Q2 2020 Carlisle Companies Inc Earnings Call
Good afternoon, My name is Josh and I will be a conference operator today at this time I would like to welcome everyone to the Carlisle companies' second quarter 2020 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will conduct a question and answer session 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 second quarter 2020 earnings Conference call.
We released our second quarter financial results after the market close today and you can find both our press release in earnings call Slide presentation on our website at Www Dot Carlyle Dot com and the Investor Relations section.
On the call with me today, our Chris Koch, Chairman, President and Chief Executive Officer, and Bob Roach, Our Chief Financial Officer.
Today's call will begin with Chris disgusting business trends in experience <unk> business trends experienced during the second quarter and provide context around our confidence in achieving vision 2025.
Bob will discuss carlyle's second quarter performance and current financial position.
Following christened Bobs remarks, we will open up the line for questions.
Before we begin please refer to slide two of our presentation, where we know that certain statements made during this call maybe forward looking in actual results may differ materially from our expectations due to a number of factors, including impacts from cobot 19.
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 investing in Carlyle should read these Stephens carefully and review reports, we file with the FCC before making an investment decision with that I turn it over the call to Chris. Thanks, Jim Good afternoon, everyone. Please refer to slides three four and five for these opening comments.
To begin by saying, how proud I am of Carlyle's global team and their perseverance and ability to execute and these uncertain times.
Girls employees have rallied around each other our customers and their communities by supporting critical infrastructure continuing to operate our factories and distribution centers at a high level. Despite limitations born out of adherence to rigorous global health and safety guidelines.
All the while remaining supported and positive contributors to their families and local communities.
Their dedication to a safe work in home environment is commendable.
As I mentioned in the press release.
Well overall infections and our global organization of remain low we're sand as we reflect on the loss of three Carlyle family members to the virus.
Maria ROI Gilberto, they will be missed and as with any loss at Carlisle, We're all affected.
We all wish their families the best as they agreed their loss.
I cannot leave this subject without all sustaining as I've done through my weekly correspondence with their global employees since the start of the pandemic that the reality is that this virus is a serious threat to our health.
And our economy.
And that our efforts to protect ourselves in each other must have the highest priorities.
Like the now transition to the second quarter results.
As we review the results I want to reiterate the Carlyle has been deeply impacted by the virus in many ways. We're fortunate to have a strong and solid foundation as a company.
Throughout the second quarter, our businesses remained in operation as they were deemed essential which we view as evidence of the importance of our products and the employees to design and produce them.
We took pride in keeping layoffs and reduced hours to a minimum which helped provide the uninterrupted service to our customers that they have come to rely on.
Allowed us to continue our progress on key initiatives related to vision 2025.
However, we did take actions that resulted in production start global workforce in the quarter, most particularly in the United States.
Well the second quarter, certainly was challenging we're pleased with the resilience of the CCM business model, enabling carlyle to whether a potentially prolonged economic downturn and allowing us to continue to invest in our high growth platforms of architectural metals.
Polyurethanes medical technologies, and fluid technologies, which will enable us to merge emerge out of the pandemic with strong growth prospects.
We remain committed to emerging from the current market challenges in a strong financial position and able to leverage that financial position in the future growth and earnings in our core businesses.
Bob will provide more details later in the call, but I want to touch on some important areas of our current financial position.
As of the end of the second quarter, we have $738 million of cash coupled with an untapped $1 billion credit facility.
We expect strong free cash flow in 2020, with a conversion rate greater than 125%.
And fully expect to increase our dividends in September for the 44th consecutive year.
Despite the unknown impacts and challenging dynamics of this current situation I want to be direct in saying, we remain absolutely committed to and focused on $15 in earnings per share has commented plated.
Envision 2025.
Some of the things that reinforce our conviction in our ability to deliver vision 2025 include.
The following PC.
Well positioned to exhibit resilience during this global market downturn, we still foresee a robust and growing reroofing market the positive trends continuing well through 2025, driven by the need for maintaining an aging U.S. roofing infrastructure.
This distinction is important as most of CCM sales are driven by replacement demand not new construction.
We also anticipate benefiting from ccms variable cost structure and lower input costs near term due to our size and scale. We believe we have the lowest cost structure in the industry create the most value through our Carlyle experience.
And remain the disciplined price leader in the market.
CCM status as a best in class building on blip solution provider continues to be evidenced through price in market leadership superior products and service industry, leading innovation a strong reroofing backdrop in an operating income profile approaching vision 2020, fives targeted 20%.
Over 60% of Ccms product is typically ship directly to the job site.
And the second quarter this percentage increased.
As the industry came out of locked down smaller window. The contractors had to work with made the efficiency of the Carlyle experience that much more important.
We reinforced our commitment to our customers have never failing to deliver the right product at the right place at the right time every time.
We remain very pleased with the progress we continue to make on our newer platforms of polyurethane and architectural metals within CCM.
And then polyurethane spray foam continue to regain significant market share helping to drive flat year over year revenue in the quarter, despite the challenging conditions.
Architectural metals revenue exceeded overall CCM average percentage sales declines in the quarter architectural metals continues to progress on post acquisition profitability improvements, including significant integration initiatives.
Through June and ended July at CCM, We continued to see improvement in daily sales volumes that began in may.
Provided this trend continues we anticipate third quarter sales at CCM will declined high single digits year over year significantly better than the 20% declined during the second quarter of 2020.
As expected Ccms operating income margins of 18.7% during a very challenging second quarter exemplified its profitability resilience and importantly, Carlos position in the market driven by the valued Carlyle experience.
As for interconnect business coming into the year 2020 was already forecasted to be significantly burden by ongoing issues surrounding Boeing 737, Max in addition to lower production of other Boeing and Airbus platforms.
The emergence of Govan 19, and its impact on airline travel had an almost immediate and substantial effect on both aircraft production and airline investment in existing fleets.
In response, our CIO TTM initiate an acceleration of restructuring actions that will right size, our manufacturing footprint in line with expected demand over the next few years.
Well see Itcs commercial aerospace business as expected declined approximately 50% in the quarter. The team took actions to manage cost, which assisted greatly in delivering only a slight reported operating income loss.
The overall division despite restructuring costs incurred in the quarter.
Ongoing actions to restructuring improve the efficiency of our manufacturing footprint over the past few years combined with the accelerated actions were currently taking.
Physician CIO well to suffer minimal losses in the remainder of 2020, despite restructuring costs and once in a lifetime declines in aerospace end markets.
Despite aggressive action to maintain profitability, we continue to invest in new products into talent and into our manufacturing operations to ensure we are maintaining our industry, leading position and are able to execute our customer expectations when production of aircraft resumes.
We expect similar year over year revenue declines and CRT aerospace for the third quarter has experienced in the second quarter as inventory in the supply chain continues to be worked down and forecast for recovering global passenger travel remain muted.
Recently, some positive signs of emerged in the aerospace markets. While we all know that the aerospace markets have been significantly impacted by the pandemic. We do remain confident that overtime because passengers will become comfortable with the safety measures Airlines are implementing and we're also encouraged by recent announcements of the progress towards the development of a covert 19 vaccine which wants to pay.
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Should accelerate a return to higher levels of air travel. Additionally, Boeing 737, Max move closer to that they approval with the completion of certification flights on July 1st a key step in returning the aircraft to service.
We remain a supplier of choice and we will continue to invest in our assets that support the aerospace market.
Despite the fact that the agreement with premium to purchase fearful like business expired in June we remain committed to strategic acquisitions that broaden our product and geographic breadth.
And ultimately will benefit from a resumption of growth in both aircraft build rates.
And airline spending.
To offset commercial aerospace declines, we are seeking new opportunities with space and defense customers positioning Cie to take advantage of opportunities created by market disruption.
The largest offsetting driver at CA is however, clearly it's medical technologies platform.
We entered the medical technology space several years ago through the acquisition of LHC Guy with the concept of leveraging our core wire and cable expertise into the med Tech markets.
We added microeconomics Red group and Providian in the last two years and Medtech remains a key area of focus for both organic investment.
And bolt on acquisitions.
Organically Cie medical technologies grew 15% year over year in the second quarter, driven by increased demand for cobot 19 related patient monitoring equipment.
Recently acquired Providian, which expanded our component of vertically integrated device solution capabilities.
And along with that new market Adjacencies and customers continue to perform well.
In addition product rationalization actions taken in legacy medical product lines in 2018, and 19, coupled with ongoing Cmos efforts have improved CHC medical technology margin profiles.
Which as anticipated we will help Cie is overall margin is contemplated and vision 2025.
Our long term bullishness on Medtech remains intact, and we CCTS revenues trending towards a better balanced and more profitable mix.
Near term well see idea medical technologies remains in a positive us at the CIA to aerospace weakness, we remain watchful of key med tech demand drivers such as hospital Capex.
Elective surgery and procedure deferrals continue and particularly in the us they continue.
Taken together, we expect third quarter revenue year over year declines for Cie overall to be a similar magnitude as reported in the second quarter.
Turning to CFC.
The impact of covered 19 in the second quarter exacerbated an already challenging end market demand environment that had been impacted for the past several quarters by the us China trade negotiations and subsequent industrial production slowdowns.
While year over year revenue declines of over 30% were greater than anticipated and weighed heavily on operating income results.
If you saw improvement each month throughout the second quarter as we continued our steady progress on the initiatives lay down and vision 2025.
We remain committed to the margin enhancing actions, including pricing market share gains and new technology.
Our new technology initiatives can be highlighted by the launch of our market differentiated premium solution for spray foam applications launched in the second quarter.
We're pleased to begin the third quarter with an industry first combining CFTC spray foam equipment with CCM spray foam insulation polyurethane products.
We're also encouraged by the strategic acquisitions and sealant and he says.
We made in 2019 and the progress were making to complete this product lineup.
CST also continues its focus on upgrading the customer experience through quality and delivery improvements in all our global locations.
Notably we are beginning to see positive signs and see if these end markets, particularly in Asia and are cautiously optimistic for an improved second half of 2020.
We currently expect third quarter revenues to decline roughly 20% year over year, an improvement versus second quarter 2020 results.
Coupling of stabilization to market demand with our internal initiatives, we will deliver significant leverage once volume returns.
Turning to CBF, the pandemic crisis extended the pressure CBF was already experiencing in the global off highway vehicle markets offsetting the significant actions taken the past few years in this business, including the Tulsa Medina plant consolidation.
And the launching of new products and excellent example of CBS investment in innovation is our recent obtaining of F.A. parts manufacturer approvals were pmeight for carbon aircraft breaks.
The benefit of these actions, which position CBF to meet our revenue and profitability expectations in the future or less visible given the current severe demand downturn, which drove sales down over 30% year over year in the second quarter.
We anticipate CBS third quarter sales to improve over second quarter declining mid teens.
Moving away from our business segments M&A remains a key pillar vision 2025, and we continue to evaluate opportunities to deploy capital into strategic and synergistic acquisitions across CCM CHP and CFC.
Our financial strength and cash flow generating capabilities afford us flexibility and we intend to remain opportunistic.
Notably in as discussed in the past when acquisition activity a subdued we remain committed to returning capital to shareholders. This is evidenced by our deployment of more than $190 million in share repurchases in the first half.
2020.
And finally, we continue to focus on deployment of the Carlisle operating system CLS, we'll continue to be an essential tool for our businesses to rely on as they seek new opportunities to make our operations and business processes more efficient in this challenging environment.
Cmos remained on track in the second quarter generating savings and efficiency gains exceeding 1% of sales.
Well within our projected 1% to 2% plan.
Provision 2025.
I will now provide operational and financial detail about our second quarter and review our balance sheet cash flow Bob. Thanks, as Chris mentioned earlier, we had a challenging revenue and earnings quarter, but I'm pleased with the resilience of our cash flow the strength of our balance sheet on our liquidity position with $738 million of cash on hand $1 billion.
Undrawn under our revolving credit facility.
As a reminder, late in the first quarter, we drew 500 million from our revolving credit facility due to the instability in the financial markets at that time.
This was fully repaid in the second quarter as credit market stabilized.
Please now turn to the revenue bridge on slide seven of the presentation.
Revenue decreased 22.1% in the quarter to $1 billion.
Organic revenue declined 23.8%.
Acquisitions contributed 1.9% sales growth for the quarter and FX was a 20 basis point headwind.
Turning to our margin bridge on slide eight Q2 operating margin declined 470 basis points.
Pricing and volume headwinds combine from minus 730 basis points and acquisitions were a minus 90 basis points.
Offsetting those Cmos added 100 basis points net restructuring and rationalizing costs were additional 50 basis point headwind freight labor raw material other operating costs netted to a 300 basis points improvement.
On slide nine as always we have provided EPS bridge.
We reported second quarter diluted EPS from continuing operations of $1.36, which compares to $2.65 last year.
Volume price and mix combined were $1.63 cents year over year decrease while tax and interest combined for an 11 cents headwind.
Restructuring was a nine cents headwind, while covered related and acquisition related costs were both five cent headwinds.
Partially offsetting these raw material right and labor cost netted to a 15 cents benefit.
CLS contributed 18 cents.
And lower operating expenses contributed 25 cents.
While volume declines clearly represented the most significant headwind during the quarter our teams around the world that a commendable job managing cost to help mitigate its impact on earnings.
Now, let's turn to Slide 10 review second quarter performance by segment more detail.
At CCM revenues declined decreased 19.7%.
Acquisitions contributed 2.1% of the growth organic revenue was 19.7% while foreign currency translation was a 10 basis point headwind.
Operating margin at CCM, 18.7% in the quarter, a 120 basis point decline over last year driven by volume.
Partially offset by raw material savings and CLS.
Ccs and executed well on delivering approximately $16 million of net price cost realization in the quarter.
We now anticipate full year net price cost realization of approximately $60 million for the full year 2020.
Please turn to slide 11 are you seeing these results CIA Ti revenue declined 25% in the second quarter.
This decline was driven by the crisis and commercial aerospace markets, partially offset by a positive trends in our medical technology platform.
Cie is operating margin declined 1540 basis points year over year to negative, 0.8% driven by commercial aerospace volume declines accelerated restructuring actions.
These were partially offset by savings from CMS on price.
Turning to slide 12.
Cfd sales declined 30.9% year over year organic revenue declined 34.2% and acquisitions added 4.3.
Present in the quarter.
Cfd was still experiencing the lending efforts lingering FX effects of Brexit USA penetrate and goji Asians and automotive market declines, which is now exacerbated by called the 19.
Operating margins declined 1610 basis points year over year to a negative 11.2% as significant volume declines unrelated deleverage were partially offset by lower sta and efficiencies from CLS.
CBS results are outlined on slide 13.
Organic revenue declined 31.1% due to an accelerated Tobin 19 related decline in all regions made more acute by temporary plant closures in Europe and Asia.
FX also had a negative 1.4% impacts.
Operating loss was $1.6 million in the quarter or negative, 2.7% operating margin driven primarily by volume declines and higher restructuring costs.
On Slide 14, 15, we show selected balance sheet metrics, our balance sheet remains strong as we ended the quarter with $738 million cash in hand, and a $1 billion availability under our revolving credit line.
We have deployed approximately $71 million in second quarter repurchasing 556000 shares.
We paid our second quarter dividend totaling $20 million on June Onest, and anticipate increasing our dividend in September for the 44th consecutive year.
We continue to approach capital deployment in the balance and disciplined manner investing in organic growth capital expenditures Opportunistically purchasing shares while also actively seeking strategic and synergistic acquisitions.
Cash flow for the first six months of 2020 was a solid $177.8 million and as a reminder, CCM typically generate stronger cash flow in the second half the year.
We expect overall carlyle to generate free cash flow conversion in excess of 125% for the full year.
Turning to slide 16.
Our outlook for 2020.
Chris earlier gave third quarter revenue guidance referenced here.
As you can see our items affecting effecting comparability and corporate items.
As we move through the second quarter refiner restructuring plans and tightened our estimates around the future costs.
Corporate expense is expected to be approximately $85 million for the year slightly higher than our previous estimate primarily due to higher transaction costs.
We continue to expect depreciation amortization to be approximately $230 million.
For the full year, we continue to invest in our business and now expect capital expenditures of 102 or $110 million.
Net interest expense is expected to be approximately $75 million for the year and we now expect our tax rate to be approximately 23%.
And with that I'll turn the call back over to Chris.
Thanks, Bob Carlo we remain committed to our vision 2025 objectives, ultimately driving to $15 in earnings per share.
The foundations of vision 2025 success rest on driving organic growth with leverage utilizing CLS consistently to drive efficiencies building scale with synergistic acquisitions.
And over $3 billion and capital deployment.
When coupled with our long standing in defining management approach of combining continuous improvement and entrepreneurial spirit and decentralization with an increasingly center that framework, we creating unique culture, which assures that the day to day energy focus and efforts of our employees are directed towards actions that drive results and support the key initiatives within the context Division.
2025.
In closing I want to again express my thanks to our dedicated employees their families our business partners and all those associated with Carlyle success, given our 100 year history and the resilience. This company is shown in times of diverse ever diversity and uncertainty we remain confident in carlyle's outlook, our strong financial Foundation.
Cash generating capabilities unwavering commitment to our vision 2025, strategic plan and to providing products and services essential to the world's needs.
This concludes our formal comments, Josh we're now ready for questions.
Certainly just as a reminder, if you'd like to ask a question. Please press Star then the number one on your telephone keypad and your first question comes from Brian Blair with Oppenheimer. Please go ahead.
Good afternoon, guys Paramount's doing well.
Alright.
I was hoping you could provide a little more.
Detailing CCM volume by month April was tough down over 30%.
Then there was some recovery from there any numbers you can offer on May June and July to date would be helpful.
Brian I Wouldnt want to get any specifics, but definitely it was it was worse in April and then improved straight through June and has improved in July as well.
Okay. So there is some momentum going into the third quarter definitely some momentum going into third quarter.
Got it.
And then on price cost you realize about 36 million for the first half. So guide updated guidance implies about 24 in the back half how should we think about that cadence.
Reasonable to assume most of that comes through in the third quarter.
Yes, it's going to be more heavily weighted.
For the third quarter.
And then probably about five I'd say in the fourth quarter as we're sitting here today.
Got it okay.
And then Chris you you mentioned confidence in your prepared remarks about the health of the Reroofing cycle. If we if we take that as is and think about the the growth prospects of your newer growth platforms.
What kind of declines would there have to be in the smaller new construction revenue that you have in ccms.
Offset the drivers that will likely be an over the next year.
Brian I am going to have to defer that warranty and get back to I'd hate to give you a number without significant side of that you know all are all are focused right. Now has really been focused on 2020 here and getting through and being happy with what we what we've seen.
But let me let me give back.
Okay. That's fair thanks, guys.
Your next question comes from Tim watches with Baird. Please go ahead.
Hey, guys good afternoon.
Hi, Tim.
Maybe just.
This does sell in the last question normal.
How are you thinking about just the underlying reasons dynamics.
Mckesson has anything really changed your view and I guess as you look at your contractor base and some of the backlog how would you kinda talk about re repeatable versus maybe new construction and the visibility to that as you go into 2021.
Well I think you know we start with the the information I Think's Bob's been pretty good about providing relative to reroofing demand as we look at the roofing cycle. We looked at the 20 year Rufus typical and then we look at how that build certainly through the.
The end of this decade, and a little bit into the next decade, I look any further out than in that time period that would be speculative I think there'll be some product developments to change things, obviously as we get to the thirtys.
I think if you look at the backlog it's been relatively.
Flat, maybe a little bit decline in the second quarter in contractor backlogs, but I think the work is still out there and obviously the delays that occurred in.
In.
April and May as people work through the the requirements in the shutdowns and all that that impacted the roofing reroofing market only in the sense that it just added to the back I mean, we still have the same amount of roofs. They still have to be done.
You know they just keep getting prolonged and hopefully we can get through those I think on the new construction side.
You will see some some variability has been a lot of talk across the country about different working habits more working from home we know that.
Suburban environments provide better opportunities for flat roof constructions, and let's say downtown Manhattan.
So I think it's a little bit early to tell on the new construction side and what's going to happen obviously, the that's impacted as it can be deferred and and.
New construction can be challenge it has to go through the Capex process, where I think on the re roofing side as we've said in many cases, even I'll give you. The example of old Kmart or Sears or buildings like that that are being re purpose. The roof still has to be done. So I think we're we're just still on the same track we run for Reroofing.
We're still bullish on Reroofing, obviously coat covered in the second quarter impact is settle linger into Q3, but we don't see any reduction in in our backlog of re roofing product projects as we go through.
Into 2021, and 2022 and on from there.
Okay amount about okay.
Certain Chris Okay.
Yes, if you guys had heading yes, how much do you think destock cost you in the quarter.
It was significant Bob can probably give you a better answer for that to me, but what I would say as it was significant and I think that was there people were pretty public about not wanting to load up and that really we would have started that right into March and would carry through and it was it was impactful Bob any thoughts on yes.
Were down 20% overall, Tim. So you can think maybe 5% of that could have been destocking from the data, we're seeing but it's hard to judge because you don't know what that would have been sold through the end customers in the time, we sold as Chris mentioned on the call. We shipped more direct this quarter than we did last quarter.
Our last year this quarter, so it's really hard for us to quantify that exactly.
Okay. Okay, Gotcha, and then I guess on the cost savings also had just a cost savings at the $35 million to $45 million charges. This year.
What would you.
Do you think the cost savings annualized cost savings would be around those charges. So you get the charge is back to some extent next year and what would be kind of be associated cost savings of that.
Yes, Tim the Big issue. There is a lot of this is not infrastructure related it's not like the Medina.
It's also Medina move where you're taking out fixed costs. The quick stuff. We did I mean, we did take out one factory and C.G., but a lot of is reducing capacity and capability with the massive reduction in aerospace and in our other plant. So.
It's it'll be down as long as it will go on but as soon as kipp.
Volumes come back we're going to add some of these costs back.
Okay. Okay that makes sense alright, thanks, guys. Good luck on second half.
Thank you.
Your next question comes from Adam Baumgarten with Credit Suisse. Please go ahead.
Hey, guys. Thanks for taking my question just on the net price our net Rob benefit.
That obviously contemplate price is the outlook today for price alone and.
Just more qualitatively better than it was when you last guidance in April given buying that looks a little bit better oils at the time.
Yes, Adam I think our outlook on prices is all in cost is obviously weighted to where we are in the cycle right. We we had a point a quarter ago, where oil was down to I don't I think was $15 a apparel, it's gone up since then.
So we're feeling more confident in the cost side, but we also don't know how much further that's going to Ron and those who followed us for a long time no usually conservative on the out two quarters a cost because these things have a tendency to spike pretty quickly if they do spike.
On the price side prices is we're maintaining price for the first half of the year.
Essentially flat and then the second half price is all going to be tied to volumes. So if we're able to maintain volumes and have volumes flatter growing were feel we can we can maintain our price if.
Thank you get tough and volumes remain down.
People will be Jason.
Some share and will going to have to play along a little bit. So we're trying to balance those two together of what's going on on one side with the other and they aren't Musa mutually exclusive.
First thing.
Yes.
I guess than just secondly back to the contractor backlogs.
Anything thats jumping out whether its regionally or even by commercial vertical at this point or is it all pretty consistent what you're seeing.
No theres been some deviation between some of the verticals I think we've seen some pretty consistent and maybe even a little bit of acceleration around educational.
Spending.
Some of the retail has been down obviously, we everyone understands the impacts there and what's happening. So I think on on the Dodge reports and that you would see that kind of thing.
Again within most of our business on the Reroofing side, it's again, it's spread across those verticals and we don't see that same impact because again, you've got to you've got to fix that roofer replacement when it occurs but I think on the new construction side, you would see some differences in the verticals.
Great. Thank you.
Yes. Thanks.
Your next question comes from given we've loop capital markets. Please go ahead.
Hi, Thanks, just wanted to follow up on the Destocking question can you think that restocking is going to normalize here by the third quarter.
Or do you think that maybe this shift to correct. The job site shipping could end up being permanent phenomenon.
Well take the first one I don't think it's going to be a permanent phenomenon. We are set up to do that we do it because of the size of the jobs in the packaging the material and efficiency to deliver it but our distributors play a very key role in a lot of the business that we do that smaller stuff they can store onsite and.
I do think we will see some resumption of restocking as confidence returns in in some normality I mean, I think the thing that on that side that really hurts. You is your distributor you don't want to all of a sudden get a mandate that we're not doing construction anymore. There's some restrictions people can't come into your distributors shipper that and then you're sitting on inventory that's.
Costing you dollars and you're not moving it so I do think it's things stabilize and we'll see some some restocking there I don't think we'll see the big restocking, we would have seen pre the season I think we've dealt with that and getting into the third quarter, we're done with that so.
On the first question.
Bob you want to handle that.
I guess, maybe can rephrase your first question again on.
No I think you answered yet.
Next question.
One question two parts just around the timing of any restock and.
Thats going to be sustainable long term so im good there. Thank you.
Second question is just on any regional trends that stood out in the quarter NCCN.
You had some of the.
Down to the northeast impacted April.
Did you see those markets come back and then I guess Conversely, as we got into late June and July with the virus spreading more into south is there any change to demand in some of those regions that are impacted by the virus.
It's a little bit early to to be picking up any real significant changes in these new hot areas, you know, Florida, Texas and.
Arizona and that I mean, those have been good states for US, Texas has been good floor is good.
In the in the first part of this crisis.
So your boss to shutdown that impacted things, we had new York shut down we're Pennsylvania shut down we had Washington shut down those states were obviously affected I think.
Pennsylvania had some retrenchment last week around further restrictions I'm not sure the extended into the construction industry in terms of shutting down job sites, but they did impact our employees at our.
Our carlyle facilities within Pennsylvania. So there were a few states that were more heavily impacted and I and I think I stated who those are and then I think we'll have to watch and see what what happens.
I can tell you that the.
The consumer the contractors that I've talked to have done a really good job of implementing CDC guidelines in the workplace, you're finding hand, sanitizers on a job site specific mask wearing if they're not wearing them already for the jobs are doing a social distancing and it has put a little bit of a damper on the work in the efficiency there but.
I think the contractors and distributors are doing a lot to at their locations to make sure that we don't shut down again, and we can keep that revenue flowing get these jobs done and keep people employed.
Okay. Thanks, and just last question just don't see IP. It looks like just from a sequential standpoint looking for relatively flat revenues in the third quarter compared to the second quarter I was wondering if you're looking out into.
And the year would you expect.
Any sort of sequential improvement in T. as you kind of becoming your order book.
I don't think so I think like you were looking out in the future we hear a lot of different forecasts everything from things coming back in 2022 to I saw something on TV that today no one ever fly again now that they can do assume meeting so somewhere in between the two we're probably or is there. Some version of the truth is out there that hasn't really unfolded I know.
Airbus did not have any new orders in June or or so far in July I think Boeing struggling with the 737 Max issues to get that up we did see some issues around the 787.
I would I think it would be overly optimistic to think anything grade is going to occur in the fourth quarter. So I think we'll probably just be looking at more of the same through the end of the year.
Thanks for the help.
Yep.
Your next question comes from Kevin Hocevar with Northcoast Research. Please go ahead.
Hey, Hey, everybody.
Okay.
I was impressed with pricing.
Remaining flattish in.
Do you have is pretty impressive given the.
Volume declines that we've seen in the in the period.
Ed seemingly the expectation that we're going to continue the volume decline.
Third quarter, so what what do you would tribute that too.
Just curious your thoughts on on the ability to hold price in that environment.
Yes, I mean, it Kevin I go right back to the Carlyle experiences team at Carlisle, and what a great day job they do around.
You know.
Making sure people understand the value the carlyle's, providing them that's really what it comes down to our teams and I was on a weekly.
Soon call with our with our sales leaders and I can tell you that.
They're not selling a commodity theyre not selling a product that is.
Out there and everybody else has the same thing.
Alex or similar but our service levels are committed to the contractors. The systems, we put in place the the ability to solve difficult problems. You know some of our new products are creating a lot of excitement around cab group to our appeal systems things like that that really are differentiators out with our other contractors and distributors and I think.
I just as we keep summing up in the Carla experience, that's that's what people.
Once they get onboard and they start working with CCM, they see and they want that and they don't want crews standing around waiting for shipments to arrive. They don't want product sales in the field. They don't want to be short shipped in our team.
I was able to.
Successfully quantify that value for them and show them why it is better for their businesses to pay a little bit more for CCM to save costs and others later.
Yes, and then.
I think in the prepared remarks and definitely the press release you talked about.
Roofing participants.
Sounding like maybe they took a little bit.
Harsher actions during the downturn, which might have create an opportunity for you guys to show your your value and everything so did that lead to.
Do you believe that Youre, gaining share more sure I guess as a result of.
Maybe some of those actions that you taken at least in the second quarter or just curious your thoughts.
No I think that we.
You know the pricing we held onto we did walk away from a few jobs I mean, there ought to people that.
Through some prices out there that we're just unacceptable and didnt adequately capture the value. We provide I think will be interesting to see as if the actions taken in the second quarter.
Caused any material shortages as we move into Q3 and into Q4 I remember, we if we coupled the destocking efforts with.
Other cost saving measures those wouldn't have shown up in the second quarter. Those will typically show up as people worked through their jobs and and obviously, we highlighted that we've been putting an inventory and we're still working and we're there to support the cuts the contractors and distributors. So we'll see how that unfolds in the third quarter. If if people were too aggressive in there's a.
A shortage of their products, obviously, we'll be able to step in and fill that void and at that point than we probably gained some share and we're prepared to do that but right now I haven't seen any of that.
Okay got it and last one for me just given the environment.
Are you noticing any.
Customers doing more like patch and repair work or something where they can kick the can down the road a couple of years.
Before.
No needing to replace it or.
Are you not seeing that just curious if you're.
That at all.
Yes, I mean my limited.
Exposure here would tell me that the only reason they would be doing.
A patch in repair rather than a full replacement. If it was needed was only because they weren't able to have access to the building for very long because of restrictions, let's say in Boston or something you could only doing emergency or that but.
The contractors were dealing with or the they're the best in the industry. They follow the best practices I mean, nobody is going to go up and and do a.
Patching repair went to one or full replacement as needed they're just not going to do that so if we did see any of that it was really I think just to get them through the restrictions or were there and then people that we associated with and sell Carlyle and work with Carlyle only do good jobs and so I don't think you'd see any short.
Shifting on a job we're trying to get by for a couple of years, they're just going to do the rate job for the for the customer.
Okay makes sense. Thank you.
You're welcome.
Your next question comes from David Macgregor with Longbow Research. Please go ahead.
Yes, good afternoon, everyone.
Okay.
To what extent you feel that any of your products I'm thinking that maybe the tipo were approved but any these products could benefit from an energy reform agenda or legislation by Wednesday elections fall and what would increased energy efficiency standards mean for.
Commercial roofing and your business.
Well I'll tell you what I don't know about buying being elected and I don't know what he would do for.
For our business, but what I can tell you. If we look back you can see the growth in our Polyiso insulation that was related to two things one was.
Local building code reform, where people understood that doing the simple thing of adding another layer of polyiso insulation dramatically affected the.
Energy savings in those buildings and so we saw that runs through.
The United States I'm going to say, starting maybe six seven years ago. It was codified in a lot of areas. It continues to be it is become kind of standard industry practice and if you look at our Polyiso sales over the last.
Seven years, you can see that that growth and poly ISO has corresponded nicely to that so we think thats one of the good stories around.
Energy efficiency savings in the current experience and really putting together systems that could benefit from that we've also sold a lot of what we've called green roofs, where we have people planting.
You know.
Kind of different things and putting ponds and things on roofs, with our membranes and creating a more.
I'd say sustainable environmentally friendly roof. So I think whatever administrations, there I know where customers are looking for different ways to reduce energy expense to create a more green environment and I think a lot of that has gained some much momentum that I don't know that you need to political agenda to do that people are doing it because it's the right thing to doing it.
And it saves them money in the long term.
Okay. Thanks for that and secondly, we could just comment on what you're seeing in terms of bidding patterns right now and just I guess to a question asked earlier on the call is there anyway to quantify the volume of business, Thanks, maybe being pushed out too.
2021, I guess your sales guys are coming back in saying that project is going to be.
But it's going to be done next year, rather than this year I'm just wondering if there's any way to put a magnitude or to quantify the extended that push.
You know I guess and Bob can jump in on this give him a minute to think of it but I think from my perspective. It goes back to that idea that we look out and I think probably Bob showed you. His chart on on roofs that are coming due after 20 years of of life and I think.
You know, we just say anything that wasn't done this year that fit our 70% to 80% of Reroofing is going to be done next year, and so I don't think theres anything thats loss. There I think that will move forward into next year I think the biggest question again is are we going to be facing a different work environment, that's more difficult for contractors to operate it's more.
Difficult for them to be efficient.
And if that happens.
Then dynamically obviously, we'll have an impact on how many of those projects, we can get caught up in but they pretty much for our reroofing. It's just carries over as we've seen in and many situations with winters. When we have a tough winter.
We pick it up the next year or it gets added to backlog Bobby on I think now I think that that's exactly it crescent with the second quarter being down 20%, we expect that to get kicked out as Chris said into a future quarter within the near term.
Also the I think we Didnt talk about is.
The ability to get jobs done is built around the ability to get permits and the fact that people arent in offices, sometimes today. So that's having a little effect on delaying as well as the restrictions on the group so and we expect that to come back as we get the ended the year.
Okay, great. Thanks, very much and good luck.
Thank you.
Your next question comes from Joel Tiss with BMO capital markets. Please go ahead.
Hey, guys wanted to go on.
All the good view.
Reactive is not the right word, but sort of adjusting to that to the current environment.
Yes.
Most of the costs I mean, the large restructuring is being directed towards.
In largely the aerospace environment as we sit here today I mean, there was some at CCM summit corporate some of the other businesses, but they're smaller and magnitude and most of those are of the what use your whereas reactionary to bring infrastructure down demand.
On C.T., we did close one factory early in the quarter, which is a structural cost change bought a lot of it I would say 75% of the cost reductions that FDIC, even are just bringing workforce, both direct and indirect down what the volumes were seeing across the aerospace business.
So not a lot of structural change right now.
Okay.
And then.
Do you think that 2 billion dollar roughly capacity you guys have for acquisitions, plus whatever kind of recovery we have is enough.
To get in the ballpark in your $8 billion of 2025 revenue goals.
For sure yes, absolutely.
Okay.
Well that's great. Thank you so much.
You bet Bill Thank you.
Your next question comes from Daniel along with Brian Bird Capital. Please go ahead.
Hey, guys. Thanks for taking my question I just have a quick question on the Q2 operating cash flow.
Pretty sizable improvement versus last year, obviously alpha lower net income base, but just wondering what primarily drove this perhaps some of it was a reversal in working capital headwinds experienced in Q1, but is there anything else.
Yes, a lot of it but good good working capital Daniel sales reduced our teams did a good job of reducing inventory collecting receivables. The one thing I as a CFO are really impressed with throughout this quarter in this tough environment that our receivable days did not increase so that means our receivable balances came down.
And the teams did a good job of managing inventory, while inventories hard to take out quickly.
We did a good job of managing it and pushing out as much we cancel a lot of its working capital related you will see also that on the Capex. We continue investing capex were not starving the business, we're looking to invest for the future. So it's working capital that we're able to manage.
And just one follow on you might have briefly alluded to this already but just any updates on the current M&A environment has activity in the pipeline improved since the end of last quarter or we still see I suppose had sellers hesitant to monetize assets.
Yes, there is a bit of a delay I think in the second quarter, a pretty much everybody was focused on.
The existential threat to appeared in in April and I think than we've seen some.
Some changes, where we're seeing a little bit of deal flow come back certainly there are some.
Assets that are out there, but I think the big thing for US is again, we've always tried to be very.
Judicious in or use of funds and how much we pay and making sure that we can get the hurdles to be covered and our cost of capital in that and so I think right now when you look at.
The uncertainty going forward it makes it more difficult to get a value that both seller and buyer can kind of reach and agree and think it's it's.
Reasonable for both let's say.
Perfect. Thank you and good luck.
Good.
There are no further questions at this time, we'll turn the call back to management for any closing remark.
Well, thanks, Josh Thanks to everyone. This concludes our second quarter 2020 earnings call. We want to again. Thanks for your participation your interest in Carlyle hope everybody stays healthy and we look forward to speaking with you at the third quarter call. Thank you.
This concludes today's conference call. Thank you for joining you may now disconnect.
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