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Edited Transcript of CSL earnings conference call or presentation 23-Jul-19 9:00pm GMT

Q2 2019 Carlisle Companies Inc Earnings Call

CHARLOTTE Jul 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Carlisle Companies Inc earnings conference call or presentation Tuesday, July 23, 2019 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 - CEO, President & Director

* 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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* Bryan Francis Blair

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

* Garik Simha Shmois

Longbow Research LLC - Senior Research Analyst

* Kevin William Hocevar

Northcoast Research Partners, LLC - VP & Equity Research Analyst

* Neil Andrew Frohnapple

The Buckingham Research Group Incorporated - 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 Chantelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Second Quarter 2019 Earnings Conference Call. (Operator Instructions) I would like to turn the call over to Mr. Jim Giannakouros, Vice President of Investor Relations and FP&A. 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, Chantelle. Good afternoon, everyone, and welcome to Carlisle's Second Quarter 2019 Earnings Conference Call. We released our second quarter financial results after the market close 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.

Discussing the results and our updated outlook today are Chris Koch, President and Chief Executive Officer; and Bob Roche, our Chief Financial Officer. Today's call will begin with Chris discussing our progress towards Vision 2025 and business trends experienced during the second quarter. Bob will discuss Carlisle's second quarter financial performance. 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 risk factors. 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 an investment in Carlisle should read these statements carefully, along with reviewing the reports we file with the SEC before making an investment decision.

With that, I will turn the call over to Chris.

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

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Thanks, Jim. Good afternoon, everyone. Please turn to Slide 3 of the presentation. I'm pleased to report Carlisle had a record second quarter and made significant headway toward our Vision 2025 goals of $8 billion in revenues, 20% operating income and 15% ROIC, all driving to $15 of earnings per share in 2025. To reach these goals, we remain focused on driving 5% organic growth with operational leverage, utilizing the Carlisle Operating System and driving a continuous improvement culture, building scale with synergistic acquisitions, continuing to invest in exceptional talent and deploying over $3 billion into capital expenditures, share repurchases and dividends.

We launched Vision 2025 in the first quarter of 2017, and we are excited about our progress thus far, particularly in our 2 largest segments, CCM and CIT, that together account for approximately 90% of our total segment operating income.

CCM's status as a best-in-class building products supplier continues to be exhibited through its price leadership, sustainable mid-single-digit organic growth, supported by a multiyear commercial reroofing cycle and a margin profile we believe is sustainable.

Carlisle Construction Materials continues to leverage its strong brand and its expansion throughout the building envelope, which could not be done without delivering the premium Carlisle experience that our contractors and distributor partners have come to rely on.

Looking back on CIT's history, we weathered a transition in technology within in-flight entertainment solutions in 2017, but have come out of it well focused on driving the margins in excess of 20%. The team has restructured several operations over the past few years and is tracking well in its 2019 facility consolidation efforts. Our engineering expertise, brand, strong relationships with OEMs and increased focus on a more profitable mix of business has elevated margins, and we are solidly on pace to deliver mid-teens this year.

Our long-term tailwinds in aerospace build rates, coupled with our increasing content per plane, is driving sustainable growth. We are in the early innings of building out a medical platform that has strong growth and profitability characteristics.

Carlisle Medical Technologies is currently transitioning from a manufacturer of medical wire and cables to a turnkey supplier of medical devices to the world's leading OEMs. We continue to expand our capabilities around the design, development and manufacturing of increasingly complex medical devices and components.

Turning to Fluid Technologies. We were attracted to this platform based on the market dynamics and profitability characteristics of the competitors in this space. We continue to believe CFT represents a long-term growth platform of 20%-plus operating margins. We are still in the early stages of building out this platform but are generating significant activity and results. While we have reached the end of our initial restructuring activities, we continue to drive efficiencies and are now focused on growth, both by increasing our R&D efforts and on acquisitions that broaden our product suite across several end markets, namely liquid and powder finishing and sealants and adhesives. We're excited about the recent acquisitions we have made, and I'll get into those a little later in the call.

Our free cash flow and strong balance sheet affords us both strategic and financial flexibility. When we introduced Vision 2025, we envisioned a balanced approach of organic growth investments, acquisitions and returning capital to the shareholders. Over the last 2.5 years, we have been opportunistic and have repurchased close to $1 billion of shares, the total level we initially contemplated in our Vision 2025 plan. Going forward, our approach will remain balanced, yet opportunistic, with driving $15 of EPS by 2025 the key focus of our vision.

Now let me get into some specifics on our second quarter results. In the second quarter, we drove 6.4% revenue growth, totaling a record $1.3 billion of sales, our 25th consecutive quarter of year-over-year growth. We generated $207 million of operating income, a 30% increase over prior year, which led to record diluted EPS of $2.65, up 42% year-over-year, confirming that we are making the right investments in our factories, in our people and in the Carlisle Operating System.

Second quarter results were driven by strong execution, solid demand at CCM and CIT, price discipline across all 4 segments and efficiencies gained from COS. We continue to see a healthy backdrop in demand for both new construction and replacement products across the building envelope, while robust commercial aircraft build rates continue at CIT.

Combined with price/cost dynamics and efficiencies gained from prior year restructuring efforts, we leveraged these positives into solid incremental margins. Our restructuring and integration efforts at CCM, CIT and CBF are on track this year as evidenced by their second quarter margin improvements. And notably, at the beginning of 2019, we had projected $40 million to $50 million of price/cost benefit at CCM in 2019, and I'm pleased that we have already achieved that milestone.

On the leadership front, we appointed Nick Shears to the role of President of CCM in May and appreciate the immediate and positive impact his leadership has brought to CCM during the last 3 quarters. Nick brings experience, skills and knowledge to the Carlisle executive team, and we look forward to the contributions he will make as we execute Vision 2025.

Free cash flow in the second quarter was $70 million, leaving us with an ending cash position of $422 million, which, in addition to our strong balance sheet and available $1 billion of untapped credit on our revolving facility, continues to afford us financial flexibility and strategic optionality. We continue to approach capital deployment in a balanced and disciplined manner, opportunistically buying back shares and seeking well-priced and strategic acquisitions.

In the second quarter, we continued our share repurchases, utilizing $75 million to buy 550,000 shares. We also paid $22.9 million in dividends. Since the beginning of 2017, we have returned approximately $1.2 billion to shareholders in the form of share repurchases and dividends. This is currently laid out in our M&A strategy under Vision 2025, in which we seek to deploy $3 billion. We were active in the second quarter in our core platforms of the building envelope, Medical Technologies and Fluid Technologies. We announced the acquisitions of MicroConnex within CIT, Hosco, Integrated Dispense Solutions and Shinhang within CFT.

MicroConnex adds key sensor and micro-flex circuit technology to our Medical Technologies platform at CIT. We continue to pursue acquisitions to build out CIT's Medical Technologies capabilities to deliver a more complete set of integrated solutions to major medical OEMs.

The Hosco, IDS acquisition enabled us to leverage their innovative products for high-viscosity dispensing and advanced fluid control in automotive, aerospace and industrial markets. The acquisition of Shinhang, headquartered in Seoul, Korea, complements Hosco, IDS by adding strategic capabilities in Asia, expertise and technical diversity in sealing systems, pumps, spray guns and paint circulation systems. All 3 of these acquisitions come with strong brands, built on years of excellent service to customers.

To add further capabilities to the CFT sealant and adhesives platform in July, we announced the acquisition of Ecco Finishing based in Sweden, a manufacturer of low- and high-pressure industrial painting equipment and ceiling applicators. Ecco's innovative 3D sealant gun is well known and market-leading technology and will be a great addition to CFT's growing portfolio of sealants and adhesives application equipment.

I would also like to note that Petersen Aluminum Corporation, acquired earlier this year, is sitting in very well within CCM's architectural metal platform and is an excellent complement to our 2017 and 2018 acquisitions of Drexel Metals, Sunlast Metal and Premium Panels, where sales, profitability and integration efforts are tracking to expectations.

Our M&A pipeline continues to be active, and while asset prices are reflecting historically high levels, we are finding and executing solid bolt-on deals that make financial and strategic sense and create value for our shareholders.

Turning to Slide 4. We achieved record second quarter revenues of $1.3 billion, a 6.4% increase over 2018. This was driven by 2.3% organic growth, including 1.5% price realization and 4.7% from acquisitions, with foreign exchange translation a headwind during the quarter.

Our operating income in the second quarter grew approximately 30% to $207 million, driving record second quarter diluted EPS of $2.65, which includes $0.06 of restructuring, facility rationalization and acquisition-related costs. CCM revenues grew 10.4% year-over-year, close to 5% of that organic growth, reflecting continued strong underlying demand, 50% year-over-year growth from new product sales and the addition of Petersen Aluminum earlier in the year. We continue to see a solid backlog and sustained new construction demand in North America and the expected flow of reroofing projects.

This performance yet again demonstrates CCM's market leadership and resilience in the face of significantly wetter-than-average weather conditions experienced throughout the United States in the second quarter. With roofing labor markets remaining extremely tight, weather-related delays are adding to an already full backlog of contractors, leading us to believe that positive market dynamics will continue into 2020.

In addition to strong demand, the CCM business delivered excellent operating income growth, approximately 29% in the quarter, achieving 20% operating margins. This performance was driven by nearly $50 million of price and roughly the same in raw material cost benefits. Notably, we accomplished this while maintaining share in the marketplace and facing weather-related headwinds in North America.

At CIT, revenue grew 3.2% in the second quarter, reflecting robust content growth at aerospace customers and continued progress in building our Medical Technologies platform. With the exception of the Boeing 737 MAX 8 and the issues that are very well-known to the market, build rates remain strong across major aerospace models, providing a healthy backdrop for our largest platform within CIT.

Within Medical Technologies platform, we are excited about the MicroConnex acquisition announced earlier in the second quarter and are actively seeking acquisitions for further expansion of this platform. MicroConnex fits our well-established medical strategy and adds key sensor micro-flex technology to our Medical Technologies platform. When coupled with our 2018 acquisition of redgroup, a Minneapolis-based provider of medical engineering solutions, MicroConnex further positions CIT to participate earlier in the design and development activities at major medical OEMs.

CIT had strong operating leverage in the quarter, increasing margins 300 basis points year-over-year to 14.6%, which includes $2.4 million of investment in restructuring and acquisition costs.

CBF again had a difficult comparison in the second quarter to that of 2018, where, as you may recall, sales increased over 17%. Demand across our key markets of construction and agriculture remained subdued relative to our expectations coming into 2019. And as a result, CBF revenue declined 9.7% year-over-year. More importantly in our view, CBF is seeing the benefits of its significant restructuring efforts around the closure of our Tulsa, Oklahoma manufacturing facility and integration into the Medina, Ohio facility. Despite pressured volumes, we are pleased that lower restructuring activity, price recovery and COS-driven efficiencies delivered 650 basis points of improvement in operating margin to 9.5%, in line with our expectations for margin improvement in 2019.

CFT sales decline of 8.2% year-over-year was a reflection of difficult global automotive conditions, overall market dynamics in China and an impactful capital projects delay with both automotive and industrial customers in North America. Despite these headwinds, CFT continues to progress on actions that align with the Vision 2025 plans including maintaining price discipline, increasing R&D efforts and spend and enhancing our breadth of product portfolio through new product launches and acquisitions.

CFT's operating margin was dramatically impacted by lower volumes primarily from China and global automotive and Tier 1 accounts. We remain hopeful that the U.S.-China trade negotiations will make progress towards resolution in the near term, and there will be some decrease to the current level of uncertainty that has delayed capital investment and spending.

Bob will now provide further detail about our second quarter financial performance 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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Thank you, Chris. Please turn to the revenue bridge on Slide 5 of the presentation. As Chris mentioned earlier, we are pleased with our overall second quarter revenue performance. Organic growth was 2.3% in the quarter driven by strong results in our nonresidential roofing, commercial aero and defense and space markets. Acquisitions contributed 4.7% of sales growth for the quarter, and FX was a 60 basis point headwind.

Turning to our margin bridge on Slide 6. Q2 operating margin expanded 290 basis points. Positive pricing and volume leverage combined for 140 basis points of the year-over-year improvement. COS added 120 basis points. Freight, labor and raw material costs netted to a 50 basis point improvement. And net restructuring rationalization costs were an additional 40 basis point headwind. Partially offsetting these positives, acquisitions were a 60 basis point headwind.

On Slide 7, we have provided an EPS bridge. As Chris mentioned earlier, we reported record second quarter diluted EPS from continuing operations of $2.65, which compares to $1.87 last year. Positive volume price contributed $0.24 to the year-over-year increase. COS, which includes sourcing initiatives, contributed $0.17. Raw material, freight and labor costs netted to a $0.13 benefit, and a lower share count added an additional $0.15.

Now let's turn to Slide 8 to review the second quarter performance by segment in more detail. At CCM, revenues increased 10.4%, with acquisitions contributing 6.1% of the growth and organic growth of 4.7%, partially offset by a 40 basis point foreign currency translation headwind. CCM executed extremely well in delivering approximately $30 million of net price/cost realization in the quarter. Operating margin at CCM was 19.9% in the quarter, a 280 basis point improvement over last year.

While the macro environment for commodities helped us in the first half of the year, we are extremely pleased with CCM's sourcing initiatives, which add to our confidence in sustaining the year-over-year margin improvement into the second half of 2019.

Now turn to Slide 9 to review CIT's results. CIT revenue grew 3.2% in the quarter. Aerospace remains the source of strength and main drivers of CIT's positive results, with medical, space and defense supportive as well. We remain on plan with our product line rationalization efforts within medical, which, while it weighs on our top line near term, benefits segment profitability. CIT's operating margins grew 300 basis points year-over-year to 14.6% given higher volumes, price realization, COS savings and sourcing and as I mentioned, benefits from product line exits predominantly within medical. These were partially offset by investment in restructuring projects to rightsize our manufacturing footprint, wage inflation and acquisition-related costs.

Turning to Slide 10. CFT's organic revenue declined 11.7% year-over-year, and FX was a 2.4% headwind in the second quarter. Despite market pressures, pricing was up 1.5% year-over-year, evidencing an appreciation for the value proposition for CFT's products. Additionally, acquisitions added 5.9% in the quarter.

Operating margin declined 570 basis points year-over-year to 4.9% as significant volume declines in related deleverage was partially offset by cost restructuring and facility rationalization efforts, vertical integration savings and efficiencies from COS.

Turn now to Slide 11. CBF's organic revenue decline of 7% was in line with our expectations due to the moderating growth in off highway vehicle markets and certain customers adjusting their inventory levels from significant growth in 2018. Successful price implementation and share gains during the quarter partially offset the decline. FX also had a negative 2.7% impact. Operating income almost tripled to $8.3 million or 9.5% operating margin. We're very pleased CBF was able to drive margin results in line with our expectations despite the top line headwinds faced during the quarter.

On Slide 12, we show our balance sheet metrics. Balance sheet remains strong as we ended the quarter with $422 million of cash on hand and $1 billion of availability under our revolving credit line. During the quarter, we opportunistically purchased 75 million of shares, bringing our year-to-date total to $232 million deployed on share repurchases.

Turning now to Slide 13. Our free cash flow was positive $69.6 million compared to a negative $60.4 million last year. The increase in free cash flow was primarily attributable to higher earnings, lower cash tax payments, more efficient use of working capital and lower CapEx.

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

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

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Thanks, Bob. Please turn to Slide 14 as we discuss our updated 2019 outlook. For Carlisle, we continue to expect year-over-year growth to be in the high single-digit range. By segment, at CCM, driven by what we view as a healthy North American nonresidential construction market, the CCM team's price discipline, a solid backlog of work at contractors, tight labor markets and the addition of Petersen Aluminum, we continue to expect revenues to grow low double digits in 2019.

With CIT, we continue to expect revenue growth to increase mid- to high single digits. We expect continued strength in our core CIT markets of aerospace and medical, and CIT continues to benefit from pricing actions taken in 2018 to offset inflation and other cost increases. Our restructuring plans and related charges of $15 million remain on track, which, as a reminder, are related to the consolidation of North American facilities to drive operational improvements and efficiency gains. At CFT, we continue to expect revenue growth in the mid-single-digit range driven by the acquisitions of Hosco, IDS, Shinhang and Ecco, strong price realization and new product introductions. At CBF, given lower-than-expected volumes here to date, in part due to the robust sales volume levels last year and some softness in end markets resulting in adjustments to inventory levels at our customers, we now expect year-over-year revenues to decline mid-single digits.

Turning to our corporate items. Corporate expense is now expected to be approximately $95 million for the year. Depreciation and amortization expense is still expected to be approximately $200 million. For the full year, we expect capital expenditures of $110 million and free cash flow conversion above 110%. Net interest expense is currently expected to be approximately $58 million for the year, and we now expect our tax rate to be approximately 23%.

As we pivot to the second half of 2019, we are well positioned to build on our record second quarter performance and continue the progress towards Vision 2025 and the goals of $8 billion in revenues, 20% operating income and 15% ROIC. We remain steadfast in our commitment to achieving our goals and driving to the $15 of earnings per share by 2025. We expect to deliver record performance in 2019, and we will continue to demonstrate excellent price discipline, focus on integration and restructuring efforts and to drive continuous improvement in all our operations. I'm extremely pleased that Carlisle employees around the globe embody an entrepreneurial spirit, are committed to excellence in all we do and are focused on delivering results for the Carlisle shareholders.

This concludes our formal comments. Chantelle, we are now ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Tim Wojs with Baird.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [2]

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So I guess just a couple of questions on CCM. I guess Chris, with what you're kind of getting to the kind of the 40 -- I think you're at $44 million or so of net price/cost for the year. What's the right or maybe the updated way for us to think about that in the second half, both maybe from a price realization perspective and then a commodities perspective?

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

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Yes, I'll give you the overall and then Bob could break it up. I think we're going to be in the $60 million to $65 million range now for the full year. So that's up from that $40 million to $50 million projection we had earlier. And my guess is that price is going to be about $50 million of that, with -- yes, Bob. I'd say that about $50 million on the upper end and maybe $10 million on the lower end.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [4]

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Okay. Okay. So that would imply, probably in the fourth quarter, you may see a little bit of price slippage?

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

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I would think, yes, we might see some price slippage. Yes.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [6]

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Okay. Okay. Great. And then maybe bigger picture, just on CCM from a volume perspective. Where do you think you're at in kind of the reroofing cycle on the commercial side? If you had a kind of -- I know it's hard to kind of triangulate, but do you think you're in kind of the second or third inning of a cycle? Or do you think you're kind of closer to the fifth or the sixth?

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D. Christian Koch, Carlisle Companies Incorporated - CEO, President & Director [7]

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On the reroofing cycle, I think I don't know that we have that graph that we've produced. But in general, we started entering that reroofing, say, for the big reroofing cycle, maybe 5, 6 years ago. And so I think if you think about this, it's not really an inning format though, Tim, because we believe that reroofing cycle will continue as we continue to put in new construction. But right now, I would say over the short term, we're entering the sweet spot of the reroofing cycle.

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Timothy Ronald Wojs, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [8]

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Okay. Okay. And then, I guess, lastly, just this is more of a modeling question, but historically, I think the third quarter has been close to the second quarter in terms of absolute revenue dollars. And just trying to understand, that obviously was different last year due to some of the weather challenges in September. But I'm just trying to understand if there's any reason why that historical relationship of maybe near parity from Q2 to Q3 shouldn't hold.

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

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No, I would think there would be pretty much -- I would think we would see it playing out the same way we've seen it in the past, maybe a slight decline, something in the low single digits, maybe 1% or 2% difference between Q2 and Q3. The only caveat is that last year, that was such -- there was such an impact from weather that, obviously, the year-over-year gains will be big, and with the strong backlog we have, there might be some upside to that.

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Operator [10]

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Your next question comes from Bryan Blair with Oppenheimer.

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Bryan Francis Blair, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [11]

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So with mid-single-digit growth there, again against challenging stacked comps, obviously, difficult to weather, just wondering if you could quantify the impact of weather in the quarter. And more than offsetting that, how much growth either in dollar terms or a percentage contribution to the quarter you got from new products, and also, if you could parse out maybe product lines where you're likely taking share.

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

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Yes. I think the weather, it is, Bryan, always hard to figure out what we lost. I think it's pretty similar to what we had in Q1. I'm going to say somewhere between 3 and 4 days. That amount, in all, in roofing days, we take the aggregate across North America. And then on new products, I'll let Bob answer that question for you.

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [13]

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Yes. I mean we were up significantly, but it's a small base, Bryan. We continue to grow that with the new glue, the adhesives and membranes that we're putting out. But it's, relative to the total, it's still a small number.

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Bryan Francis Blair, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [14]

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Yes. Okay. And then in the slide, you call out that polyurethane platform profitability is improving. I think you've had -- guided to mid-single-digit range for the year previously. Is there an update to that level of profitability?

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D. Christian Koch, Carlisle Companies Incorporated - CEO, President & Director [15]

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Yes. Yes. First of all, we're very excited about the new team that came in. And in the fourth quarter, we made all those changes, really got focused back on integrating the business into CCM. And we will exit the year at 10%, and that will give us -- be on track for a model of exactly what we projected this year. So I'm really pleased with that. The team's delivering there.

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Bryan Francis Blair, Oppenheimer & Co. Inc., Research Division - Director & Senior Analyst [16]

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Okay. Very good. And one more, on CFT, if I can. You've maintained a mid-single-digit guide for the year. Relatively tough first half, particularly 2Q. Looking into the back half, how much are you baking into that guide for NPI contribution? What's organic there versus the M&A that you now have in place?

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D. Christian Koch, Carlisle Companies Incorporated - CEO, President & Director [17]

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Yes. The new product introductions are going to -- they're going to start to roll out here ahead of September, October. But when you think about what's left in the year, I don't think -- there might be a little bit of stocking of those new units, but I don't think it will be that impactful. The bulk of this is going to be our acquisitions. And obviously, there will be some organic declines in sales, and I think they will be close to our guesses, but they will be closer to probably what we experienced in the second quarter. And what we're really looking for, obviously, is to get some of this trade disagreement resolved, see the Chinese economy, and especially the Chinese automotive market, recover and help us out there.

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Operator [18]

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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 [19]

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I wonder if you can comment on the backlog you're seeing in CCM. It sounds like weather has been a factor here in the first half of the year, really, and it sounds like backlogs are really good. And already good backlogs got even better because some projects seem to be deferred. So if all the stars align here and we just got sunny weather the rest of the year, what could volumes be up here in the back half of the year based on what you're seeing and hearing from your customer base? And I know there seems to be -- labor has been an issue in terms of maybe capping the amount of growth that there can be. But what could growth look like here in the back half of the year if we get some normal weather patterns?

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

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Yes, Kevin. When we look back, the gating factor is labor at our contract. So the backlog is great. We think if everything went well and we had great weather, 5% to 7%, probably get up to 7%, can happen in the marketplace in a volume basis.

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Kevin William Hocevar, Northcoast Research Partners, LLC - VP & Equity Research Analyst [21]

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Got you. Okay. And you mentioned to previous questions about the price/cost equation, expecting some type of price slippage as we go through the year. Are you seeing anything right now? Or is there just an assumption in there that if raws continue to trend down, that eventually, there is some type of slippage? And given the backlogs and similarly strong underlying demand, can that hold up better and maybe you hold price despite the raw materials coming down?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [22]

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Yes. I mean I think -- we are assuming that it would be relatively flat. We don't think there would be much slippage. Some of our competitors went out in the first half with price increases. Now that didn't drive a lot of change in behavior, I'm going to call it. It did signal to the marketplace that the manufacturers are serious about maintaining price. So we're pretty comfortable that all the work we did late last year to get these price increases in should hold out for the rest of the year. Now yes, that can change quickly if something happens. But we're pretty confident that we can maintain at least close to -- I'm going to say, when we got to the fourth quarter of last year, we had them all baked in. So we would assume, in the fourth quarter, we'd be at least flat year-on-year on price.

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D. Christian Koch, Carlisle Companies Incorporated - CEO, President & Director [23]

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Yes. And I think, Kevin, let me clarify that slippage. I should have done it for Tim. When I think about slippage, I was more thinking about the significant gains we had in Q1 and Q2, and then was there going to be slippage from that. And obviously, we're lapping that pricing, and so we're not going to have that. So I don't -- I think Bob is exactly right, that as we go into 3 and 4, yes, I think we'll be relatively flat.

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Kevin William Hocevar, Northcoast Research Partners, LLC - VP & Equity Research Analyst [24]

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Okay. That's good clarification. And then on the corporate expense, you were looking for $80 million as of last quarter. Now it's up to $95 million. Just kind of curious, has incentive comp gone up given the good results? Or what's the reason for the increase in the corporate expense?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [25]

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Yes. There's a couple of things there. Some is the share-based comp. We issued SARs last year with the nice run-up we had in the stock over the last quarter or 2. That adds to it. We have been out in the marketplace, certainly doing a lot of work on acquisitions, some of which that we haven't closed on. That's about 1/3 of it. And then incentive comp, with the good results, is higher than last year and higher than expected, and that's another 1/3 of it. So you take the increase, it's by 1/3, 1/3, 1/3 across those 3 things.

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Operator [26]

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(Operator Instructions) Your next question comes from Garik Shmois with Longbow Research.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [27]

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Congratulations on the quarter. I wanted to ask just on CFT margins, how we should think about that moving forward just given the maybe temporarily challenged end-market environment, plus the acquisitions that look like they're going to be a little bit dilutive to margins. So should this rate of margin compression that we saw in the second quarter be sustainable? Or -- and when shall we start to see an acceleration of margin, assuming you get some trade resolutions?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [28]

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Yes. I mean I think that compression, so we went from about, what, 10 6, last year, down to about 5 this year. Now that included some acquisitions. So going into the third quarter, we would expect close to a 450 basis point decline year-on-year. And that's a lot. I mean some of that is acquisitions, but a lot of that is just leverage on the volume. We do pretty good on our gross margin line, so we lose volume. It's tough. And then as we get to the fourth quarter, we're expecting volumes to be up like they always are, but the compression in margin from the 14 6 last year would be down a little bit, but not as much as the second and third quarters when volume comes back.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [29]

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Okay. And that's helpful. And then any color just on CIT margins in the second half of the year, just given the acquisition that you're making? I guess a similar question, should we expect any margin mix impact from the acquisitions? And any update that you can have on the 737 MAX. I think the last quarter, you had called out maybe 100 basis points of headwinds. And is there an update to how that's been tracking?

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [30]

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Yes. I think on the margins on CIT, probably a little bit lower in the third and fourth quarter. In the second quarter, we had some good mix and everything in the second quarter, but not down much. More of the same at CIT for the third and fourth quarter. And then on the MAX, Boeing went from 52 a month to 42 a month earlier this year. We still haven't seen our orders, to us, to the subs, going down at all. They are still filling up the supply chain, getting ready to go back, continue to beef up production. We're expecting that now, that if pushed out to maybe the end of the year or next year, that's going to hit us soon. And it's about $1 million a month if it does hit us. So for the rest of the year, it would be $5 million if we get it shortly.

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Operator [31]

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Your next question comes from Neil Frohnapple with Buckingham Research.

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Neil Andrew Frohnapple, The Buckingham Research Group Incorporated - Analyst [32]

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Congrats on the nice quarter. Just a quick follow-up on Fluid Technologies. Did you say what the acquisitions will contribute to revenue on a full year basis going forward?

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

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$20 million full year.

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [34]

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That's second half.

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

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Second half, sorry. And we're building it...

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Robert M. Roche, Carlisle Companies Incorporated - VP & CFO [36]

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Yes, the rest of this year.

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Neil Andrew Frohnapple, The Buckingham Research Group Incorporated - Analyst [37]

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$20 million in the second half. Okay. And then switching gears, can you talk more about the revenue outlook for Brake & Friction? I mean is it your sense that underlying construction and Ag mining demand is deteriorating? Or are the revenue declines related more to temporary inventory rebalancing? Just any more color there would be helpful.

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D. Christian Koch, Carlisle Companies Incorporated - CEO, President & Director [38]

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Yes. I think most of it for us was this heavy buying last year, solid uptick. And then we have had some of our biggest customers through rebalancing. I think our outlook is pretty much in line with the OEs there. I think we've seen some struggling in North America due to the trade negotiations, also the wet weather. So I don't really know in some ways if we have a super accurate demand going forward that would make a call either for something other than just what we've seen in the second quarter. So I think our anticipation as we look forward into Q3 and 4 is that we're going to see a lot of what we saw in Q1 and 2.

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Operator [39]

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There are no further questions at this time. I will now turn the call back over to the presenters.

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

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Thanks, Chantelle. This concludes our second quarter 2019 earnings call. Thanks, everyone, for your participation, and we look forward to speaking with you at our next earnings call. Thank you.

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Operator [41]

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This concludes today's call. You may now disconnect.