David A. Roberts - Chairman & Chief Executive Officer D. Christian Koch - President & Chief Operating Officer Steven J. Ford - CFO, Secretary, Vice President & General Counsel.

Ivan M. Marcuse - KeyBanc Capital Markets, Inc. Matthew McConnell - RBC Capital Markets LLC Kevin William Hocevar - Northcoast Research Partners LLC Joel G. Tiss - BMO Capital Markets (United States) Tim R. Wojs - Robert W. Baird & Co., Inc. (Broker).

Good morning. My name is Angie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2015 Earnings Conference Call. After the speakers' remarks there will be a question-and-answer session. Thank you. I would now like to turn the conference over to David Roberts. Please go ahead, sir..

Thank you, Angie. Good morning, and welcome to Carlisle's Second Quarter 2015 Conference Call. On the phone with me is our Chief Operating Officer, Chris Koch; our Chief Financial Officer, Steven Ford; our Chief Accounting Officer, Kevin Zdimal; and our Treasurer, Julia Chandler.

As we did last quarter, I'll review the company's overall performance, Chris will review our segment performance and Steve will review our balance sheet and cash flow statements. Before I begin reviewing second quarter performance, I ask that you turn to slide two, titled forward-looking statements and the use of non-GAAP financial measures.

This slide details the risks associated with investing in Carlisle Company. I strongly urge everyone considering an investment in our company to read these statements in detail along with reviewing the financial reports we filed with the SEC before you decide to purchase shares in Carlisle's stock.

As I prepare to review the details of our second quarter performance, let me take a few minutes to highlight a few of our accomplishments. Our two largest businesses, CCM and CIT, had very good results in the second quarter. In fact, very good doesn't describe how well we performed at CCM.

With the new plant start-up costs, increased raw material costs and truck shortages that we encountered in 2014 behind us, results at CCM were excellent. We grew organically 10% and achieved a major milestone, as we earned more than $100 million for the first time ever in a quarter. With great earnings, comes great ROIC.

Our ROIC at CCM in the quarter was 6.3%, an excellent quarter indeed. At CIT during the second quarter, we overcame start-up costs at our new Nogales, Mexico plant, price reductions within aerospace and lower margins at LHi to grow our revenue 22% and generate margins in the high teens.

We also made very good progress in organically growing our medical business more than 9% sequentially. It is interesting to note that two of our top 10 CIT customers are now medical equipment manufacturers. We added Carlisle Fluid Technologies on April 1, and generated $62 million in sales in the quarter.

Operationally, we generated strong margins, but with $9.3 million in acquisition costs flowing through CFT's income statement, we eliminated all of our profit and reported a $1 million segment loss in the quarter. This was a one-time event, as we accounted for the purchase costs associated with the acquisition of this business.

At Brake & Friction, we saw sales volumes decline in the second quarter. Half of the decline was the result of FX, while the other half was a further softening in our markets. CBF remains in a four-year long recession, as each served market, with the exception of aerospace, continued to exhibit volume declines in the second quarter.

Consequently, our earnings were soft due to the volume decline. In the second quarter, FoodService saw a 3% sales decline. With each passing month during the second quarter, however, our sales improved with June growing at 5%.

Earnings were down $1.2 million compared to 2014, because in 2014, we sold our European Distribution Center for $1.1 million in the second quarter, making it a tough comparison for the quarter.

Despite the economic challenges at CBF and CFS, plus the purchase accounting losses at CFT we grew our overall sales 15% and generated record quarterly earnings of $148 million, which were 21% higher than 2014's earnings. But the quarter wasn't only an earnings and sales story. The second quarter also brought excellent cash flow.

We ended the quarter with $229 million of cash on hand. That cash was generated while we continued to invest in plant and equipment; completed the acquisition of Fluid Technologies and returned $66 million in capital to our shareholders through share repurchases and dividends.

The second quarter was an outstanding quarter and we fully expect the momentum to carry us through the second half of 2015. Let's now turn to slide three. As you review the information on this slide, you'll see that our net quarterly sales were up 15%. 6% of our growth was organic while 10% came from the acquisitions of Finishing Brands and LHi.

As with the first quarter, FX reduced our sales 2%. Very encouraging in the second quarter was that our EBIT was up 21% over 2014, as I said earlier, setting a new record as we generated $148 million in EBIT with margins of 15%.

Included in our EBIT was $10.7 million of acquisition costs with $9.3 million occurring at CFT and $1.4 million at Corporate. If we were to pro forma our profitability, eliminating the impact of one-time acquisition costs, margins would have been 16.1% compared to the 14.2% in the second quarter of 2014. EPS was $1.43, 24% higher than 2014.

Looking at our sales bridge on slide four, you will see the price was negative 1% mainly due to negative pricing at CIT. Volume and mix were positive 7.2%. The acquisitions of CFT and LHi contributed 10.4% to our growth, and previously mentioned, FX had a negative impact of 2%. Organic sales by business were 10% at Construction Materials, 5% at CIT.

We were also negative 7% at Brake & Friction and 3% at FoodService. Slide five details our EBIT bridge. On the slide, you will see the positives on EBIT were price compared to raw material costs, a positive 1.8%. Volume was positive 0.3% and COS improved EBIT by 0.8%. Negative impacts were acquisitions at 1.5% and mix/other, negative 0.6%.

During the second quarter, we earned $148 million which is a record for any quarter in our history. While it's enjoyable to talk about record earnings and sales, this seems to be a good place to stop and ask Chris to go through the details of the individual business segments.

Chris?.

Thanks, Dave. Good morning. Please turn to slide six, as we begin our review of the second quarter segment performance. We'll begin with Construction Materials. As Dave stated in his opening remarks, CCM had an excellent quarter. CCM sales grew 9.9% in the second quarter offset 2.1% by negative foreign exchange fluctuations.

CCM achieved very strong growth in its commercial insulation applications reflecting demand for increased product thickness tied to building code changes, driving improved energy efficiency. We also had solid sales growth in our roofing membrane categories reflecting an overall healthy market for commercial roofing.

Selling price was slightly lower but not very impactful to our results in the second quarter. CCM sales into Europe, while lower due to currency fluctuations, grew 5% on a constant currency basis. CCM's EBIT increased 38% in the second quarter to a record $112 million. EBIT margin was 19.4%, an outstanding 430 basis point improvement.

CCM strong margin performance resulted from lower raw material cost, higher sales volume, and savings from the Carlisle Operating System. Our outlook for CCM for the remainder of 2015 remains very positive. Slide seven reviews CIT's performance for the quarter.

CIT sales grew 22% in the second quarter, consisting of both 17% increase in sales from the acquisition of LHi and 5% organic sales growth. CIT's aerospace business continues to see solid demand with sales growing 5% in the second quarter. Aerospace sales volume grew 7% on record demand for in-flight entertainment and connectivity applications.

This was offset by contractual selling price reductions with a significant OEM that kept the overall growth in the mid-single digits. CIT sales into the military market were up 7%, test and measurement sales were up 13%, sales into the industrial market declined 15%, reflecting continued weakness in the heavy machinery industrial market.

As mentioned earlier, the LHi acquisition, which establishes us firmly in the medical technology arena added $28 million or 17% to CIT's net sales. Performance by LHi continues to improve with respect to both sales and EBIT margin as we develop new customers, develop new products and drive factory improvements with the Carlisle Operating System.

CIT's EBIT increased 6% in the second quarter. EBIT margin declined 280 basis points due to the dilutive impact of the LHi acquisition and selling price reductions.

Despite the impact of these items on margin, CIT achieved an EBIT margin of 18.2% this quarter through its continued success with the Carlisle Operating System and organic sales volume growth. Another highlight for the quarter at CIT was the completion of the new Nogales factory.

We incurred about $400,000 in relocation cost during the second quarter, as we completed the startup and prepared the factory for production. We expect to yield benefits from this investment in future quarters, as we add more volume and gain efficiencies from this state-of-the-art factory.

On slide eight, we introduce results for our newest segment, Carlisle Fluid Technologies, or CFT. CFT was formed with the recent acquisition of the Finishing Brands business.

Finishing Brands is a leading producer of advanced finishing solutions and is a supplier to diverse and attractive end markets, including the transportation industry, with sales to global automotive manufacturers and Tier 1 suppliers. They also sell to automotive refinishing and industrial manufacturing.

Over 50% of Fluid Technologies sales are outside the United States. CFT sales in the second quarter were $61.7 million. CFT reported a loss of $1 million before interest and taxes due to the $9.3 million in acquisition-related costs. Excluding these costs, CFT's pro forma EBIT was $8.3 million and EBIT margin was 13.5%.

Measuring CFT on a pro forma basis, which provides a comparison as if Carlisle had owned CFT in both the prior year and current period, CFT sales results in the second quarter declined 8%, versus the prior year. The majority of the sales decline was due to a negative 6% currency impact from the stronger U.S. dollar.

Additionally, 2% of the lower sales were attributable to year-over-year timing differences on the sale of large automotive finishing system projects. We expect our sales volume in the second half of 2015 will increase as a result of the completion of some of these larger system projects.

CFT's pro forma EBIT margin of 13.5% in the current quarter increased 20 basis points from the prior year driven by higher selling prices. We also expect CFT's EBIT margin to improve in 2016, as integration activities take hold and robust Carlisle Operating System implementation continues across the business.

Slide nine is a review of CBF's results for the quarter. Sales in the second quarter declined 13%, reflecting a 6% decline due to currency fluctuations and a 7% sales volume decline. Demand in our key markets of agriculture, mining and construction were all down double digits.

This is due to the continued weakness in the commodity markets and lower demand in China. We do not expect much of a recovery in these markets from current levels until well into next year. CBF was able however to offset some of the declines through higher sales growth in its aerospace business as well as some of its smaller market segments.

As a result of the lower sales volume and the impact of currency fluctuations, CBF's EBIT declined 25% in the quarter and EBIT margin declined 160 basis points. CBF maintained a 9.5% EBIT margin through cost reduction efforts.

CBF's margin is expected to decline from current levels in the second half of the year due to product mix as well as fourth quarter seasonality. On slide 10, we review Carlisle FoodService results for the second quarter. Carlisle FoodService sales declined 3% in the quarter.

Sales in the FoodService segment declined by 4% primarily on lower international sales. Selling price was also lower due to increased rebates on higher sales to larger volume customers. In healthcare, sales were down 7% largely due to the timing of capital equipment sales that occurred in the prior year.

We are expecting higher contribution from capital equipment sales in the second half of the year. And CFS Jan/San sales grew in the second quarter by 9% on increasing conversion at the larger customers.

Carlisle FoodService EBIT declined 14% in the second quarter primarily due to the non-recurrence of a $1.1 million gain from the sale of the European distribution facility in the Netherlands that was recorded last year.

FoodService did a nice job maintaining a margin of 11.6% in the second quarter despite the lower sales volume, and much of the improvement was driven by the ongoing cost savings initiatives at Carlisle FoodService. This concludes my review of our segment performance in the second quarter.

Steve will now review our balance sheet, cash flow and working capital.

Steve?.

Thanks, Chris. Good morning. Please turn to slide 11 of the presentation. As Dave and Chris noted, on April 1, we acquired the Finishing Brands business for $590 million using cash on hand. At the end of the quarter and following the Finishing Brands acquisition, we had $229 million of cash on hand.

We continue to have all $600 million of availability under our credit facility, leaving us ample liquidity to further pursue our long-term growth objectives and return capital to our shareholders. During the first half of 2015, we returned $66 million to our shareholders in a combination of dividends and share repurchases.

We expect to return a similar amount in the second half of 2015. Our balance sheet remains strong. At June 30, our debt-to-capital ratio was 18%. Our net debt-to-EBITDA ratio was 0.9 times and our EBITDA-to-interest ratio was 17.4 times.

Turning to slide 12, our free cash flow from operations for the three months ended June 30 was $84.6 million, compared to a negative $20.7 million for the second quarter 2014. This $105 million improvement is attributable to higher earnings, as well as $25 million of lower capital expenditures this year.

Turning to slide 13, our average working capital as a percentage of annualized sales for the second quarter 2015 was 18.7%, a 70 basis point increase from the 18% reported for the second quarter 2014, in part reflecting higher inventory to meet higher demand in 2015. And with those remarks, I'll turn the call back over to Dave..

Thanks, Steve.

Angie, can you open the floor for questions, please?.

Your first question comes from the line of Ivan Marcuse with KeyBanc Capital Markets..

Hi. Thanks for taking my questions. Nice quarter. Real quick, if you look at the construction business, a few construction-related companies have talked about how wet it was in the second quarter.

Did that have any material impact on your business? And if so, is there any way or a possibility, a way of quantifying that?.

I mean it was obviously wet in the middle part of the country. It did have some impact, particularly down in Texas, Ivan. It's one of our better markets down in Texas and we did have some slow times during the quarter, but as soon as it dried up, I mean those picked up.

I couldn't even guess what the heck it would have been or how much of sales were down because of the wet weather. Frankly, if you look at growing at 10% organically, it didn't hurt a heck of a lot..

Right.

And then if you look at pricing, you mentioned it was down a little bit year-on-year, but sequentially, was there any movement quarter-to-quarter?.

Sequentially, relatively stable..

Got you. And then on the raw materials, you mentioned that 1.8% of the margin was the raw material benefit.

Was that all CCM or did any of the other segments benefit as well?.

The vast majority was CCM. I mean there was some minor impact at FoodService, but it was minor..

Okay. And then if you look at the LHi business, margin, I guess, if I did the math right is around 8%.

What do you expect that to get to over time and what kind of timeframe would that be?.

Yeah, it's going to take a couple of years, Ivan. But we would expect it would be closer to the corporate average. Chris and I were out in Seattle earlier this week and they were saying that the process improvements they're making with each Kaizen is yielding about 18% gain in each one of the cells they go through.

So they've got three teams working with COS activities constantly and they're just going through the operation, but on average, we've been seeing about an 18% gain in each one of the operations..

Great. And then last question and I'll jump back in. Steve, the notes that are due in 2016, it probably says in your 10-K.

But when could you call those and is the expectation that you are going to, with your balance sheet, roll them out or would you expect to pay off the $150 million in notes?.

Yeah. We're not planning on paying them early because there is a penalty for prepayment, so we will take them out when they mature in August of next year and the current plans are just to sort of take those out with a combination of cash on hand and possibly a drawdown on the revolver.

But at this point we're not looking to refinance that with additional public debt..

Great. Thank you..

Your next question comes from the line of Matt McConnell, RBC Capital Markets..

Thank you. Good morning..

Good morning, Matt..

Just want to follow up on that Construction Materials margin. Obviously, I think that's an all-time record. Are you seeing any incremental price pressure? I know you said sequentially it was flat.

Do you have expectations for how that margin can hold up in the back half of the year?.

Yeah. I think, Matt, right now we expect it to hold up, certainly through the third quarter. We get to the fourth quarter, then I think all bets are off. As volumes start to drop and I'm not sure what will happen with pricing at that point, but we think it'll carry us through the third quarter at least..

Okay.

Margins around the 19% level?.

Yeah, I would think so. It really isn't our record. I think we were 21% back four or five years ago for a quarter..

Oh. Okay. I might have missed that. Okay. And then Chris, I think you said Finishing volume might be up in the second half. Would that be inclusive of an FX headwind, because that would imply some nice organic growth in the second half of the year.

Is that the expectation?.

Yeah, the expectation is, yeah, to have growth inclusive of FX..

Okay, great..

We have some big projects that are working that will come to fruition in the second quarter – I'm sorry, in the second half, not the second quarter. We didn't have any of those large projects in the first half of the year..

Okay. All right. Great, that's helpful. And then last one, maybe.

So CAT's dealer statistics are still really weak and obviously you're seeing it in your business there and you've done a bunch of restructuring in Brake & Friction, but what are the other options that you have left there from a cost perspective? And do you need to draw up new plans for an incremental leg down in those end markets? Or just how are you planning in the current environment?.

Well, I think you can see that, you know, we are not – by the words in the release from both Dave and then my comments, we're not planning much of a recovery this year or even into next year at any significant rate, so we are looking at these costs constantly.

We've been able every quarter to find ways to reduce the cost as you've seen in the performance. And I would say that we're going to do the same thing going forward. One thing we want to be careful to do is that we don't want to take out either key positions, key employees or key manufacturing assets that we have in play.

So we'll look at footprint, we'll look at efficiencies through the Carlisle Operating System and other means to continue to drive cost reductions in CBF..

Okay. Great. Thanks, guys..

Your next question comes from the line of Kevin Hocevar with Northcoast Research..

Hey. Good morning, everybody. Congrats on a nice quarter..

Thanks, Kevin..

In terms of the raw materials in CCM, if we could revisit that one more time. I think on the last quarter you mentioned that your oil-based raw spend is like $800 million and you expected those to be down 5% to 10%. Correct me if I'm wrong.

But is that still the expectation or have raws come down any more than you would have expected to kind of support these really high margins or I guess, what is your current expectation for that for the year?.

Yeah, Kevin, I guess the only thing we would sort of update you guys on is that, now we'd expect it to be at the high end of that range..

Okay. Got you. And last quarter you kind of uncharacteristically built inventory, it sounds like maybe again you have higher inventories than usual.

Is that all in the Construction Materials and is that because of your strong outlook in that business?.

Yes, Kevin, it was almost all in Construction Materials. Last year, I think we took inventory down too low and we had two objectives this year, not to have any outages and I think the business did a great job in preparing in the first and early second quarters to make sure that we had inventory available.

We've had ongoing conversations within the company that is 15% operating or working capital the right number? And I think that it might be a little bit low. We might be looking at 17% or 18% long-term, appears to be the optimum level for us to be able to deliver when we need to deliver, and not lose any orders because of inventory outages.

And that would be generally across the company..

Okay. And Steve, I think last quarter you were looking at $100 million in CapEx and now it's $80 million to $90 million.

So just wondering what changed there?.

Well, last time we spoke we were sort of just going off the forecasted spend from our divisions. And they're just coming in across the board a little bit lower than we had anticipated at the time of our last call, and that's just our updated number.

There's nothing really more to it than that, and I think $80 million to $90 million is a good number for the year..

Okay.

And then just final question, how should we think of this Nogales plant ramping up? What type of benefits can we see in the back half of this year and I guess going into next year?.

Yeah, I think that there will be efficiencies. In fact, if you look at the margin that we generated in the second quarter, it was a result of some of those efficiencies we got out of Nogales. We're in one plant rather than four smaller plants, so that's helped us.

It's just been, I guess, a stroke of luck that we brought it on just as volumes ramped up again. And we would expect that margins would improve as we go through the year..

Okay, great. Thank you very much..

You're welcome..

Your next question comes from the line of Joel Tiss, BMO..

Hey, guys.

How's it going?.

All right, Joel..

That's good.

I just wondered a little bit behind the scenes in the CBF, what's happening in the mining industry? Are you seeing machines coming out of service or it's just a little bit less intensive? Or is it more of just a whole bunch of end markets at once seem to be seeing weakness?.

Well, if you look at the business, keep in mind that ag is down 27%. It was only off a few percentage points, I think, earlier this year and late last year. So ag has had a major downturn for us.

In mining, frankly, mining is – Chris, was it 15% of total revenue, I think?.

Yeah..

Somewhere in that range, yep. So mining, while it's obviously important to us, it's not the biggest segment. Our biggest segments are ag and construction. But mining is not doing well. We don't see anything that would indicate equipment's coming out.

It's just that no new equipment is being bought, and it would tell you that equipment is not being used because not a lot of parts are being bought for the aftermarket. So, I think the equipment they have there is not being utilized like it had been in the past..

Okay.

And the receivables increasing by so much, is that all just acquisitions and, I guess, a little bit of inventory build?.

Revenue..

Yeah, and revenue. Certainly revenue growth is also a contributor..

And if you take out all the, sort of the acquisitions and all the restructuring or whatever, what was the incremental margin in the quarter, kind of in the 40%s?.

Oh, incremental margins? It's probably....

All right, I can calculate it out..

Mid-30%s I would think, yeah..

Okay.

And that looks sustainable for the rest of the year?.

Yeah, I think if you look at the businesses that are generating that, I would see no reason that it shouldn't be..

And then, just sort of, I guess a kind of strategic question. Is there any sense to refinance that 2020 debt at 5.25%? It seems like you could do a lot better than that in today's market..

Well, we could certainly do better, but there is a significant penalty to prepay. I mean, there is call protection in the public bonds. We've looked at this and when we do the calculations, we don't see a real benefit once you take into account sort of the upfront penalty that you've got to pay to cover the protection..

All right. Okay. Thank you, guys, very much..

You're welcome..

Your next question comes from the line of Tim Wojs, R. W. Baird..

Hey, guys. Nice job..

Thank you..

I guess, just on CCM, any kind of geographical color, anything that was a little bit better than the overall business or a little bit worse.

And then, I guess just with the TPO facility that you have in the Northeast now, how big of an advantage is that, as we've seen TPO kind of migrate more north?.

Well, it certainly has helped us from a freight standpoint. If you think about, we were shipping TPO to the Northeast from Tooele, Utah and Senatobia, Mississippi. We now have an operation that's only a couple hours from New York City. So it certainly has helped from a freight standpoint, also from a delivery.

You know, you now have a situation where you can react more quickly to the needs of the customers up in the Northeast that want TPO, so it's been a real advantage in having that facility there..

Okay.

And then geographically, just anything that kind of deviated from the overall kind of growth rate in the quarter in CCM?.

Tim, not really. We talked a bit about earlier in the call with the wetness in Texas early on in the quarter, but I think as soon as it dried out we immediately had roofers on roofs and I don't think there's any pent up demand in Texas because of the wetness, but that's the only thing..

Okay. And then just in terms of the Fluid business in the back half of the year, you talked about some larger projects.

How are the margins on the larger projects versus just kind of the core business, just as a kind of frame of reference?.

Pretty comparable. Yeah, I would say pretty comparable. The difference with, obviously, the systems is the timing, the installation. These are large automotive projects, so there's a lot of coordination to put those line retrofits in or a new line and so that's what causes a little lumpiness in our demand..

Okay, great. Thanks a lot, guys. Nice job..

Thank you..

At this time, there are no further questions. I would now like to turn the conference over to David Roberts for any additional or closing remarks..

Thank you. As we prepare to end the call, I ask that you turn to slide 15. As we began the third quarter, our outlook remained very positive and continues to be very positive. CCM, CIT, CFT, and CFS have very favorable market conditions going into the second half of the year.

Looking at it by segment, CCM should continue to benefit from strong new non-res construction, a healthy reroofing market and lower raw material costs. Sales should grow mid to high single-digits and earnings are expected to be highly leveraged in the second half of the year.

Barring any major change in pricing, earnings growth will be reflected in the third quarter and fourth quarter results. While we had some downward pressure on pricing in the first half, but it was minor, it had really very little impact on our overall performance in the year.

With the second quarter and first quarters behind us, all indications are that 2015 is going to be a record year at CCM. At CIT the second half of year performance should improve upon our performance in the first half. Our Nogales plant is up and running and our aerospace and medical markets continue to be strong.

We're making operational improvements at LHi, and while they are slightly up from 2015 margins, we expect that the impact really is going to occur in 2016 and 2017 at LHi. 2015 should be a record year for CIT though. Sales at Fluid Technologies are expected to grow mid single-digits in the third quarter and fourth quarters.

Unfortunately, most of that growth will likely be offset by FX. In the second half of the year revenue should be approximately $150 million with EBIT earnings in the low teens. CFT will be contributing to our earnings during the second half of the year as the purchase accounting adjustments are now behind us.

CBF markets will continue to be in the depths of a four-year recession and will show little life in the back half of the year. During our first quarter conference call, I projected that CBF's revenue would be flat for the year. I now think that was too optimistic.

We should see sales declines in the second half of the year similar to what we saw in the first half. We also seasonally manufacture a product mix in the first half that has favorable margins compared to the products we manufacture in the second half of the year.

With declining revenues and less profitable mix, margins should be in the mid single-digit range in the third quarter and fourth quarters. At FoodService we expect to see low single-digit revenue growth in the second half with profitability commiserate with the revenue growth. Sales and profit for the full year should be approximate of 2014.

Corporate expenses will be approximately $58 million for the full year. D&A will be approximately $131 million, and CapEx will be between $80 million and $90 million. Free cash flow conversion will be approximately 100%, interest expense approximately $34 million, and the planned tax rate should be between 32% and 33%.

We've had record earnings in the first half of the year, and frankly, we think this is a good projection for the second half of the year. We think 2015 is going to be a very good year for us. That brings the call to a close.

I want to thank you for attending our second quarter 2015 conference call and look forward to reviewing our third quarter performance with you in October. Operator, you may now end the call..

Thank you for participating in today's conference call. You may now disconnect your lines at this time and have a wonderful day..