Q4 2019 Earnings Call
I would like to turn the call over to Mr., Jim Giannakouros, Carlyle's, Vice President Investor Relations and financial planning and analysis. Jim. Please go ahead.
Thank you Josh good afternoon, everyone and welcome to Carlyle's fourth quarter 2019 earnings Conference call, We released our fourth quarter financial results. After the market close today and you can.
Fine both our press release and earnings call a slide presentation on our website at Www Dot Carlyle Dot Com Sunday Investor Relations section.
Discussing the results and our updated outlook today, our Chris Koch, President and Chief Executive Officer, and Bob Roach, Our Chief Financial Officer, today's call will begin with Chris discussing our progress towards vision.
25, and business trends experienced during the fourth quarter and later in the call will discuss our 2020 outlook.
We'll discuss carlyle's fourth quarter financial performance.
Bob Bob and Chris his remarks, well open up the line for questions.
Before we begin please refer to slide two of our presentation, where we note that certain statements made during.
This call maybe forward looking and actual results may differ materially from our expectations due to a number of 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 Carlyle should read these steam is carefully along with.
Viewing the reports we filed with the FCC before making an investment decision with that I will turn the call over to Chris.
Thanks, Jim Good afternoon, everyone. Please turn to slide three presentation.
I'm pleased to report Carlyle had record fourth quarter sales and operating income we continue to make significant headway towards.
Our vision 2025 goals of $8 billion in revenue.
20% operating margin.
It's 15% oral I see all driving to $15 earnings per share.
As a reminder, the building blocks and drivers of achieving vision 2025 include growing 5% organically with operational leverage.
Driving a continuous improvement culture utilizing the Carlisle operating system.
Building scale with synergistic acquisitions.
Investing an exceptional talent and deploying over $3 billion into capital expenditures share repurchases and dividends.
We're pleased with their progress towards delivering vision 2000.
25, while acknowledging our culture of continuous improvement drives us to seek out new opportunities for growth in sales and operating income.
Highlights of our vision 2025 journey so far include.
Driving organic revenue growth of 5% since launching vision 2025 inline with our long term target.
Operating margin to 13.6%.
Achieving gross savings and benefits from CLS within our targeted range of 1% to 2% of revenues.
Deploying over $630 million of capital into 12 strategic and synergistic acquisitions.
And utilizing our strong cash flow and balance sheet to return over $1 billion.
As of capital to our shareholders in the form of share repurchases and dividends.
Turning to slide four.
For the full year 2019 against the backdrop of challenging global conditions.
The company's performed very well benefiting from significant exposure to strong north American construction markets.
Growing demand and re roofing increasing exposure in med Tech continued strong underlying demand and aerospace a return to higher levels of profitability in our brake and friction business.
Continued operational improvements effort through CLS.
And solid execution on our M&A integrations.
Some specific 2019 highlights include total revenues grew over 7% or close to 3% organically for the year. Despite enduring multiple quarters of global industrial production declines.
Pricing increased in all segments contributing 1% of year over year sales growth.
Operating income grew approximately 29%.
At year over year, exhibiting strong leverage on our topline growth with margins expanding 220 basis points year over year to 13.6%.
Strong operational performance generated $8, a 21 cents of diluted earnings per share up 40% year over year.
We generated free cash flow of 614 million.
Dollars converting at a rate of 130%.
Executing on our commitment to return capital to shareholders, we repurchased over $380 million shares and paid over $100 million in dividends, we increased our dividend, 25% to $2 per share annually or 40 threerd consecutive year of increasing.
Dividends.
Finally, we deployed over $615 million on eight strategic acquisitions during the year.
We introduced vision 2025 in 2018 are excited about the progress thus far, particularly in our two largest segments CCM and CIA tea.
They account for over 85% of.
Revenue in over 90% of our total segment operating income.
CCM status as a best in class building products supplier continues to be evidenced through its price in market leadership superior products and service industry, leading innovation, a strong and increasing reroofing backdrop in a high teens operating income profile.
Over the past decade, Carlyle construction materials has spent over $500 million and investments in manufacturing research and development and customer service to build an industry leading platform known as the Carlyle experience, which are contractors and distributors have come to rely on to drive efficiencies and productivity in their own businesses.
Then I remain very pleased with the progress the CCM team has made expanding into new platforms, namely our polyurethane an architectural metal businesses.
Reflecting on C.I.T., there's been significant press surrounding Boeing 737, Maxi grounding that is clearly created uncertainty around to return to service state and.
Ultimately uncertainty for the supply chain.
For Carlyle, we anticipate being impacted by these conditions through at least the first half of 2020 in line with Boeing's public comments, while we realize this is an interruption to Cie is consistent growth in the aerospace markets. We're viewing this situation as a delay in sales not lost revenue.
We expect resumption of our normal deliveries when the 737 Mac save returns to service.
We remain.
We maintain a very optimistic outlook for the global aerospace business in the coming years, driven by rising demand for travel globally.
Sustained aircraft build rates as well as increasing content per plane given growing electrification.
And the data needs.
Our engineering expertise branded 'cause strong customer relationships position us well to leverage the attractive long term growth in commercial aerospace markets and we'll continue to pursue synergistic acquisitions in this space to drive a reputation and position as a leading supplier to global aerospace Oems.
Reinforcing this we announced our commitment to acquire full LAIKA in October of 2019 silica augments the diversifies our position at major European commercial aerospace space and defense customers and enhances our geographic presence, we expect to finalize the closure of this like acquisition in the first quarter of 2020.
We also continue to build out or medical technologies platform within see IP. This platform is strong growth and profitability characteristics. It will transition to a more balanced portfolio of interconnect connect solutions.
We intend to accomplish this growth both organically and through acquisitions capitalizing on aging.
Relations that are demanding a higher level of medical equipment and technology globally.
We continue to work towards building out a more comprehensive offering of manufacturing solutions to our medical Oems.
Our recent acquisition of Providian represents a sing a significant step in establishing a leverageable medical technologies platform for.
Video with over $100 million of annual sales as a leading provider of comprehensive solutions for global medical device Oems, including medical device contract manufacturing precision machining and metals.
Thermoforming and medical injection molding and.
In the coming years, we will invest significant capital into expanding for billions product.
Thanks, and seek synergistic acquisitions to grow our med tech platform to $1 billion in sales.
Turning to fluid technologies 2019 was a year of focus on improving customer satisfaction driving manufacturing efficiencies entering new markets and introducing new products. The team at CST made substantial.
Progress in 2019 on all these fronts, introducing 10, new products, making for acquisitions.
Further expanding into the sealants and adhesives market.
In reducing our lead times by almost a third despite this progress as we predicted about this time last year impacts from Brexit Brexit and us trade negotiations.
She Asians with China drove an increasingly negative global industrial production environment throughout 2019, and ultimately drove declines in volumes that overshadowed cfds progress towards their vision 2025 goals.
On capital deployment, our free cash flow and strong balance sheet continues to offer us both.
Strategic Optionality and financial flexibility.
When we introduce vision 2025, we envisioned a balanced approach of organic growth investments acquisitions, and returning significant capital to shareholders.
For the past three years, we have been opportunistic buyers of our stock spending over $1 billion and share repurchases.
Notably exceeding the total level contemplated or vision 2025 plan.
Going forward will remain balanced yet opportunistic in our approach with driving $15 Vps by 2025, the key focus for our vision.
In addition to our strong financial performance in 2019 were pleased with the continued.
The momentum our team has generated around environmental social and governance issues. In 2019, we established at MSG steering Committee developed any SG reporting process elevated the position of director of sustainability to report directly to the CEO and established a plan to publish our first SG report in 2000.
I was at 20.
We're at the beginning of various GE reporting journey, but Carlyle has always been a responsible corporate steward through our 100 year lifetime.
We're excited to share our progress and with investors customers and the communities in which we operate.
In addition to these actions we have made progress in.
Finally, our board of directors and it made commitments to ensuring a $15 per hour minimum wage and our us operations gender pay equity in a gender balance management team.
Now please turn to slide five as we look at our fourth quarter results in greater detail.
In the fourth quarter revenue increased six point.
22% to a record one point.
One $4 billion are 27th consecutive quarter of year over year growth.
We generated $141 million of operating income of 23% increase over prior year, which led to record fourth quarter diluted EPS of $1.81 cents up 22% year over year.
Assuming that we're making the right investments in our factories and our people and in the Carl operating system.
Fourth quarter results were driven by continued price discipline in all segments solid demand an excellent margin expansion at CCM benefits from lower cost raw materials.
And efficiencies gained from Cmos throughout.
The company.
CCM revenues grew over 11% year over year, including 5% organic growth, reflecting strong commercial construction and reroofing demand new product sales growing 50% year over year and the addition of Peterson in early 2019.
We continue to see a solid backlog of work in North America tight labor.
Labour markets strong reroofing demand in tight capacity.
CCM solid performance and for Q and all of 2019 demonstrates its market leadership, especially in pricing resolve and in delivering the Carla experience to roofing customers and distributors.
With.
During labor markets remaining very tight we believe our ability to deliver the right product at the right place at the right time, coupled with innovation and training enhances the value we bring to the market.
The Carlo experience continues to be recognize and appreciate it by our customers we instituted a price increase on all CCM products in mid January.
Missing the cost of providing industry, leading value to our customers and general inflation in operating costs.
We believe the trends experienced in 2019 will continue into 2020 supporting our positive outlook.
Let's see I T revenues grew 3.3% in the fourth quarter, reflecting continued.
I'll, let performance in our traditional aerospace product lines and continued progress in building our medical technologies platform.
Within the aerospace market the pressures from the Boeing 737, Mac say Gee I discussed earlier began impacting us in Q4 and a substantial way.
In addition to the directly impacts we are also being affected in our connectivity.
Declines specifically as airlines are reluctant to remove existing planes from service for upgrades and retrofits.
These pressures are significant but will be resolved in the maxi returns to service and will not impact our mid single digit growth CAGR potential, let's see I T long term.
Within the medical technologies platform the.
Current event in the fourth quarter was the acquisition of Providian.
We were extremely pleased to have acquired the talent to build Gerard president of Providian and his team. In addition to the World class solutions. They have developed for leading medical technology providers builds leadership and product vision will help us accelerate the growth of our portfolio and ensure we.
Good capital to the most meaningful growth areas.
CFTC sales declined 3.5% year over year in the fourth quarter, reflecting significant declines in global automotive production in a multi quarter decline in industrial production.
Notably acquisitions of Pasco ideas Shin hang an echo finishing are.
Well, both from a sales and integration standpoint.
See if these operating margin was impacted by lower volumes, primarily from China and global automotive in tier one accounts.
We remain hopeful that the U.S. trade developments inject a level of certainty that in turn promotes a return to normalized capital investment in spending.
As mentioned earlier safety continues to make progress on their initiatives that will drive their vision 2025 plans, including continuing to deliver price gains reflective of their value proposition launching new products entering new markets and enhancing our product portfolio market share through acquisitions.
Turning to CBF.
Construction mining and agriculture markets continue to exhibit an extraordinary amount of cyclical demand after double digit sales gains in both 2017 and 18 2090 was marked by accelerating decreases in global demand and CBSN markets and Destocking activities that major Oems.
In the fourth quarter CBF.
Revenue declined 17.4% year over year.
Despite these declines CBF continue to capture the benefits from its significant restructuring efforts around the closure of the Tulsa, Oklahoma manufacturing facility and its integration into Medina, Ohio.
And in their ongoing CNS programs.
Bob will now provide further detail.
About our fourth quarter financial performance and review, our balance sheet and cash flow.
Thank you Chris.
Please turn to the revenue bridge on slide six of the presentation.
Revenue increased 6.2% to $1.14 billion in the fourth quarter.
Organic growth was flat.
Positions contributed 6.4% of sales growth for the quarter FX was a 20 basis point headwind.
Now turning to our margin bridge on slide seven.
Q4 operating margin expanded 170 basis points.
Yes added 140 basis points.
Great labor and raw material cost netted to a 60 basis point improvement.
And net restructuring and rationalization costs, one additional 60 basis point tailwind.
Partially offsetting positives pricing and volume combined for a negative 30 basis points and acquisitions, where 60 basis.
Point headwind.
On slide eight we've provided.
Earnings per share bridge.
As Chris mentioned earlier, we reported record fourth quarter diluted EPS from continuing operations at $1.91 cents, which compares to $1.49 last year.
Volume pricing.
In mix combined were a four cents year over year decrease.
Raw material freight and labor costs netted to an 18 cents benefit.
Cmos contributed 19 cents.
A lower share count added an additional seven cents, while taxes or six cents headwind.
Now, let's turn to slide nine to review the fourth quarter performance by segment in more detail.
At CCM revenues increased 11.4%.
Acquisitions contributed 6.5% of the growth organic growth was 5.1% partially offset by eight.
20, paces point foreign currency translation headwind.
CCX executed extremely well and delivering approximately $19 million of net price cost realization in the quarter.
Operating margin at CCM was 16.9% in the quarter, a 250 basis point improvement over last year.
While the macro environment can for commodities has helped us in 2019, we're extremely pleased with CCM sourcing initiatives, which add to our confidence to sustaining year over year margin improvement.
Please turn now to slide 10, or do you see actually results.
Revenue grew three.
0.3% in the fourth quarter.
Medical with permitting acquisition drove the sales gains in the quarter.
As Chris mentioned earlier, the medical growth was offset by the 737, Max eight delays and related impact for the inflight entertainment and connectivity businesses.
Cts operating margin declined 220 basis.
This is points year over year to 12.2% driven by higher restructuring costs.
Organic volume declines and the impact of acquisitions.
These were partially offset by favorable mix price realizations and savings from CLS.
Turning to slide 11.
CFTC.
Organic revenue declined 16.1% year over year, an FX was a slight tailwind in the fourth quarter.
Additionally, acquisitions added 12.5% in the quarter and overall cfd sales declined 3.5% year over year.
Operating margin declined 190 basis points year over year 12.7.
Percent as significant volume declines and related de leverage were partially offset by the past restructuring facility rationalization efforts vertical integration savings and efficiencies on the Carlisle operating system.
Now looking at CBF on slide 12.
Fourth quarter organic revenue.
And 16.6% and was due to a slowdown on off highway vehicle markets and Destocking activity at major Oems.
Thats also had a negative 0.8% impact.
Operating income was.
A little less than $1 million or one point.
1% operating margin.
On Slide 13, 14, we show selected balance sheet metrics.
Free cash flow in the fourth quarter was a $181 million and freak out free cash flow conversion for the full year 2019 was 130% up significantly from 2018.
We ended the year with a.
Strong cash position of $351 million, which in addition to our strong balance sheet and available $1 billion of untapped credit at our revolving facility continues to afford us both financial and strategic flexibility.
We continue to approach capital deployment, the balance and disciplined manner.
Investing inorganic.
Growth through capital expenditures, Opportunistically repurchasing shares and actively seeking strategic and synergistic acquisitions.
And with that I will turn the call back over to Chris.
Thanks, Bob Please turn to slide 15, as we discuss our 2020 outlook.
For Carlyle and 2020, we expect revenue.
Growth of mid single digits.
By segment.
CCM driven by what we continue to view as a positive north American non residential new construction market growing demand for Reroofing, a solid backlog of work at contractors continued tight labor markets. In the addition of Peterson to our architectural metals platform.
We expect revenues to grow mid single digits in 2020.
At Sea IP, we expect high single digit revenue growth, while we expect to see continued strength in our core CIA t. markets of aerospace and medical and benefit from pricing actions taken to offset inflation and other cost increases we are realistic about our.
These to offset the negative impact of the Boeing 77 them axeight issues and the impact from the slowdown in the global economy on or industrial customers.
At CST, despite the significant decline in the Chinese automotive and industrial markets, coupled with a very real decline in capital spending in North America, We expect 2020 revenue.
Growth of low to mid single digits.
At CBF, we expect 2020 to be another challenging year in the off highway vehicle markets with revenues declining mid single digits.
Turning to our corporate items corporate expense is expected to be approximately $100 million to $105 million for the year depreciation and amortization.
They should expense is expected to be approximately $230 million.
For the full year, we expect capital expenditures of $100 million to $120 million lead free cash flow conversion of approximately 120%.
Net interest expense is expected to be approximately $65 million for the year and finally, we expect.
Our tax rate to be approximately 24%.
As we turn to 2020, we are well positioned to build on a record 2090 performance and continue our progress towards the vision 2025 goals of $8 billion in revenues, 20% operating income and 15% ROI C.
We remain steadfast in our.
Into achieving our goals and driving the $15 earnings per share by 2025, despite geopolitical and economic uncertainties, including the effects of the China trade negotiations the challenging industrial production environment and yet to be measured impacted the corona virus carlyle's employees across the globe remain focused on the execution of the strategies and key.
Actions that support vision 2025.
We're very optimistic about the north American non residential markets are emerging medical technologies platform and a return to normalcy at our largest north American aerospace customer.
In addition to these strengths we anticipate that we will continue to deploy capital for strategic acquisitions and.
Opportunistic share repurchases.
Our team continues to embody a positive and entrepreneurial spirit a commitment to continuous improvement.
And a focus on delivering results for the short Carlyle shareholders.
As we conclude 2019 I would like to extend my sincere thanks, and gratitude to all Carlyle team members for their contributions.
So another record setting year. This concludes our formal comments, Josh we're now ready for questions.
As a reminder, if you would like to ask a question at this time. Please press Star then the number one on your telephone keypad.
Your question please press the pound.
Your first question comes from Brian Blair with Oppenheimer. Please go ahead. Your line is open.
Good afternoon, guys another solid quarter.
Thanks, Brian Good afternoon.
I wanted to start with a question on.
Free cash outlook really really strong performance in 2019.
You are actually 1 million off from our 2020 estimate for free cash flow sounds pretty impressive.
Recognizing there are some near term headwinds in smaller segments and.
Maybe some offsets elsewhere.
Ccms positioning.
Applies pretty strong profit growth next year.
Guided 120% conversion.
Yes that.
Thats to continued ramp in free cash flow.
Is there anything that.
We're not thinking about that that could offset that trajectory or is that fair assumption for the year.
No I think Thats fair I mean, we the 120% is certainly within where we expect to be we do it's gone from 130 to 120 some of that relates to a little higher Capex. We're.
Seeing in 2020.
As you know we had a slowdown in some of the program spent a lot over the last 17, and 18, who is a little slow down in 19, but we expected pick that up a little bit in 20. So now continued free cash flow conversion.
Okay appreciate the color.
On.
Moving to CCM.
Strong demand backdrop.
Got it mid single digit growth.
Against pretty legitimate stacked comp so.
Strong outlook.
Given given that demand ccms value proposition it seems like pricing should be from hopefully you'll get some upside into seasonally stronger quarters.
If we combine that with.
Set up with the still cooperative commodity trends and is it fair to assume there's some upside to the.
Baseline assumption of neutral price cost for the year.
Still too early to make that call.
Well, we always say you know the first quarter, it's really too early to make those calls I think.
We're thinking about a price raws you know number of something between 25 in 35 million, obviously, we've implemented that new pricing exercise with an annual price increase in you know we saw our competitors follow suit there of about 2%, but again, it's a little bit too early to see if that is actually getting traction.
Yeah.
Yes, Brian I would just say, let's stick with the 25 to 35 and then let's as we progress through the year, we'll we'll obviously keep you updated on what's happening in the market.
Okay, that's fair.
Last one if I can.
We could take a minute to discuss CCM Europe that gets.
A little less attention than the other parts of the story.
Minus the current size of that business the market opportunity the potential scale overtime.
Yes, So we're up where you know mid 100 150 lets say is approximately for our European sales.
We've been in Europe.
A while we've made some good acquisitions there are few years ago.
And we made the arbo acquisition recently in the UK and sealants and adhesives I think we still see Europe I don't think I know, we still see Europe as a significant opportunity.
We built a new factory Walters thousand to exhibit.
Show that confidence that we still think it's going to be expanding platform for us I think we need to look at.
Some pretty good growth rates going into vision 2025 in the 2025 year I don't want to give you a number on that but I would say would be a lot more substantial than 150 million and in some of that will come through acquisition I think.
That has to be a play for us I think would take too long organically in some of it has to be an introduction of new product technologies that we haven't had there before so I think summing it up we're very bullish on Europe, and we've had some good results in 19, and I think we're expecting those to accelerate in 2021 at 22.
Okay great.
Thanks again guys.
Hi.
Your next question comes from Joel Tiss BMO. Please go ahead your line is open.
As we go in Dallas Hello, Good afternoon.
Can you give us some some of the factors on for CCM about around like the visibility you have like how.
Are you can see out for 2020, and then some of the competitive factors you know I keep hearing some other guys are adding capacity and can you just give us a little bit of a layer of the land of how things look for the next couple of quarters.
Yes, I mean go leaving you know this entering I should say this first quarter of 2020 I feel like this year.
The same thing as we were going into 19, which is pretty much business as usual, we still see the same kind of environment I think a couple of the maybe minor.
Adjustments would be that.
Our competitors seem to be.
Continuing to follow suit on pricing, which is good we'll see how that plays out but hopefully there'd be some.
Hi, there.
We will get capacity, obviously, we haven't added a lot of capacity in the industry I think apologize and keep your plans that we've added him.
Been maybe even under the growth of the industry. So think they've been absorbed for relatively well, which to me says that.
Capacity is not getting any.
Larger in 2000.
20, we do have a new entrant, who is I know the announcement came that they were going to introduce a new.
Plant on the East coast somewhere and you know even if they do I don't know that that's a significant amount that will be absorbed and I will see how they can compete the north American market I know, we had another announcement that a competitor was putting a facility.
Realty in Texas, I think again, that's fine I think it's going to add some capacity, but not enough that it will offset the balance there I think will still remain tight.
And certainly any pdm, it's going to be Theres no capacity being added there. So that will continue to remain tight market.
We think reroofing, 80% of our business.
Estimate comes Reroofing Reroofing demand Bob has shown that graph that continues to build.
We think new construction might be a little bit softer this year than it was last year, but it's still positive tight labor markets are still there contractor backlogs remain you know about where they've been for the last couple of years, So I think going.
No thats kind of how we see business as usual end to end there in a really solid.
Environment for 2020.
Well, that's that's excellent and then can can you just give us a little bit of a shape of how the the other divisions are going to look.
It seems like maybe just with this virus and with all the.
Disruption going on maybe the first half.
Second half is going to be skewed a little bit versus history Morford CBS.
And.
CF key I just wonder if you can give us a sensor.
Yes, we're waiting to see how that unfolds there've been some governmental actions in China, you know with.
Back to factories opening and things like that after the Chinese new year that are going to impact I think cie in some of the business. They export out of that Dongguan facility. Obviously CBS is effective with our Hong Jones, Suzhou facilities, but a lot of that stays in China still it will affect sales there I think the biggest impact.
You know is this 77 Max.
You know that we were at a 55, playing a month I think pace on the seven three semex going into this problem.
Reais to 42 and now were zero. So obviously, we think that were about I think $100000 a content on that plane. So you can you can see what thats going to do that.
To the year, but if they can get the plane going I mean that could.
We get certification here quickly and get it back in service than we're planning on a being out at least until mid year and then obviously the earlier than that would be good I think CST is one of if we can get a one to.
Situations really dependent on automotive and global.
Drilling and obviously the current a virus does not help the Chinese automotive market for us, which you know that's a big market for US and also global industrial production in European declines or at least flat in the North American not.
As much spending on the manufacturing side as it helps so think how it plays out Joel it's it's.
Good day impact Us and then we're hoping it gets better by mid year and perhaps the backend with all those combined.
Just some increased momentum.
Okay. Thank you very much I'll, let other people asked.
Thanks, Phil.
Your next question comes from Garrett choice with the capital. Please go ahead. Your line is open.
Hi, Thanks, just first question on capital allocation got.
Still what acquisition that you have to comes on but if you look out into 2020, just wondering if you can speak to the M&A environment, how much you're comfortable deployed for acquisitions, and which business segment, perhaps do you see the greatest opportunities.
Well I think we've got a lot of capital we're comfortable deploying quite a bit I think question is it for US is always around discipline you know it can we see a.
A model that provides a good solid organic revenue stream and then have synergies when we combine into our platform. So I think you know we've been pretty.
Clear about that I don't see anything out there that would.
Come up that we would not be able to afford and I think we've deployed.
Up to.
506, or $700 million year in acquisitions, and I think we're totally comfortable with that if we look at where we're going to put it.
Right now the preference would be.
The to add to our medical technologies platform.
We'd like see accelerating growth there I think the team Thats come with previously as I mentioned in my comments Bill Gerard and that team has brought a lot of talent with us and we really like his leadership and we feel very confident that he can absorb some.
Acquisitions CCM.
Is again.
Another opportunity I think within the metal Polyurethanes and then as Brian asked US earlier, I think Europe, Scott to be a focus this year.
Then lastly back to aerospace the flake acquisition, if we could find more acquisitions like that they would be perfectly love to bill our build our geographic footprint in aerospace and we'd also love to build our content.
Sure.
Content per plane, so those would be the areas of focus and lastly.
I think were to point now CFP, where we could handle larger acquisition they've handled these initial ones very well we've gotten good synergies out of them I think they're working very well so be nice to see something appear that we could put together with CF Tia and.
Well radar growth there.
Okay. Thanks for that.
If you could comment a little bit on what you're expecting out of the non Griffin pieces of CCM. So.
I guess traditional roofing pieces of future, so metal or installation.
2020, how you expect with growth rates come about.
[music].
Yes, I mean, I don't metals going to continue where it has been in the mid to high single digits Thats. We've been looking out there is nothing changes in those pieces.
Europe grew.
Pretty good.
I'll close to double digits in 2019, we expect that to.
Continue.
And you know, 8% further polyurethanes business. So we're expecting those to be a little higher as was expected.
Going into going into the acquisitions.
Okay great.
Questions just on.
TV and.
The arrow side.
The Max if and when the Max comes back in the Middle of the year is there going to have to be a ramp period for you to get your capacity back to service the.
I guess just on the gap from the lost revenues that you are currently experiencing or should we not.
It's like any delays on some actions for back on you should start.
I wouldn't see any delays from the production standpoint, we've.
As I said, we viewed as a delay not nonetheless revenue. So we're not doing anything like laying off.
People and shutting down lines and things like that we're finding other work for them.
To do and we are ready to go with them Axeight Rolls up John Berlin in the CIO team will will be on it immediately.
Great. Thanks, so much.
Your next question comes from Josh Chan with Baird. Please go ahead. Your line is open.
Good afternoon, congrats on a good quarter.
Thank you.
Hi, I'm just wanted to ask about.
CCM business for in terms of price cost could you give us the the contribution in Q4 and then for the 2020 guidance you provided how much price is included in that 25 to 35.
Yes, Josh for Q4 I talked about.
At $19 million.
And then we're not going to break up the price cost right now Josh for the the 25 to 35, we'll we'll get back on that as the year unfolds ice there's too much uncertainty around the price.
Okay. That's fair just I guess from a seasonality perspective, how far into.
The year would you get before you kind of have some understanding of how the price will will shake out.
Yes, I think it'll started to Q O Q2 in Q3, our big our big seasons, obviously are a big quarters, I should say with the season underway.
So I think it would be just after Q1 will start to see the.
Thanks for that.
All right and then on the CIO key business.
Could you tell us what the margin of the acquired revenue is or will be in pointing Tony. It's one of a few moving pieces there I think.
When you're talking about Providian Anfal LAIKA correct.
Yes.
Yes, it's about low to mid single digits right now.
You know.
Currently we put the amortization and we have to work that back up so we expected to be higher but in the first few years its its approach 5% to 10%.
All right.
Then I guess lastly on that.
On to see I'd team margin for the.
Full year for 20, Tony could you just help us think about how we should look at the margin progression you got the 737 headwind they'd be part part of the year and then you have this deal impact, but then I think you've done some cost savings initiatives to so how should we think about.
How margin flows through to see 18 2020.
Yes, I mean, clearly with we're expecting volumes to be down in the first half just due to the Max issues that we're seeing so we'd expect margins to be weaker in the in the first half and growing into the second half.
Okay, great. Thanks to the time.
You bet Josh.
As a reminder, if you'd like to ask a question. Please press Star then the number one on your Touchtone phone. Your next question comes from Daniel.
Capital markets. Please go ahead your line is open.
Hey, guys. Thanks for taking my question.
Just first question on the.
Yes.
Look I suppose.
I suppose.
37 actually the big component of your outlook for 2020 I was just wondering if there's any other moving parts.
This guidance for example.
Can you talk a little bit about.
Congrats rationalization in med devices.
As expected.
2020 numbers as well or.
For the most part.
Completed.
I think we do you know we had an initiative on the SKU rationalization, but I think thats relatively complete we do always go through you know there's always product line rationalization as we move through things, but I think the Max is the biggest issue then obviously it's the.
One of the two acquisitions and how they perform and how much we're able to drive their through Seo savings and things like that.
I think industrial.
I have some you know I still think some negative impact on the business as the industrial global industrial customers are impacted hopefully that starts to wane in the.
In the end of the second quarter.
Gets better in the third quarter.
Yeah, those would be the big impacts from me there might be some impact that we haven't completely calculator related to the Corona virus in the global GDP as well as the importing of product from from Dongguan and I have yet to see how that's going to affect us. So thats still the unfold, but I think that pretty.
Much covers.
The one other thing I would add and we talked about it in the commentary is.
Not only we get underestimate the impact on other.
Business in the inflight entertainment and kind of activity related to the 737 Max issue. That's the planes are just not being taken out of this.
Services like they were.
And so.
That has some negative impact it and then lastly, I think theres the question hanging around the 77.
And the reduction of that content in June, but I think two planes. So we estimate that would be if it happens around $10 million.
For the year so.
I think that pretty much covered resolve the.
Yes, just so so we're clear on the guidance for Cie that does not include flake.
Yet because we havent closed it. So we never include anything in our guide until we actually close on it so while we expect to close on it soon.
We didn't put that in.
Okay.
Thanks for the clarification.
Just a second question on some of the sourcing initiatives.
I know you talked about it being a benefit in Q4.
Can you provide a little bit more detail in color around I suppose what the sourcing initiatives actually are.
Yeah, we generally don't break that out I mean, it it yeah.
We're just I don't think we want to get into talking about what the initiatives are but they just revolve around reacting to the pricing in the markets and supply and demand and obviously then are you know impact and how much we buy from a certain supplier and so obviously as our usage goes up we expect it preferential treatment.
And then we trade off.
Different things, including.
The length of the contract instability, there on raw materials. So I.
I don't want to go in each raw material I'd, rather not discuss other call, but that gives you kind of a picture of what's going on.
Alright, perfect. Thanks for taking my questions.
Your next question.
Comes from Kevin.
Research. Please go ahead your line is open.
Hey, everybody.
Hey.
Tax rate is at 24% expectation for 20.
20, it looks like it's.
About 20% the last two years.
Why is that.
Thank you to pick up so much.
In 2020.
Yeah, I mean lot of discrete items the base as Ben.
Around 24% for the last two years, we don't bake in discrete items, because you don't know when these hit.
Around what happens in state and federal rebates or any kind of attacks.
Benefits that come as kind of onetime or so we start with the base rate and then we as we see benefits will tell you that what's going to happen.
Okay Gotcha and.
What.
You guys talked about.
There's some capacity this coming in.
And on that.
Commercial roofing side of the business.
So you talked about.
Capacity being pretty tight I guess.
Your capacity I mean, when you think it keep you okay.
I guess, maybe the first two more than the more than he began but how would your capacity utilization.
Others are adding capacity.
To the are you going to need to add capacity soon based on.
Your plants are running just kind of curious your thoughts there.
Well, it's a balance you know factories take a long time to build their expensive we like the long term view, we're going to we're going to keep our market share mine keep our new product development in mind.
Keep our segments in mind to make sure. We're we're positioning ourselves. So that we don't have excess capacity, but we have just the right amount I think the team. There has just done an excellent job on this.
I think we will need to add capacity in the coming years I'd say in the next.
Year to three years will add some capacity in different areas.
With respect to eat Pdm I don't see us, adding any capacity Pdm I think we added capacity will be along lines of TBR Poly ISO.
Or perhaps in our or polyurethane business or metal, but we like the way the teams running for the last two decades, we think we've been right.
And with our.
Past city versus the market trends and I think Thats you know degree good shape.
Okay, and then I guess I just want to make sure.
I understood so high single digit present sales growth.
And.
What is baked into that for the the seven.
77 Max.
Is that is and I think you're kind of alluded to it earlier does that assume that its.
The first half of the year.
It's not being produced and then in the second half. It is so you know the first half is being impacted by the second half. It isn't is that the right way to think of what's baked into that.
Guidance.
Yes, Kevin we took a pretty conservative outlook on the 737 Max it although it may come into service and we're hoping it comes in.
[noise] mid year, there's been a lot of a lot of.
Fits and starts with this so.
We're thinking 50 million.
For the year negative and if you.
In revenue and if you.
Take that by what I talked about early about 100000 per plane at about 55000, a month, obviously that gives you a number that looks more like a year of non production but.
But we're saying.
Lets get it back in service was feel more conservative on our outlook and even if it comes into service.
They still have to train a lot of pilots after do other things and we'd rather be a little bit cautious there and what we're projecting.
Okay got it okay. Thank you very much.
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There are currently no further questions at this time I'll turn the call back to management.
In closing remark.
Well thanks, Josh Thanks, everyone else. This concludes our fourth quarter 2019 earnings call.
I look forward to speaking with you all our next earnings call.
This concludes the conference for today. Thank you very much for joining US you may now disconnect.
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