Carlisle Reports Record Earnings Per Share from Continuing Operations of $1.75
OREANDA-NEWS. Carlisle Companies Incorporated reported net sales from continuing operations of $996.9 million for the second quarter ended June 30, 2016, a 1.2% increase from $984.6 million in the second quarter 2015. Organic net sales (defined as net sales excluding both sales from acquisitions within the last twelve months and the impact of changes in foreign exchange rates versus the U.S. dollar) grew 0.7%. Net sales from the acquisitions of Micro-Coax, in the Carlisle Interconnect Technologies (CIT) segment, and MS Oberfl?chentechnik AG (MS Powder), in the Carlisle Fluid Technologies (CFT) segment, contributed a total of 0.5% to net sales in the second quarter. Foreign exchange rate fluctuations had a negligible impact to net sales in the second quarter.
Income from continuing operations increased 22% to $115.3 million, compared with $94.8 million in the second quarter 2015. Income growth was driven by the non-recurrence of $7.0 million in after-tax costs ($10.7 million in pre-tax costs) related to the acquisition of Finishing Brands in the Carlisle Fluid Technologies (CFT) segment in the second quarter of 2015, continued selling price discipline by Carlisle Construction Materials (CCM), lower raw material costs, savings from the Carlisle Operating System (COS) and higher net sales volume. On a per share basis, income from continuing operations in the second quarter 2016 rose 22% to $1.75 per diluted share, from $1.43 per diluted share in the prior year.
All financial and percentage comparisons in the Company’s second quarter 2016 reporting are made to the same quarter of the previous year, unless otherwise stated.
Comment
D. Christian “Chris” Koch, President and Chief Executive Officer, said, “Our strong results in the second quarter reflect continued solid volume growth in the U.S. commercial roofing market at CCM, accelerated growth at CIT including the acquisition of Micro-Coax, achievement of operating efficiencies through our continued emphasis on COS at all segments, and strong pricing and raw material dynamics at CCM. EBIT (earnings before interest and income taxes) increased 21% in the quarter, as we realized significant leverage on our sales growth. We achieved a record EBIT margin of 17.9% in the second quarter, a 290 basis point increase in margin over last year, reflecting continued focus on our margin improvement goal.
“Carlisle Construction Material’s (CCM) net sales increased 0.8% in the second quarter on healthy demand for commercial roofing in the U.S., partially offset by lower international sales. CCM’s net sales in the U.S. grew 5.0% in the second quarter as demand in our key commercial roofing end markets remain robust. CCM’s EBIT margin rose 340 basis points to a record of 22.8%, reflecting selling price discipline combined with lower raw materials, efficiencies from COS, and the favorable impact from reduction in some of our lower margin international sales. We expect to see continued strength in the U.S. commercial roofing market and CCM to achieve record results and earnings leverage in 2016.
“Carlisle Interconnect Technologies’ (CIT) net sales were up 5.6% in the second quarter primarily reflecting organic net sales growth from higher volume and a 1.2% contribution from the acquisition of Micro-Coax. Demand for CIT’s in-flight entertainment and connectivity (IFEC) applications was strong in the second quarter. CIT’s net sales growth also reflected gains from new product initiatives and the expansion of its medical platform. CIT leveraged its sales growth into 10% EBIT growth and CIT’s EBIT margin increased 70 basis points to 18.9%. CIT’s margin performance was especially impressive as results included $1.9 million, or 90 basis points, in plant startup expense and acquisition related costs.
“We have been very pleased with the acquisition of Micro-Coax on June 10 and the integration to date. This acquisition provides high performance radio frequency RF/microwave applications that expand our capabilities in a number of key markets. Our deployment of COS is already underway and identifying savings opportunities. We are very excited about working with our new team in Pottstown, PA and the opportunities at Micro-Coax.
“CIT’s initiatives to develop and build capacity for its new satellite connectivity application in Franklin, WI, and to expand capacity for its medical applications in Dongguan, China, remain on track. We are planning for net sales growth at CIT in the high-single digit percent range for the full year 2016 from the continued execution of its growth initiatives, including the anticipated SatCom product launch, which commenced shipments in the second quarter, and the acquisition of Micro-Coax.
“Carlisle Fluid Technologies’ (CFT) net sales grew 11% in the second quarter reflecting 6.6% organic net sales growth and 4.7% contribution from the acquisition of MS Powder. CFT’s strong organic net sales growth primarily reflected higher sales growth in Asia and Europe. CFT’s EBIT margin of 10.7% in the second quarter included 680 basis points of acquisition related amortization expense and 250 basis points in restructuring costs. Restructuring costs for the remainder of 2016 are estimated at $2.0 million. The CFT team continues to make excellent progress in expanding the business through execution of its global sales strategy, new product introductions, and streamlining functions through COS and integration initiatives. We continue to plan for mid-single digit net sales growth in 2016.
“Carlisle FoodService Products’ (CFS) achieved net sales and EBIT growth for the fourth consecutive quarter. CFS’ net sales grew 2.4% in the quarter and its EBIT margin increased 130 basis points to 12.9%. CFS continues to drive net sales and EBIT growth with its continued focus on operational excellence.
“Carlisle Brake & Friction’s (CBF) net sales declined 14% in the second quarter on lower net sales volume in the construction and mining equipment markets, which remain depressed. Net sales to the agriculture market were also down slightly. CBF continues to execute on expense and headcount reductions to match current volume levels. Despite the prolonged market decline, the CBF team continues to generate positive operating cash flows and achieved a 6.5% EBIT margin in the second quarter. CBF continues to pursue actions to improve efficiencies and reduce costs within its challenging end markets. We do not expect improvement in the mining, agriculture, or construction markets in the second half of 2016.
“We invested $95.0 million in acquisitions and $27.2 million in capital expenditures in the second quarter. In addition we returned $31.9 million in capital to shareholders through a combination of dividends and share repurchases. We ended the second quarter with $397.9 million in cash on hand and $600 million of availability on our credit facility. With our strong balance sheet, we will continue to follow our capital deployment strategies and pursue acquisition and organic growth opportunities as well as return capital to shareholders.”
Koch concluded by stating, “Following our strong performance in the second quarter, we remain on track with our growth and performance objectives and continue to have a positive outlook for 2016. We continue to plan for mid-single digit sales growth for the full year 2016. Capital expenditures will be between $90 million and $110 million in 2016. We expect record results in 2016 at Carlisle.”
Segment Results for Second Quarter 2016
Carlisle Construction Materials (CCM): Net sales in the second quarter 2016 grew 0.8% to $582.5 million, reflecting higher net sales volume partially offset by lower selling price. Higher demand for commercial roofing membrane and insulation applications in the U.S. was partially offset by lower international net sales. Segment EBIT margin rose 340 basis points to 22.8%, reflecting market discipline in selling price combined with lower raw material costs, savings from COS, favorable mix changes from a reduction in lower margin international sales, and higher net sales volume.
Carlisle Interconnect Technologies (CIT): Net sales in the second quarter 2016 grew 5.6% to $209.4 million, reflecting higher net sales volume and $2.4 million in net sales contribution from the acquisition of Micro-Coax, partially offset by lower selling price in the aerospace and medical markets. Net sales to the aerospace market increased 5%. Net sales to the medical market increased 8%. Net sales to the test and measurement market increased 40%. These increases were partially offset by lower net sales to the defense and industrial markets of 6% and 11%, respectively. Segment EBIT margin increased 70 basis points to 18.9% in the second quarter primarily reflecting savings from COS and higher net sales volume, partially offset by lower selling prices. CIT’s EBIT results for the second quarter include $0.9 million in costs related to the acquisition of Micro-Coax, consisting of $0.6 million in transaction related expenses and $0.3 million of additional costs of goods sold related to the fair valuation of acquired inventory. CIT’s EBIT in the second quarter also includes $1.0 million in plant startup costs for its project to expand manufacturing capacity for its medical applications in Dongguan, China.
Carlisle Fluid Technologies (CFT): Net sales in the second quarter 2016 grew 11% to $68.2 million, primarily reflecting higher net sales volume and contribution from the MS Powder acquisition of $2.9 million. These positive impacts were partially offset by a negative impact from currency fluctuations of 0.8%. CFT’s net sales increase reflected higher demand in Asia and Europe. CFT’s EBIT grew 830% in the second quarter primarily due to the non-recurrence of $9.3 million in acquisition costs in the second quarter 2015. CFT’s EBIT in the second quarter 2016 includes $1.7 million in expense to consolidate select sales and distribution offices and certain administrative functions, including relocation to CFT’s new headquarters in Phoenix, AZ.
Carlisle Brake & Friction (CBF): Net sales in the second quarter 2016 decreased 14% to $73.3 million primarily reflecting lower net sales volume. Net sales in the construction market declined 16%. Net sales in the mining market declined 15%. Net sales in the agriculture market declined 3%. Segment EBIT margin declined 300 basis points to 6.5%, reflecting lower sales volume mitigated by cost reduction actions.
Carlisle FoodService Products (CFS): Net sales in the second quarter 2016 grew 2.4% to $63.5 million driven by 6% higher net sales in the foodservice market partially offset by 3% lower net sales in the healthcare market. Segment EBIT margin increased 130 basis points to 12.9% in the second quarter reflecting the favorable impact of higher net sales volume, savings from COS, and lower raw material costs.
Cash Flow
Cash flow provided from operations of $179.9 million for the six months ended June 30, 2016 was $31.1 million higher than cash provided of $148.8 million for the prior year period due to higher net income. In 2016, average working capital (defined as the average of the quarter-end balances, excluding current year acquisitions, of receivables, plus inventory less accounts payable) as a percentage of annualized sales (defined as year-to-date net sales from continuing operations, excluding current year acquisitions, calculated on an annualized basis) remained at 18.7%, consistent with the prior year.
Free cash flow (defined as cash provided by operating activities less capital expenditures) was $134.0 million in the six months ended June 30, 2016, an increase of $19.0 million versus the prior year. The increase in free cash flow was attributable to increased cash provided from operations.
Net cash used in investing activities for the six months ended June 30, 2016 includes $8.1 million in cash used to acquire MS and $95.0 million in cash used to acquire Micro-Coax.
During the six months ended June 30, 2016, we utilized $40.9 million in cash to repurchase shares under our repurchase program.
Carlisle Companies Incorporated is a global diversified company that designs, manufactures and markets a wide range of products that serve a broad range of niche markets including commercial roofing, energy, agriculture, mining, construction, aerospace and defense electronics, medical technology, foodservice, healthcare, sanitary maintenance, transportation, auto refinishing, general industrial, protective coating, wood and specialty. Through our group of decentralized operating companies led by entrepreneurial management teams, we bring innovative product solutions to solve the challenges facing our customers. Our worldwide team of employees, who generated $3.5 billion in net sales in 2015, is focused on continuously improving the value of the Carlisle brand by developing the best products, ensuring the highest quality and providing unequaled customer service in the many industries we serve.
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