Carlisle Companies Incorporated — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unless noted, amounts are in millions. Carlisle supplies building-envelope products and energy-efficient solutions through Carlisle Construction Materials (CCM), alongside interconnect and fluid-technology businesses.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First nine months 2021 | First nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,315.6 | $1,057.0 | $3,434.3 | $2,981.6 |
| Operating income | $166.5 | $154.8 | $385.0 | $376.5 |
| Operating margin | 12.7% | 14.6% | 11.2% | 12.6% |
| Income from continuing operations | $113.0 | $102.7 | $256.2 | $243.5 |
| Net income | $142.1 | $102.3 | $293.6 | $239.5 |
| Diluted EPS, continuing operations | $2.12 | $1.88 | $4.80 | $4.38 |
| Diluted EPS, total | $2.67 | $1.87 | $5.50 | $4.31 |
- Revenue grew 24.5% in Q3 and 15.2% year to date, reflecting pricing and volume gains, Henry acquisition revenue, and favorable currency effects. Higher raw-material and wage costs compressed gross margin to 28.2% from 30.1% in Q3 and to 26.9% from 28.8% year to date.
- Net income included discontinued-operations income of $29.1 in Q3 and $37.4 year to date. The Q3 discontinued result included a $26.9 income-tax benefit; therefore, total net income and EPS were lifted by a material sale-related tax item.
- Operating cash flow was $283.9 year to date, down from $440.2. Working capital used $208.2, primarily reflecting higher receivables and inventory, partly offset by higher payables. Capital expenditures were $88.9.
- Cash was $295.6 at September 30, versus $897.1 at year-end 2020. Long-term debt, including current portion, was $2,926.4; the revolving facility had no balance and $1.0 billion available. The company reported covenant compliance.
Segments and significant changes
- CCM: Q3 revenue rose 29.4% to $1,065.8 and operating income increased to $187.1 from $181.3; margin fell to 17.6% from 22.0%. Year-to-date revenue increased 21.8% to $2,722.4 and operating income rose to $485.8. Demand, pricing and Henry contributed; inflation and acquisition costs pressured margins.
- CIT: Q3 revenue increased 6.1% to $178.7 and operating loss narrowed to $0.5 from $3.7. Year-to-date revenue declined 12.8% to $503.4, with an operating loss of $24.1 versus income of $11.2, reflecting prolonged aerospace weakness and inflation. Management said aerospace and medical backlogs were improving.
- CFT: Q3 revenue increased 9.4% to $71.1 and operating income was $4.7, compared with $4.4. Year-to-date revenue rose 22.8% to $208.5 and operating income to $15.6 from $2.0, supported by volume, pricing and acquisitions.
- On September 1, Carlisle acquired Henry for $1,608.2, funded with cash and borrowings later refinanced through senior-note offerings. Preliminary allocation included $903.0 of goodwill and $735.1 of acquired definite-lived intangible assets. Henry contributed $49.6 revenue and a $2.9 operating loss in September, including inventory step-up and amortization costs.
- On August 2, Carlisle sold Carlisle Brake & Friction (CBF), reported as discontinued operations. Proceeds were $250 cash at closing, subject to adjustments, plus potential additional consideration of up to $125 tied to performance targets; Carlisle recorded a $125 receivable.
Outlook, risks and unusual items
- Management’s 2021 revenue outlook versus 2020 was mid-20% growth for CCM, mid-single-digit decline for CIT, mid-teens growth for CFT and high-teens growth for Carlisle overall. Other 2021 expectations: corporate expenses of $120–$122, depreciation and amortization of about $230, capital expenditures of about $125, net interest expense of about $82, and a base tax rate of about 25%.
- Management cited strong building-products demand and growing backlogs, while noting difficult supply-chain and labor conditions, raw-material and wage inflation, and Hurricane Ida’s impact. It expressed optimism about Q4 and 2022 but cautioned that business recovery and results remain uncertain.
- Year-to-date non-comparable items totaled $44.0, including acquisition and inventory step-up costs, restructuring, impairments and other items. The company also initiated CIT facility relocations; further costs are expected, primarily in 2022.
- Key stated risks include continued pandemic effects, supply and labor constraints, unrecovered input-cost increases, competition, acquisition integration, cyclicality, cybersecurity, foreign exchange and litigation. Asbestos-related claims remain subject to insurance limitations and potential disputes; management did not expect the recorded liabilities to be material.
Most important facts for investors to verify
- Whether Henry delivers expected growth and integration benefits, and how final purchase-price allocations affect goodwill, amortization and margins.
- Whether pricing can offset continued material, wage and freight pressures without weakening demand or backlog conversion.
- Whether CIT’s aerospace recovery is sustained and restores year-to-date profitability.
- Whether working-capital investment moderates and operating cash flow improves following the acquisition and CBF sale.
- The ultimate CBF sale adjustments and performance-based proceeds, and the treatment and persistence of the associated tax benefit.
- Debt maturity, interest and covenant capacity following the $850 senior-note issuance and Henry acquisition.