Carlisle Companies Incorporated — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing reports full-year results and unaudited quarterly data, including fourth-quarter results. Carlisle is a diversified manufacturer; its four continuing segments are Construction Materials (CCM), Interconnect Technologies (CIT), Fluid Technologies (CFT), and Brake & Friction (CBF). Carlisle sold its FoodService Products (CFS) segment in March 2018.
Financial results and liquidity
| Metric | 2018 | 2017 | Change or context |
|---|---|---|---|
| Revenue | $4,479.5 million | $3,750.8 million | Up 19.4%; acquisition effect 11.2%, price/volume 7.8%, and foreign exchange 0.4%. Management reported 7.2% organic growth. |
| Gross margin | $1,174.7 million; 26.2% | $1,048.3 million; 27.9% | Dollar margin rose 12.1%, but margin rate declined 1.7 percentage points. |
| Operating income | $509.0 million; 11.4% margin | $464.0 million; 12.4% margin | Up 9.7%; operating margin fell 1.0 percentage point. |
| Continuing-operations income | $358.6 million | $340.6 million | Diluted EPS was $5.88 versus $5.32. |
| Net income | $611.1 million | $365.5 million | Includes $252.5 million after-tax income from discontinued operations, principally the CFS sale gain. |
| Operating cash flow | $339.2 million | $458.7 million | Down; 2018 included $224.9 million of working-capital uses and higher tax payments related to the CFS sale. |
| Cash and debt | $803.6 million cash; $1,587.8 million carrying value of long-term debt | $378.3 million cash; $1,586.2 million debt | $1.0 billion revolving facility available and undrawn at year-end; covenants were met. |
| Capital returns | $459.8 million share repurchases; $93.5 million dividends | $268.4 million repurchases; $92.1 million dividends | 2018 dividend was $1.54 per share. |
Fourth-quarter revenue was $1,077.3 million versus $990.5 million; operating income was $114.6 million versus $93.4 million; continuing-operations income was $89.1 million versus $108.9 million; diluted EPS from continuing operations was $1.49 versus $1.73.
Material changes and business drivers
- CCM generated $2,880.3 million in revenue and $435.4 million in operating income. It represented approximately 64.3% of company revenue and 85.5% of operating income, according to the risk disclosure. Growth reflected strong U.S. commercial construction demand, acquisitions, higher volumes, and price realization; margin pressure came from raw materials, freight, labor, mix, and executive retirement costs.
- CIT revenue rose 14.5% to $933.8 million and operating income rose 31.1% to $117.3 million, supported by aerospace and defense demand, COS savings, and lower restructuring costs.
- CFT revenue increased 3.6% to $291.6 million; operating income rose to $37.1 million from $16.1 million, benefiting partly from restructuring actions and a facility-sale gain.
- CBF revenue rose 17.6% to $373.8 million, but it recorded an operating loss of $0.8 million, including $19.8 million of exit and facility-rationalization costs. Its Tulsa-to-Medina consolidation was substantially complete.
- Revenue growth included $434.1 million from Accella, acquired in late 2017. Carlisle received $758.0 million gross proceeds from the CFS sale and recorded a $296.8 million pretax gain. Petersen Aluminum was acquired for approximately $197.0 million in January 2019, after year-end.
- ASC 606 adoption added $21.9 million to reported 2018 revenue and $7.2 million to operating income; Carlisle used the modified retrospective method and did not restate comparative periods.
Outlook, risks, and unusual items
- Management expected high-single-digit consolidated revenue growth in 2019, despite geopolitical and economic uncertainty. Segment outlooks were high-single-digit to low-double-digit growth for CCM, mid-single-digit for CIT and CFT, and low-single-digit for CBF.
- Planned 2019 capital expenditures were $110 million to $125 million. Management said it expected adequate resources for at least the next 12 months. The Board increased repurchase authorization by 5 million shares in February 2019; Carlisle said it planned systematic repurchases.
- Margin headwinds included rising raw-material, labor, and freight costs, unfavorable mix, and competitive pricing. Raw materials and inbound freight were approximately 60% of cost of goods sold. Management noted that moderate raw-material inflation was expected and price competition could constrain CCM margins.
- Key exposures include commercial-construction cyclicality and weather, customer concentration, international operations and currency, tariffs and Brexit uncertainty, regulated aerospace and medical markets, acquisition integration, and cybersecurity/privacy risks. Beacon Roofing Supply represented 11.8% of consolidated revenue; the filing also identifies significant customer concentrations within CCM, CIT, and CBF.
- 2018 comparability items included $17.9 million of exit/disposal costs, $13.2 million of other facility-rationalization costs, $5.6 million of acquisition costs, $2.5 million of litigation settlement losses, and $6.6 million of divestiture gains. The CFS sale gain and discontinued-operation results substantially lifted reported net income.
- Asbestos-related lawsuits involving older brake products and other ordinary-course litigation remain disclosed; management did not expect the matters to have a material adverse effect. No significant environmental-remediation accruals were recorded, though potential future liabilities cannot be ruled out.
Important facts for investors to verify
- Whether organic growth and 2019 segment revenue expectations were achieved, and whether growth was sustainable without acquisition contributions.
- Whether price increases and Carlisle Operating System savings offset input-cost inflation and restored gross and operating margin rates.
- How much of 2018 net income and cash generation was attributable to the one-time CFS sale, and how proceeds were deployed.
- Whether CCM’s large share of revenue and operating income, and identified major-customer concentrations, changed or pose continuing exposure.
- Progress and remaining costs or savings from CBF and CIT restructuring, plus Petersen integration and acquisition returns.
- Debt maturities, available liquidity, working-capital needs, and the sustainability of share repurchases and dividend increases.