Carlisle Companies Incorporated — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Carlisle manufactures building-envelope products and solutions through CCM and CWT, and products for aerospace, medical, industrial and related markets through CIT and CFT. Amounts are in U.S. dollars; financial figures are in millions except per-share data.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $1,178.8 | $1,496.3 | (21.2%) |
| Gross margin | $346.7; 29.4% | $490.9; 32.8% | Margin down 3.4 percentage points |
| Operating income and margin | $141.0; 12.0% | $277.3; 18.5% | Income down 49.2% |
| Continuing-operations income | $99.6 | $194.3 | Down 48.8% |
| Diluted EPS from continuing operations | $1.92 | $3.67 | Down $1.75 |
| Adjusted EBITDA and margin | $213.8; 18.1% | $344.8; 23.0% | Margin down 4.9 percentage points |
| Operating cash flow | $149.6 | $44.3 | Up $105.3 |
Net income was $101.7 million, including $2.1 million from discontinued operations; Q1 2022 net income was $193.6 million, including a $0.7 million discontinued-operations loss. Operating cash flow improved mainly because working-capital use fell to $33.7 million from $229.9 million, including improved receivables collections and lower inventory investment. Capital expenditures were $40.2 million. Dividends of $38.9 million and share repurchases of $50.0 million were paid during the quarter.
At March 31, cash and cash equivalents were $423.9 million, total debt was $2,583.9 million, and the revolving facility had no borrowings and $1.0 billion available. The $300 million 0.55% notes due 2023 are included in current debt of $302.0 million. Carlisle reported compliance with debt covenants and said it expects liquidity to meet anticipated needs for at least 12 months. Current assets were $2,152.3 million and current liabilities were $930.0 million.
Material changes and segment performance
- Management attributed the consolidated revenue decline primarily to lower construction-market volumes as distributors destocked, with inclement weather delaying contractor work. Price realization across segments and higher aerospace and medical volumes partly offset the decline. Operating margin was pressured by lower volume, wage inflation and unfavorable mix; pricing and Carlisle Operating System savings provided offsets.
- CCM: Revenue fell 34.6% to $576.0 million; operating margin decreased to 21.3% from 29.6%. Destocking and weather were principal factors.
- CWT: Revenue fell 11.8% to $316.6 million; operating margin decreased to 7.6% from 10.4%, reflecting lower volume, mix and materials inflation.
- CIT: Revenue rose 15.4% to $213.5 million, and the segment moved from a $2.5 million operating loss to $10.9 million of operating income, supported by aerospace demand, pricing and cost savings.
- CFT: Revenue rose 2.3% to $72.7 million; operating income increased to $10.7 million from $4.8 million, reflecting pricing and cost savings.
Cash increased by $23.9 million from year-end. Investing used $31.7 million, versus $81.2 million provided in Q1 2022, which included $125.0 million of proceeds related to the former Carlisle Brake & Friction sale. Financing used $94.8 million, compared with $158.8 million in the prior-year quarter.
Outlook, commentary and risks
For 2023, management forecast total revenue to decline by a mid-single-digit percentage versus 2022. Segment expectations were a high-single-digit decline for CCM, a low-double-digit decline for CWT, and high-single-digit growth for both CIT and CFT. The outlook cited strong contractor backlogs and improving CCM orders and shipments in April, but also destocking, residential-market headwinds and the possibility of a recession in the second half of 2023.
Other 2023 expectations: corporate expenses of approximately $115 million; depreciation and amortization of approximately $250 million; capital expenditures of $200–$225 million; net interest expense of approximately $60 million; and a base tax rate of approximately 24%. Management reported no material change in risk factors from the 2022 Form 10-K. Risks discussed include interest-rate increases, recession and cyclical demand, inflation and unrecovered raw-material costs, currency movements, competition, cybersecurity, litigation, and the ability to achieve greenhouse-gas commitments.
Unusual and other items included $4.7 million of exit, disposal and facility-rationalization costs and $4.0 million of acquisition/disposal losses in the non-GAAP reconciliation. Carlisle initiated the relocation of CIT manufacturing from Lugano, Switzerland, estimating total project costs of approximately $7.6 million, with most remaining costs expected in 2023; its Carlsbad relocation was substantially complete. The filing describes asbestos-related claims involving discontinued Motion Control products and acquired Henry Company roofing products; management said the recorded accrual was not material and that other ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether distributor destocking and weather-related delays ease, and whether the projected CCM seasonal recovery and contractor backlogs translate into orders and shipments.
- Whether full-year segment and total revenue outlook remains achievable, particularly given residential-market weakness and potential recession risks.
- Whether margins recover as volume, pricing, mix, wage inflation and Carlisle Operating System savings evolve.
- Cash conversion and working-capital trends, alongside planned capital expenditures, dividends and repurchases.
- Repayment or refinancing of the $300 million notes due in 2023, ongoing covenant compliance, and progress and costs of CIT facility relocations.
- Developments in asbestos-related claims, insurance recoveries and other contingencies, and the assumptions behind adjusted EBITDA and other non-GAAP measures.