Carlisle Companies Incorporated — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016. Carlisle is a diversified manufacturer with five segments: Construction Materials, Interconnect Technologies, Fluid Technologies, Brake & Friction, and FoodService Products.
Key financial results
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Net sales | $3,675.4 million | $3,543.2 million | +3.7% |
| Gross profit / margin | $1,157.3 million / 31.5% | $1,006.7 million / 28.4% | Margin +310 bps |
| EBIT / margin | $441.1 million / 12.0% | $501.9 million / 14.2% | EBIT -12.1%; margin -220 bps |
| Continuing operations income | $250.8 million | $319.6 million | -21.5% |
| Diluted EPS from continuing operations | $3.83 | $4.82 | -20.5% |
| Net income | $250.1 million | $319.7 million | -21.8% |
| Operating cash flow | $531.2 million | $529.2 million | +$2.0 million |
Gross-margin improvement reflected lower raw-material costs, operating efficiencies from the Carlisle Operating System, and higher capacity utilization, partly offset by lower selling prices. EBIT and earnings were weighed down principally by $141.5 million of goodwill and intangible-asset impairment charges in Brake & Friction, plus $15.5 million of restructuring and exit costs. The effective tax rate rose to 38.9% from 31.7%, partly reflecting the impairment’s tax impact.
Segments
| Segment | 2016 sales | 2016 EBIT | Notable comparison |
|---|---|---|---|
| Construction Materials | $2,052.6 million | $430.5 million | Sales +2.5%; EBIT +22.6% |
| Interconnect Technologies | $834.6 million | $144.4 million | Sales +6.4%; EBIT +2.0% |
| Fluid Technologies | $269.4 million | $33.1 million | Sales +32.6%; EBIT +59.1%, including a full year of Finishing Brands |
| Brake & Friction | $268.6 million | $(135.7) million | Sales -13.4%; includes $141.5 million impairment |
| FoodService Products | $250.2 million | $31.5 million | Sales +3.1%; EBIT +15.4% |
Cash, debt and liquidity
- Cash and cash equivalents were $385.3 million at year-end, down from $410.7 million. Operating cash flow was $531.2 million; capital expenditures were $108.8 million.
- Investing cash outflow was $293.4 million, including $185.5 million, net of cash acquired, for 2016 acquisitions. Financing cash outflow was $261.1 million, including $150.0 million of debt repayment, $84.5 million of dividends, and $75.0 million of share repurchases.
- Year-end long-term debt was $596.4 million, with no short-term debt. The company had no borrowings and the full $600 million revolving facility available; the facility expires December 2018. Debt-to-capital was 19%, versus 24% in 2015. Carlisle reported compliance with its debt covenants.
- Dividends paid were $1.30 per share for 2016. Carlisle repurchased 835,646 shares during the year and said it planned systematic repurchases in 2017.
Material changes, outlook and risks
- 2016 operating changes: Construction Materials benefited from U.S. roofing demand and favorable input costs; Interconnect Technologies and Fluid Technologies had acquisition and volume contributions. Brake & Friction sales weakened amid continued weakness in construction, mining, on-highway and aircraft markets.
- 2017 outlook: Management expected total sales growth in the high-single-digit range, led by Construction Materials, Interconnect Technologies and Fluid Technologies. Segment expectations included mid-single-digit growth for Construction Materials and Fluid Technologies, high-single-digit growth for Interconnect Technologies, low-single-digit organic growth for FoodService Products, and a slight sales decline for Brake & Friction. Capital expenditures were expected to be $125–$150 million.
- Subsequent events: In January 2017, Carlisle acquired San Jamar for estimated cash consideration of $217.7 million and Arbo for $8.9 million. It also announced the Tulsa manufacturing exit and relocation to Medina, expected to take about 18 months, with $16.5–$18.5 million in exit costs and $28–$29 million in additional capital spending.
- Principal risks: Exposure to cyclical commercial construction and industrial end markets; significant concentration in Construction Materials (about 56% of 2016 sales); customer concentration in some segments; volatile raw-material costs (about 59% of cost of goods sold); foreign currency and international operating risks; acquisition integration; cybersecurity; and regulatory, environmental and litigation matters.
- Potential additional impairment remains a risk if Brake & Friction recovery is weaker or later than forecast, or valuation assumptions worsen. Management stated that current asbestos and environmental matters were not expected to be material to the company overall, while acknowledging possible costs in particular periods or from future environmental developments.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. The control assessment excluded the acquired Micro-Coax and Star Aviation businesses.
Most important facts for investors to verify
- Whether Construction Materials can sustain volume, pricing and margins as raw-material costs rise and competition increases.
- Whether Brake & Friction end markets recover as assumed, and whether further impairment or restructuring costs arise.
- Whether the 2017 sales outlook and planned capital spending are achieved, including the integration and funding effects of acquisitions made after year-end.
- Whether operating cash generation remains sufficient to support acquisitions, dividends, repurchases and debt obligations, particularly given cash held overseas and potential repatriation taxes.
- Progress and final costs of the Tulsa-to-Medina relocation and the Interconnect Technologies and Fluid Technologies restructuring plans.