Carlisle Companies Incorporated — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. Comparisons are with Q1 2013; Transportation Products is presented as discontinued operations following its December 31, 2013 sale.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Net sales | $650.4 million | $629.6 million | +3.3% |
| Gross profit / margin | $162.1 million / 24.9% | $152.4 million / 24.2% | Margin +70 bps |
| EBIT / margin | $63.0 million / 9.7% | $55.4 million / 8.8% | +13.7%; margin +90 bps |
| Continuing income | $36.5 million | $44.3 million | -17.6% |
| Net income | $35.8 million | $55.2 million | -35.1% |
| Diluted EPS | $0.55 | $0.85 | Down |
| Operating cash flow | $51.3 million | $38.0 million | +$13.3 million |
| Capital expenditures | $24.1 million | $26.8 million | -$2.7 million |
Cash from operations less capital expenditures was $27.2 million in Q1 2014. Cash and cash equivalents were $779.7 million at March 31, 2014, up from $754.5 million at year-end 2013. Total debt was $751.1 million, with no short-term debt; the company reported a 27% debt-to-capital ratio. It had $600 million available on its revolving facility and $45 million on an uncommitted line, and was in compliance with debt covenants. The company paid $14.2 million in dividends, or $0.22 per share.
Segments and changes versus prior period
- Construction Materials: Sales $347.4 million, up 2.3%; EBIT $31.9 million, down 10.9%; margin 9.2% versus 10.5%. Harsh U.S. winter weather, lower selling prices, mix, and underutilization at new polyiso plants weighed on results. European product sales grew strongly.
- Interconnect Technologies: Sales $150.9 million, up 6.9%; EBIT $30.7 million, up 66.8%; margin 20.3% versus 13.0%. Aerospace demand and operating leverage drove improvement.
- Brake & Friction: Sales $92.2 million, up 1.5%; EBIT $9.2 million, down 16.4%; margin 10.0% versus 12.1%. Organic sales were flat as volume growth was offset by lower prices; mining and construction remained weak.
- FoodService Products: Sales $59.9 million, up 3.3%; EBIT $7.1 million, up 39.2%; margin 11.9% versus 8.8%, reflecting utilization and cost improvements.
Sales growth was 3.0% organically, with a 0.3% favorable foreign-exchange effect. Gross and EBIT margins improved, but continuing income declined chiefly because Q1 2013 included a $13.0 million discrete tax benefit. The effective tax rate was 33.6% in Q1 2014 versus 5.9% in Q1 2013; excluding discrete items, the prior-year rate was 33.5%. Q1 2014 discontinued operations included a $1.0 million after-tax loss from finalizing the Transportation Products sale working-capital adjustment. Q1 2013 discontinued operations included $10.9 million of after-tax income from that business, which had $227.4 million in sales.
Outlook, risks, and unusual items
- Management expected high-single-digit sales growth and EBIT margin improvement for full-year 2014 versus 2013, citing commercial construction, commercial aerospace, and continued FoodService improvement. Brake & Friction recovery was expected to be modest. No company-wide earnings-per-share guidance was provided.
- Management expected full-year capital expenditures of approximately $119 million. Construction Materials’ 2014 capital expenditures were expected to be $36.5 million; PVC production at its new Illinois plant was scheduled to begin in Q2.
- Risks highlighted include weather and construction seasonality, competitive pricing and raw-material recovery, uncertain military and mining demand, customer in-sourcing, and potential adverse outcomes from negotiations with Boeing over pricing and long-term contracts. A key customer represents approximately 18% of Interconnect Technologies sales and another approximately 18% of Brake & Friction sales.
- The company retained workers’ compensation obligations for former Transportation Products employees arising before the sale. It reported $26.5 million accrued for workers’ compensation claims. Asbestos litigation and environmental requirements could result in costs, though management did not expect pending matters to materially affect the company overall. No significant environmental remediation accrual was reported.
- Brake & Friction’s Akron facility closure was expected to cost approximately $2.9 million in total; $1.1 million had been incurred through Q1 2014. Estimated annual savings are $0.6 million beginning in 2015.
- Cash held outside the U.S. was $231.8 million, including $28.3 million in China. The company considered foreign cash permanently reinvested; repatriation could incur U.S. taxes, and transfers of Chinese cash are subject to local approvals.
Important facts for investors to verify
- Whether forecast sales growth and margin improvement materialize, particularly after weather-related delays and with seasonal construction demand.
- Whether Interconnect Technologies sustains its unusually strong margin improvement and how Boeing negotiations and customer concentration affect future results.
- Whether Construction Materials’ pricing, plant utilization, and new capacity improve, and whether Brake & Friction’s markets stabilize despite continued price pressure.
- How much of reported earnings and cash generation is recurring, considering the prior-year tax benefit, discontinued operations, sale adjustment, and working-capital movements.
- Future capital spending, the use of sale proceeds, and the availability and practical accessibility of cash held outside the U.S.