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Edited Transcript of CSL.N earnings conference call or presentation 21-Jul-20 9:00pm GMT

Q2 2020 Carlisle Companies Inc Earnings Call

CHARLOTTE Aug 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Carlisle Companies Inc earnings conference call or presentation Tuesday, July 21, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* D. Christian Koch

Carlisle Companies Incorporated - Chairman, President & CEO

* James Giannakouros

Carlisle Companies Incorporated - VP of IR and FP&A

* Robert M. Roche

Carlisle Companies Incorporated - VP & CFO

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Conference Call Participants

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* Adam Michael Baumgarten

Crédit Suisse AG, Research Division - Research Analyst

* Bryan Francis Blair

Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst

* Daniel Wang

Joh. Berenberg, Gossler & Co. KG, Research Division - Associate

* David Sutherland MacGregor

Longbow Research LLC - CEO, Director of Research & Senior Analyst

* Garik Simha Shmois

Loop Capital Markets LLC, Research Division - MD

* Joel Gifford Tiss

BMO Capital Markets Equity Research - MD & Senior Research Analyst

* Kevin William Hocevar

Northcoast Research Partners, LLC - VP & Equity Research Analyst

* Timothy Ronald Wojs

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Second Quarter 2020 Earnings Conference Call. (Operator Instructions)

I would like to turn the call over to Mr. Jim Giannakouros, Carlisle's Vice President of Investor Relations and Financial Planning and Analysis. Jim, please go ahead.

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James Giannakouros, Carlisle Companies Incorporated - VP of IR and FP&A [2]

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Thank you, Josh. Good afternoon, everyone, and welcome to Carlisle's Second Quarter 2020 Earnings Conference Call. We released our second-quarter financial results after the market closed today. And you can find both our press release and earnings call slide presentation on our website at www.carlisle.com in the Investor Relations section.

On the call with me today are Chris Koch, Chairman, President and Chief Executive Officer; and Bob Roche, our Chief Financial Officer. Today's call will begin with Chris discussing business trends and -- business trends experienced during the second quarter and provide context around our confidence in achieving Vision 2025. Bob will discuss Carlisle's second-quarter performance and current financial position. Following Chris and Bob's remarks, we will open up the line for questions.

Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements made during this call may be forward-looking and actual results may differ materially from our expectations due to a number of factors, including impacts from COVID-19.

A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on forms 10-K and 10-Q. Those considering investing in Carlisle should read these statements carefully and review reports we file with the SEC before making an investment decision.

With that, I turn over the call to Chris.

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [3]

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Thanks, Jim. Good afternoon, everyone. Please refer to Slides 3, 4 and 5 for these opening comments. I'd like to begin by saying how proud I am of Carlisle's global team and their perseverance and ability to execute in these uncertain times.

Carlisle's employees have rallied around each other, our customers and their communities by supporting critical infrastructure, continuing to operate our factories and distribution centers at a high level despite limitations borne out of adherence to rigorous global health and safety guidelines, all the while remaining supportive and positive contributors to their families and local communities. Their dedication to a safe work and home environment is commendable. As I mentioned in the press release, while overall infections in our global organization have remained low, we are saddened as we reflect on the loss of 3 Carlisle family members to the virus. Maria, Roy, Gilberto, they will be missed. And as with any loss at Carlisle, we are all affected, and we all wish their families the best as they grieve their loss.

I cannot leave this subject without also stating as I've done through my weekly correspondence with our global employees since the start of the pandemic, that the reality is that this virus is a serious threat to our health and our economy, and that our efforts to protect ourselves and each other must have the highest of priorities.

I'd like to now transition to the second-quarter results. As we review the results, I want to reiterate that Carlisle has been deeply impacted by the virus in many ways. But we are fortunate to have a strong and solid foundation as a company. Throughout the second quarter, our businesses remained in operation as they were deemed essential, which we view as evidence of the importance of our products and the employees who design and produce them. We took pride in keeping layoffs and reduced hours to a minimum, which helped provide the uninterrupted service to our customers that they have come to rely on and allowed us to continue our progress on key initiatives related to Vision 2025.

However, we did take actions that resulted in reductions to our global workforce in the quarter, most particularly in the United States. While the second quarter certainly was challenging, we are pleased with the resilience of the CCM business model, enabling Carlisle to weather a potentially prolonged economic downturn and allowing us to continue to invest in our high-growth platforms of architectural metals, polyurethanes, medical technologies and fluid technologies, which will enable us to emerge out of the pandemic with strong growth prospects.

We remain committed to emerging from the current market challenges in a strong financial position and able to leverage that financial position into future growth and earnings in our core businesses. Bob will provide more details later in the call, but I want to touch on some important areas of our current financial position. As of the end of the second quarter, we have $738 million of cash, coupled with an untapped $1 billion credit facility. We expect strong free cash flow in 2020 with a conversion rate greater than 125% and fully expect to increase our dividend in September for the 44th consecutive year.

Despite the unknown impacts and challenging dynamics of this current situation, I want to be direct in saying we remain absolutely committed to and focused on $15 in earnings per share as contemplated in Vision 2025.

Some of the things that reinforce our conviction in our ability to deliver Vision 2025 include the following: CCM is well positioned to exhibit resilience during this global market downturn. We still foresee a robust and growing reroofing market with positive trends continuing well through 2025, driven by the need for maintaining an aging U.S. roofing infrastructure. This distinction is important as most of CCM sales are driven by replacement demand, not new construction. We also anticipate benefiting from CCM's variable cost structure and lower input costs near term. Due to our size and scale, we believe we have the lowest cost structure in the industry, create the most value through our Carlisle experience and remain the disciplined price leader in the market.

CCM status as a best-in-class building envelope solution provider continues to be evidenced through price and market leadership, superior products and service, industry-leading innovation, a strong reroofing backdrop and an operating income profile approaching Vision 2025's targeted 20%. Over 60% of CCM's product is typically shipped directly to the job site and in the second quarter, this percentage increased.

As the industry came out of lockdown, the smaller window the contractors had to work with made the efficiency of the Carlisle experience that much more important. We reinforced our commitment to our customers of never failing to deliver the right product at the right place at the right time every time.

We remain very pleased with the progress we continue to make on our newer platforms of polyurethane and architectural metals within CCM. Within polyurethanes, spray foam continued to regain significant market share, helping to drive flat year-over-year revenue in the quarter despite the challenging conditions. Architectural metals revenue exceeded overall CCM average percentage sales declines in the quarter. Architectural metals continues to progress on post-acquisition profitability improvements, including significant integration initiatives.

Through June and into July at CCM, we continued to see improvement in daily sales volumes that began in May. Provided this trend continues, we anticipate third-quarter sales at CCM will decline high single digits year-over-year, significantly better than the 20% decline during the second quarter of 2020. As expected, CCM's operating income margins of 18.7% during a very challenging second quarter exemplified its profitability resilience and importantly, Carlisle's position in the market-driven by the valued Carlisle experience.

As for our interconnect business, coming into the year, 2020 was already forecasted to be significantly burdened by ongoing issues surrounding Boeing 737 MAX, in addition to lower production of other Boeing and Airbus platforms. The emergence of COVID-19 and its impact on airline travel had an almost immediate and substantial effect on both aircraft production and airline investment in existing fleets. In response, our CIT team initiated an acceleration of restructuring actions that will rightsize our manufacturing footprint, in line with expected demand over the next few years.

While CIT's commercial aerospace business, as expected, declined approximately 50% in the quarter, the team took actions to manage costs, which assisted greatly in delivering only a slight reported operating income loss for the overall division, despite restructuring costs incurred in the quarter. Ongoing actions to restructure and improve the efficiency of our manufacturing footprint over the past few years, combined with the accelerated actions we're currently taking position CIT well to suffer minimal losses in the remainder of 2020, despite restructuring costs and once-in-a-lifetime declines in aerospace end markets.

Despite aggressive action to maintain profitability, we continue to invest in new products, into talent and into our manufacturing operations to ensure we are maintaining our industry-leading position and are able to execute our customer expectations when production of aircraft resumes. We expect similar year-over-year revenue declines in CIT aerospace for the third quarter as experienced in the second quarter as inventory in the supply chain continues to be worked down and forecast for a recovery in global passenger travel remain muted.

Recently, some positive signs have emerged in the aerospace markets. While we all know that the aerospace markets have been significantly impacted by the pandemic, we do remain confident that over time, passengers will become comfortable with the safety measures airlines are implementing. And we're also encouraged by recent announcements of the progress towards the development of a COVID-19 vaccine, which once deployed, should accelerate a return to higher levels of air travel. Additionally, Boeing 737 MAX moved closer to FAA approval with the completion of certification flights on July 1, a key step in returning the aircraft to service.

We remain a supplier of choice, and we'll continue to invest in our assets that support the aerospace market. Despite the fact that the agreement with Prysmian to purchase their Fileca business expired in June, we remain committed to strategic acquisitions that broaden our product in geographic breadth and ultimately will benefit from a resumption of growth in both aircraft build rates and airline spending.

To offset commercial aerospace declines, we are seeking new opportunities with space and defense customers, positioning CIT to take advantage of opportunities created by market disruption. The largest offsetting driver at CIT is, however, clearly, its medical technologies platform. We entered the medical technology space several years ago through the acquisition of LHI, with the concept of leveraging our core wire and cable expertise into the MedTech markets. We added MicroConnex, RedGroup and Providien in the last 2 years, and MedTech remains a key area of focus for both organic investment and bolt-on acquisitions.

Organically, CIT medical technologies grew 15% year-over-year in the second quarter, driven by increased demand for COVID-19 related patient-monitoring equipment. Recently acquired Providien, which expanded our component and vertically integrated device solution capabilities and, along with that, new market adjacencies and customers, continue to perform well. In addition, product rationalization actions taken in legacy medical product lines in 2018 and '19, coupled with ongoing COS efforts have improved CIT medical technology margin profiles, which as anticipated, will help CIT's overall margin as contemplated in Vision 2025.

Our long-term bullishness on MedTech remains intact, and we see CIT's revenues trending towards a better balanced and more profitable mix.

Near term, while CIT medical technologies remains a positive offset to CIT aerospace weakness, we remain watchful of key MedTech demand drivers, such as hospital CapEx. Elective surgery and procedure deferrals continue, and particularly in the U.S., they continue. Taken together, we expect third-quarter revenue year-over-year declines for CIT overall to be of similar magnitude as reported in the second quarter.

Turning to CFT, the impact of COVID-19 in the second quarter exacerbated an already challenging end-market demand environment that had been impacted for the past several quarters by the U.S.-China trade negotiations and subsequent industrial production slowdowns. While year-over-year revenue declines of over 30% were greater than anticipated and weighed heavily on operating income results, CFT saw improvement each month throughout the second quarter as we continued our steady progress on the initiatives laid out in Vision 2025.

We remain committed to the margin-enhancing actions, including pricing, market share gains and new technology. Our new technology initiatives can be highlighted by the launch of our market differentiated premium solution for spray foam applications launched in the second quarter. We are pleased to begin the third quarter with an industry first, combining CFT spray foam equipment with CCM spray foam insulation polyurethane products.

We're also encouraged by the strategic acquisitions in sealant and adhesive we made in 2019 and the progress we're making to complete this product lineup. CFT also continues its focus on upgrading the customer experience through quality and delivery improvements in all our global locations.

Notably, we are beginning to see positive signs in CFT's end markets, particularly in Asia and are cautiously optimistic for an improved second half of 2020. We currently expect third-quarter revenues to decline roughly 20% year-over-year, an improvement versus second-quarter 2020 results. Coupling a stabilization in market demand with our internal initiatives, we will deliver significant leverage once volume returns.

Turning to CBF, the pandemic crisis extended the pressure CBF was already experiencing in the global off-highway vehicle markets, offsetting the significant actions taken in the past few years in this business, including the Tulsa and Medina plant consolidation and the launching of new products. An excellent example of CBF's investment in innovation is our recent obtaining of FAA parts manufacturer approvals, or PMAs, for carbon aircraft brakes.

The benefit of these actions, which position CBF to meet our revenue and profitability expectations in the future, are less visible given the current severe demand downturn, which drove sales down over 30% year-over-year in the second quarter. We anticipate CBF's third-quarter sales to improve over second quarter, declining mid-teens.

Moving away from our business segments, M&A remains a key pillar of Vision 2025, and we continue to evaluate opportunities to deploy capital into strategic and synergistic acquisitions across CCM, CIT and CFT. Our financial strength and cash flow generating capabilities afford us flexibility, and we intend to remain opportunistic. Notably, and as discussed in the past, when acquisition activity is subdued, we remain committed to returning capital to shareholders. This is evidenced by our deployment of more than $190 million in share repurchases in the first half of 2020.

And finally, we continue to focus on deployment of the Carlisle Operating System. COS will continue to be an essential tool for our businesses to rely on as they seek new opportunities to make our operations and business processes more efficient in this challenging environment. COS remained on track in the second quarter, generating savings and efficiency gains exceeding 1% of sales, well within our projected 1% to 2% plan for Vision 2025.

Bob will now provide operational and financial detail about our second quarter and review our balance sheet and cash flow. Bob?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [4]

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Thanks. As Chris mentioned earlier, we had a challenging revenue and earnings quarter, but I'm pleased with the resilience of our cash flow, the strength of our balance sheet and our liquidity position, with $738 million of cash on hand and $1 billion undrawn under our revolving credit facility.

As a reminder, late in the first quarter, we drew $500 million from our revolving credit facility due to the instability of the financial markets at that time. This was fully repaid in the second quarter as credit markets stabilized.

Please now turn to the revenue bridge on Slide 7 of the presentation. Revenue decreased 22.1% in the quarter to $1 billion. Organic revenue declined 23.8%. Acquisitions contributed 1.9% of sales growth for the quarter and FX was a 20 basis-point headwind.

Turning to our margin bridge on Slide 8, Q2 operating margin declined 470 basis points. Pricing and volume headwinds combined for minus 730 basis points. And acquisitions were a minus 90 basis points. Offsetting those, COS added 100 basis points; net restructuring and rationalization costs were additional 50 basis point headwind; freight, labor, raw material, other operating costs netted to a 300 basis-point improvement.

On Slide 9, as always, we have provided an EPS bridge. We reported second-quarter diluted EPS from continuing operations of $1.36, which compares to $2.65 last year. Volume, price and mix combined were $1.63 year-over-year decrease, while tax and interest combined for an $0.11 headwind. Restructuring was a $0.09 headwind, while COVID-related and acquisition-related costs were both $0.05 headwinds. Partially offsetting these, raw material, freight and labor costs netted to a $0.15 benefit; COS contributed $0.18; and lower operating expenses contributed $0.25.

While volume declines clearly represented the most significant headwind during the quarter, our teams around the world did a commendable job managing cost to help mitigate its impact on earnings.

Now let's turn to Slide 10 to review the second-quarter performance by segment in more detail. At CCM, revenues decreased 19.7%, acquisitions contributed 0.1% of the growth, organic revenue was 19.7%, while foreign currency translation was a 10 basis-point headwind. Operating margin at CCM was 18.7% in the quarter, a 120 basis-point decline over last year, driven by volume, partially offset by raw material savings in COS.

CCM executed well in delivering approximately $16 million of net price cost realization in the quarter. We now anticipate full-year net price cost realization of approximately $60 million for the full year 2020.

Please turn to Slide 11 where you see CIT's results. CIT revenue declined 25% in the second quarter. This decline was driven by the crisis in commercial aerospace markets, partially offset by a positive trend in our medical technologies platform. CIT's operating margin declined 1,540 basis points year-over-year to negative 0.8%, driven by commercial aerospace volume declines and accelerated restructuring actions. These were partially offset by savings from COS and price.

Turning to Slide 12, CFT sales declined 30.9% year-over-year, organic revenue declined 34.2%, and acquisitions added 4.3% in the quarter. CFT was still experiencing the lingering effects of Brexit, U.S.-China trade negotiations and automotive market declines, which is now exacerbated by COVID-19. Operating margins declined 1,610 basis points year-over-year to a negative 11.2% as significant volume declines and related deleverage were partially offset by lower SG&A and efficiencies from COS.

CBF's results are outlined on Slide 13. Organic revenue declined 31.1% due to an accelerated COVID-19 related decline in all regions made more acute by temporary plant closures in Europe and Asia. FX also had a negative 1.4% impact. Operating loss was $1.6 million in the quarter or a negative 2.7% operating margin, driven primarily by volume declines and higher restructuring costs.

On Slides 14 and 15, we show selected balance sheet metrics. Our balance sheet remains strong as we ended the quarter with $738 million of cash in hand and $1 billion of availability under our revolver credit line. We have deployed approximately $71 million in the second quarter, repurchasing 556,000 shares. We paid our second-quarter dividend totaling $28 million on June 1 and anticipate increasing our dividend in September for the 44th consecutive year.

We continue to approach capital deployment in a balanced and disciplined manner, investing in organic growth through capital expenditures, opportunistically repurchasing shares, while also actively seeking strategic and synergistic acquisitions.

Cash flow for the first 6 months of 2020 was a solid $177.8 million, and as a reminder, CCM typically generates stronger cash flow in the second half of the year. We expect overall Carlisle to generate free cash flow conversion in excess of 125% for the full year.

Turning to Slide 16, our outlook for 2020, Chris earlier gave third quarter revenue guidance referenced here. And as you can see, our items affecting comparability in corporate items. As we moved through the second quarter, we refined our restructuring plans and tightened our estimates around the future costs. Corporate expense is expected to be approximately $85 million for the year, slightly higher than our previous estimate, primarily due to higher transaction costs. We continue to expect depreciation and amortization to be approximately $230 million. For the full year, we continue to invest in our business and now expect capital expenditures of $100 million to $110 million. Net interest expense is expected to be approximately $75 million for the year, and we now expect our tax rate to be approximately 23%.

And with that, I will turn the call back over to Chris.

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [5]

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Thanks, Bob. At Carlisle, we remain committed to our Vision 2025 objectives, ultimately driving to $15 in earnings per share. The foundations of Vision 2025's success rest on driving organic growth with leverage, utilizing COS consistently to drive efficiencies, building scale with synergistic acquisitions, and over $3 billion in capital deployment. When coupled with our long-standing and defining management approach of combining continuous improvement, an entrepreneurial spirit and decentralization with an increasingly center-led framework, we create a unique culture, which assures that the day-to-day energy, focus and efforts of our employees are directed towards actions that drive results and support the key initiatives within the context of Vision 2025.

In closing, I want to again express my thanks to our dedicated employees, their families, our business partners and all those associated with Carlisle's success. Given our 100-year history and the resilience this company has shown in times of adversity and uncertainty, we remain confident in Carlisle's outlook, our strong financial foundation, cash-generating capabilities, unwavering commitment to our Vision 2025 strategic plan and to providing products and services essential to the world's needs.

This concludes our formal comments. Josh, we're now ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from Bryan Blair with Oppenheimer.

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Bryan Francis Blair, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [2]

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I was hoping you could provide a little more detail on CCM volume by month. We know April was tough, down over 30%. And then there was some recovery from there. So any numbers you could offer on May, June and July to date would be helpful.

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [3]

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Bryan, I wouldn't want to give any specifics, but definitely, it was worse in April and then improved straight through June and has improved into July as well.

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Bryan Francis Blair, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [4]

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Okay. So there is some momentum going into the third quarter?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [5]

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Definitely some momentum going into the third quarter.

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Bryan Francis Blair, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [6]

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Got it. And then on price cost, you've realized about $36 million for the first half. So -- updated guide implies about $24 million in the back half. How should we think about that cadence? Is it reasonable to assume most of that comes through in the third quarter?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [7]

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Yes. It's going to be more heavily weighted to the third quarter and then probably about 5, I'd say, in the fourth quarter as we're sitting here today.

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Bryan Francis Blair, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [8]

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Got it. Okay. And then, Chris, you mentioned confidence in your prepared remarks about the health of the reroofing cycle. If we take that as is and think about the growth prospects of your newer growth platforms, what kind of declines would there have to be in the smaller new construction revenue that you have in CCM to offset the drivers that will likely be there the next year or 2?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [9]

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Bryan, I am going to have to defer that one and get back to you. I'd hate to give you a number without significant thought into that. All our focus right now has really been focused on 2020 here and getting through and being happy with what we've seen. But let me get back to you on that one.

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Operator [10]

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Our next question comes from Tim Wojs with Baird.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [11]

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Maybe just -- I guess dovetail on the last question there, I mean, how are you thinking about just the underlying reroof dynamics in CCM, I guess has anything really changed your view? And I guess as you look at your contractor base and some of the backlogs, how would you kind of talk about reroof today versus maybe new construction and just the visibility to that as you go into 2021?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [12]

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Well, I think we start with the information, and I think Bob has been pretty good about providing relative to reroofing demand as we look at the roofing cycle, we look at the 20-year roof as typical and then we look at how that builds, certainly, through the end of this decade and a little bit into the next decade. I hate to look any further out in -- than that time period, that would be speculative. I think there will be some product developments that change things, obviously, as we get into the 30s.

I think if you look at the backlog, it's been relatively flat, maybe a little bit decline in the second quarter in contractor backlogs. But I think the work is still out there. And obviously, the delays that occurred in April and May requirements and the shutdown and all that worked only in the sense that it just added to the back. We still have the same amount of roofs. They still have to be done. They just keep getting prolonged. And hopefully, we can get through those.

I think on the new construction side, you'll see some variability. There's been a lot of talk across the country about different working habits, more working from home. We know that suburban environments provide better opportunities for flat roof constructions than, let's say, Downtown Manhattan. So I think it's a little bit early to tell on the new construction side and what's going to happen.

Obviously, that's impacted as it can be deferred, and new construction can be challenged. It has to go through the CapEx process, where I think on the reroofing side, as we've said, in many cases even -- I'll give you the example of old Kmarts or Sears or buildings like that, that are being repurposed, the roof still has to be done. So I think we're just still on the same track we were on for reroofing. We're still bullish on reroofing. Obviously, COVID in the second quarter impacted us. That'll linger into Q3, but we don't see any reduction in our backlog of reroofing projects as we go through into 2021 and 2022 and on from there.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [13]

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Okay. And I guess if you guys had to guess, how much do you think destock cost you in the quarter?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [14]

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It was significant, Bob can probably give you a better answer for that than me. But what I would say is it was significant, and I think that was -- people were pretty public about not wanting to load up, and that really, we would have started that right at end of March, and we carried through, and it was impactful. Bob, any thoughts on that?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [15]

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Yes. I mean, we're down 20% overall, Tim. So you can think maybe 5% of that could have been destocking from the data we're seeing. But it's hard to judge because you don't know what that would have been sold through the end customers in the time we sold. As Chris mentioned on the call, we shipped more direct this quarter than we did last quarter -- or last year this quarter. So it's really hard for us to quantify that exactly.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [16]

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Okay. Okay, I got you. And then I guess on the cost savings, so let's, sort of, have just the cost savings, the $35 million to $45 million of charges this year, what would you think the cost savings or the annualized cost savings would be around those charges? So you get the charges back to some extent next year, and what would be kind of the associated cost savings with that?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [17]

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Yes, Tim, the big issue there is a lot of this is not infrastructure-related. It's not like the Medina -- it's all sort of Medina move where you're taking out fixed cost. The quick stuff we did, I mean, we did take out 1 factory in CIT, but a lot of it is reducing capacity and capability with the massive reduction in aerospace and in our other plants. So it will be down as long as it will go on. But as soon as volumes come back, we're going to have to add some of these costs back.

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Operator [18]

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Your next question comes from Adam Baumgarten with Crédit Suisse.

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Adam Michael Baumgarten, Crédit Suisse AG, Research Division - Research Analyst [19]

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Just on the net price, or net raw benefit, that obviously contemplates price. Is the outlook today worked for price along within that, just more qualitatively better than it was when you last guided in April, given volume outlook's a little bit better and just oil is up a ton?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [20]

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Yes, Adam, I mean, I think our outlook on prices is -- and cost is obviously weighted to where we are in the cycle, right? We had a point a quarter ago where oil was down to, I don't know, I think it was $15 a barrel. It's gone up since then. So we're feeling more confident in the cost side. But we also don't know how much further that's going to run. And those who've followed us for a long time know, we're usually conservative on the out 2 quarters of cost because these things have a tendency to spike pretty quickly if they do spike.

And on the price side, price is -- we're maintaining price for the first half of the year, essentially flat. And in the second half, price is all going to be tied to volumes. So if we're able to maintain volumes and have volumes flat or growing, we feel we can maintain our price. If things get tough and volumes remain down, people will be chasing some share, and we'll going to have to play along a little bit. So we're trying to balance those 2 together of what's going on on one side with the other, and they aren't mutually exclusive.

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Adam Michael Baumgarten, Crédit Suisse AG, Research Division - Research Analyst [21]

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I guess then just secondly, just back to the contractor backlogs, anything that's jumping out, whether it's regionally or even by commercial vertical at this point? Or is it all pretty consistent, what you're seeing?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [22]

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No. There's been some deviation between some of the verticals. I think we've seen some pretty consistent and maybe even a little bit of acceleration around educational spending. Some of the retail has been down. Obviously, we -- everyone understands the impacts there and what's happening. So I think on the Dodge reports, in that, you would see that kind of thing. Again, within most of our business on the reroofing side, it's -- again, it's spread across those verticals, and we don't see that same impact because, again, you've got to fix that roof or replace it when it occurs. But I think on the new construction side, you would see some differences in the verticals.

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Operator [23]

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Your next question comes from Garik Shmois with Loop Capital Markets.

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Garik Simha Shmois, Loop Capital Markets LLC, Research Division - MD [24]

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Just wanted to follow-up on the destocking question. Do you think that restocking is going to normalize here by the end of the third quarter? Or do you think that maybe this shift to direct-to-jobs-site shipping could end up being a permanent phenomenon?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [25]

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Well, I'll take the first one. I don't think it's going to be a permanent phenomenon. We are set up to do that. We do it because of the size of the jobs and the packaging of the material and the efficiency to deliver it, but our distributors play a very key role in a lot of the business that we do that's smaller, stuff they can store on site. And I do think we will see some resumption of restocking as confidence returns in -- and some normality. I mean, I think the thing that -- on that side, that really hurts you is if you're a distributor, you don't want to all of a sudden get a mandate that we're not doing construction anymore, or there are some restrictions, people can't come into your distributorship or that. And then you're sitting on inventory that's costing you dollars and you're not moving it.

So I do think as things stabilize, we'll see some restocking there. I don't think we'll see the big restocking we would have seen pre the season. I think we've dealt with that and getting into the third quarter, we're done with that. So on the first question, Bob, do you want to handle that?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [26]

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Garik, maybe you can rephrase your first question again.

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Garik Simha Shmois, Loop Capital Markets LLC, Research Division - MD [27]

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No, I think you answered it. I mean, it wasn't really a question. I guess, 1 question, 2 parts, just around the timing of any restock and if the phenomenon is going to be sustainable long term. So I'm good there.

Second question is just on any regional trends that stood out in the quarter in CCM. You had some of the shutdowns in the Northeast impacted April. Did you see those markets come back? And then I guess, conversely, as we've gotten into late June and July with the virus spreading more in the South, is there any change to demand in some of those regions that are newly impacted by the virus?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [28]

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I think it's a little bit early to be picking up any real significant changes in these new hot areas, Florida, Texas and Arizona and that. I mean, those have been good states for us. Texas, always been good, Florida is good. In the first part of this crisis, the City of Boston was shut down. That impacted things. We had New York shut down. We had Pennsylvania shut down. We had Washington shut down. Those states were obviously affected. I think Pennsylvania had some retrenchment last week around further restrictions. I'm not sure they extended into the construction industry in terms of shutting down job sites, but they did impact our employees at our Carlisle facilities within Pennsylvania. So there were a few states that were more heavily impacted, and I think I stated who those are. And then I think we'll have to watch and see what happens.

I can tell you that the contractors that I've talked to have done a really good job of implementing CDC guidelines at the workplace. You're finding hand sanitizers on the job site, specific mask-wearing if they're not wearing them already for the jobs they're doing, social distancing. And it has put a little bit of a damper on the work and the efficiency there. But I think the contractors and distributors are doing a lot, too, at their locations to make sure that we don't shut down again, and we could keep that revenue flow and get these jobs done and keep people employed.

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Garik Simha Shmois, Loop Capital Markets LLC, Research Division - MD [29]

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Okay. And just last question, just on CIT. It looks like just from a sequential standpoint, you're looking for relatively flat revenues in the third quarter compared to the second quarter. I was wondering if you're looking out into the end of the year, would you expect any sort of sequential improvement in CIT as you kind of look out in your order book at this point?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [30]

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I don't think so. I think like you, we're looking out in the future. We hear a lot of different forecasts, everything from things coming back in 2022 to -- I saw something on TV the other day, no one will ever fly again now that they can do a Zoom meeting. So somewhere between the 2, we're probably -- or there's some version of the truth out there that hasn't really unfolded. I know Airbus did not have any new orders in June or so far in July. I think Boeing is struggling with the 737 MAX issues to get that up, we did see some issues around the 787. I would -- I think it would be overly optimistic to think anything great is going to occur in the fourth quarter. So I think we'll probably just be looking at more of the same through the end of the year.

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Operator [31]

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Your next question comes from Kevin Hocevar with Northcoast Research.

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Kevin William Hocevar, Northcoast Research Partners, LLC - VP & Equity Research Analyst [32]

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Curious on -- I was impressed with pricing remaining flattish in CCM is pretty impressive, given the volume declines that we've seen in the period and, similarly, the expectation that we're going to continue to see volume declines at least into the third quarter. So what do you attribute that to? Just curious your thoughts on the ability to hold price in that environment.

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [33]

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Yes. I mean -- and Kevin, I go right back to the Carlisle experience, the team at Carlisle, and what a great job they do around making sure people understand the value that Carlisle is providing. I mean that's really what it comes down to, our teams. And I was on a weekly Zoom call with our sales leaders. And I can tell you that they're not selling a commodity. They're not selling a product that is out there and everybody else has the same thing. Products are similar, but our service levels, our commitment to the contractors, the systems we've put in place, the ability to solve difficult problems.

Some of our new products are creating a lot of excitement around CAV-GRIP II, our APEEL systems, things like that, that really are differentiators out with our contractors and distributors. And I think I just -- that we keep summing up in the Carlisle experience. That's what people, once they get on board and they start working with CCM, they see and they want that, and they don't want crews standing around waiting for shipments to arrive. They don't want product that fails in the field. They don't want to be short shipped. And our team is able to successfully quantify that value for them and show them why it is better for their businesses to pay a little bit more for CCM to save costs in other areas later.

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Kevin William Hocevar, Northcoast Research Partners, LLC - VP & Equity Research Analyst [34]

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And then I think in the prepared remarks and definitely in the press release, you talked about many roofing participants sounding like maybe they took a little bit harsher actions during the downturn, which might have created an opportunity for you guys to show your value and everything. So does that lead to -- are you -- do you believe that you're gaining share -- more share, I guess, as a result of maybe some of those actions that you've taken, at least in the second quarter? Or just curious of your thoughts.

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [35]

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No, I think that we -- the pricing we held onto, we did walk away from a few jobs. I mean, there are a lot of people that threw some prices out there that I -- were just unacceptable and didn't adequately capture the value we provide. I think what will be interesting to see is if the actions taken in the second quarter cause any material shortages as we move into Q3 and into Q4. Remember, if we couple the destocking efforts with other cost-savings measures, those wouldn't have shown up in the second quarter. Those will typically show up as people work through their jobs. And obviously, we highlighted that we've been putting in inventory, and we're still working and we're there to support the contractors and distributors.

So we'll see how that unfolds in the third quarter. If people were too aggressive and there is a shortage of their products, obviously we'll be able to step in and fill that void. And at that point, then we probably gain some share, and we're prepared to do that. But right now, I haven't seen any of that.

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Kevin William Hocevar, Northcoast Research Partners, LLC - VP & Equity Research Analyst [36]

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Okay. Got you. And last one for me, just given the environment, sticking with CCM, are you noticing any customers doing more like patch and repair work or something where they can kick the can down the road a couple of years before needing to replace it? Or are you not seeing that? Just curious if you're seeing that at all?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [37]

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Yes, I mean, my limited exposure here would tell me that the only reason they would be doing a patch and repair rather than a full replacement if it was needed, was only because they weren't able to have access to the building for very long because of restrictions, let's say in Boston or something, you could only do an emergency or that. But I mean, the contractors we're dealing with are the -- they're the best in the industry. They follow the best practices. I mean, nobody is going to go up and do a patch and repair when a full replacement is needed. They're just not going to do that. So if we did see any of that, it was really, I think, just to get them through the restrictions that were there. And then people that we associate with and sell Carlisle and work with Carlisle, only do good jobs. And so I don't think you'd see any short shrifting on a job or trying to get by for a couple of years. They're just going to do the right job for the customer.

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Operator [38]

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Your next question comes from David MacGregor with Longbow Research.

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David Sutherland MacGregor, Longbow Research LLC - CEO, Director of Research & Senior Analyst [39]

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To what extent do you feel that any of your products, I'm thinking like maybe the TPO or that group, but any of these products could benefit from an energy reform agenda or legislation if Biden wins the election this fall? And what would increased energy efficiency standards mean for your -- commercial roofing and your business?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [40]

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Well, I'll tell you what, I don't know about Biden being elected, and I don't know what he would do for our business. But what I can tell you is if we look back, you can see the growth in our polyiso insulation that was related to 2 things: One was local building-code reform, where people understood that doing the simple thing of adding another layer of polyiso insulation dramatically affected the energy savings in those buildings. And so we saw that run through the United States, I'm going to say, starting maybe 6, 7 years ago, it was codified in a lot of areas. It continues to be -- it has become kind of standard industry practice. And if you look at our polyiso sales over the last 7 years, polyiso has corresponded nicely to that. And so we think that's one of the good stories around energy efficiency savings and the Carlisle experience and really putting together systems that could benefit from that.

We've also sold a lot of, what we call green roofs, where we have people planting kind of different things and putting ponds and things on roofs with our membranes and creating a more, I'd say, sustainable and environmentally friendly roof. So I think whatever administration's there, I know our customers are looking for different ways to reduce energy expense, to create a more green environment. And I think a lot of that has gained so much momentum that I don't know that you need a political agenda to do that. People are doing it because it's the right thing to do, and it saves them money in the long term.

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David Sutherland MacGregor, Longbow Research LLC - CEO, Director of Research & Senior Analyst [41]

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Okay. And then secondly, is there any way you could just comment on what you're seeing in terms of bidding patterns right now? And just, I guess, to a question asked earlier on the call, is there any way to quantify the volume of business that you think is maybe being pushed out to 2021. I'm guessing your sales guys are coming back and saying that project is going to be done, but it's going to be done next year rather than this year. And I'm just wondering if there's any way to put a magnitude or to quantify the extent of that push-out?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [42]

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I guess, and Bob can jump in on this, give him a minute to think about it. But I think from my perspective, it goes back to that idea that we look out, and I think probably Bob showed you his chart on roofs that are coming due after 20 years of life. And I think we would just say anything that wasn't done this year that fit our 70% to 80% reroofing is going to be done next year. And so I don't think there's anything that's lost there. I think that'll move forward into next year.

I think the biggest question, again, is are we going to be facing a different work environment that's more difficult for contractors to operate, it's more difficult for them to be efficient? And if that happens, then that actually, obviously, it will have an impact on how many of those projects we can get caught up in. But I think pretty much for our reroofing, it just carries over as we've seen in many situations with winters. When we have a tough winter, we pick it up the next year, or it gets added to backlog. Bob, do you want to add anything?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [43]

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No, I think that's exactly it, Chris. And with the second quarter being down 20%, we expect that to get kicked out, as Chris said, into a future quarter within the near term. Also, the other thing we didn't talk about is, the ability to get jobs done is built around the ability to get permits and the fact that people aren't in offices sometimes today. So that's having a little effect on delaying as well as the restrictions on the roof. So -- and we expect that to come back as we get to the end of the year.

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Operator [44]

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Your next question comes from Joel Tiss with BMO Capital Markets.

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Joel Gifford Tiss, BMO Capital Markets Equity Research - MD & Senior Research Analyst [45]

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I wonder if you can just talk -- any sense that you can give us between the structural cost savings that you guys are working on for 2020 versus more just, reactive is not the right word but sort of adjusting to the current environment?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [46]

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The large restructuring is being directed towards CIT and largely the aerospace environment as we sit here today. I mean there was some at CCM, some at corporate, some at the other businesses, but they're smaller in magnitude. And most of those are of the what, to use your word "reactionary," to bring infrastructure down with demand.

On CIT, we did close one factory early in the quarter, which is a structural cost change, but a lot of it, I would say, 75% of the cost reductions at CIT even are just bringing workforce, both direct and indirect down with the volumes we're seeing across the aerospace business. So not a lot of structural change right now.

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Joel Gifford Tiss, BMO Capital Markets Equity Research - MD & Senior Research Analyst [47]

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Okay. And then do you think that the $2 billion, roughly, capacity you guys have for acquisitions plus whatever kind of recovery we have is enough to get in the ballpark of your $8 billion of 2025 revenue goals?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [48]

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For sure.

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [49]

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Yes, absolutely.

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Operator [50]

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Your next question comes from Daniel Wang with Berenberg Capital.

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Daniel Wang, Joh. Berenberg, Gossler & Co. KG, Research Division - Associate [51]

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I just have a quick question on the Q2 operating cash flow. Pretty sizable improvement versus last year, obviously off a lower net income base. I was just wondering what primarily drove this? Perhaps some of it was a reversal of working capital headwinds experienced in Q1. But is there anything else worth highlighting?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [52]

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Yes, a lot of it's good working capital, Daniel. As sales reduced, our teams did a good job of reducing inventory, collecting receivables. The one thing I, as a CFO, was really impressed with throughout this quarter in this tough environment that our receivable days did not increase. So that means our receivable balances came down and the teams did a good job of managing inventory. While inventory is hard to take out quickly, we did a good job of managing it and pushing out as much as we can. So a lot of it's working capital-related you'll see also that on the CapEx, we continue to invest in CapEx. We're not starving the business. We're looking to invest for the future. So it's working capital that we're able to manage.

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Daniel Wang, Joh. Berenberg, Gossler & Co. KG, Research Division - Associate [53]

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Perfect. And just 1 follow-on. You might have briefly alluded to this already, but just any updates on the current M&A environment? Has activity in the pipeline improved since the end of last quarter? Are we still seeing, I suppose, sellers hesitant to monetize assets?

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [54]

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Yes, there's a bit of a delay, I think. In the second quarter, pretty much everybody was focused on the existential threat that appeared in April. And I think then we've seen some changes. We're seeing a little bit of deal flow come back. Certainly, there are some assets that are out there. But I think the big thing for us is, again, we've always tried to be very judicious in our use of funds and how much we pay and making sure that we can get the -- our hurdles to be covered and our cost of capital and that. And so I think right now, when you look at the uncertainty going forward, it makes it more difficult to get a value that both the seller and buyer can kind of reach and agree, and I think it's reasonable for both, let's say.

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Operator [55]

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There are no further questions at this time. I'll turn the call back to management for any closing remarks.

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D. Christian Koch, Carlisle Companies Incorporated - Chairman, President & CEO [56]

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Well, thanks, Josh. Thanks to everyone. This concludes our second-quarter 2020 earnings call. We want to, again, thank you for your participation, your interest in Carlisle. I hope everybody stays healthy, and we look forward to speaking with you at the third-quarter call. Thank you.

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Operator [57]

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This concludes today's conference call. Thank you for joining. You may now disconnect.