Carlisle Companies Incorporated — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial results below distinguish continuing operations (CCM and CWT) from discontinued operations (CIT and CFT).
Business context
Carlisle says its portfolio pivot to a focused building-products company is effectively complete following the reclassification of CIT as discontinued operations. Its continuing reportable segments are Carlisle Construction Materials (CCM) and Carlisle Weatherproofing Technologies (CWT). CFT was also classified as discontinued operations and was sold on October 2, 2023.
Financial performance
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $1,259.8m | $1,497.0m | $3,459.4m | $4,299.5m |
| Operating income | $299.9m | $324.0m | $729.2m | $995.3m |
| Operating margin | 23.8% | 21.6% | 21.1% | 23.1% |
| Continuing-operations income | $216.9m | $233.3m | $527.2m | $705.0m |
| Discontinued-operations income | $48.7m | $21.4m | $34.7m | $44.8m |
| Net income | $265.6m | $254.7m | $561.9m | $749.8m |
| Diluted EPS, continuing operations | $4.32 | $4.42 | $10.32 | $13.35 |
| Diluted EPS, total | $5.29 | $4.83 | $11.00 | $14.20 |
| Adjusted EBITDA margin | 27.0% | 26.0% | 24.7% | 26.5% |
Q3 gross margin was 37.0%, up from 34.4%, primarily reflecting lower raw-material costs. Nine-month gross margin was 35.1%, unchanged year over year: lower raw-material costs offset the effect of lower sales. Adjusted EBITDA is a non-GAAP measure.
Segments and drivers
- CCM: Q3 revenue fell 16.2% to $914.0m; operating income declined 20.3% to $272.5m and operating margin was 29.8%, versus 31.3%. Nine-month revenue decreased 21.0% to $2,437.5m. The company attributed the declines chiefly to construction-market weakness, project delays, higher interest rates, distributor destocking, and lower-volume unit-cost pressure.
- CWT: Q3 revenue fell 15.0% to $345.8m, while operating income rose to $58.8m from $9.6m and operating margin reached 17.0%, versus 2.4%. Nine-month revenue decreased 15.9% to $1,021.9m, but operating income increased to $142.4m from $106.1m. Carlisle cited restructuring, sourcing efficiencies, and acquisition synergies; prior-year results included asset impairment charges.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $812.4m, compared with $588.6m in 2022. Management attributed the increase mainly to lower working-capital use, including lower inventory investment and receivables collections, partly offset by lower continuing-operations income.
- Capital expenditures were $106.3m. Investing activities used $86.7m. Financing activities used $994.5m, including $580.0m of share repurchases, $119.3m of dividends, and repayment of $300.0m principal on the 0.55% notes due 2023.
- Cash and equivalents were $108.0m at September 30, versus $364.8m at year-end 2022. Debt was $2,285.5m gross carrying value; the $1.0bn revolving credit facility was undrawn and available. The company reported compliance with debt covenants.
- Management said cash, facility availability, and operating cash flows should meet anticipated business requirements for at least 12 months and support long-term needs and debt maturities.
Material changes, outlook and risks
- Continuing-operations revenue declined 15.8% in Q3 and 19.5% for the first nine months, primarily because of lower non-residential and residential construction sales. Q3 operating margin improved despite lower operating income; nine-month operating margin declined.
- Q3 net income rose year over year, despite lower continuing-operations income, as discontinued-operations income increased. For the first nine months, net income and continuing-operations income declined.
- For Q4 2023, Carlisle expected revenue versus Q4 2022 to decrease 3%–5% for CCM, approximately 10% for CWT, and 5%–7% in total. Drivers include higher interest rates, tighter lending, project delays, residential-market headwinds, the exit of the rubber business, and distributor conditions; CCM contractor backlog remained strong. Carlisle also estimated corporate expense of about $30m, depreciation and amortization of $40m, capital expenditures of $40m, net interest expense of $13m, and a 23%–24% base tax rate.
- CFT sale proceeds were $520m gross, subject to adjustments; the sale closed October 2, 2023. The company began a process to sell CIT and reported it as held for sale. CFT’s first-nine-month discontinued results included a $24.8m goodwill impairment and a $49.9m loss on classification to held for sale.
- Management cited cyclical construction markets, interest rates, inflation, raw-material costs, competition, execution of acquisitions and dispositions, cybersecurity, litigation, regulation, and geopolitical or economic conditions among risks that could affect results. Asbestos-related claims and other ordinary-course litigation are discussed; management said the recorded asbestos indemnity accrual was not material and other proceedings were not expected to have a material adverse effect.
- Vision 2030 was scheduled for release in December 2023. Management described Vision 2025 as largely complete and emphasized energy-efficient building solutions, green products, and reduced installation labor and waste.
Important facts for investors to verify
- Whether Q4 revenue outlook and management’s construction-market assumptions were achieved, particularly CCM and CWT demand and distributor inventory trends.
- Final CFT sale proceeds after adjustments, and progress, timing, and terms of a potential CIT sale.
- How much of operating cash flow is sustainable as working-capital movements normalize, given the year-to-date share repurchases and lower cash balance.
- Segment margin performance as sales volumes change, including whether CWT’s efficiency gains continue and CCM recovers from lower-volume cost pressure.
- Debt maturities, liquidity, covenant compliance, and capital allocation priorities, including repurchases, dividends, and the proposed $36m Polar asset acquisition announced after quarter-end.
- Potential changes in the estimates or outcomes for held-for-sale valuations, litigation, warranty obligations, and other disclosed contingencies.