Carlisle Companies Incorporated — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparisons are with the three months ended March 31, 2012 unless otherwise noted. Carlisle is a diversified manufacturer reporting five operating segments: Construction Materials, Transportation Products, Brake & Friction, Interconnect Technologies, and FoodService Products. Figures are in U.S. dollars.
Financial performance
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net sales | $857.0 million | $889.3 million |
| Gross profit / margin | $187.6 million / 21.9% | $211.2 million / 23.7% |
| EBIT / EBIT margin | $70.1 million / 8.2% | $96.2 million / 10.8% |
| Income from continuing operations | $55.3 million | $60.0 million |
| Net income | $55.2 million | $60.0 million |
| Diluted EPS | $0.85 | $0.94 |
| Operating cash flow | $38.0 million | $48.3 million |
| Capital expenditures | $26.8 million | $22.0 million |
Sales fell 3.6%; organic sales declined 6.8%, primarily on lower volume, partly offset by $29.2 million of acquisition-related sales. EBIT declined 27.1%, reflecting lower volume, reduced production absorption and unfavorable product mix. The effective tax rate was 10.5% versus 33.1%, including a $13.0 million benefit from a foreign tax election; consequently, the decline in continuing-operations income was limited to 7.8%.
Cash and equivalents were $116.0 million at March 31, 2013, compared with $112.5 million at year-end 2012. Total debt was $753.3 million, including $0.8 million current; shareholders’ equity was $1,834.9 million. The company reported a 29% debt-to-capital ratio. Current assets were $1,215.1 million and current liabilities $433.4 million. Dividends paid were $12.8 million, or $0.20 per share.
Segment results
- Construction Materials: Sales $339.6 million, down 4.0%; EBIT $35.8 million, down 14.8%. Weather comparisons, lower volume, startup costs and higher insulation raw-material costs pressured results.
- Transportation Products: Sales $227.4 million, down 5.3%; EBIT $14.5 million, down 30.6%. Outdoor power equipment demand was weak, with weather and channel inventory also affecting sales.
- Brake & Friction: Sales $90.8 million, down 27.6%; EBIT $11.0 million, down 54.2%. Construction and mining equipment demand remained depressed.
- Interconnect Technologies: Sales $141.2 million, up 27.6%, including $25.5 million from Thermax/Raydex; EBIT $18.4 million, up 10.2%. Organic sales grew 4.6%, led by aerospace, while margin declined on mix and pricing.
- FoodService Products: Sales $58.0 million, down 2.2%; EBIT $5.1 million, down 7.3%. Restructuring savings were partly offset by lower volume and production ramp-up costs.
Liquidity, outlook and material items
- Operating cash flow was lower year over year, primarily due to lower earnings and working-capital cash use. Average working capital as a percentage of annualized sales was 22.3%, unchanged from the prior-year quarter.
- The $600 million revolving facility was undrawn and fully available; a further $45 million was available under an uncommitted line. Carlisle said it was in compliance with debt covenants.
- Management expected full-year 2013 sales growth in the mid-single digits from acquisitions and organic growth, EBIT improvement over 2012, and an EBIT margin similar to 2012. The company anticipated a full-year effective tax rate of approximately 30% and capital expenditures of approximately $120 million.
- Management expected mid-to-high-single-digit sales growth at Construction Materials and improvement at FoodService Products. Brake & Friction demand was expected to remain near current levels; Interconnect aerospace growth was expected to moderate versus 2012. Full-year outlooks depend on market recovery, pricing and raw-material costs.
- Transportation Products goodwill was particularly sensitive: estimated fair value exceeded carrying value by only 6% at quarter-end. A 100-basis-point increase in the discount rate or a 100-basis-point decrease in assumed EBIT margin would, individually, cause carrying value to exceed estimated fair value and require a further impairment-test step. No impairment was recorded in Q1.
- Other notable items included $0.7 million of exit and disposal costs, a $0.1 million discontinued-operations loss related primarily to legacy workers’ compensation claims, and $1.1 million of acquired-inventory valuation expense at Thermax/Raydex.
- Risks discussed include cyclical and weak end markets, raw-material price increases that may not be recoverable through pricing, acquisition integration, foreign exchange, litigation, and environmental obligations. Asbestos litigation was not expected to have a material overall impact, although costs or charges could arise in particular periods. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the forecasted sales and EBIT improvement materialized, especially given the assumed stabilization in Brake & Friction and recovery in Construction Materials.
- Whether Transportation Products’ narrow goodwill valuation cushion and key assumptions remain supportable.
- How much of reported earnings reflects the one-time $13.0 million tax benefit, and whether the anticipated full-year tax rate was achieved.
- Whether raw-material inflation, production levels and pricing affected margins, and whether planned capital spending and restructuring delivered expected returns.
- Debt, cash availability, covenant compliance, and the use or availability of cash held by foreign subsidiaries, including funds subject to Chinese transfer restrictions.