Carlisle Companies Incorporated — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Unaudited consolidated results; amounts in U.S. dollars unless stated otherwise.
Business context and results
Carlisle is a diversified manufacturer operating in Construction Materials (CCM), Transportation Products (CTP), Brake & Friction (CBF), Interconnect Technologies (CIT), and FoodService Products (CFSP). It reported Q2 revenue growth from organic sales and acquisitions, with markedly higher operating profit and margins.
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Net sales | $984.6m | $870.8m | $1,873.9m | $1,564.4m |
| Gross profit / margin | $255.4m / 25.9% | $183.7m / 21.1% | $466.6m / 24.9% | $330.8m / 21.1% |
| EBIT / margin | $140.3m / 14.2% | $85.4m / 9.8% | $236.5m / 12.6% | $140.6m / 9.0% |
| Continuing income | $89.4m | $55.3m | $149.4m | $88.6m |
| Net income | $92.8m | $54.6m | $152.8m | $88.0m |
| Diluted EPS | $1.45 | $0.86 | $2.39 | $1.39 |
Financial position, cash flow and capital
- Six-month operating cash flow was $154.3m, versus $13.7m a year earlier. Investing used $84.1m, including $60.6m in capital expenditures and $49.3m net acquisition spending; financing used $68.3m. Cash increased $2.1m to $76.8m.
- At June 30, cash was $76.8m; current assets were $1,334.8m and current liabilities $708.9m. The company had $305m available under its $600m revolving facility and $45m available on an uncommitted line.
- Total debt was $699.5m, down from $762.4m at December 31, 2011; $195m was classified as short-term. Debt to capital was 30%. The company reported compliance with debt covenants.
- Receivables rose to $627.2m from $486.4m at year-end, while inventories were $549.6m versus $539.0m. Management reported average working capital at 21.8% of annualized sales for the first half, compared with 21.7% in 2011.
- Cash held outside the U.S. was $56.1m, including $16.6m in China; management said foreign cash was generally intended for foreign operations and repatriation could trigger U.S. taxes.
Material changes and segment performance
- Q2 sales rose 13.1%: 7.6% organic growth and 6.0% acquisition contribution; price and volume rose 4.8% and 2.5%, respectively. First-half sales rose 19.8%, including 14.0% organic growth and 6.1% from acquisitions.
- CCM Q2 sales were $470.0m and EBIT $85.5m; margins expanded to 18.2% from 13.2%, supported by pricing, efficiencies, and mix. CTP EBIT increased to $18.4m from $5.3m, with margin at 9.1% versus 2.7%, aided by operational recovery from prior-year plant start-up issues.
- CBF Q2 sales were $133.3m and EBIT $24.8m; margin improved to 18.6% from 16.3%. CIT sales rose 60% to $114.7m, largely reflecting Tri-Star and aerospace growth; EBIT was $17.4m, but margin declined to 15.2% from 16.3% amid input costs, mix, and staffing. CFSP sales were essentially flat at $63.3m and EBIT was $5.7m.
- Acquisitions included Hertalan, acquired in March 2012 for approximately $48.9m net of cash, and Tri-Star, acquired in December 2011. PDT was acquired in 2011; its Profiles business was sold in January 2012 for $22.1m with no gain or loss. Purchase-price allocations remained preliminary.
- Q2 and first-half discontinued-operations income included a $3.75m gain from settling contingent consideration tied to the 2010 sale of the specialty trailer business.
Outlook, commentary and risks
- Management expected full-year 2012 sales growth from organic growth and acquisitions combined to be in the mid-teens, and expected margin improvement over prior-year periods. It forecast a full-year effective tax rate of about 33%.
- For the remainder of 2012, management anticipated moderated demand due to slower emerging-market growth and weaker demand in some domestic markets, while aerospace growth was expected to remain strong. It cited raw-material costs, global conditions, and the pace of economic recovery as potential pressures on sales and earnings.
- Segment-specific concerns included possible softer agriculture demand from U.S. drought conditions, declining demand for metal commodities and emerging markets, defense-spending reductions affecting CIT, and CFSP’s uncertain ability to recover raw-material costs through pricing.
- Planned investment included approximately $140m of company-wide capital expenditures in 2012, including construction and expansion projects. CCM expected about $80m of capital expenditures; several roofing and insulation capacity projects were under way.
- Other matters include asbestos-related litigation (management did not expect remaining claims to have a material overall effect, but individual-period charges are possible), potential environmental liabilities, self-insured claims, and restructuring costs. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the original filing’s cover-page reporting-status checkboxes: the supplied text shows “No” marked for whether required Exchange Act reports were filed, an apparent item requiring verification.
- Track whether the mid-teens full-year sales outlook and anticipated margin improvement were achieved, especially as demand moderates and raw-material pricing changes.
- Assess cash conversion and receivables collection, given the substantial receivables increase and management’s expectation that operating cash flow is typically stronger in the second half.
- Review debt refinancing/rollover: the filing says $195m of revolving borrowings was payable in July 2012, with the company expecting to roll over $100m for more than one year.
- Monitor acquisition integration and final purchase-price allocations, including Hertalan and Tri-Star, and the potential for CTP goodwill impairment if its outlook deteriorates.