Q2 2019 Earnings Call
[music]. Good afternoon. My name is <unk> and I'll be your conference operator today at this time I would like to welcome everyone to the Carlisle companies' second quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, we will conduct a question and answer session.
I would like to turn the call over to Mr.
Jim Giannakouros, Vice President of Investor Relations at S.P. today, Jim. Please go ahead.
Thank you John tell.
Good afternoon, everyone and welcome to Carlyle's second quarter 2019 earnings Conference call.
We released our second quarter financial results after the market close today and you can find both our press release and earnings call Slide presentation on our website at Www Dot Carlyle Dot com in the Investor Relations section.
Discussing the results and our updated outlook today are Chris Koch, President and Chief Executive Officer, and Bob Roach, Our Chief Financial Officer.
Today's call will begin with Chris discussing our progress towards vision 2025, and business trends experienced during the second quarter.
Bob will discuss carlyle's second quarter financial performance.
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 note that certain statements made during this call may be forward looking and actual results may differ materially from our expectations due to a number of risk factors a discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our FCC filings on forms 10-K and 10-Q.
Those considering an investment in Carlisle should read these statements carefully along with reviewing the reports we filed with the FCC before making an investment decision with that I will turn the call over to Chris.
Thanks, Jim Good afternoon, everyone. Please turn to slide three of the presentation.
I'm pleased to report Carlyle had a record second quarter and made significant headway toward our vision 2025 goals of $8 billion in revenues, 20% operating income and 15% ROI see all driving to $15 earnings per share in 2025.
To reach these goals, we remain focused on driving 5% organic growth with operational leverage utilizing the Carlisle operating system and driving a continuous improvement culture.
Building scale synergistic acquisitions, continuing to invest an exceptional talent.
And deploying over $3 billion into capital expenditures share repurchases and dividends.
We launched vision 2025 in the first quarter of 2017, and we are excited about our progress thus far.
Particularly in our two largest segments CCM and C I T.
That together account for approximately 90% of our total segment operating income.
CCM status as a best in class building product supplier continues to be exhibited through its price leadership.
Sustainable mid single digit organic growth supported by a multi year commercial reroofing cycle and a margin profile. We believe is sustainable.
Parallel construction materials continues to leverage its strong brand and its expansion throughout the building envelope, which could not be done without delivering the premium carlyle experience that our contractors and distributor partners have come to rely on.
Looking back on C.I.T.S history, we weathered a transition and technology within Inflight Entertainment solutions in 2017 that have come out of it well focused on driving the margins in excess of 20%.
The team has restructured several operations over the past few years and is tracking well and it's 2019 facility consolidation efforts.
Our engineering expertise brand strong relationships with Oems, but increased focus on a more profitable mix of business has elevated margins and we are solidly on pace to deliver mid teens this year.
Our long term tailwinds in aerospace build rates, coupled with our increasing content per plane is driving sustainable growth. We are in the early innings of building out a medical platform that has strong growth and profitability characteristics.
Parallel medical technologies is currently transitioning from a manufacturer of medical wiring cables to a turnkey supplier of medical devices to the world's leading Oems.
We continue to expand our capabilities around the design.
Development and manufacturing of increasingly complex medical devices and components.
Turning to fluid technologies.
We were attracted to this platform based on the market dynamics in profitability characteristics of the competitors in this space. We continue to believe CST represents a long term growth platform of 20% plus operating margins.
We are still in the early stages of building out this platform, but are generating significant activity and results.
While we have reached the end of our initial restructuring activities. We continue to drive efficiencies and are now focused on growth.
Both by increasing our R&D efforts.
And on acquisitions that broaden our product suite across several end markets, namely liquid and powder, finishing and sealants and adhesives.
We're excited about the recent acquisitions, we've made and I'll get into those a little later in the call.
Our free cash flow and strong balance sheet affords us both strategic and financial flexibility.
When we introduced vision 2025, we envisioned a balanced approach of organic growth investments acquisitions, and returning capital to shareholders.
Over the last two and a half years, we have we've been opportunistic and have repurchased close to $1 billion of shares. The total level. We initially contemplated in our vision 2025 plan.
Going forward, our approach will remain balanced yet opportunistic with driving $15 of EPS by 2025, the key focus of our vision.
Now, let me get into some specifics on our second quarter results.
In the second quarter, we drove 6.4% revenue growth totaling a record $1.3 billion of sales, our 20 fiveth consecutive quarter of year over year growth.
We generated $207 million of operating income a 30% increase over prior year, which led to record diluted EPS of $2.65.
Up 42% year over year, confirming that we are making the right investments in our factories and our people and in the Carlisle operating system.
Second quarter results were driven by strong execution solid demand at CCM and CIO price discipline across all four segments and efficiencies gained from Cmos.
We continue to see a healthy backdrop in demand for both new construction and replacement products across the building envelope, while robust commercial aircraft build rates continue at Cie.
Combined with price cost dynamics and efficiencies gained from prior year restructuring efforts, we leveraged these positives into solid incremental margins.
Our restructuring and integration efforts at CCM and CBF are on track this year as evidenced by their second quarter margin improvements.
And notably at the beginning of 2019, we had projected $40 million to $50 million of price cost benefit at CCM in 2019, and I'm pleased that we have already achieved that milestone.
On the leadership front, we appointed Nextshares to the role of President of CCM in May and appreciate the immediate and positive impact. His leadership has brought to CCM during the last three quarters.
Nick brings experience skills and knowledge to the Carl executive team and we look forward to the contributions he will make as we execute vision 2025.
Free cash flow in the second quarter was $70 million, leaving us with an ending cash position of $422 million, which in addition to our strong balance sheet and available $1 billion of untapped credit on our revolving facility continues to afford us financial flexibility and strategic Optionality.
We continue to approach capital deployment in a balanced and disciplined manner, opportunistically buying back shares and seeking well priced and strategic acquisitions.
In the second quarter, we continued our share repurchases utilizing $75 million to buy 550000 shares we also paid $22.9 million in dividends.
Since the beginning of 2017, we have returned approximately $1.2 billion to shareholders in the form of share repurchases and dividends.
It's clearly laid out in our M&A strategy under vision 2025 in which we seek to deploy a $3 billion. We were active in the second quarter in our core platforms of the building envelope medical technologies and fluid technologies.
We announced the acquisitions of micro connects within CIA de Pasco integrated dips dispense solutions and Shin hang within CFP.
Micro Connex said ski sensor and micro Flex circuit technology to our medical technologies platform at Sidoti.
We continue to pursue acquisitions to build out crts medical technologies capabilities to deliver a more complete set of integrated solutions to major medical Oems.
Pasco ideas acquisition enabled us to leverage their innovative products for high viscosity dispensing and advanced fluid control and automotive aerospace and industrial markets.
The acquisition of Shin hang headquartered in Seoul, Korea, complements aasco ideas by adding strategic capabilities in Asia expertise and technical diversity and sealing systems pumps spray guns and paid circulation systems.
All three of these acquisitions come with strong brands built on years of excellent service to customers.
To add further capabilities to the CFTC sealants and adhesives platform in July we announced the acquisition of Echo, finishing based in Sweden, the manufacture of low and high pressure industrial painting equipment and ceiling applicators.
Echoes innovative threed sealant gun is well known and market, leading technology and will be a great addition to CFP is growing portfolio of sealants and adhesives application equipment.
I would also like to note that Pietersen aluminum Corporation acquired earlier. This year is sitting in very well within Ccms architectural metal platform and is an excellent complement to our 2017 and 2018 acquisitions of Drexel metals sunglass metal and premium panels.
Were sales profitability and integration efforts are tracking to expectations.
Our M&A pipeline continues to be active in while asset prices are reflecting historically high levels, we are finding and executing solid bolt on deals that make financial and strategic sense and create value for our shareholders.
Turning to slide four.
We achieved record second quarter revenues of $1.3 billion of 6.4% increase over 2018, this was driven by 2.3% organic growth, including 1.5% price realization.
And 4.7% from acquisitions with foreign exchange translation headwind during the quarter.
Our operating income in the second quarter grew approximately 30% to $207 million driving record second quarter diluted EPS of $2.65, which includes six cents of restructuring facility rationalization and acquisition related costs.
CCM revenues grew 10.4% year over year close to 5% of that organic growth, reflecting continued strong underlying demand.
50% year over year growth from new product sales and the addition of Peterson aluminum earlier in the year.
We continue to see a solid backlog and sustained new construction demand in North America, and the expected flow of Reroofing projects projects.
This performance, yet again to demonstrate ccms market leadership and resilience in the face of significantly wetter than average weather conditions experienced throughout the United States in the second quarter.
With roofing labor markets remain extremely tight weather related delays or adding to an already full backlog of contractors, leading us to believe that positive market dynamics will continue into 2020.
In addition to strong demand the CCM business delivered excellent operating income growth approximately 29% in the quarter, achieving 20% operating margins. This performance was driven by nearly $50 million of price and roughly the same and raw material cost benefits.
Notably we accomplished this while maintaining share in the marketplace and facing weather related headwinds in North America.
Let's see I see revenue grew 3.2% in the second quarter, reflecting robust content growth at aerospace customers and continued progress in building our melt medical technologies platform.
With the exception of the Boeing 737, Max eight and the issues that are very well known to the market build rates remained strong across major aerospace models, providing a healthy backdrop for our largest platform within CIO.
Within medical technologies platform, we're excited about the micro Connex acquisition announced early in the second quarter and are actively seeking acquisitions for further expansion of this platform.
Micro connects fits our well established medical strategy and adds key sensor Microfluidics technology to our medical technologies platform.
When coupled with our 2018 acquisition of Red Group, a Minneapolis based provider of medical Engineering solutions micro Connex further position CTG to participate earlier in the design and development activities and major medical Oems.
CIO he had strong operating leverage in the quarter, increasing margins 300 basis points year over year to 14.6%, which includes $2.4 million in investment and restructuring and acquisition costs.
CBF again had a difficult comparison in the second quarter to that of 2018, where as you may recall sales increased over 17%.
Demand across our key markets of construction and agriculture remains subdued relative to our expectations coming into 2019.
As a result, CBF revenue declined 9.7% year over year.
More importantly in our view CBS is seeing the benefits of it significant restructuring efforts around the closure of our Tulsa, Oklahoma manufacturing facility.
And integration into the Medina, Ohio facility.
Despite pressured volumes, we are pleased that lower restructuring activity price recovery and Seo has driven efficiencies delivered 650 basis points of improvement in operating margin to 9.5% in line with our expectations for margin improvement in 2019.
CFT CFT sales decline of 8.2% year over year was a reflection of difficult global automotive conditions overall market dynamics in China, and an impactful capital project delay with both automotive and industrial customers in North America.
Despite these headwinds Cfd continues to progress on actions that aligned with the vision 2025 plans, including maintaining price discipline.
Increasing R&D efforts and spend and enhancing our breadth of product pro for portfolio excuse me.
Through new product launches and acquisitions.
Safety is operating margin was dramatically impacted by lower volumes, primarily from China, and global automotive and tier one accounts, we remain hopeful that the us China trade negotiations will make progress towards resolution in the near term and there will be some decrease to the current level of uncertainty that has delayed capital investment and spending.
I will now provide further detail about our second quarter financial performance and review our balance sheet cash flow up.
Thank you Chris Please turn to the revenue bridge on slide five of the presentation.
As Chris mentioned earlier, we are pleased with our overall second quarter revenue performance.
Organic growth was 2.3% in the quarter driven by strong results in our non residential roofing commercial aero.
In defense and space markets.
Acquisitions contributed 4.7% of sales growth for the quarter and FX was a 60 basis point headwind.
Turning to our margin bridge on slide six Q2 operating margin expanded 290 basis points.
Positive pricing and volume leverage combined for 140 basis points of the year over year improvement.
Cmos added 120 basis points.
Freight labor and raw material costs netted to a 50 basis point improvement and net restructuring and rationalization costs or an additional 40 basis point headwind.
Partially offsetting these positives acquisitions were a 60 basis point headwind.
On slide seven we have provided an EPS bridge.
As Chris mentioned earlier, we reported record second quarter diluted EPS from continuing operations of $2.65, which compares to $1.87 last year.
Positive volume price contributed 24 cents for the year over year increase.
Cmos, which includes sourcing initiatives contributed 17 cents raw material freight and labor costs netted to a 13 cents benefit.
And a lower share count add an additional 15 cents.
Now, let's turn to slide eight during the second quarter performance by segment in more detail.
At CCM revenues increased 10.4% with acquisitions contributing 6.1% of the growth.
And organic growth of 4.7%.
Partially offset by a 40 basis point foreign currency translation headwind.
CCM executed extremely well and delivering approximately $30 million of net price cost realization in the quarter.
Operating margin at CCM was 19.9% in the quarter, a 280 basis point improvement over last year.
While the macro environment for commodity has helped us in the first half of the year. We are extremely pleased with CCM sourcing initiatives, which add to our confidence in sustaining year over year margin improvement into the second half of 2019.
Now turn to slide nine to review these results.
Cie revenue grew 3.2% in the quarter.
Aerospace remains a source of strength and main drivers of CIO positive results with medical space and defense supportive as well.
We remain on plan with our product line rationalization efforts within medical which while it weighs on our topline near term benefit segment profitability.
Cie is operating margins grew to 300 basis points year over year to 14.6% given higher volumes price realization.
CLS savings.
Sourcing.
And as I mentioned benefits of the product line.
Exits predominantly within medical.
These were partially offset by investment in restructuring projects to right size, our manufacturing footprint wage inflation and acquisition related costs.
Turning to slide 10.
Cfds organic revenue declined 11.7% year over year, and FX was a 2.4% headwind in the second quarter.
Despite market pressures pricing was up 1.1, 0.5% year over year, evidencing and appreciation for the value proposition for CF. These products.
Additionally, acquisitions added 5.9% in the quarter.
Operating margin declined 570 basis points year over year to 4.9% significant volume declines and related deleverage was partially offset by past restructuring and facility rationalization efforts vertical integration savings and efficiencies from CMS.
Turning now to slide 11.
CBS organic revenue decline of 7% was in line with our expectations due to the moderating growth in off highway vehicle markets and certain customers adjusting their inventory levels from significant growth in 2018.
Successful price implementation and share gains during the quarter, partially offset that decline.
FX also had a negative 2.7% impact.
Operating income almost tripled to $8.3 million or 9.5% operating margin.
We are very pleased CBF was able to drive margin results in line with our expectations. Despite the topline headwinds faced during the quarter.
On slide 12, we show our balance sheet metrics balance sheet remains strong as we ended the quarter with $422 million of cash on hand, and $1 billion of availability under our revolving credit line.
During the quarter, we opportunistically repurchased $75 million of shares, bringing our year to date totals $232 million deployed on share repurchases.
Turn now to slide 13.
Our free cash flow was positive $69.6 million compared to a negative $60.4 million last year.
The increase in free cash flow is primarily attributable to higher earnings lower cash tax payments more efficient use of working capital and lower capex.
And with that I'll now turn the call back over to Chris.
Thanks, Bob Please turn to slide 14, as we discuss our updated 2019 outlook.
For Carlyle, we continue to expect year over year growth to be in the high single digit range.
By segment at CCM, driven by what we view as a healthy north American non residential construction market. The CCM teams price discipline, a solid backlog of work at contractors tight labor markets and the addition of Peterson aluminum we continue to expect revenues to grow low double digits in 2019.
Let's see IP, we continue to expect revenue growth to increase mid to high single digits.
We expect continued strength in our core markets of aerospace and medical and Cie continues to benefit from pricing actions taken in 2018 to offset inflation and other cost increases.
Our restructuring plans and related charges of $15 million remain on track, which as a reminder are related to the consolidation of north American facilities to drive operational improvements and efficiency gains.
At CFC, we continue to expect revenue growth in the mid single digit range driven by the acquisitions of Pasco ideas should hang in echo strong price realization and new product introductions.
At CBF, given lower than expected volumes year to date in part due to the robust sales volume levels last year and some softness in end markets, resulting in adjustments to inventory levels at our customers. We now expect year over year revenues to decline mid single digits.
Turning to our corporate items corporate expense is now expected to be approximately $95 million for the year.
Depreciation and amortization expense is still expected to be approximately $200 million for the full year, we expect capital expenditures of $110 million and free cash flow conversion above 110%.
Net interest expense is currently expected to be approximately $58 million for the year.
And we now expect our tax rate to be approximately 23%.
As we pivot to the second half of 2019, we are well positioned to build on our record second quarter performance and continue the progress towards vision 2025, and the goals of $8 billion in revenues, 20% operating income and 15% ROI see we remain steadfast in our commitment to achieving our goals and driving to the $15 of earnings per share by 2025.
We expect to deliver record performance in 2019, and we'll we'll continue to demonstrate excellent price disciplined focus on integration and restructuring efforts.
And to drive continuous improvement in all our operations.
I am extremely pleased that Carlo employees around the globe and body and entrepreneurial spirit are committed to excellence in all we do and are focused on delivering results for the Carlisle shareholders.
This concludes our formal comments until we are now ready for questions.
At this time I would like to remind everyone in order to ask a question press star the number one on your telephone keypad.
We'll pause for just a moment to compile the Q and a roster.
Your first question comes from Tim Wojs with Baird. Your line is open.
Hey, guys. Good afternoon, nice nice job.
Hey, Tim.
So I guess just a couple of questions on on.
I guess, Chris what would you kind of getting to that the kind of the 40 cents I think you're at $44 million or so that price cost.
For the year whats the right.
Maybe the updated away for us to think about that in the second half maybe from a price realization perspective, and then and then a commodities perspective.
Yes, I'll give you the overall and then Bob could break it up I think we are going to be in the $60 million to $65 million range now for the full year. So thats up from that $40 million to $50 million predicts projection, we had earlier and my guess is that.
Price is going to be about $50 million of that.
With.
Yes, I'd say that $15 million on the upper end and maybe maybe 10 on the lower end.
Okay.
Okay.
So that would imply probably on the fourth quarter, you may see a little bit of price slippage.
I would think yeah, we might see some price slippage yes.
Okay, Okay, Great and then maybe bigger picture just on CCM from a from a volume perspective, where do you think you're at and kind of the reroofing cycle on the commercial side. If you had to kind of I know, it's hard to kind of triangulate, but.
Do you think you're in kind of the second or third inning of a cycle or do you think you are kind of closer to the staff at the SEC.
Oh, the Reroofing cycle I think you know I don't know that we have that graph that we produce but in general we started entering that Reroofing said with the big Reroofing cycle, maybe five six years ago, and so I think if you think about this it's it's not really an inning format, Tim because we believe that Reroofing cycle will continue as we continue to put in new construction, but right now I'd say over the short term we're.
We're entering the sweet spot of the Reroofing cycle.
Okay. Okay.
And then I guess just lastly, just this is more of a modeling question, but historically I think the third quarter has been close to the second quarter in terms of absolute revenue dollars and.
Just trying to understand that that obviously was different last year due to some of the weather challenges in September up I'm, just trying to understand it.
If there is any reason why that historical relationship of maybe near parity from Q2 to Q3 should shouldn't hold.
No I would think there would be.
Pretty much I would think we would see it playing out the same way we've seen it in the past maybe a slight decline something in the low single digits, maybe one or 2% difference between.
Q2 and Q3.
The only caveat is that last year that was such in there such an impact from weather that obviously the year over year gains will be big and with the strong backlog we have.
And there might be some some upside to that.
Okay, Okay great.
I'll hop back in queue. Good luck on the second half.
Thanks, Thanks to.
Your next question comes from Brian Blair with Oppenheimer. Your line is open.
Good afternoon, guys great quarter in CCM.
Thank you Hey, Brian .
So with mid single digit growth there.
Again against challenging stacked comps, obviously difficult weather.
I'm just wondering if you could quantify the impact of weather on the quarter and more than offsetting that.
How much growth either in dollar terms or percentage contribution to the quarter, you've gone from new products.
And also.
If you could parse out maybe product lines, where you're you're likely taking share.
Yes, I think the whether its it is Brian all was hard to figure out what we lost I think it's pretty similar to what we had in Q1 I'm going to say.
Somewhere between three and four days.
Is that amount and on roofing days, we take the aggregate across North America.
And then on new products I'll, let Bob answer that question for you.
Yes, I mean, we are up significantly, but as a small base.
Brian we continue to grow that.
With the new clues adhesives, and membranes that we're putting out but relative to the total it's still a small number.
Yes.
Okay, and then in the slides you call out that's a polyurethane platform profitability.
Is improving.
I think you had I guess.
It's a mid single digit range for the year previously is there an update to that level of profit yes.
Yeah first of all we're very excited about the new team that came in in the fourth quarter, we made all those.
No changes really got focus back on integrating the business into CCM and.
We will exit the year at 10% and that will give us.
Being on track for a model.
Of exactly what we projected this year so.
Hi, I'm really pleased with that.
Teams delivering there.
Okay very good and.
One more on CFC, if I can.
You've maintained a mid single digit guide for the year.
Yes, relatively tough first half, particularly to Q.
Looking into the back half how much are you baking into that guide for.
Anti contribution.
Lift organic there versus the.
On the M&A.
Yes, the new product introductions are going to they're going to start to roll out here had to September October , but when you think about what's left in the year I don't think there might be a limited release of stocking of those new units, but I don't think it will be that impactful. The bulk of this is going to be our acquisitions and obviously there will be some.
Organic declines in sales and I think they'll be close you didnt ask this but it will be close to probably what we experienced in the second.
Corridor and what we're really looking for obviously is to get some of this trade.
Disagreement resolved see the Chinese economy, especially the Chinese automotive market recover and help us out there.
Okay I understand.
Okay. Thanks again.
You bet.
Your next question comes from Kevin Hocevar with Northcoast Research Your line is open.
Hey, guys, good evening, everybody and nice quarter.
Thanks, Kelly Thanks.
Wonder if you can comment on the backlog you are seeing in CCM it sounds like.
Theres been a factor here in the first half of the year really sounds like backlogs are really good and.
Already good backlogs got even better because some projects seem to be deferred.
So if if all the stars align here and we just got Sunny weather the rest of the year, what could volumes to be up here in the back half of the year based on what you're seeing.
You know and hearing from your customer base and and knowing that there seems to be labor's been an issue in terms of maybe capping the amount of growth that there can be but.
What could growth looked like here in the back half of the year, we get some normal weather patterns.
Yeah Kevin.
When we look back the gating factors labor at our credit our contractor so the backlogs break.
We think you know if if everything went well and we had great weather.
5% to 7% probably get up to 7%.
Can can happen in the marketplace on a volume basis.
Got you, Okay, and you mentioned.
To previous question about.
The price cost equation.
Expecting some type of price slippage as we go through the year are you seeing anything right now or is there just an assumption in there that raws continue to trend down that eventually there is some type of slippage and.
And given the backlogs and similarly strong underlying demand.
Can that hold up better and maybe you hold price.
Despite the.
You know raw materials coming down.
Yeah, I mean, I think we're assuming that it would be relatively flat.
We don't think there would be much slippage.
Some of our competitors went out in the first half with price increases now that Didnt drive a lot of change in behavior I'm going to call. It it did signal to the marketplace that the.
The cost of the manufacturers are serious about maintaining price. So we're pretty comfortable that all the work. We did late last year to get these price increases and should hold out for the rest of the year now, yes that can change quickly.
Something something happens, but we're pretty confident that we can maintain.
At least close to I'm going to say when we got to the fourth quarter last year, we had them all baked in so we would assume in the fourth quarter would we be at least flat year on year on price and Kevin Let me clarify that slippage I should have done it for Tim when I think about slippage I was more thinking about the.
Secondly, the gains we had in Q1 and Q2, and then was there going to be slippage from that that and obviously, we're lapping that pricing and so we're not going to have that so.
I don't I think Bob's exactly right that as we go into.
Three and four.
Yes, I think will be relatively flat.
Okay. That's good clarification and then.
On.
The corporate expense.
We're looking for $80 million as of last quarter now now it's up to 95, just kind of curious.
His incentive comp gone up given the good results or what's the.
The reason for the increase in the corporate expense.
Yes, there's a couple things there some is the.
The share based comp we issued Sars last year with a nice run up we had in the in the stock.
You know over the last quarter or two that adds to it.
We have been out in the marketplace certainly doing a lot of work on acquisition some of which that we havent closed on that's about a third of it and then.
Incentive comp with the good results is higher than last year and higher than expected and that's another third of it. So you you take the increase its probably a third a third a third across those three things.
Okay makes sense all right. Thank you.
Again, if you would like to ask a question press star the number one on your telephone keypad. Your next question comes from Garik Shmois with Longbow Research. Your line is open.
Hi, Thanks, and congratulations on the quarter I wanted to ask just on C.S.T. margins, how we should think about that.
For just given the.
Maybe temporarily challenged end market environment, plus the acquisitions that look like they're going to be a little bit dilutive to margins. So yes.
Should this rate of margin compression that we saw in the second quarter be sustainable or and when should we start to see an acceleration in margin assuming you get some trade resolution.
Yes, I mean, I think that compression. So we went from.
About what 10 six last year down to about five this year now that included some acquisitions, so going into the third quarter, we would expect to close to.
450 basis point decline year on year, and that's a lot I mean, some of that's acquisitions, but a lot of that is just leverage on the volume.
We do pretty good on the gross margin line. So we lose volume. It's it's tough and then as we get to the fourth quarter. You know are expecting volumes to be up like they always are.
But the compression in margin from the 14 six last year would be.
Down a little bit, but not as much as the second third quarters got volume comes back.
Okay. That's helpful. And then any color just on the margins in the second half of the year, just given the acquisitions that you're making I guess similar question.
Should we expect any any margin mix impact from the acquisitions and any update that you can have on the 737, Max I think last quarter, you had called out maybe 100 basis points of headwinds are is there an update to tout as contracts, yes, I think on the margins on C. I T.
Probably a little bit lower in the third and fourth quarter in the second quarter, we had some good mix and everything in the in the second quarter, but not down much more of the same at Cie key further the third and fourth quarter.
And then on the Max.
Boeing went from 52, a month the 42 a month earlier this year, we still haven't seen our.
Orders to us to the subs.
Going down at all Theres still filling up the supply chain and getting ready to go back you know continue to beef up production.
We're expecting that now that have pushed out to maybe the end of the year next year, that's going to hit as soon and it's about $1 million a month, if it does hit us so for the rest of the year would be $5 million that we get it.
Shortly.
Thank you.
Your next question comes from Neil Frohnapple with Buckingham Research Your line is open.
Hey, guys congrats on a nice quarter.
Hey, just a quick.
Just a quick follow up on fluid technologies did you say, what the acquisitions will contribute to revenue on a full year basis.
Going forward.
20 million full year that second half second half, Sir and we've only the red dead rent this year.
29 in the second half okay.
And then switching gears can you talk more about the revenue outlook for brake and friction I mean is it your sense that.
Underlying construction AG mining demand is deteriorating or are the revenue declines related more to temporary inventory rebalancing just.
Any more color there would be helpful.
Yes, I think.
You know most of it for US was this heavy.
Buying last year solid uptick and then we have had some are our biggest customers to rebalancing I think.
Our outlook is pretty much in line with the OE is there I think we've seen some struggling in North America due to the trade.
Negotiations also the wet weather so I don't really know in some ways. If we have a super accurate demand going forward that would make a call either for.
Something other than just what we've seen in the second quarter. So I think our anticipation as we look forward into.
Q3, and four as it were going to see a lot of what we saw.
In Q1 and two.
Okay, great. Thanks, so much I'll pass it on.
Great.
There are no further questions at this time I'll now turn the call back over to the presenters.
Thanks until this concludes our second quarter 2009 earnings call. Thanks, everyone for your participation and we look forward to speaking with you at our next earnings call. Thank you.
This concludes todays call you may now disconnect.
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