Carlisle Reports 4h Quarter and Year-End Results - Excerpts from Conference Call

Welcome to Carlisle’s 2011 fourth quarter and year-end conference call. On the call with me is our CFO, Steven Ford; our Chief Accounting Officer, Kevin Zdimal; and our Treasurer, Julie Chandler [ph]. On the website, you will find a slide deck that details our performance in the fourth quarter and for the full year. During this call, I’ll provide you additional color on the slides. But before I start reviewing the slides, let me just say that we consider 2011 as a very good year, both operationally and strategically.

In 2011, our sales were a record $3.225 billion. 2011 was also a record earnings year when the gain from the 2000 sale of Icapel [ph] is excluded from our 2007 earnings. 2011 earnings from continuing operations were also an all-time at $182 million.

Our sales and earnings came in a year where daily news reports constrain the economy brought uncertainty in all of our markets where raw material inflation was out of control during the first three quarters of the year where new non-residential construction continued to suffer its worse economic downturn since the Great Depression and where restaurants for the third year in a row saw store traffic lower than it was in 2007. Top that with the startup issues we had in our new tire factory in Jackson, Tennessee. I think most of you will agree our overall performance was very good in 2011. And 2011 performance is just setting the stage for a very good 2012.

Let’s turn to the slides that will provide with a background data for today’s conference call. As we get prepared to get started, please review slide two titled Forward-Looking Statements to help you understand the risks of investing in our company. After reviewing that, let’s turn to slide three.

The fourth quarter review begins on slide three. And our fourth quarter sales were up 26% to $790 million. 13% of our growth was organic, driven by strong demand for our braking, construction materials, and interconnect technologies products. 13% or $18 million of our growth came from the combined sales of the Hawk acquisition that was completed in December of 2010, the PDT acquisition completed in August of 2011, and the Tri-Star acquisition, which we completed in December of last year.

EBITDA was $53 million compared to $27 million in 2010, an increase of 97%. EBIT margin in the fourth quarter was 6.7%, positively impacted by selling price and raw material parity within construction materials and higher margin performance in CBS and CIT. Our gains in margin were offset by $4.2 million of one-time acquisition costs and lower volume in the food service business.

Slide four details the components of our revenue growth. Our growth by segment is detailed in this center of the graph. As can be seen, Interconnect Technologies enjoyed 20% growth, Construction Materials was up 18%, Brake & Friction 15%, and Transportation Products was up 5%. Sales growth in FoodService continued to be a challenge as its sales declined 5% in the quarter. We have not seen any economic recovery in the food service marketplace in 2011, but the most recent NRA Index has been above 100 for the past five months, and that should bode well for 2012.

As we turn to slide five, you will see our margin dollars growing 97% from $27 million to $53 million. Detailed in the bridge for the fourth quarter, you will see that net charges, which are the difference between the acquisition cost to purchase Hawk in 2010 and the cost to purchase PDT and Tri-Star in 2011 was a 1.3% gain to margin. EBIT generation from these acquisitions added 1.2%, volume represented 0.6%, and COS savings another 0.4%. Pricing net of raw materials was negative 1.2%, and the vast majority of that raw material variance came in Transportation products with smaller amounts in CIT and Food Service.

Please turn to slide six. We’ll begin reviewing each of the businesses individually. The first segment slide provides color on the performance of Construction Materials. The fourth quarter was a superb quarter in this segment. We reached price parity with raw material in the fourth quarter, allowing us to leverage our sales for the first time in 2011. With sales growing 23%, our EBIT grew 32%. Our leverage would have been even greater had it not been for the $2.1 million in step-up charge for the inventory from the purchase of PDT earlier in the year.

Warm weather across the country in the fourth quarter extended the roofing season, which was reflected in our sales. The vast majority of our sales growth was organic, with PDT contributing 5% overall in the growth – of the growth in the quarter. Another bright spot in Construction Materials was that PDT has grown 24% since we acquired the company in August. The EPDM market is growing in Northern Europe despite the soft economic conditions on the continent.

Turn to slide seven and we’ll take a look at Transportation Products, which grew 5%, but that growth was all price. Volume was actually down in the quarter as sales in outdoor power equipment and drive belts was lower than they had been during the fourth quarter of 2010. Outdoor power equipment continues to suffer from an anemic residential housing market.

Fourth quarter EBIT was a loss of $4 million, as we sold inventory containing higher priced natural and synthetic rubber, which was purchased earlier in the year, plus lower volumes in our factories as the outdoor power equipment does struggle to growth. The good news coming on our Transportation Products is related to our Jackson, Tennessee plant where productivity continues to climb and our scrap rates are dropping like a rock.

Our fourth quarter scrap rates were less than 2% and our January 2012 scrap rate was 0.7%, all while our operating efficiency reached 74% in the fourth quarter. For comparison purposes, in the second quarter of 2011, our scrap rate was in excess of 6% and operating efficiency approximately 50%. Our current levels of productivity are now on par with the outputs in our other tire manufacturing facilities. These improvements will pay dividends in way of higher earnings in 2012.

Hiring Time at Carlisle

JACKSON, TN -- March 7 -- Carlisle Tire and Wheel will begin producing tires for the nation's agricultural industry inside the former Whirlpool-Jackson Dishwashing Products plant by June, said Russell Williams, plant manager.

The company is looking for maintenance technicians, assembly operators and other hourly workers. It also is looking for engineers in all fields, business analysts, cost accountants and several management positions, including quality control, materials flow control, and value stream managers.

Those who hope to work for the company should not go to the plant on F.E. Wright Drive. Instead, people seeking professional or management positions should send their resume to jaxrecruiting@carlisletire.com

Information on how to apply for hourly positions, such as assemblers, will be provided by the Tennessee Career Center at Jackson at a future date. An advertisement on when and where to apply will appear in The Jackson Sun at that time, Williams said.

Applicants for the hourly positions must take a test that is part of the National Career Readiness Certificate Program, said Daphne Johnson , human resources manager for the company. The test takes about three hours to complete. Details of when and where the test will be given will be announced later. It includes some English and mathematics skills, Johnson said.


"The test gives you an idea if you would be successful in a factory," she said.

The company expects to hire the first round of employees in April and will continue to hire workers in blocks until nearly all positions are filled within the next seven months. Company officials said the pay would be above the market wage but declined to specify.

"We will be 95 percent full by Sept. 1," Williams said.

Johnson said her company has received more than 600 resume and applications. “Hourly positions will be posted in The Jackson Sun as they become available,” she said.

“Hiring is being spaced out because training takes several months to complete,” Williams said.  "And that is tough to do in bulk.”

Plant employees will work one of three non-rotating shifts, five days a week.

Shift 1: 8 a.m. to 4 p.m.

Shift 2: 4 p.m. to midnight

Shift 3: Midnight to 8 a.m.

A multi-color floor plan of the plant hangs on the east wall of Williams' office. The layout is called "Road Map to 2014." It details the arrival of equipment, where it will be placed and what products it will manufacture. Names of cities, such as Opelika, Ala., are written under squares and rectangles designating the origination point of the equipment. Multi-colored dates written under those city names give the expected arrival dates.

By 2014, the company will occupy all but about 10,000 square feet of the 600,000 square-foot building.

"This is the most aggressive plan I have ever seen," said Williams, who also worked at Mark IV Automotive in Lexington.


Charlotte, N.C.-based Carlisle Companies is consolidating its operations in Jackson from three plants in Pennsylvania, Alabama and China. The company purchased the former Whirlpool plant for $7 million last fall, according to the Madison County Register of Deeds. Williams said he did not know how much the company will spend on equipment and other capital investments at the plant.

Some of that expense comes from readying the facility for manufacturing equipment that is larger and heavier than Whirlpool's.

Jackson Energy Authority is helping Carlisle install a larger electrical transformer to help pull and regulate a larger electrical load than was needed by Whirlpool. The energy authority also is installing a 6-inch natural gas line. The line will supply boilers that create steam used to cure the company's tires.

H&M Construction workers and architects are installing heavy-duty concrete pads to support Carlisle's equipment. The company also is digging about five trenches to submerge a portion of the incoming curing equipment.

Employees will work at ground level rather than on platforms, which is safer, Williams said.

Company President Fred Sutter said previously that Carlisle chose the Whirlpool building because its U-shaped layout allows for expansion. Sutter said his company could put a roof over the section that is now the U's open end, where the plant's 31 loading docks are located. That area could house more equipment and allow for increased production. That expansion plan, however, is only a thought at this time.

Safety lights are now about the only illumination inside the plant, which is big enough to hold several 747 airliners . Footsteps of Carlisle's employees echo across the plant's concrete floor, which is void of equipment and products for now.

But at the plant's east end, in an area smaller than a football field, workers now are assembling soil compacting wheels used in farm seeding equipment. The wheels fold and compress topsoil over seeds after they are planted. The wheels are being assembled from parts shipped to the plant. Eventually, the product will be made entirely in Jackson.

"That is the part of the business we are moving back from China," Williams said.

The arrival of Carlisle comes as Madison County struggles with 11 percent unemployment as of December, according to the latest data available from the Tennessee Department of Labor and Workforce Development's Web site.

So far, Carlisle has hired 16 people, seven hourly and nine salaried, to manage incoming equipment, hire staff and assemble the compacting wheels.

One of those assemblers is 28-year-old Calvin Davis of Yuma. He lost his job at Lexington's Summit-Brantley Building Innovations a week before Christmas.

"It feels good getting a steady job this quickly," said Davis, a husband and father of two.

Davis recognizes that he is on the ground floor of a company that is establishing itself as a permanent part of Jackson.

"I'd like to be in management," he said, "I have a management background."

Williams and other Carlisle officials are anxiously awaiting a visit from John Deere's purchasing team on Tuesday and Wednesday. 

If Deere employees approve and certify Carlisle's soil compacting wheels, they will be shipped to the farm equipment manufacturer beginning March 15.

"Then from that point until September," Williams said, "we will bring more people and equipment into the plant."

Carlisle will begin manufacturing its second set of products in June. Those products include air-filled agriculture and construction tires and high-speed trailer tires for products such as boat trailers, recreational vehicles and implement trailers. The tires will range from 10 inches to 24 inches in diameter depending on the market, Williams said. The tires will be bias ply. The company will not manufacture radial tires for those products.