CARLISLE COMPANIES INC quarterly report, Q2 FY2012

Carlisle Companies Incorporated — Q2 2012 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2012. Unaudited consolidated results; amounts in U.S. dollars unless stated otherwise.

Business context and results

Carlisle is a diversified manufacturer operating in Construction Materials (CCM), Transportation Products (CTP), Brake & Friction (CBF), Interconnect Technologies (CIT), and FoodService Products (CFSP). It reported Q2 revenue growth from organic sales and acquisitions, with markedly higher operating profit and margins.

MetricQ2 2012Q2 2011Six months 2012Six months 2011
Net sales$984.6m$870.8m$1,873.9m$1,564.4m
Gross profit / margin$255.4m / 25.9%$183.7m / 21.1%$466.6m / 24.9%$330.8m / 21.1%
EBIT / margin$140.3m / 14.2%$85.4m / 9.8%$236.5m / 12.6%$140.6m / 9.0%
Continuing income$89.4m$55.3m$149.4m$88.6m
Net income$92.8m$54.6m$152.8m$88.0m
Diluted EPS$1.45$0.86$2.39$1.39

Financial position, cash flow and capital

  • Six-month operating cash flow was $154.3m, versus $13.7m a year earlier. Investing used $84.1m, including $60.6m in capital expenditures and $49.3m net acquisition spending; financing used $68.3m. Cash increased $2.1m to $76.8m.
  • At June 30, cash was $76.8m; current assets were $1,334.8m and current liabilities $708.9m. The company had $305m available under its $600m revolving facility and $45m available on an uncommitted line.
  • Total debt was $699.5m, down from $762.4m at December 31, 2011; $195m was classified as short-term. Debt to capital was 30%. The company reported compliance with debt covenants.
  • Receivables rose to $627.2m from $486.4m at year-end, while inventories were $549.6m versus $539.0m. Management reported average working capital at 21.8% of annualized sales for the first half, compared with 21.7% in 2011.
  • Cash held outside the U.S. was $56.1m, including $16.6m in China; management said foreign cash was generally intended for foreign operations and repatriation could trigger U.S. taxes.

Material changes and segment performance

  • Q2 sales rose 13.1%: 7.6% organic growth and 6.0% acquisition contribution; price and volume rose 4.8% and 2.5%, respectively. First-half sales rose 19.8%, including 14.0% organic growth and 6.1% from acquisitions.
  • CCM Q2 sales were $470.0m and EBIT $85.5m; margins expanded to 18.2% from 13.2%, supported by pricing, efficiencies, and mix. CTP EBIT increased to $18.4m from $5.3m, with margin at 9.1% versus 2.7%, aided by operational recovery from prior-year plant start-up issues.
  • CBF Q2 sales were $133.3m and EBIT $24.8m; margin improved to 18.6% from 16.3%. CIT sales rose 60% to $114.7m, largely reflecting Tri-Star and aerospace growth; EBIT was $17.4m, but margin declined to 15.2% from 16.3% amid input costs, mix, and staffing. CFSP sales were essentially flat at $63.3m and EBIT was $5.7m.
  • Acquisitions included Hertalan, acquired in March 2012 for approximately $48.9m net of cash, and Tri-Star, acquired in December 2011. PDT was acquired in 2011; its Profiles business was sold in January 2012 for $22.1m with no gain or loss. Purchase-price allocations remained preliminary.
  • Q2 and first-half discontinued-operations income included a $3.75m gain from settling contingent consideration tied to the 2010 sale of the specialty trailer business.

Outlook, commentary and risks

  • Management expected full-year 2012 sales growth from organic growth and acquisitions combined to be in the mid-teens, and expected margin improvement over prior-year periods. It forecast a full-year effective tax rate of about 33%.
  • For the remainder of 2012, management anticipated moderated demand due to slower emerging-market growth and weaker demand in some domestic markets, while aerospace growth was expected to remain strong. It cited raw-material costs, global conditions, and the pace of economic recovery as potential pressures on sales and earnings.
  • Segment-specific concerns included possible softer agriculture demand from U.S. drought conditions, declining demand for metal commodities and emerging markets, defense-spending reductions affecting CIT, and CFSP’s uncertain ability to recover raw-material costs through pricing.
  • Planned investment included approximately $140m of company-wide capital expenditures in 2012, including construction and expansion projects. CCM expected about $80m of capital expenditures; several roofing and insulation capacity projects were under way.
  • Other matters include asbestos-related litigation (management did not expect remaining claims to have a material overall effect, but individual-period charges are possible), potential environmental liabilities, self-insured claims, and restructuring costs. Management reported effective disclosure controls and no material change in internal control over financial reporting.

Important facts for investors to verify

  • Confirm the original filing’s cover-page reporting-status checkboxes: the supplied text shows “No” marked for whether required Exchange Act reports were filed, an apparent item requiring verification.
  • Track whether the mid-teens full-year sales outlook and anticipated margin improvement were achieved, especially as demand moderates and raw-material pricing changes.
  • Assess cash conversion and receivables collection, given the substantial receivables increase and management’s expectation that operating cash flow is typically stronger in the second half.
  • Review debt refinancing/rollover: the filing says $195m of revolving borrowings was payable in July 2012, with the company expecting to roll over $100m for more than one year.
  • Monitor acquisition integration and final purchase-price allocations, including Hertalan and Tri-Star, and the potential for CTP goodwill impairment if its outlook deteriorates.