Conference Call, 10/16/97 Carlisle Companies Q3

FOOL CONFERENCE CALL SYNOPSIS*
By Greg Markus (TMF Boring)

Carlisle Companies
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250 S. Clinton St., Suite 201
Syracuse, NY 13202
(315) 474-2500

ANN ARBOR, Mich. (Oct. 15, 1997) /FOOLWIRE/ -- Carlisle Companies is a diversified manufacturer of products serving three major markets: construction materials, transportation products, and general industry. The company today reported third quarter sales of sales of $315.7 million, a 25% increase over 1996 third quarter sales of $252.6 million. Earnings of $19.5 million, or $0.63 a share, increased 26% over 1996 earnings of $15.5 million, or $0.50 a share.

NINE MONTH RESULTS. For the nine months ended Sept. 30, 1997, sales totaled $940.9 million, a 27% increase over 1996 sales of $740.0 million. Year-to-date earnings rose 27% to $53.9 million, or $1.74 a share, from 1996 earnings of $42.5 million, or $1.38 a share.

CONSTRUCTION MATERIALS. Segment sales of $94.4 million remained flat relative to 1996 third-quarter sales, after eliminating sales from the engineered metal roofing business, which was sold in February 1997. On a year-to-date basis, sales of $222.2 million are down slightly compared to 1996, net of the engineered metals business. Softness in roofing revenues are attributable to an industry-wide slowdown in nonresidential construction and some aggressive pricing by a competitor pursuing some of the smaller projects being bid out. Carlisle elected not to go after some of those projects in order to protect its margins. Carlisle has an action plan in place to respond to the competitor in 1998. Carlisle also experienced some significant changes in management within the Construction Materials segment this year, which always creates some disruption. Despite flat top-line growth, pre-tax earnings increased 13% in the quarter, to $17.1 million, and increased 15% year-to-date, to $37.0 million. Favorable product mix, cost control efforts, and elimination of losses from the divested engineered metals operations contributed to the earnings gains.

TRANSPORTATION PRODUCTS. Segment sales were $124.2 million in the third quarter, a 49% increase over 1996, while earnings rose 71% to $10.6 million. Margins increased by over 100 basis points, and backlog grew by 78%. On a year-to-date basis, both sales and earnings increased 51% over 1996. Positive performances at Carlisle's perishable cargo container leasing joint venture coupled with significantly improved results in the container manufacturing operations contributed to the quarter's strong results. Sales and earnings at Carlisle's engineered plastics operations continue to benefit from its 1996 integration of the Engineered Plastics Division of Johnson Controls; margins continue to improve in that operation. Carlisle's exposure to the automotive market is tilted toward light trucks and sport utility vehicles, which are the strongest segments of that market. Sales in motion control (braking) operations rose 10%, although margins were negatively impacted by the current strength in the dollar against European currencies. Carlisle's Tensolite aerospace and specialty wire and communications cable business achieved record sales and earnings, both up over 50%; Carlisle is increasing capacity in this operation to handle large and growing backlogs. Strong performances by Carlisle's specialized trailer operations also contributed positively to this segment's sales and earnings.

GENERAL INDUSTRY. Segment sales of $97.1 million increased 36% over 1996 third quarter sales of $71.3 million; earnings increased by 32%, to $11.2 million. For the nine month period, segment sales totaled $331.6 million, up 37%, and earnings rose 29% to $40.4 million. Increased sales volumes across most product lines coupled with improved manufacturing efficiencies and cost reduction programs continue to produce record sales and earnings at Carlisle Tire & Wheel. In July, Carlisle completed the acquisition of City Machine and Wheel Co., a manufacturer and seller of stamped steel wheels to customers in the U.S. and Canada. In September, Carlisle completed the acquisition of Conestoga Tire & Rim, Inc. and Wheeltech North America, Inc.; those companies assemble, market, and distribute tire and wheel assemblies to various markets in the U.S. and Canada. Additionally, Carlisle announced its intent to acquire Tilden Corp., a value-added distributor of tire and wheel assemblies for the lawn and garden and other specialty tire and wheel markets; this acquisition is expected to be completed in the current quarter. Sales in the food-service products group maintained the upward trend over 1996 levels, although intense competition from Asia dampened margins somewhat. The company's stainless steel processing-equipment operations continue to report favorable results.

FINANCIAL DETAILS. Working capital stood at $203.4 million on Sept. 30, 1997. Comparisons of days sales outstanding (DSO), inventories, and receivables, show an improvement in working capital management. Operating with leaner inventories and otherwise improving working capital management continue to be a focus of the company. Capital expenditures totaled $39.2 million this year versus $26.1 million last year. These represent primarily expenditures made in the engineered products group within the Transportation segment. Backlog is up 41.9% over last year, to $202 million.

RAW MATERIALS. Carlisle is seeing some build-up in pricing for some raw materials, particularly aluminum and carbon black. The company is substantially protected from price increases for aluminum due to long-term contracts it has in place. In general, the company does not foresee any significant cost/price squeeze.

OPERATING MARGINS. A fundamental part of Carlisle's business strategy is to acquire small, privately-held companies, which tend to have relatively low operating margins, and then bring them up to the margins of the rest of Carlisle's operations through improved manufacturing techniques and advantages in access to capital. Carlisle's business plan is to achieve operating margins of at least 10%, and most of the company's operations meet or exceed that level. The Transportation segment is the largest of Carlisle's three segments. It currently has operating margins in the 7.5-8.5% range, and so it is the one with the most opportunity for improvement in margins. Carlisle expects to achieve those improvements.

GUIDANCE. Carlisle will be going through its final plans for 1998 in a few weeks. Although sales in the Construction Materials segment are expected to continue to be under some pressure in the fourth quarter, the expectation is for earnings growth to continue through the end of the year and into 1998. Management in that segment is now all in place, which should benefit results in the coming year. Carlisle also offers some unique, technologically-advanced roofing products that are seeing good interest from customers. In addition, the company is increasing efforts to sell its construction products in international markets; Carlisle has opened an office in Hong Kong and is optimistic about acceptance of its fleece-backed roofing products in Europe. Strength in the trailer market and the integration of recent acquisitions should benefit the General Industry segment in 1998. Finally, the Transportation segment should see a continuing trend of improved performance in the perishable cargo container manufacture and leasing operation, strong results from Tensolite, and improving margins in engineered plastics. In sum, management said they are "optimistic about the remainder of 1997 and anticipate another year of solid performances in 1998."

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.