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Carlisle (CSL) Hit by Escalating Costs and CFT Challenges

Zacks Equity Research

Carlisle Companies Incorporated CSL continues to struggle with the headwinds that have marred its operational performance over the past few months. We expect challenges within its Carlisle Fluid Technologies (“CFT”) segment, among other factors, to continue hindering the company’s growth.

In the past month, Carlisle’s shares have lost 1.3% against the industry’s growth of 3.6%.

Read on to find the major factors affecting this Zacks Rank #4 (Sell) company.

Factors at Play

Carlisle is experiencing softness in the CFT segment.In the third quarter of 2019, its sales declined 5.4% year over year due to difficult global automotive market conditions, challenging market conditions in China as well as capital project delays with both automotive and industrial customers in North America. Notably, it expects CFT sales to be down in the low-to-mid single digit range for 2019 (results are awaited).

Also, escalating costs and expenses are a major concern for the company. In the third quarter, its total cost of goods sold increased 3.8% from the prior-year quarter. In addition, selling and administrative expenses jumped 6.2%. Further, in the quarter, the company's R&D expenditures increased 23.6%. As a matter of fact, increase in costs and expenses (on account of raw material and freight cost inflation and others) might continue to dent profits and result in margin contraction in the upcoming quarters.

Moreover, the company’s long-term debt balance at the end of the third quarter was approximately $1,590.2 million. Notably, this balance was higher than the 2018-end level figure. We believe, if unchecked, high debt levels can increase the company's financial obligations and prove detrimental to its profitability.

In addition, given its strong international presence, Carlisle's business is exposed to the financial and credit markets, including interest rate and currency exchange rate fluctuations as well as economic conditions where it operates. For instance, foreign exchange headwinds had an adverse impact of 0.4% on the company’s sales in the third quarter.

In addition, analysts have become increasingly bearish about the company over the past 60 days. Its earnings estimates for 2019 have decreased from $8.23 to $8.00 on account of three downward estimate revisions versus none upward. In addition, the Zacks Consensus Estimate for 2020 has gone down from $9.15 to $9.05.

Stocks to Consider

Some better-ranked stocks are Berry Global Group, Inc. BERY, Crane Co. CR and Hitachi Ltd. HTHIY. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Berry Global delivered positive earnings surprise of 0.70%, on average, in the trailing four quarters.

Crane pulled off positive earnings surprise of 0.77%, on average, in the trailing four quarters.

Hitachi delivered earnings surprise of 96.61%, on average, in the trailing four quarters.

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