Carlisle Companies Incorporated — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. Carlisle supplies building-envelope and energy-efficiency products through Carlisle Construction Materials (CCM) and Carlisle Weatherproofing Technologies (CWT), and serves aerospace, medical, and industrial markets through Carlisle Interconnect Technologies (CIT) and Carlisle Fluid Technologies (CFT).
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,794.1 million | $1,315.6 million | $5,137.3 million | $3,434.3 million |
| Operating income | $348.2 million | $166.5 million | $1,036.1 million | $385.0 million |
| Operating margin | 19.4% | 12.7% | 20.2% | 11.2% |
| Continuing-operations income | $255.2 million | $113.0 million | $745.4 million | $256.2 million |
| Diluted continuing-operations EPS | $4.84 | $2.12 | $14.12 | $4.80 |
| Adjusted EBITDA (non-GAAP) | $437.8 million | $250.3 million | $1,254.8 million | $579.8 million |
| Adjusted EBITDA margin (non-GAAP) | 24.4% | 19.0% | 24.4% | 16.9% |
Q3 gross margin was 33.0%, up from 28.2%; nine-month gross margin was 33.4%, up from 26.9%. Q3 net income was $254.7 million versus $142.1 million; nine-month net income was $749.8 million versus $293.6 million. Prior-year discontinued-operations income included tax benefits from the CBF sale, so net income comparisons are affected by those items.
Revenue rose 36.4% in Q3 and 49.6% year to date. Management attributed growth to pricing across segments, the Henry acquisition in CWT, and higher volumes in CCM and CIT, partly offset by foreign-exchange effects. Operating-margin improvement reflected pricing, volume, and mix, partly offset by raw-material and wage inflation.
Segment results, Q3 2022 versus Q3 2021
- CCM: Revenue $1,090.3 million, up 39.1%; operating income $341.7 million versus $181.1 million. Operating margin increased to 31.3% from 23.1%.
- CWT: Revenue $406.7 million, up 44.3%, including a 42.7% acquisition effect; operating income $9.6 million versus $6.0 million. Margin was 2.4%. Results included asset impairments.
- CIT: Revenue $223.7 million, up 25.2%; operating income $12.9 million versus a $0.5 million loss. Management cited recovery in aerospace and medical markets.
- CFT: Revenue $73.4 million, up 3.2%; operating income $11.7 million versus $4.7 million. Pricing and cost savings supported margin improvement.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $588.6 million, versus $283.9 million. Working capital used $416.0 million, largely as receivables and inventories increased with higher sales, volume, and raw-material costs.
- Investing cash use was $10.7 million, including $130.5 million of capital expenditures and $24.7 million for the MBTechnology acquisition, offset substantially by $132.0 million of CBF-related proceeds. Financing cash use was $273.2 million, including $201.1 million of share repurchases and $95.6 million of dividends.
- Cash and equivalents were $625.4 million at September 30, 2022, compared with $324.4 million at year-end 2021. The company reported $1.0 billion available under its revolving facility, with no borrowings outstanding, and stated it expected liquidity to cover requirements for at least 12 months.
- Total debt was $2,931.7 million, including $651.4 million classified as current; long-term debt less current portion was $2,280.3 million. The company was compliant with debt covenants. It subsequently redeemed $350 million of notes on October 17, 2022, for $355.5 million including accrued interest.
Outlook, commentary, and notable items
- Management’s 2022 revenue outlook, compared with 2021: CCM growth of 35%–40%; CWT approximately 60%; CIT above 20%; CFT mid-single digits; and total Carlisle growth of 35%–40%. Stated drivers included non-residential construction, pricing, Henry, and aerospace and medical demand.
- Other 2022 expectations: corporate expenses approximately $105 million; depreciation and amortization approximately $250 million; capital expenditures approximately $175 million; net interest expense approximately $90 million; and a base tax rate of approximately 24%–25%. Management cited a Vision 2025 goal of $15 GAAP EPS; this is a strategic goal, not a separate quantified full-year EPS forecast in the outlook table.
- Management described U.S. non-residential construction demand as strong and pricing as positive, while noting residential-market pressure from interest rates, inflation, and reduced building-products spending. It cited improving supply availability and an aerospace recovery with record CIT backlogs.
- CWT recorded $18.6 million of intangible-asset impairment and $6.2 million of fixed-asset impairment in Q3, relating to a rubber asset group. The CIT Medical reporting unit’s fair value exceeded carrying value by approximately 10%; the filing warns that adverse operating results, higher discount rates, or lower market multiples could lead to a potentially material goodwill impairment.
- Other risks discussed include inflation and interest rates, raw-material costs, supply chains, foreign exchange, competition, cyclicality, geopolitical conflict including the war in Ukraine, cybersecurity, and litigation. Asbestos-related claims and other ordinary-course proceedings were not expected by management to have a material adverse effect; insurance coverage has exclusions, limits, and retentions.
Most important facts for investors to verify
- Whether pricing and volume gains continue to offset inflation, and whether the reported margin expansion is sustainable.
- How much of revenue growth is organic versus acquisition-related, particularly in CWT, and how Henry integration affects performance.
- Whether elevated receivables and inventory convert to cash, given the $416.0 million working-capital use year to date.
- Progress and assumptions behind the CWT asset-group impairment and CIT Medical goodwill valuation, including potential further impairment exposure.
- Execution against management’s 2022 segment revenue and spending outlook, and liquidity following the October 2022 note redemption.