Q4 2020 Carlisle Companies Inc Earnings Call
Good afternoon. My name is Annie and I will be your conference operator today at this time I would like to welcome everyone to the Carlisle companies fourth one is tiny tiny earnings conference call. All lines have been placed on mute to prevent any back on the night. After the speaker's remarks, we will conduct a question and on.
The session I would like to turn the call over to Mr. Jim Gannon chorus kind of lives Vice President of Investor Relations. Jim go ahead.
Thank you Annie.
Good afternoon, everyone and welcome to Carlyle's fourth quarter 2020 earnings Conference call, We released our fourth quarter financial results. After the market closed today and you can find both of our press release and earnings call Slide presentation on our website at Www Dot Carlisle Dot com in the Investor Relations section.
On the call with me today are Chris Koch, Chairman, President and Chief Executive Officer, and Bob Roche, Our Chief Financial Officer.
Today's call will begin with Chris discussing business trends experienced during the fourth quarter of 2020 view.
Views of what's to come in 2021.
And context around our continued confidence in achieving vision 2025.
Bob will discuss carlyle's fourth quarter performance and current financial position.
Following Christian Bob's remarks, we will open up the line for questions before we begin please.
Please refer to slide two of our presentation, where we note that comments made on this call may include forward looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different.
Discussion of some of these risks and uncertainties are provided in our press release and in our SEC filings on forms 10-K and 10-Q.
Those considering investing in Carlisle should read these statements carefully and review reports, we file with the SEC before making an investment decision with that I will turn the call over to Chris.
Thanks, Jim Good afternoon, everyone entering what is now the second year of operating in this COVID-19 pandemic I hope everyone is healthy and staying safe.
All of them by saying how proud of him of the global Carlisle team for their perseverance and ability to execute on these uncertain times.
Our Covid statistics reflect the strong compliance to the CDC guidelines and safety measures all Carlisle employees the followed.
In 2020, we suffered 470 infections 15 of hospitalizations.
Sadly three deaths.
We continue to do our part to combat the spread of the virus the cause.
Combination with further progress on the vaccination rollout, we anticipate that we will continue.
The show or safety measures are working because of the Carlisle, maintaining health and safety is always our first priority.
This is in 'twenty claim for 2025 provide a clear direction and consistency of mission during a tumultuous 2020, and we will continue to guide our efforts as we accelerate into the recovery.
As we passed the mid year, Mark and entered the third quarter. We continued to build on the momentum started in late Q2, when our employees customers and supply chain partners increasingly we're able to work safely and efficiently and begin to get back to contributing the economic growth.
As the global community returned to work strong underlying deferred demand became more evident, especially in our building products business.
While we expect this momentum to continue with vaccines helped decrease risk. The construction industry is still contending with uneven regional disruptions due to COVID-19 restrictions severe weather in certain areas. The tight labor dynamics, which is resulting in deferred demand continuing to build the backlog of work.
Turning to slide for 2020 demonstrated yet again, the exceptional of sustainable earnings power of the Carlisle business model.
Over the past several decades Carlisle has been categorized as a diversified industrial company and rightly so as evidenced by our portfolio of contacts or content multiple acquisitions in a variety of segments ranging from fluid handling of the medical technologies.
And our legacy strategic goals.
However, since CCM introduced the first single ply E. P. D M roofing membranes to the market in the early 19 sixties.
Carlisle is growth in earnings have increasingly been powered by our construction materials business.
With over a half century of outstanding performance Ccm's influence on our overall performance has consistently expanded despite our diversification efforts, peaking in 2020, when it accounted for over 70% of revenues and over 90% of earnings.
In the past three years CCM has accelerated their world class performance leveraging consistent organic growth focused on providing the ultimate of customer service, the Carlisle experience and instituting greater price discipline, developing sophisticated sourcing and purchasing capabilities and maintaining of continuous improvement culture all.
Aiming to drive increased profitability and shareholder value.
In 2017, when we first contemplate of vision 2025, we turned the critical eye to our capital deployment efforts. It started a pivot to a more disciplined ROI focus.
It was that critical assessment and objective view of value creation that drove our focus under vision 2025 to apply a greater investment spotlight on the CCM.
A consistent 30% plus returns business Ccm's performance warranted and earned the right to share of the majority of investment dollars that were allocated to portfolio diversification at that time of key strategy of Carlisle was legacy approach of building out higher growth and presumably higher margin of platforms as the path to sustainable value creation with the.
Official rollout of vision 2025 in February of 2018 of our evolution was actualized evidenced by our recent extensive M&A and capital investments at CCM.
As shown on slide five CCM has continued to evolve from its roots in the early 19 sixties of a simple single ply roofing membrane division to today, where we deliver innovative easy to install and energy efficient solutions throughout through the Carlisle experience for customers, who are creating the sustainable building of the <unk>.
Future.
With our extensive line of building envelope products CCM offers a complete set of solutions and systems to aid in the design of efficient building envelope construction projects backed by industry, leading warranties.
And of focus on Green principles.
On slide six you can see how this building envelope concept can deliver substantial energy savings for building owners.
CCM products provide a substantial offset to the estimated 40% of greenhouse gases globally generated from the construction and maintenance of buildings that.
And our teams are focused on continuing to support the growing efforts and global energy efficiency.
Is because of this history of innovation investment and continuous improvement that we have more conviction than ever that ccm's future success of secure.
We believe the extensive planning of vision 2025 identified the strength of Ccm's core markets demonstrated a consistent re roofing revenue stream and elevated the power of CCM sustainable business model.
2020, only serve to crystallize our confidence.
Turning to slide seven I'd like to spend a few minutes talking in more detail about ccm's future on what drives our confidence in the CCM business model.
First as you've heard us speak about it leg Ccm's core business is predominantly driven by replacement roofing demand nonresidential buildings build 10 to 20 years ago makeup over 25% of current infrastructure and those routes will need replacing in the next decade.
As a reminder, roof replacements are not discretionary.
Aided by the Carlisle experience on our market position CCM should continue to capture of placement of installed roofing systems and grow share with new energy efficient labor, reducing and cost effective product of solutions.
In the $6 billion and growing market.
While the majority of our core CCM business revenue comes from re roofing past construction cycles, evidenced residential construction as a strong leading indicator of new commercial construction, which augments core CCM growth.
Growing residential construction demand, which accelerated in 2020, coinciding with urban relocation due to COVID-19 will require increased commercial infrastructure, including big box retailers hospitals warehouses and education of buildings to support a growing population of suburban families and workers.
Second as shown on slide eight.
The recent addition of our polyurethane platform. The CCM included spray foam installation, which is a sustainable high single digit growth market.
Our top performing formulations provide unmatched energy efficiency in both residential and nonresidential applications.
Driven by our industry first concept of of combined material and equipment solution, which we call Intel of spray. It was and it was developed and introduced with engineering support from Carlisle fluid technologies the car.
While CCM is uniquely positioned to grow at above market levels in spray polyurethane foam insulation.
This innovative new system will allow us to provide the contractor builder and homeowner with greater application efficiency and control savings from application efficiency improvements and ultimately.
Better foam insulation product.
Third like polyurethane architectural metals is an exciting new platform for CCM.
This billion dollar market growing at approximately two times GDP provides an attractive opportunity to diversify into the sloped roof market with a highly sustainable product on.
Our metals platform is seeing healthy organic growth as it offers of lasting high rois system solution to building owners generating solid pull through sales of CCM installation and other related products.
To support our regional growth strategy were expanding our metals footprint in 2021 by opening three new locations in the U S.
Metal roofing systems also complement our drive to deliver solutions to support the construction of an efficient building envelope that'll.
That'll roofs of 100% recyclable increased energy efficiency of the building up to 20% versus traditional materials and reduce waste in the manufacturing process.
Force, we're committed to accelerating growth in Europe of $10 billion or 10 billion euro addressable market.
To drive this growth, we recently changed leadership in the region and announced the investment of over $25 million to expand capacity of our German manufacturing facility.
Increasing demand on regulations for improved thermal performance along with integrated of roofing systems are driving a shift to single ply membranes in Europe.
Ccm's, leading environmental and energy efficient solutions lend themselves well to trends in the European market.
Recent industry dynamics reinforce our belief that increasing our focus on our building products platform is the right strategy the.
The new ownership of our recently acquired competitor and it announced management edition at another competitor shows the widespread belief of the strong prospects for the nonresidential building product space.
The industry dynamics also support our strategy to accelerate growth in Europe.
Finally as was widely discussed after the recent acquisition our increased focus on delivering the Carlisle experience for the sustainable building of the future is in line with macro industry trends.
Before moving to our three other businesses I want to reiterate how remarkable our CCM business M team performed in 2020.
CCM was largely the story for Carlisle in 2020, and we expect that to continue into 2021 and beyond.
Regarding our other three businesses on slide nine 2020 was obviously a difficult year due to the pandemic.
In the face of significant declines the teams did a commendable job managing through the crisis, taking actions to reduce costs and position their businesses for the future, including leveraging C O S.
Investing in new product development and right sizing footprint.
The results did not meet our expectations. These remain good very good businesses with solid management teams committed to weathering the current macroeconomic challenges.
We are optimistic that the actions taken in 2020 to improve CIT CFT.
The CFT and CBF will position these businesses for a solid recovery.
Especially in 2021 for CFT, and CBF, where markets have signaled the bottom.
And while we believe the I T will recover over a longer timeline, we are confident that there will be of recovery.
With higher inoculation rates for rapid vaccine rollouts easing of Covid travel restrictions and an improved outlook for both aerospace and hospital capital spending CIP will drive exceptional leverage with the resumption of growth.
Before Bob gives the financial details of the quarter I'd like to touch on a few other notable achievements of 2020.
Please turn to slide 10.
We've generated $2 $5 billion of free cash flow over the last six years and recently accelerating significantly.
Almost half that was generated in 2019 and 2020. This track record of success supports our confidence in this team's ability to execute on our capital allocation strategy and to create value.
While 2020 was of subdued year for M&A, we are managing an active pipeline for accretive and synergistic acquisitions to rapidly scale, our high returning businesses.
As always our financial strength, the cash flow generating capabilities of afford us flexibility and we intend to remain opportunistic.
Notably and as we've discussed in the past when acquisition activity of subdued we remain committed to returning capital to shareholders.
This is evidenced by our deployment of more of the $380 million of share repurchases in 2020 totaling approximately $1.5 billion of share repurchases.
Since 2017.
And on the latest board meeting our board approved an incremental $5 million share repurchase authorization.
For Carlisle.
We also returned over $112 million to shareholders in the form of dividends in 2020, raising our dividend in August for the 44th consecutive year.
Finally, we spent $96 million of Capex in 2020 and have plans to significantly increase that in 2021.
On slide 11, we touch on our continued and expanded actions around ESG, where Carlisle remains steadfast in our commitment.
Supported by pass we're continually examining ways to improve the design and manufacture of our products <unk>.
Seeking to better engage our employees and communities and improve an already strong regulatory framework.
2020, we also made progress in diversity and inclusion of exiting 2020 with 50% of our board of directors identifying as gender racially or ethnically diverse and meeting our 2020 target for percent of females in senior leadership positions.
As we've stated many times before ESG is part of Carlisle culture of continuous improvement.
And we look forward to sharing more progress with you on the future, but also encourage you to read more about carlyle's ESG efforts on the sustainability pages of our website.
Please turn to slide 12, where we cover the Carlisle operating system.
In 2020 C O S delivered savings of one 3% of sales well within our vision 2025 annual target of 1% to 2%.
The remarkable feat, considering 2000, twenty's challenging conditions, improving the Carlisle employees truly of body and live our continuous improvement culture every day.
Another major milestone of 2020 was the launch of the path to zero.
Which represents our commitment to creating the safest possible work environment and features of the goal of zero accidents and zero injuries.
C O S will continue to be of unifying cultural imperative for our businesses to rely on as they seek new opportunities.
To make our operations and business processes more efficient.
Bob will now provide operational and financial details about our fourth quarter and review our balance sheet and cash flow Bob.
Thank you Chris Please turn to the revenue bridge on slide 13 of the presentation.
Revenue decreased 7% to $1 $1 billion on the fourth quarter.
Organic revenue declined 9%.
Acquisitions contributed 1.4% of sales growth for the quarter and FX was a 60 basis point tailwind.
Turning to our margin bridge on slide 14.
Q4, operating margin declined 180 basis points pricing.
Pricing and volume headwinds combined for the 320 basis point decline in acquisitions for us.
40 basis point tailwind on.
Offsetting these declines freight labor and raw materials other operating costs netted to a 60 basis point improvement.
Of course benefits added 120 basis points.
On slide 15, we have provided an EPS bridge.
Where you can see the fourth quarter diluted EPS from continuing operations of the dollar 57, which compares to $1 81 last year.
Volume price and mix combined were of 74% year over year decrease parks.
Partially offsetting interest and tax contributed nine cents and raw material freight and labor costs netted to a 16 cent benefit.
Share repurchases contributed nine cents.
C O S contributed 19 sets and finally operating expenses worth reset headwind.
While COVID-19 related volume declines.
Nearly represented the most significant headwind during the quarter our teams around the world did a commendable job managing costs.
<unk> the U S to improve efficiencies and taking actions to both position Carlisle for the recovery, while mitigating the pandemic impact on earnings.
Now, let's turn to slide 16 true.
Review, the fourth quarter performance by segment in more detail.
At CCM the team again delivered outstanding results with revenues, increasing 1% driven by volume and 30 basis points.
The foreign currency translation tailwind.
CCM continued to exhibit its resilience with solid U S. Commercial roofing performance. Despite the continued COVID-19 related restrictions in some areas.
Training the recovery.
Our newer platforms of architectural metals on polyurethane were solid contributors to the quarter's revenue performance.
Operating margin at CCM was a record 24% for the fourth quarter.
350 basis improvement over last year, driven by CCM team's superb cost management.
And C O S, partially offset by wage inflation.
CCM executed well in delivering approximately $15 million of net price cost realization in the quarter.
Please now turn to slide 17, the reviews Cit's results.
<unk> revenue declined 35, 4% in the fourth quarter as well publicized this decline was driven by the crisis in the commercial aerospace markets, while the recovery in aerospace could be prolonged we are confident that there'll be a resumption of growth with the continued rollout of the COVID-19 vaccine and airlines returning the profitability and other.
The recent news the 737, Max eight has been cleared for return to flight in the U S Europe, and South America, while TSA passenger daily checkpoint data continues to improve.
And our medical platform sales continued to be impacted by Covid related delays in hospital capex and postponed elective surgeries. However, our project pipeline is robust and the long term trends remain attractive, including increasing preference for minimally invasive surgeries in OEM strategy consolidate supply chain partners.
Cit's operating margin declined significantly year over year to a negative eight 6% driven by commercial aerospace volume declines and accelerated restructuring actions. These declines were partially offset by savings from C. O S lower SGA and price increases.
While the actions taken by C. H I T in 'twenty and 'twenty of rightsize, our footprint reduce all of our workforce were difficult. We are positioned to deliver improved operating income performance when the volumes return.
Turning now to slide 18.
Cft's sales declined eight 3% year over year.
Organic revenue declined 16, 1% and additionally, acquisitions added 5% in the quarter.
FX contributed 280 basis points.
Stabilization in key end markets, driven by an improved industrial capital spending outlook on 2021, coupled with recent management additions new product introductions pricing resolve and cft's efforts to upgrade the customer experience and position CFT well as we enter 'twenty 'twenty one.
Operating income of four 5% with an 820 basis point decline year on year.
This decline was driven by lower volumes restructure.
The restructuring on raw material costs, partially offset by price and efficiency some call pass on lower SG&A.
Part of the C D F on slide 19.
CBF fourth quarter organic revenue grew two 8% and FX had a positive two 6% impact.
Driving CBF growth of five 4% in the quarter.
Demand for agricultural and construction equipment were the primary drivers.
While orders in all regions improved throughout the second half of 'twenty 'twenty.
Operating income was $8 million of 1.1% operating margin flat to the fourth quarter of 2019, driven primarily by unfavorable mix in aerospace markets wage inflation offset by C. O S efficiencies increase volumes and tight cost controls.
On slides 20, and 21, we chose to sell.
Selected balance sheet metrics, our balance sheet remains strong we ended the quarter with $902 million of cash on hand, and $1 billion of the availability under our revolving credit line.
We continue on approach capital deployment in a balanced and disciplined manner.
Investing in organic growth of Capex and Opportunistically repurchasing shares while also actively seeking strategic and synergistic acquisitions.
Free cash flow for 2020, with an exceptional $601 million consistent with 19.
The results on the lower sales volumes.
Turning to slide 22, you can see the outlook for 'twenty 'twenty, one on items affecting comparability on corporate items corporate.
Corporate expense is expected to be approximately $105 million for the year.
We expect depreciation and amortization expense to be approximately $225 million.
For the full year, we will continue to invest in our businesses and now expect capital expenditures of $100 million to $175 million.
Net interest expense is approximately <unk> expected to be approximately $75 million for the year and we expect our tax rate to be approximately 25%.
And with that I'll turn the call back over to Chris.
Thanks, Bob.
In closing I want to once again express my thanks to our dedicated employees their families our business partners and all of those associated with Carlisle success.
Got you, we could not have weathered and overcome the significant challenges of 2020.
Entering 2021, we are cautiously optimistic about the outlook for Carlisle, we will continue to benefit from the strength of the Carlisle business model and enhance our strong earnings power of by investing in our high returning businesses.
We will continue to deploy capital into strategic acquisitions share repurchases and dividends all the while maintaining our commitment to delivering the returns on invested capital in excess of 15% and ultimately driving the $15 of earnings per share.
Well there are clearly many uncertainties around the pandemic, including the effectiveness of the rollout of the vaccines, we want to keep investors informed on our views of our businesses and markets as such we offer 'twenty 'twenty one guidance based upon where we are today, while fully acknowledging that we are in uncertain and turbulent times.
For full year, 'twenty and 'twenty, one we anticipate the following.
At CCM supported by re roofing project deferrals that occurred in 2020 positive momentum in our newer businesses of architectural metals polyurethane.
Expansion of our European businesses.
And of decreasing complexity of the complete jobs as Covid restrictions ease we anticipate revenue growth of high single digits in 2021.
That's the I T. We believe that rapid Covid and alkylation will drive an improvement in business and leisure travel exiting 2021 aircraft manufacturers are indicating production rates will rise towards the end of 2021. These.
These trends are coupled with an improved order book for medical products and solutions as hospital capital investments of the elective surgeries resume.
That said, we anticipate pressures remain near term and given the different very difficult year over year comparison in the first quarter. We expect revenue will decline in the mid to high single digit range and full year 2021.
With the order book strengthening for both C F T and C. B S and end market stabilizing we anticipate low double digit growth.
For both businesses.
On behalf of the approximately 13000 employees of Carlisle. Thank you again for the trust you place in US. This concludes our formal comments any we're now ready for questions.
Thank you Sir.
The line data asked the question you limit the breath of Star one on your telephone again star one on your telephone keypad.
Joe Your question Ross.
Yes.
We have our first question from the line of Bryan Blair.
On Oppenheimer. Your line is open you may ask your question.
Thanks, Good afternoon guys.
Great.
Chris you briefly mentioned the and of major developments on the commercial roofing industry of about a month ago with the large CCM competitor changing hands.
Yeah, obviously very early days here, but I was wondering if you could share a little more color on how your team thinks about the high level of implications of that deal and balances you know thoughts on competitive of risks and opportunities looking forward.
Yes, I think in general we view the entrance of of the European group into the market as being positive I think.
Obviously, well run organization with a solid margin expectations for their other businesses and also I think operating in a.
Perhaps more ESG focused environment in Europe, which should bring good things to the industry as a whole. So I think in general it brings attention to the great business model. We have here are in.
In CCM and in the industry I think it brings the attention to the good things that our products are doing of solutions are doing globally, and so I would I would say.
The team, obviously is highly competitive and it will be highly competitive with any.
Entrant are but I think it's a it's a neutral at worst.
Okay makes sense and sticking with the CCM how are volumes trending to start the year.
I believe you still face of reasonably tough comps or February I was just curious about momentum ahead of the lower bar in March and obviously through the second and third quarters.
Yes, I think as your EBITDA you see how we came out of the fourth quarter and obviously it wasn't huge growth, but it was growth and I think it was very consistent with what we felt about the model and kind of.
Thought would happen and talked about as the year went on so obviously things got better sequentially.
Obviously Q1's, a difficult comp I would say that we just see the trends of Q4 continuing in it.
It'll be something to the.
Like you saw in Q4.
Got it and investors are obviously focused on inflationary trends right now and in particular, the oil and gas based for US with you guys.
We know there was pricing in <unk> and you put out of reasonably aggressive increase that I believe kicks in a little later in this quarter. How confident are you on price sticking in this environment and how should we think about the cadence of price cost impact of the year.
From my perspective, it was a very satisfying to see that the price.
Increases that occurred were.
Quickly embraced by a lot of parties and we also see widespread support in other construction related products for.
For price increases. So my belief is they will we will see traction on price as you said becomes effective in full you know a bit later on especially as volumes rise it becomes more impactful as we get.
The further into the end of the year.
I think on the raw materials side, our team obviously sees that there is some inflationary pressures, but we have done a lot as I mentioned in the call on our sourcing of pushing initiatives too.
The set up of we think is a.
The.
A good situation for us visa the raw material increases and so we think it'll be relatively neutral as we sit here today for the year.
With respect to price and raw materials, but again, it's early days and you know the first quarter is sometimes no indicator of of the future as we saw it last year when first quarter was good in the Covid here.
Bob you want to add anything to that yeah, I think Brian you know we've talked about this every year that.
Pricing traction usually doesn't happen until we see volume starting to pick up in the second quarter. So we would expect the while.
While Chris mentioned, while we expect it to be flat for the year, we expect the a little pressure on the first half and then not recovering in the second half is as prices get fully up the speed was volumes pick up.
Understood. Thanks again.
Thanks, Bob.
Thank you Sir we don't have another question from the line of.
Team wise from Baird. Your line is open you may ask your question. Please.
Oh, Hey, guys. Thanks, nice job. Thanks for the great. The color that you guys provided in the slides is very helpful.
Well I guess on on Europe in metal and polyurethane is there of wages to kind of kind of square up how big those businesses are today.
Maybe where the margins are.
Or maybe in aggregate in the thinking kind of get to parity with the overall single part of business over time.
Yeah, I'll, let Bob.
And obviously Europe, Paul year things of metals compared to our core roofing materials are smaller.
The growth rates.
At least in failures ease of metals is higher than we would think with the conversion in Europe, the Europe growth rates would be higher than our core growth rates as well and then on margin. They have been as you are well aware Tim of.
Both acquisitions, the margins weren't where we wanted them to be we're making progress against that but we ultimately think they can be in that range.
The range, we've talked about for CCM and contributed positively so Bob do you want to add anything to the yeah, Tim I mean, we've talked about this before with our your European business, you know being in the $150 million range polyurethane you know when the in the low three hundreds and then architectural metals as when we bought them and put them together and then grew them since then or.
A little over 250.
And margins are are approaching you know that the combined on the the 10% range as we get the more efficient grow those businesses puts D. O S. In focus on pricing may improve every quarter. So we're positive on the men and and again as volumes accelerate we expect the margins to increase rapidly.
Okay. Okay. That's helpful and then on on the medical business within C. I T.
Could you just kind of level set us there in terms of where you are in terms of the growth in margins because.
Yes, I think thats, a pretty sizable contributor to 2025 to get that business to $1 billion in kind of 2020, 20% margin. So just trying to think through where that business is today and kind of the levers you need to pull to be able to reach those targets.
Yes, I think Tim.
Bob's don't want to jump in on the sell more detail, but I think you're absolutely right. The the medical is going to be a big contributor we've talked about in the poor. Unfortunately, it didn't get there prior to the aerospace decline here with Covid, but medicals highly that med Tech segment is strong margins in excess of what we had expected for the city core aerospace business sort of.
Will be definitely be of contributor.
And I think.
We've got to continue to to build out the new products.
Work with the Oes, which we're doing and in fact, Covid really set that back I think we had last time, we really discuss projects I think we had 70 plus new projects with medical Oems that really when we were forced to do the.
The deal with the work from home situation for a lot of them of it slowed things down.
Rob you want to give some more commentary on yes, Tim I mean overall of the business as you know give or take a little over 200 $225 million for 2020 of the total medical.
Business, including Providian in the core of.
The core medical business, you know before we did the acquisition.
Approaching mid teens. So we're very happy once we get these things integrated and get them running well puts D. O S N that their valuable businesses, obviously with providian coming in.
The purchase accounting and everything going on you know that's closer to breakeven.
But we were very positive and the margins going forward as volume start picking up.
And we're able to get the the efficiencies that we contemplated in the D. The deal model.
Okay, Okay, Great and then just on on the.
The pace of growth within interconnect.
You do have a pretty tough Q1 in terms of the comp how would you think about that business kind of building through the year, What's I guess.
Just kind of baked into the mid to high single digit decline forecast.
Yes, we'd expect the the first quarter to be tough I know I think in the in the fourth quarter recall on that probably at the bottom we expect the you know.
$5 million decline from Q4 to Q1, and then growing from there.
The little bit of decline decline year on year in Q2, because you remember Q2 was even a little bit strong for our RCI business overall with the aerospace not fully being out yet and then growing nicely in Q3 and Q4.
Back as as build rates start up again.
Okay. Okay. I appreciate it have a good a halving of the rest of the weekend and good luck on the you guys.
Thanks, Tim.
Thank you Sir we do have another question from the line of sight.
Key from Jefferies. Your line is open you may ask your question.
Thanks.
Brian on the last question on C. A T could you could you just the aggregate what you saw on the aerospace side versus medical on the quarter and then within your outlook for 2021.
So what are we seeing in aerospace.
First of medical and.
And yet on the fourth quarter net of cat.
Yes, I mean, the fourth quarter were down on <unk>.
Aerospace over 50%.
So I'd say its continuing to be down and then the the difference made up is test and measurement and medical so medical is still not overall growing great.
Due to the Capex and the hospitals, but aerospace is down significantly.
It overwhelms that article of ours, just so big aerospace.
Yeah, you have a hey, this is Jim.
Medical flattish in the quarter.
And other other areas cyclic.
Cyclically down.
So hopefully that helps you get there.
Okay, and then it looks like Youre going to continue to have restructuring charges. In the segment can you just talk about some of the Clos that have taken on expected savings going forward.
So those are largely carryover cost from this year from what we announced.
In Kent, Washington closure.
Because as you know and we've talked about before the moving an aerospace facility takes a long time and we expect that not to be fully moved in shut in until the second half of this year and all of those charges related to the current closure.
Okay.
Great color on it yes.
The impact of Richard on energy.
The size and your comments I was just wondering are you seeing any customers pull ahead of re risking projects in order to increase energy efficiency.
Side of Europe are you seeing any.
The government policy to help spread the demand. Thank you.
Yeah, I think on the pulling forward is we've always said this is really difficult to pull anything forward in this environment with the tight labor.
That we've got in the United States here, So I Wouldnt say anybody has pulled anything forward from a E on.
Order perspective, obviously, the if they can get things done quicker they'll they'll do that I think just in general there is an overall movement that as we continue to evolve each year, we get new products and solutions out there immediately applied to those projects, where they can be so I think the speed at which people are.
Putting in new.
Innovation and helping us is moving at a good pace.
You know the from the Legislative perspective, I don't think there's any doubt that when we see the letter like we did from Larry Fink and we see.
On the actions like the California.
Instructions on <unk>.
The directors and female content I think we know that.
There is definite concrete action that is occurring.
We've been.
Very pleased that we like to think in some ways we've been.
At least on the curve with others and we wont hope to accelerate that and so you know we appointed new Vice President of sustainability of this year. It's obviously a focus for our board of directors and for our management team and as we've said all of lawn, we don't do it in response to the legislative mandates of course, we comply with them, but really we want to get ahead.
Head of it because for Carlisle being more energy efficient air plants of facility saves money and benefits of the shareholder with higher returns and applying innovative products that help our customers use less and recycle and make their operations more energy efficient.
It's just good business for US is certainly diversity and inclusion we know of benefits the entire workplace for better decision, making and things like that so.
While there is legislative movement. We think there's also just solid common sense movement from an economic perspective to do these things.
Thank you.
Net.
Thank you we do have another question from the line of Adam Baumgarten from Credit Suisse. Your line is open you may ask your question.
Hey, guys. Good afternoon, Thanks for taking my question.
And then just.
Start out on on CCM sales guidance.
Single digits does that contemplate declines in new construction, you guys lag that from last year.
Yeah, I mean, it's our best guess right now as to what's going to happen when we talk about forecasting something like a new construction declines for the year I think.
Obviously.
Lee we put that into the equation. We also put in the things into the equation like the restocking that did not occur.
Last year, we put into that our new products growth and are of different platforms, and so I would say that yes, we've contemplated.
Any modulation of new construction that would occur in 2021.
Okay got you and then just.
Switching gears in CCM to input costs I mean, how should we think about the relationship between sort of the more publicized spot prices for raw materials like MDI and how it sort of translates to year buys and maybe what kind of visibility do you have and sort of maybe some of the changes you've made.
And how you buy MDI over the last couple of years.
Well the way I think about it is a little bit more well more stability, let's say in a little bit of a more stability.
More certainty and ability to extend the timeframe on those modulations in pricing that may occur on the spot market on a day to day of week to week or month to month basis. We are a very big consumer of these products. We have over the last couple of years are our team at CCM, along with our legal team on our center led sourcing team had done of <unk>.
Great job of going back and leveraging of our volumes as well as our long term relationships and the prospects for new products to put ourselves we think in of a better position to and I have of long term view as well as setting our.
Pricing parameters around that 90 day.
The target, where we have stability through the quarter and we're you know we're very familiar with what can happen on the spot market. When you reflect back to when we bought of Sal I think we closed and it wasn't a month or two later the force matures were declared and while our CCM business and I think this is actually a good comparison of our CCM business, whether the force majeure.
Errors and didn't see a spike due to the Pershing.
The strategies and contracts, we had in place the sell of business got absolutely hammered by that spot price in.
And I think that's a great example of the difference between how we're buying in the spot price market.
Obviously since then of sellers now on our type of contract, but I think that's a good example of of how the Ccm's.
You know.
Purchasing strategies and purchasing of sourcing.
The actions really mitigate a lot of that up and down of fluctuation that doesn't mean that we're not going to see changes in raw material pricing when they occur. It's just going to be I think more modulator and we're going to have the better control more stability and see it in advance.
Alright, Thanks, a lot.
You bet. Thanks.
Thank you Sir we do have another question from the line of Kevin.
Northcoast Research. Your line is open you asked the question.
Thanks, Good afternoon everybody.
Hey, Kevin.
The.
Quick one on <unk>.
On the tax rate, you're guiding to 25% it looks like the last three years, it's been baked the right around 20%. So I'm wondering why.
Why do you expect such a big step up on the tax rate this year, yes.
Adam of.
Kevin.
First of all of its it's discreet items right, that's driving our tax rate down in a couple of the years different items coming through on tax planning things that have been done to drive the rate down.
On the reason it's up in 'twenty. One he won all of a couple of things going on you've got to remember a lot of a lot of our international businesses, where you might have a lower tax rate.
Relate to the businesses that shrinking and essentially unprofitable now. So if you just think about most of the profit generated in the U S. The U S as of 'twenty 'twenty, 1% statutory federal rate, you've got 3% to 4% of state and local taxes. There is how you got the 25 and that's kind of where most of our profit is right now.
And we're always going to do our best to bring that down but based on the visibility we have on what's going on on the world. We think 25 of the good starting point.
Yes, Okay makes sense and then you guys gave great color in terms of the expectations for sales growth in 2021 wondering if you could help not just a little bit on on margins to ease.
Either you know the type of incremental margins youre expecting out of out of the different segments or because it looks like you should see nice.
Year over year sales growth in three of the four segments.
Some inflation, though you've kind of addressed that.
Second kind of neutral ish in CCM, but whatever color if you could help us on the mark.
In front of how to think of that in the business that'd be helpful.
Yeah, Kevin I don't think anything on the on the incremental we talked about our incremental margins on volume upside for a long time, if price cost we're guiding flat Inc.
Incremental margins are going to be based on the volume and then the same thing for CFT and CBF were looking at a volume upside and then C. I T.
It's way down even lower than it was on breakeven. So we expect that to be of a tough year for CIT.
Okay, Alright, thank you very much.
<unk>.
Thank you.
We don't have another question from the line of guide some noise on my list.
Your line is open you may ask your question.
Alright, the suggests Stevenson on for Gary Thanks for taking my questions. My first one is just on what Youre seeing from a backlog of embedding perspective in CCM and which end markets are performing well are expected the perform well this year.
Yes, I think we laid out some of the markets that we think are going to perform well when we laid out that idea of a more suburbanization, if I can call it that.
And I think we'll continue to see that I think the buy in administration and their talks about infrastructure and obviously.
We saw that from the previous administration two of the America first I think theres some ideas that will see more infrastructure projects. So.
When we look to.
To your other question I'll turn that to Bob.
On where it's coming from.
And most of the other questions are Jeff what was your first question for Bob again, I'm sorry. It was just on backlogs embedding Oh, Yeah, Oh, yeah.
Alright, I'll just take it I'm sorry about the confusion on backlogs.
You know.
The the quoting process is interesting, especially as we get into the first quarter. You know, we've always had I think of pretty strong. Despite what we read the newspapers are pretty strong backlog. There. It has held relatively consistent through the year dipping a little bit of from our traditional levels.
Coming back and so we come into the fourth quarter.
Obviously, there is the the one.
Whether that has an impact, but I would say quoting is.
Is good but we also of a big backlog and so on the re roofing side as we talked about 70% of our business. There I think it's ongoing and really doesn't slow down because obviously with the backlog there on the labor situations. You know you're just trying to get someone to give you a quote on.
The new construction side, yes, it has a little bit of a the decline there and I think people are cautious and they want to see what's going to happen with.
The COVID-19.
The restrictions that have been placed on them as well as things like rents and in business prosperity and whether people will continue to expand but for the most part we're still seeing strong activity type of tight labor markets across the across the construction base and then when we see things like the weather happened or other things that are <unk>.
<unk> of that re roofing it just adds to the backlog end of.
Obviously.
Makes it makes it a good situation for us.
Okay, that's great and then.
Just one of the an update on kind of balance sheet priorities now on them and what the M&A pipeline, just kind of what youre seeing on how cool is the other than any updates on other priorities I know you mentioned some on the CCM side, but any update there would be great.
Yes, the balance sheet priorities are always you know first capex and when we have some big projects.
Coming in in 2021 going up to over $150 million of projects, we see coming in most of those being in CCM.
So we're pretty happy about that continue to fund our R&D.
The increase our dividend, which we've been doing all along we would expect to do that again this year.
For the 45th year, and then and then finally, we want to have a nice balance between M&A and share repurchases.
Synergistic M&A being on our priority out of those two.
I think the pipeline.
You clearly weekend with with 2020 going on in Covid and the disruption we saw but the pipeline is starting to grow again, we see opportunities out there. We're working every day to try to try to make sure. We get some good synergistic opportunities we looked at a lot in 2020, just didn't get a lot closed so we're going to continue to be balanced beta.
The two.
Thanks, and best of luck moving forward.
Thanks.
Thank you we do have another question from the line of Joel.
From BMO your line is open.
Hey, guys I was.
On your acquisition commentary, Canada can any of the deals get through through the <unk> that much tighter.
Goalposts do you guys have set up in terms of returns on.
And all of that or is private equity is still pushing the price a little too hard.
No Joe I think it depends on the segment I mean, we're still seeing some good.
Opportunities in construction materials, I think maybe even aerospace and you can find the deal you might find some some good deals there are in the aerospace business of we'd still be interested in expanding our content per plane. So we see the downmarket as an opportunity to perhaps pick up some assets there that ultimately we would have some pretty high return.
When we get them in into the <unk>.
The city business and let the team go to work there I think when you look at things like Med Tech, obviously, you have to be a little bit more discriminating and we have to make sure. They are good fits and we can leverage.
The infrastructure now we've put in place with provision in that but I think we could find deals to do for sure.
And bigger versus smaller on the valuation is there enough of the difference like maybe if you can go a little bit bigger can you find things that are a little cheaper or not necessarily well. The last deal. We saw that was close to our construction materials business out of pretty good multiple on it so I don't know that size.
[laughter] Big of difference as just what the asset is and what the prospects are for the business and the management team of what they have done so.
I hate to give you an answer like that but I think it just depends I would say our preference would be for things that were a little bit bigger.
We think they bring.
Perhaps more market presence they integrate better we could pick up some management talent.
Things like that and hopefully they have some innovative products and maybe some access to Europe or things like that so there are some definite specific things. We're looking for that we think we can leverage and we'd be willing to pay for.
Okay. My last one is just.
You mentioned, a bunch of new kind of.
Niches youre going after or end market extensions in euro of nice enough to give us the size of the architectural metal business can you give us any sort of a framework on how big some of these polyurethane and some of these other initiatives you have or.
Or theyre not really distinctive opportunities that you can break out of its more just like additive to what you're already doing.
We can break out some of the products I mean, we can and maybe not on this call, but maybe it's better for a longer conversation around things like new products, we know that Intel of spray just from the equipment perspective, we think that globally it might be of $150 million market. We know it's dominated for the most part by one.
Player. We think we offer an alternative there. So you know that's a in one product line of tens of millions of dollar opportunity over a five to seven year time horizon. When we look at what Intel of spray does for our polyurethane spray foam.
That business is more the spray foam business is more on the 100 is the dollar market and we think that the seller has a very strong market position and can build on that certainly with the combination of equipment can do better metals has opportunities that are in architectural metals insulated.
[noise] panels is an interesting one there are some other architectural things that you can do on a building that are new from screens and things like that and.
And we think those are tens of millions of dollars of opportunities. The three new locations. We put in have had significant market sizes attached to them you know again definitely above $10 million to $20 million there each so.
But we'll we can follow up with you.
And maybe even on the next call try to characterize some of those.
Europe, the massive opportunity you know $10 billion, so with the roofing space.
And is that for your kind of roofing or is that the total roofing that was my last little of clarification question, Yes, no. It does that all single, it's not all of the single ply roofing membranes like we traditionally have here Julian our product line actually in Europe, as this rest or X product, which is growing at double digits and is a combination of of bitumen with a.
A P D M and it has a really unique function to it. So that's the roofing space, maybe our total available market and we look at things like sealants and adhesives, we look at our fasteners will get edge metals, we look of metal roofing things like that so you know this whole move the CCM made over the last you know.
Five to 10 years to become more on the building envelope, that's with that opportunity really represents it's a much bigger opportunity set than just the single ply roofing membrane solution like we would add back in the eighties.
Well. Thank you very much I don't want to take up all the time the veg.
Joel Thank you.
Thank you Sir we do have another question from the line of Mr. David Macgregor from Longbow Research. Your line is open you may ask your question.
Yes, good afternoon everybody.
Just to build on this most recent conversation around M&A I guess, what is your best guess on the level of acquisition activity, you'll need to complete to achieve your vision 2025 goals.
We contemplated in vision 2025, somewhere $2 billion to $3 billion of.
Of acquisitions I think that's good we put out the $8 billion of sales and Bob and I, even at the time thought we could do more than that from a growth.
Growth perspective, with the acquisition, we still feel that way of theirs is more opportunities that continue to present themselves I think the bigger focus for us to complete our vision 2025 goal is really to hit that $15 of EPS and I'm not sure we need to do the same level of acquisitions to get to the $15 EPS in fact, I think our <unk>.
Preference would be to drive our internal organic projects and fund capital expenditures to get that because we know those as we've seen with CCM over the years. When you do it internally and you do it organically and you build that infrastructure. Your ROIC she gets to the CCM levels of 30%.
So.
I know that maybe confused it but our primary goal and vision 2025 was the $15 a share and.
I think.
We could probably do less on the maybe the lower end of our original acquisition of framework to get there and we're always focused on returns. So yes. If we can get the returns on the acquisitions, we're going to do them.
That makes sense.
And then I guess, Chris I wanted to just circle back and ask you pretty much. The same question I asked you the last quarter and that was the extent to which you thought business had been pushed out from 2020 to 21 and if there was any way to kind of size that at the time, you thought it might be anywhere from the $200 million to $300 million, but I thought I'd circle back and just get maybe an update in terms of your thinking on <unk>.
How much business got pushed forward and how that might contribute to growth of 2021.
Yes, I think it's going to be a good on the <unk>.
The roofing I think it's the biggest story and we still see a tight labor markets, we still see.
The strong demand on the re roofing, obviously the inventory build out the didn't occur last year, we characterize that in that number I gave you and now we have a year of heightened COVID-19 restrictions that I'm not even sure any of us really understand how much was delayed because of the protocols in the second quarter and third quarter that a lot of our roofing contractors had to.
The deal with I know I have been out some job sites, where there were hand.
Hand, sanitizing stations of social distancing.
Masks in which a lot of them of wearing anyway, but.
You wonder how much that took out of the productivity of a roofer.
And so you know.
I think you just have to think it's got to be something north of 20% decrease of productivity and so I think he can figure that it's that that has added to the backlog I mean again as we said.
Earlier too Theres just the limited.
Supply of people that can do this and the demand is there and so what doesn't get done you can't defer it you try to get by but ultimately you have to do it I know here in <unk>.
In Phoenix.
The ability to get projects done or even quoted as I've.
I've never seen anything like it before I mean, it's just really hard to get of contracted even quote something so I think it's as we said it depends on where you are in the region it depends on.
We see on the northern regions, there's more.
The weather and there's less work being done so.
That's probably the best Yeah, Yeah, I guess, it's kind of hard to put in the spot for a number so maybe the way to ask the question is just are you feeling like that number might be a little bit bigger than what I asked you a quarter ago or just.
I guess Directionally, how are you how you're thinking about it yes definitely and I think it's just supported by we keep referring to some of the graphs. We've shown on re roofing in and we know the projects that are coming due we referenced the the buildings that are 10 to 20 years old we saw that build out we got that on the front end as did our competitors as we built up you know and expanded and now these roofs.
Or are.
Coming to you and they need to be replaced.
And so I would say anything the slows that down whether it was COVID-19 or it's weather.
It adds to the backlog simply because of the constraint on labor.
Can't.
Can't get through.
The way to look at it right CCM sales were down 7% for the year in 2020, and the re roofing demand based on everything you know should have grown.
3% so.
Got it thanks very much good luck.
You bet. Thank you.
Thank you Sir there are no further question from the line presenters you may continue.
Thanks, Annie This concludes our fourth quarter 2020 earnings call I want to thank everybody for your participation great questions. We appreciate you taking the time stay healthy and we look forward to speaking with you at our next earnings call.
Ladies and gentlemen. This concludes today's conference call you may now disconnect. Thank you for participating.
Yeah.
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Okay.
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