Good afternoon. My name is Sheryl and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Fourth Quarter 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.

[Operator Instructions] Jim Giannakouros, Vice President of Investor Relations, you may begin your conference..

Thank you, Sheryl. Good afternoon, everyone, and welcome to Carlisle’s fourth quarter 2018 earnings conference call. We released our fourth 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.carlisle.com in the Investor Relations section.

Discussing the results and our updated outlook today are Chris Koch, President and CEO; and Bob Roche, our Chief Financial Officer. Today’s call will begin with Chris discussing our progress towards Vision 2025 and our plans for 2019. Bob will discuss Carlisle’s fourth quarter operating and financial performance.

Following our prepared remarks, we will open up for questions. Now please refer to slide 2 of our presentation. Where 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 SEC 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 SEC, before making an investment decision.

With that, I turn the call over to Chris..

Thanks, Jim. Good afternoon, everyone. Please turn to Slide 3 of the presentation. Carlisle had an excellent fourth quarter and strong finish to 2018.

We made solid progress towards our Vision 2025 goals of $8 billion in revenue, 20% operating income and 15% ROIC, which we anticipate will generate $15 in EPS more than double the earnings achieved in 2018.

As we move into 2019, we will continue to build on the foundation we established in 2018 and we remain focused on driving 5% organic growth with operational leverage.

Utilizing the Carlisle operating system and its continuous improvement culture to drive efficiencies, building scale with synergistic acquisitions, continuing to invest in exceptional talent and deploying over $3 billion into capital expenditures, share repurchases and dividends.

In the fourth quarter, we again drove organic revenue growth in excess of our targeted goal of 5%.

We did this with sustained price leadership at CCM, capturing share and healthy aerospace markets at CIT, strengthening our market share and price position at CFT and through price recovery efforts and sustained positive momentum in the off-highway end markets that CBF.

In the fourth quarter, operating income rose 22.7%, almost three times our revenue growth. A further indication that the restructuring efforts, pricing discipline and increased focused on productivity that we instituted over the last two years are paying off.

The Carlisle operating system remains core to our culture and is an integral process for driving efficiencies throughout our businesses. In 2018, we continue to build out our global COS team and increase our efforts to identify efficiency opportunities within our processes.

For the fourth quarter, if we achieve cost savings of 1.3% of sales through COS and 1.5% for the full year well within our goal of 1% to 2% savings annually.

With respect to building scale through synergistic acquisitions, we continue to work an active pipeline within our MedTech, Aerospace, Fluid Technologies and building envelope platforms, and recently closed on the acquisition of Petersen Aluminum Corporation, accelerating our expansion into the $4 billion plus North American architectural metal roofing segment.

Metal roofing is a key component of a complete building envelope offering. It expands Carlisle's presence with our customers, building owners and architects and enables revenue synergies and metal edging for single ply roofing systems, as well as underlayment and insulation synergies with Petersen products.

We're excited about adding Petersen's capabilities, reach and scale, and we are eager to build on Petersen’s historical double-digit growth to create a market leading platform for Carlisle. We've identified over $5 million in synergies related to this acquisition, an increase over our previously communicated expectations of $4 million.

I'd like to take a moment to welcome the Petersen team to Carlisle and specifically acknowledge Mike Petersen, and his industry knowledge and leadership, which will prove to be a tremendous asset for Carlisle as we further expand into the metal roofing markets.

Turning back to fourth quarter results, free cash flow in the fourth quarter exceeded $200 million, leaving us with an ending cash position of over $800 million for 2018. We remain opportunistic and aggressive in the capital markets in the fourth quarter, repurchasing approximately $165 million of shares.

We also paid $24 million in dividends to shareholders in the fourth quarter. For the full year, we repurchased 4.4 million shares for $460 million, a record amount for Carlisle. We expect to exceed our vision 2025 goal of $1 billion of share repurchases and we continue to balance acquisitions with opportunistic share repurchases.

This further reinforced by the Board's repurchased authorization announced earlier this week. Turning to Slide 4. In the fourth quarter of 2018, Carlisle set a record for revenue of $1.1 billion a 9% increase over 2017 and our 23rd consecutive quarter of year-over-year sales growth.

We experienced solid organic growth across all businesses, including strong pricing traction at CCM, CFT, and CBF. Of special note CIT revenue grew over 10% organically in the quarter.

Our operating income in the fourth quarter grew 23% to $115 million driving diluted EPS of $1.49 which includes $0.17 of restructuring, facility rationalization, and acquisition related costs. We executed well on several funds – fronts during the quarter. We are especially pleased with the continued price discipline of our team at CCM.

In the quarter we delivered $16 million of positive price while maintaining our overall industry-leading share. In CIT operating margins expanded close to 4 percentage points in the fourth quarter reinforcing our progress towards our goals of 20% operating margins for this business.

CFT also continued to make substantial progress in 2018 driving operating income to nearly 15% in the fourth quarter validating our conviction with respect to the substantial profitability potential for this Fluid Technology segment. Let's now turn to divisional highlights, starting with CCM.

CCM revenues grew 9% year-over-year reflecting continued strong demand in the North American non-residential construction markets. With roofing labor markets remaining extremely tight and above average rainfall having an impact on roofing days we were pleased that we saw no overall drop in underlying demand.

We continue to view the demand backdrop at CCM as very attractive across non-residential building applications including our new markets of metal roofing and Spray Polyurethane Foam. CIT’s fourth quarter revenue of 11% reflects our strong and growing presence in the Aerospace and Defense markets, and continued progress in our MedTech platform.

Within the Aerospace segment, build rates of Boeing and Airbus continue to be positive. We have gained higher content per plane as exhibited on the newer platforms including the 737 MAX and A320neo. Production in these new narrow body models is expected to increase 10% annually over the next five years.

In addition, we also have higher content on Airbus’ A350 and Boeing’s 777X. Rounding out our major aerospace platforms, Boeing has publicly stated that they will be increasing production of the 787 in 2019.

CIT’s global medical technology business continues to grow and remains a focus area for both organic and inorganic growth, given attractive industry dynamics such as aging populations and trends towards minimally - minimally invasive procedures.

We are excited about our RedGroup acquisition, which strengthens our engineering and new product development relationships with medical device manufacturers.

And finally with the recently completed startup of our medical manufacturing facility in Dongguan, China, we have further enhanced our ability to deliver an expanded product range to medical OEs.

CIT also made solid progress on fourth quarter margin expansion increasing 390 basis points driven primarily by higher volumes, savings and efficiencies gained from COS and lower restructuring costs. We're excited about the momentum in CIT exiting in 2018, and we will look to continue to build on these positive results as we enter 2019.

In CFT, we're pleased with the progress the team made in 2018. While driving strong organic growth during the quarter, we also exited 2018 delivering close to 15% operating margins, which were driven by solid gains and pricing, discipline around costs controls and COS implementation.

With restructuring behind us the margin profile is well on its way to reaching our Vision 2025 goals and a new team is in place and performing. So now we will turn our focus in 2019 to enhancing our product breath through new products and acquisitions and expanding our global reach.

CBF continues to benefit from stable off-highway equipment demand particularly in construction and mining. In the fourth quarter, we completed our Tulsa to Medina facility consolidation and fully expect to see the associated savings this year.

I'd like to acknowledge the tremendous work of all of our employees in Tulsa for their support of a year of double-digit sales growth for our CBF business while doing the heavy lifting of transferring their operations to Medina.

Bob will now provide further detail about our fourth quarter operational and financial performance and review our balance sheet and cash flow.

Bob?.

Thanks, Chris. Please turn to the revenue bridge on slide 5 of the presentation. As Chris mentioned, we are pleased with our overall fourth quarter revenue performance. Organic growth was 5.3% in the quarter driven by steady demand at CCM and CBF and strong organic growth at CIT and CFT.

This is the last quarter we’ll be calling out revenue recognition impacts as we anniversary the adoption of the new accounting rules. But in the fourth quarter it did amount to a 40 basis point headwind year-on-year. Acquisitions contributed 4.3% of sales growth for the quarter and FX was a 40 basis point headwind. Turn to our margin bridge on slide 6.

Q4 operating margin expanded to 120 basis points year-over-year, positive pricing and volume leverage combined for 2.3 percentage points of the growth and COS drove a positive 130 basis point margin improvement.

Partially offsetting these were a 50 basis point headwind from acquisitions, a 170 basis point headwind from rising raw material, freight and labor costs and a 20 basis point headwind from restructuring and rationalization cost. Now please turn to Slide 7 there we’ve provided an EPS bridge.

As previously stated, we reported fourth quarter diluted EPS from continuing operations of $1.49 which compares to a $1.73 last year. Higher volumes contributed $0.10. Positive price added $0.21. COS added another $0.14 and our share repurchase activity added $0.07 to the quarter's earnings.

Offsetting these positives were raw material, freight, and labor cost increases which amounted to a $0.25 headwind and the biggest impact came from an unfavorable year-over-year comparison on the tax line, $0.51 given last year's positive direct and indirect impacts due to the Tax Cut and Jobs Act.

Now let's turn to Slide 8 to review the fourth quarter performance by segments in more detail. At CCM, revenues increased 9.3% with acquisitions contributed 6.6% of the growth and organic growth of 2.8%. Backing Chris's earlier thoughts CCM executed extremely well and accomplishing $16 million of price realization in the quarter.

This was the combination of two years of exceptional price discipline by the CCM management team. Beginning in 2016, we reverse the negative price trend we had weathered since 2012. Nearly $34 million of price gains were achieved for the full year 2018.

This price discipline more than offset the higher raw material and freight-related inflation of $7 million in Q4 and $43 million for the full year. The full year $9 million net price cost headwind is right in line with what we had predicted coming into the year.

Closing out our first year with sell, we executed our targeted $10 million of year one synergies. Operating margin at CCM was 14.4% in the quarter, a 20 basis point increase over last year. Please turn to Slide 9 to review CIT’s results.

CIT capped off a solid year by growing organically almost 13% in the fourth quarter with a partial offset of 2 percentage points given the change in revenue recognition standards. CIT’s operating margin grew 390 basis points a year-over-year to 14.4% given higher volumes, lower restructuring costs and COS savings. Now turning to Slide 10.

CFT’s organic revenue increased almost 6% year-over-year. General Industrial markets were up double digits, particularly strong in the Americas, and overall pricing was up 1.5% year-over-year.

This coupled with our 2017 and 2018 facility rationalization efforts, vertical integration and savings associated from COS expanded our fourth quarter margin almost ten point - 10 percentage points to 14.6%.

Turning to Slide 11, CBS organic revenue growth of 4.9% was in line with our expectations, given supportive off highway vehicle markets, successful price implementation and share gains during the quarter.

Given our planned increases in restructuring costs related to the closure of our Tulsa, Oklahoma facility, operating income declined $5.9 million from last year's fourth quarter. On Slide 12, we show select balance sheet metrics. Our balance sheet remains strong.

As we ended the year with $804 million of cash on hand and $1 billion of availability under our revolver. During the quarter, we opportunistically repurchased approximately $165 million of shares bringing our total share repurchase activity for the year to $460 million.

Further our board authorized an additional 5 million shares to repurchase earlier this week. Turning now to Slide 13. Our free cash flow for the quarter was $212 million compared to $105 million last year. The increase was due to timing of customer payments and lower capital expenditures in the current year quarter.

And with that, I will turn the call back over to Chris..

Thanks, Bob. Please turn to Slide 14 as we discuss our 2019 outlook. For Carlisle as a whole, we expect year-over-year growth to be in the high single-digit range.

By segment, at CCM driven by what we view as continued strength in the North American non-residential construction market, a solid backlog of work of contractors, tight labor markets and the addition of the Peterson acquisition we expect revenues to grow high single-digits to low double-digits in 2019.

CCM will continue to maintain price discipline and indications that we will benefit from a more positive raw material dynamic are in place. In CIT after a strong 2018, we expect revenue growth in the mid-single digit range demonstrating continued strength in our core CIT markets of aerospace and medical.

CIT will benefit from pricing actions taken late in 2018 to offset inflation and other cost increases. Our strong continued core growth will be somewhat muted by isolated customer dynamics in the SatCom segment, where the model of IFC service providers offering subsidies was found to be financially unsustainable for them.

This very public transition to a new model began in mid-2018, and we anticipate it lasting through 2019. We also expect roughly $15 million in restructuring charges to be taken at CIT this year related to the consolidation of North American facilities to drive operational improvements and efficiency gains in the business.

At CFT, we expect revenue growth to continue in the mid-single-digit range, driven by solid global GDP growth, new product introductions and geographic expansion. At CBF, with predicted stability and global off highway markets, we anticipate low single-digit growth for the year.

Corporate expense is expected to be approximately $75 million to $80 million. Depreciation and amortization expense is expected to be approximately $200 million. For the full year, we expect capital expenditures about $110 million to $125 million and free cash flow conversion of 100%.

Net interest expense is currently expected to be about $55 million to $60 million for the year and our tax rate is expected to be approximately 25%.

We entered 2019 with solid momentum and a strong financial foundation fully cognizant of the uncertainty surrounding Brexit, the unresolved U.S.-China trade negotiations and the global political environment.

We feel that despite these uncertainties, we're confident the team's ability to achieve our strategic and financial targets across the businesses and what remains a generally positive global economic environment.

As we enter year two of our Vision 2025 journey, we remain committed to meeting our goals of $8 billion in sales, 20% operating margin, 15% ROIC and driving $15 million of EPS. In closing, I'd like to thank our over 14,000 global employees, who through their dedication to Carlisle and its customers make our success possible.

This concludes our formal comments, Sheryl. We're now ready for questions..

[Operator Instructions] The first question comes from the line of Tim Wojs of Baird. Please go ahead. Your line is open..

Just maybe and starting in construction, as you kind of look at 2019 obviously raw materials are more favorable today than they were you know three to six months ago.

So, as we kind of think of margins and kind of price costs in 2019, how should we think of that kind of trending through the year?.

Yeah. Tim, what we're looking at right now is $40 million to $50 million tailwind coming into 2019 with what we're expecting..

And that's -- that net of any sort of price or is that just a material?.

That’s net..

That’s net. Okay. Okay.

And would that start mostly kind of March-April timeframe or would that – would you start seeing that in the first quarter?.

Not to be a little less in Q1. We expect the price to carry over..

Okay. And then when we think about just Accella in the – you know and that what you're betting in that for 2019. I think I'm kind of getting like a – you know kind of a 3% to 5% organic growth range for CCM.

What's the Accella growth assumption in 2019?.

Tim, we're thinking we're going to grow along with the market there and we've had that market somewhere in the mid to high single-digits you know it's on a smaller base. But we think that SPF market growth continues and that's a big part of that..

Okay. And then just a last one, so free cash flow, I think you said in line with earnings kind of a 100% but I think D&A is 200% and CapEx is maybe 120% at the midpoint, so this is kind of an $18 million cap.

Is that all working capital or what's the variance there, I thought it’d be a little better?.

Yeah. I mean, we expect it’d to be a bit over but we're looking at you know streamlining working capital and the things going on at CIT to the both inventory and then what we're doing with Peterson. So I would expect it to be a little better than that maybe a little concerned conservative on our - on our guide, but be at least a 100%..

Okay, great. Well, good luck on 2019. Nice job on 2018..

Your next question comes from the line of Neil Frohnapple of Buckingham. Please go ahead. Your line is open..

Hi. Thanks. Just first, could you guys provide some more color on how you're thinking about capital deployment this year? I mean, you brought back well larger than expected amount of stock in 2018. The Board just hop right as you said an additional 5 million shares for repurchase.

Do you plan to potentially buyback a similar amount in 2019 as you did versus 2018? And then just how are you thinking about M&A after the Petersen deal because I know you called out some different verticals, but just curious if multiples have come down at all over the last few months?.

Yeah. Neal, I think yield continues to be opportunistic on the share repurchases. We’re going to balance it obviously. We've talked about, and Bob and I have talked about the balance between acquisitions and share repurchases.

I would imagine obviously with your authorization, we’ll continue to buy shares back provided the value is still there, but the pipeline is – is pretty robust for acquisitions, but the valuations are still high. So we'll continue to be disciplined in our approach.

We want to make sure again that we have acquisitions that have good organic growth that we can leverage that we can publish synergies on that and we can drive to the – to exceed the hurdle rates we've set for ourselves.

Bob, do you want to add anything to that?.

No. Chris, I agree. We're going to continue to be disciplined as we always are and balanced between the when we have acquisitions, what we see coming and then the repurchases and we're not going to sit on a lot of cash, we're going to deploy it appropriately as we see fit..

Okay.

And what was the full year restructuring number for 2018 relative to the $23 million to $27 million you expect for 2019?.

2018 we ended up a little over $30 million..

Okay.

And I think you previously talked about $15 million of restructuring costs for 2019, I think that $30 million might have been below what you're previously looking for so curious what are the incremental spend is for 2019 or just some of the costs got pushed out for this year?.

No.

It was expected around $15 million $20 million we're going to end up, I'm going to say, in the middle of our range is $25 million, some of that's Peterson because obviously when we are talking about 2019 a quarter ago we didn't know we're going to have Peterson step up so some of that’s the Peterson’s step up and then you have a little bit of other things around but largely the $15 million plus Peterson get you over $20 million..

Okay.

And then just one final one on restructuring so was there break in friction or there is a large implied step down in restructuring costs in 2019 can you provide a year-over-year tailwind of operating income from both the lower restructuring costs and the savings, exclude any sort of positive impact from changes in volume this year just so we can get a sense of the starting point for 2019 given the big restructuring is basically behind us now? Thanks..

Yeah. I mean we had almost $20 million of restructuring in 2018 and that's going to $2 million restructuring so that the tailwind just from restructuring is $18 million. And then we'll have we're expecting $12 million of savings in 2019 related to the restructuring we had last year..

Okay. Perfect. Thanks. I'll pass the line..

Your next question comes from the line of Charley Brady of SunTrust Robinson Humphrey. Please go ahead. Your line is open..

Good afternoon, guys. This is actually Patrick Scholes standing in for Charlie. Thanks for taking questions..

Good afternoon.

And just looking into 2019 for your metal roofing business that you guys have now, I guess, what is your expectations for growth there for 2019 in metal roofing? And how is the market metal roofing margin look like relative to the legacy CCM margin I guess pre-Accella?.

First of all on the growth, we would have liked to see Petersen continue their recent double-digit growth. I think that's definitely higher than the metal roofing average, but Petersen has done an excellent job with new products and also geographic expansion and share gains. So we'd like to see that continue.

With respect to the pre-Accella margins at CCM, metal roofing, the Petersen metal roofing acquisition would be below that but we're anticipating with our actions around COS with the synergies that we have.

And with the combination of the other mental acquisitions that we built around volume and purchasing and that we would be aspirational to get back to the traditional CCM averages..

Okay.

I guess just sticking with CCM margins and we already touched upon the Accella can you just provide an update on how the Accella margin looks like in the quarter and sort of how you expect that to progress in 2019?.

Yeah. I mean, our overall we're fully combining Accella in the CCM.

So as [indiscernible] in the factories purchasing gets mixed together, where we don't have a great view, we are tracking the synergies, we're keeping an eye on it and making sure we're doing what we said we do, and nothing's changed from the last outlook we gave or we believe we'd end up ending next year at high single digits..

Fair enough. Thanks. I'll pass along..

Your next question comes from the line of Garik Shmois of Longbow Research. Please go ahead. Your line is open..

Hi. Thank you.

Just first question is just on CCM, legacy volumes if you back out the pricing comments that you made looks like demand maybe flat to slightly up in the quarter so just wondering if my math is correct, and if true what drove the deceleration 2Q is a bit higher than 3Q I think it was up low-single digits was it all weathers or is there something else going on or were you trading volume for just getting price increases through? So I guess that’s part of the first question..

Yeah.

Garik, as you mentioned that you're correct on your assumptions with volume there and we – I think, we've been pretty clear for many quarters about how we were going to stay with our price discipline and there was some certain areas where our pricing discipline caused us to walk away from some jobs that would have added volume but wouldn’t have done anything for profitability.

Secondly, I think you're right about the weather days, we mentioned it in my comments that we still suffer from some very wet weather and that was days on the roof and as we pushed to the end of the year losing any of those days obviously can’t make them up in the quarter, so I think a combination of that.

And when we look at – for a comparison when we look at our industry data we were right in line with where the industry was so no loss of market share..

Okay. And then just –.

Just call it price gains..

Okay.

And I think just looking at your outlook for 2019 in CCM just what are you seeing in the market that’s giving you confidence as it comes back up to mid-single digits?.

Yeah. It's really again our gains versus the competition we think in certain areas physically in PVC, EPDM we still see some outlook there that's positive.

We still think the market has some room to grow, we've got new products coming out, I think Bob mentioned that, that we have new products so we're fairly optimistic with the underlying demand and then with our own actions where we can gain share..

Okay. Thanks.

And just my last question is just on the improvement in the CIT margins in the fourth quarter if you could provide a little bit more color on what drove that and you know if you think you can get up to mid-to-high teen margins in CIT just given some of the tailwinds into 2019?.

Yeah, I mean I don't think we'll get the high teens. I've been I've been talking for a while we get 100 basis points a year or so and we're still on track for that. There was no magic bullet that happened. I think it was volume coming through, good mix and overall the restructuring pieces that we've done over the last year coming through..

Your next question comes from the line of Bryan Blair of Oppenheimer. Please go ahead. Your line is open..

I just wanted to circle back to CCM volume a little bit more.

In terms of weather impact, could you parse that out for the fourth quarter?.

Yeah, I mean we're not going to get any specific days on the roof I think that will be very hard to do. I can talk to you a little bit about where the weather was.

If you look the Upper Midwest, if you had a map and you looked at that I mean obviously the Upper Midwest and then I'd say the Mid-Atlantic states were pretty heavily hit for us and obviously we've got a lot of market share in the Northeast.

And then, previously to that the in the third quarter there was still some carryover from the heavy rains that we saw in the Texas area and Texas has been a pretty strong growth market for us. So, in terms of actual days I don't have a number for you we could probably follow up with and then give you a ballpark that we don't have one right now..

And then obviously we had some challenging weather in the first quarter as well.

Is it fair to assume that's the pushback to project activity assuming that's the labor shortage just not get in the way will benefit your second and third quarter the seasonally stronger periods?.

Yeah, I think the big thing again is how much incremental labor can we get, if the days are there we definitely have the project backlogs, the ones that are delayed by weather have to be done, these are not projects that are on a black where they're projects that need to be completed.

So one would think that there would be every effort by the contractors to clear that backlog as we move into Q2, and obviously first quarter for us is fairly light which is highly impacted by weather but as we move into the warmer months and our bigger volume months or quarters of two and three, yeah, I think we would expect to see people trying to make that up..

All right. I appreciate the color. Thanks again..

There are no further questions at this time. I will turn the call over to the presenters for closing remarks..

Well, Sheryl, thanks very much. Thanks everyone for being on the call today. We appreciate that and we look forward to talking to everyone after we release our Q1 results later this year. Thank you Sheryl..

This concludes today's conference call. You may now disconnect..