planned 2020 capital expenditures were $100–$120 million.
- The outlook reflects expectations stated in the February 2020 filing and is subject to the filing’s forward-looking-statement risks; it is not a guarantee of results.
Risks, contingencies, and unusual items
- CCM represented approximately 67% of 2019 revenue and 88% of operating income, concentrating results in commercial construction. Roofing demand is seasonal and weather-sensitive; the market also faces pricing competition.
- Other risks include cyclical end markets, major-customer concentration, raw-material volatility (materials and inbound freight were about 62% of cost of goods sold), foreign exchange, international trade and political uncertainty, and acquisition integration and execution.
- 2019 comparability items increased operating income by a net $23.7 million, including $13.7 million of exit and disposal costs, $5.7 million of other facility-rationalization costs, acquisition costs, and gains from contingent consideration and divestitures. Reported continuing-operations diluted EPS impact was a net $0.08.
- Environmental remediation related to a business disposed of in 2009 contributed to the 2019 discontinued-operations loss. The company disclosed asbestos-related lawsuits, but said reasonably possible claims were not material; it reported no material environmental remediation accrual at year-end.
- Goodwill was $1,716.3 million. No goodwill impairment was recorded, but valuation of the CFT and CBF reporting units involved significant estimates and was identified as a critical audit matter. The auditor issued unqualified opinions on the financial statements and internal control; acquired businesses representing 12% of assets and 4% of revenue were excluded from management’s internal-control assessment.
Important facts for investors to verify
- Whether CCM demand, margins, customer relationships, and roofing-market concentration remain supportive.
- Whether acquisitions—especially Providien and Petersen—deliver expected growth and synergies, and whether Providien’s purchase-price allocation is finalized as anticipated.
- How aerospace disruption, including the 737 MAX impacts cited in the filing, and weaker CFT and CBF end markets affect the 2020 outlook.
- The company’s ability to sustain cash generation while funding acquisitions, capital spending, dividends, repurchases, and the $250 million note maturity in 2020.
- Developments in environmental remediation, asbestos claims, tax uncertainties, restructuring costs, and goodwill valuation assumptions.