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Carlisle Companies Inc. (NYSE:CSL)

Q4 2008 Earnings Call

February 05, 2009 9:00 am ET

Executives

David Roberts - Chairman, President and CEO

Steven Ford - VP and CFO

Analysts

Peter Lisnic - Robert W. Baird

Saul Ludwig

Wendy Caplan

Mark Zeff

Operator

Good morning. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter Earnings 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).

I would now like to turn the call over to our Chairman, President and CEO of Carlisle

Company Mr. David Roberts. Sir, you may begin.

David Roberts

Thank you, Ashley. Good morning and welcome to our 2008 year-end conference call. With me is Steve Ford our CFO; and Kevin [Zimo], our Treasurer.

Before I turn the floor over to Steve, I will take you through a detailed discussion of 2008. I would like to give you an update on the conditions that we saw in 2008, and really an update on the initiatives that we announced during the year.

2008 was a difficult year for us, primarily related to raw material costs and a slowing economy later in the year. Our material cost increase were about $142 million as compared to 2007. We were able to offset approximately 80% of those costs to productivity improvements and price increases. That left us with unrecovered material cost increases, which was a major contributor to our margin decline during the year.

The good news is we are starting to see these costs subside. We still have some higher cost inventory, mainly in tire and wheel, and that will work its way through the system during the first quarter and possibly the second quarter, just because of the slowing that we are seeing in the economy. The materials are headed in the right direction.

During the year we announced a number of factory consolidations and distribution consolidations. Let me give you an update on how we are proceeding on those. They are all on schedule and actually costing less than we originally planned. The Anderson, South Carolina and Marlin, Texas Insulfoam plants are now closed. Both plants are listed for sale. We actually have an offer on the Anderson, South Carolina plan. We hope to have that sale complete sometime in the first quarter and we do not really anticipate any additional forthcoming charges for either facility.

In our foodservice business, our East Point Georgia facility was closed on January 30th and all operations had moved into primarily at Sparta, Wisconsin facility. We have a few people onsite in East Point to get the facility into a saleable condition, but these costs will not be significant and there really are no further charges coming as a result of that facility closing either.

The consolidation of our three California wheel plants into Ontario is proceeding as planned and should be complete some time by late summer. 2009 expenses to consolidate these facilities are going to be about $2 million with a payback for about a year and half.

The consolidation of the five tire distribution centers that we announced in the third quarter which include the Quinton, Tennessee; Springfield, Tennessee; Mt. Pleasant, Texas and two facilities in Spokane, Washington are now complete. We still have some lease termination costs that we are working through with the building owners, but we do not anticipate these exceeding what we announced during the third quarter conference call.

The remaining distribution center that we are consolidating is Lithia Springs, Georgia, and that has been moved into our new McDonough site. That will occur sometime mid to late April of this year. To make these moves possible, we actually installed the state-of-an-art material handling system in McDonough, which has made that facility actually one of the highest checked out tire distribution centers in the country. Once Lithia Springs is consolidated, our first debt in consolidation distribution centers in the McDonough will be complete.

Not announced last year but what we are in the process of doing is our consolidation of our China tire plants. We are in the beginning stages of moving tire production out of [Beijing] and into our tire plant in (inaudible). This move began this month and will be completed in November. The expenses for the consolidation are $3.5 million and we are anticipating an annual savings of approximately $5 million from that consolidation.

We are also planning for other plant consolidations in closing during the year but we are still in the planning stage as I am not in a position to really announce what facilities are and what the charges are going to be associated with those consolidations. Once those plans are finalized and we would notify the appropriate people, we will announce our plans to the public.

We are planning for a $10 million to $15 million charge, restructuring charge in 2009, of which 3 million of that will be a carryover from the restructuring we announced in 2008. Permanent payback calculations for the expenditures that are generally in the less than two-year range, so we get a good payback on the closing of these facilities.

We continue to make progress implementing the Carlisle operating system. We made significant strides during the second half of 2008 to put us well on the path of 15% operating earnings and a free cash conversion rate in excess of 100%.

Let me give you one example of what we have done with COS. There was one plant in our system that was right for COS and that was our Aiken, South Carolina facility. Aiken produces our steel wheels primarily used lawn and garden tractors. For the past few years Aiken has been producing 16,000 wheels a day, working seven days a week to keep up with customer demand.

We held our first Kaizen event in Aiken in August. Seven Kaizen events later, we are now producing 23,000 wheels a day, up from 16,000. The increase from production is actually allowing us to fulfill our customer needs on a five-day work week with 517 people compared to 775 people last year, so significant improvement and productivity in that facility.

The cost for implementing COS in 2009 will be $3 million. We expect these costs to be immediately offset by productivity gains. The money is being spent on a consulting help, training of our people and personnel dedicated to COS. The return on this expenditure is exceptional. We expect savings in the range of $14 million in 2009 from the activities that we started in 2008 and what we will implement during 2009. We are also expecting to be able to reduce our inventories about twice the amount of the savings. So there is good improvement obviously in productivity as well as a reduction in working capital.

COS’s continuous improvement process and I have been after a number of times using a baseball analogy where we are, what inning we are with the implementation of COS. Frankly I put this in the top of the second. There is a lot of work to be done and frankly we are starting to see benefits from what we have done so far though.

With that, I would like to turn the meeting over to Steve, let him take you through 2008 and then I will come back on and we will talk about what we are seeing in 2009 before we open the floor for questions. Steve.

Steven Ford

Thanks, Dave. Good morning. Carlisle reported a year-over-year decline in sales of 1% for the fourth quarter 2008 with 8% acquisition growth offset by a 9% decline in organic sales. Price increases during the quarter of $49 million were offset by volume reductions of $111 million.

For the quarter, the Dinex and Carlyle acquisitions contributed $50 million of sales growth. Operating income decreased 56% for the fourth quarter 2008 compared with 2007. A 68% reduction in income from core operations was offset by 12% of additional operating income from the Dinex and Carlisle acquisitions.

The combination of lower unit volumes in unabsorbed overhead and are construction materials in transportation product segments as well as restructuring charges caused a reduction in our operating margin from 10% from the fourth quarter 2007 to 4.4% for the current quarter.

In the quarter, we recognized pre-tax charges of $8.9 million in connection with the restructuring announced with our third quarter results. We expect to incur an additional $3.1 million of expense during the first half of 2009, resulting in total costs of $12 million for the announced restructuring involving the closure of five manufacturing facilities and the elimination of seven distribution centers, as compared with our initial $4.5 million estimate. We expect to achieve annualized savings of about $9 million from the restructurings, with about $7 million realized in 2009.

As Dave stated, we are planning additional plant consolidations and closings for 2009, including the consolidation of our Chinese tire facilities. For the quarter, we reported net income from continuing operations of $13.8 million or $0.23 per diluted share compared to $42.2 million or $0.68 per diluted share in the fourth quarter 2007. Contributing to the decline was an after-tax charge of $4.5 million related to the termination of a treasury lock entered into 2006 in anticipation of issuing bonds in 2008. We decided not to issue bonds in 2008 because of unfavorable bond market conditions as well as strong cash flow from our operations.

Our Construction Materials segment experienced the sales decline of 11%, with a 7% increase in price offset by 18% reduction in volume. The decline in operating margin, 12.3% in the fourth quarter of 2007 compared with 7.1% for the current quarter, was attributable to lower demand, lower production and $5.8 million of restructuring.

The Transportation Products segment reported an 8% decrease in sales, an operating loss of $3.1 million in the quarter compared with operating income of $14.6 million for the same period 2007. The decrease was attributable to our Tire and Wheel operation, which was negatively impacted by higher raw material costs on the sale of existing inventory as well as unabsorbed overhead resulting from lower demand and our efforts to reduce inventory to the implementation of the Carlisle operating system.

For the year, our Tire and Wheel business improved its cash flow from operations by 15% and decreased inventory by $18 million or 11%. During the quarter, our Bowdon, Georgia tire and wheel facility was destroyed by fire. The loss of the plant is fully covered by insurance. In the quarter, we incurred net expenses of $100,000 for the fire loss representing our deductible under the insurance policy.

Applied Technologies reported a 55% increase in sales for the quarter, with the Dinex and Carlyle acquisitions accounting for all the growth. We declined in operating margin from 13.4% in the third quarter 2007 to 9.4% for the current quarter, was primarily attributable to lower unit volumes in both our core foodservice business, due to current economic conditions and our cable and assembly business due to the Boeing strike, as well as $2.2 million of restructuring charges.

Specialty Products had a positive quarter, with sales increasing 17% and operating income increasing 121% over fourth quarter 2007. Our offhighway braking business improved its operating income by 60% in the quarter on the strength of pricing actions implemented earlier in the year. For the 12 months ended December 31, 2008, our operations provided $274.2 million of cash. 2008 was our second consecutive year for establishing record cash flows at Carlisle.

During the quarter, we repaid $174 million of debt, reducing outstanding debt from $574 million to $400 million, and significantly strengthening our balance sheet to allow future investments in our operations and the selective pursuit of acquisitions. Our debt to capital was 27% at December 31, 2008, a significant decline from the 34% at September 30.

For 2008, capital expenditures were $68 million and depreciation and amortization for the year, $69 million. Interest expense for 2008 was $28 million. That includes 7.7 million of pre-cash charge relating to the termination of our treasury lock. Our tax rate for the full year was 31%, and includes a $4.5 million tax benefit in the fourth quarter attributable to our tire and wheel operations in China.

With those remarks, I will turn the call back over to Dave.

David Roberts

Thanks, Steve. Let me just talk a bit about what we are seeing at the beginning of 2009, basically January. During the month, every one of our businesses actually saw incoming order rates significantly lower than they were in January of last year, with one exception and that is Johnson Truck Bodies.

To give you an idea of the extreme ranges we saw, Trail King’s incoming order rate was down 81% while Johnson Truck Body was up 50%. Well I do not think January's orders are indicative of what 2009 will look like; I still think 2009 is going to be a difficult year. We have been planning for a sales decline in the low double-digit range and we have taken steps to align our expenses to lower level of sales in 2009. I think we are better prepared to take on a recessionary year than we have been, so let me show you some of the steps that we have taken to protect profitability and cash flow in 2009.

First, we have closed many of our plants early for the Christmas holiday and those plants remain closed up to three weeks after the holidays. We have also moved plants to shorter work weeks or working either eight hour, four day weeks or ten hour, three day weeks. These steps have been taken to build back production, reduce overall expenses and to not build excess of inventory.

Our goal for 2009 is to reduce our working capital, of which inventory is a large component. We have reduced our workforce approximately 2,300 people, which is a 15% reduction. 30% of these reductions actually took place in China. We froze salaries and wages for all employees. To help soften the blow with all of our employees, we actually issued equity in form of stock options to everyone. Obviously options are long-term compensation. We wanted our employees to benefit from their hard work as the economy improves, as our process improvements and cost reductions reassess higher profits and hopefully in appreciating stock price.

There are additional steps that we took. We talked about plant consolidations that will be taking place in 2009. So I said earlier, while we are not ready to announce these, we will have restructuring charges anywhere from $10 million to $15 million. As I said, $3 million of that is a carryover from 2008.

While admiring the skew of things, we have a typical discretionary spending cuts and controls that have been put in place. Travel not associated with sales generation will be very closely scrutinized, intensive trade shows reconsidered, just of variety of things that will be considered as discretionary spends.

We have plans to conserve cash as we work our way through this recession. We are reducing our capital expenditures and inventory, and while managing our DSO aggressively. We will meet or beat our strategic objective of 100% free cash flow again in 2009 as we did in 2008.

We had planned to spend $76 million in capital in 2009. As of today, I think that number is going to be closer to $50 million. What we have done is we are taking a very hard look at what our capital expenditures are and projects that do not offer an ROI fee of 20% or better will be put on hold.

Our uses of cash are as follow: continued retirement of dead, dividends, share repurchases and acquisitions. Our current dividend payment as a percent of planned operating income is between 25% and 30%. Our policy guideline is 20%. We are generating sufficient cash to support the payout in the 25% to 30% range, and as of today we do not have a plan to reduce our dividends. We will obviously consider it on a month or a quarterly basis as we normally do. If this looks like, the economic slowdown is going to be long draw out situation, we could change our position. Again as of today, we have not plans to reduce our dividend.

Second is share repurchases. Our stock is trading at a very attractive price and we would rather maintain a strong balance sheet by continuing to buy down debt rather than buy shares. We will continue to look at our overhang to make sure that it is not potentially dilutive and we potentially could go into the market and buy back shares to replace what the option grants was that we issued here about three weeks ago.

We also are going to continue to see good bolt-on acquisitions. I think the current state of economy could present us with few attractive bolt-on acquisitions. We have the pipeline that contains a few of these candidates primarily in CIT, one or two in foodservice and also a specialty trailer offload braking opportunity. The attraction to offload braking or the specialty trailer business is that frankly they are generating margins, operating margins much higher than our 15% target. If those opportunities present themselves, we look very hard as these bolt-on acquisitions could be a good attractive use of cash.

As I said at the beginning of this update, 2009 is shaping up to be very difficult year. I am confident that we have action plans, the people in place to weather the storm. In fact, I think we are in a better position today than we were just a year ago. I think we are going to come out of this much stronger. I think that our shareholders will be in better shape along with all of our employees, will be in better shape and reap the benefits of what the changes we are making to the business today.

With that, I would like to open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions).Your first question comes from the line of Peter Lisnic.

Peter Lisnic

Good morning, gentlemen.

David Roberts

Good morning, Pete

Steve Ford

Hey Peter.

Peter Lisnic

Dave, First question. If you look at the operating margin outlook, what you are saying is '09 to be up from '08 if I am reading the press release accurately, can you just give us a sense as to what the pluses and minuses there are, one, from operational perspective and then two, just how materials cost are flowing through the equation there?

David Roberts

Yes, I think those two drivers of operating margins improvement this year, certainly a reduction in raw material costs. I mentioned $140 million at the start of our meeting here. We actually are seeing prices of materials coming back to where they were in 2007. So we think that will continue to flow through certainly in all of the divisions starting in the first quarter. I think Tire and Wheel will probably be sometime very every second quarter, as those flow through the business. You know the pricing actions that we put in place, we will probably have to give some of those back. I think the markets are going to become more competitive, but certainly it is our intent to hold onto those as long as we can to recover the material cost increases that we had in 2008. The other will come through operational improvements. You know I mentioned the Aiken plant, but frankly we have been implementing COS in every one of our facilities. There is not a facility out there that we have not seen margin improvement that we will be able to get. Once all the actions are put in place and you know we anticipate that occurring certainly in some facilities early in 2009, we will start to realize the savings and as we go through 2009.

So, I think I mentioned there were $14 million in COS savings in the year. Frankly I think that is a conservative number. Now with all that said if the volume drops significantly then we are going to have certainly under utilized facilities, unabsorbed overhead, and we are looking at a series of working three weeks, down a week, which helped us in some facilities, four day work weeks to try to offset that. I still think we are going to see operating margins improve this year unless there is a dramatic decline in the volume.

Peter Lisnic

Okay. Is it safe to make the calculation along lines of you take the restructuring savings and then just assume whatever decremental margin you want on that down double-digit volume to come up with where the margin might shake up for '09?

David Roberts

Yes, I think that is a pretty a way to look at it.

Peter Lisnic

Yes, okay. All right and then, can we talk a little bit about Construction Materials and what you are seeing this year. You mentioned order rates in Johnson and Trail King but I am wondering what the outlook for Construction Materials is from a, both from a new construction perspective and from a reversing perspective?

David Roberts

Right. We saw in January, and I again I do not think January is indicative of anything because we saw some really crazy things happening. Construction Materials were down. I am trying to remember the numbers, 27 or 28%... 30% range lets say, that we were down. What we had were number one, distributors were not taking any inventory. They generally take some inventory. They were not taking any inventory. We normally place an order in ship, it is become more than that than it is out of the distributors’ warehouses.

The other thing that is happened to us is that certainly in the Northeast and through the upper Midwest, the weather has been so bad that people can get on roofs. So, we have seen activity that has been delayed just because of the weather up in the Northern section of the country. So, I do not know where that is going to shake up. We are planning on probably a decline of 15% in Construction Materials, driven primarily by the Dodge statistics that we have seen recently that suggest there is going to be 18% reduction and then we have got our 50-50 split between re-roofing and new construction.

Peter Lisnic

Okay. Can you breakout price versus volume and down 15 forecast.

David Roberts

It’s going to be more difficult to hold pricing in Construction Materials than it will be in the other businesses. I think, particularly in the TPO area, they are going to people. Our competitors are going to be very aggressive. Frankly, we lost some share last year, few percentage points because we were dedicated to maintaining pricing. We are going to protect share this year.

Peter Lisnic

Okay. Alright. Then last question if I could. Very strong free cash flow numbers for ‘08 and fourth quarter, significant debt paid on, same outlook for ‘09; continued improvement in working capital and I think about cash flow again being above net income and free cash flow conversion being above your targets?

David Roberts

Yes, definitely. I mean the focus is on cash. We are trying to sort out what is going to happen this year and we are entirely focused on cash. There is no question. You will see inventory reductions in all of our operations this year. We have been very aggressive on our DSOs. We are putting plans in place to get paid for what we are selling, and you will see cash conversion above net earnings this year or operating earnings this year.

Peter Lisnic

Okay. Alright, I will jump back in queue. Thank you for time.

David Roberts

Okay.

Operator

Your next question comes from the line of Saul Ludwig.

Saul Ludwig

Hey, good morning everybody.

David Roberts

Good morning, Saul.

Steve Ford

Good morning, Saul.

Saul Ludwig

Hi, Dave. I just wanted to pursue this line of questioning on Construction Materials. First, as regards to re-roofing; just like your company is cutting back capital spending, so is every other company in America. What we are hearing is that well, when the roof gets the first leak or the second leak, rather than putting on a new roof, you are going to patch it for a long time, and so the traditional growth in re-roofing which tends to be more stable.

One, are you concerned that may actually decline because of propensity to repair rather than replace? Then secondly, as to new roofs, what I am hearing in the industry is that the real concern is the second half of the year and 2010 with the logic being that there are certain capital projects that were approved back in 2007, early 2008. Those projects are moving on. So there is still some backlog if you will of new projects that you will get to put on in the first half of ‘09. But, boy! There is nothing new getting approved such that the second half of ‘09 and 2010 look particularly challenging.

So putting in all together, you think volume in roofing could be down 20%, 25%. Is the scenario that I outlined out in my field?

David Roberts

So I mean it could be. We are not planning on that. We think you know that 15% range that I mentioned, I think is probably not a bad number as of today.

Saul Ludwig

Revenue of volume?

David Roberts

That is revenue.

Saul Ludwig

Revenue.

David Roberts

So there is some price in there.

Saul Ludwig

Okay. So may be we are going down 15% volume or something.

David Roberts

Volume I think you are probably close to it. Re-roofing, you are right. People are going to postpone re-roofing as long as they can. You know what we generally see, is people do that anyway. I mean nobody wants to put a roof unless you absolutely have to. So I think there is still going to be the have to put on roofs they are going to installed. I agree with the rest of the industry. I think that as we look out toward the end of '09 and into '10 unless this stimulus package generates some construction activity, I think we could have a slowing later in the year and into 2010 based on what happens with projects.

Now what we are hearing now is that when and if a stimulus package gets implemented that there are number of buildings out there primarily municipalities, schools and so on that our plans are already done for. They are just waiting for the funding to do on. So we think there may be some activity that is going to be favorable for us once that occurs.

Saul Ludwig

So in this environment, down 15% revenue and 20% volume directionally, if you add back the plant closing charges, profits would probably go lower in '09 in that segment?

David Roberts

Yes, we have a volume drop of 20%, even a revenue drop of 15%. You would anticipate there would be some slowing in profit, yes.

Saul Ludwig

Okay. Then to switchover to Trail King, you talked about the phone not ringing.

David Roberts

Yes, exactly.

Saul Ludwig

Why should that get better? I mean I think it could be up in 40-50% in 2009. You know the end markets, construction particularly to the non-residential, residential, they like even win all of a sudden. That is come to an abrupt slowdown. Where are you thinking there business is going to be for the year?

David Roberts

What you said is absolutely correct. You know we have got a heavy focus in concentration on our construction. Without giving you too much detail on what we are looking at there, but we are thinking it could be down 25, 30%.

Saul Ludwig

Would that same be true to offhighway rates?

David Roberts

You know I think we have got some activity and (inaudible) that will help some of the slowdown there, but I think, yes I think offhighway brake will be down as well, because we are supplying the cats of the world, the deer's; Ag still looks good in all of our businesses, construction is the one that flow.

Saul Ludwig

All right. Okay. Then on the financing, do you plan to do anything? You did not sell the bonds, what is your thought Steve on the financing side?

Steve Ford

Well we are comfortable with our existing credit facilities. I mean longer term I think we would like to turn out some of our debts. We are very much following the bond market but interest rates are not attractive. We do not have a compelling need to issue bonds. So we will look at things opportunistically.

Saul Ludwig

And, tax rates are going to be the same, right, this year. What do you expect interest expense to be this year, Steve?

Steve Ford

About $20 million.

Saul Ludwig

Okay. Great, thank you very much.

Saul Ludwig

Okay, Saul.

Operator

Your next question comes from the line of Wendy Caplan.

Wendy Caplan

Morning.

David Roberts

Good morning.

Wendy Caplan

Could you talk a little bit more about the competitive environments specifically in your construction segment? You talked about; I think you mention some loss of market share. Could you give us some sense of what your strategy is relative to market share? Is it regained at any cost or how are you thinking about that?

David Roberts

Yes Wendy, when we said we lost our market share, we would notice it. I do not think the market would really notice it. It was not significant but we had resolved on pricing last year and some of our competitors did not. Will we take jobs at any price? Absolutely not. We will most certainly take those that are profitable for us but we will take in lower level of profitability this year, and some cases where, last year we would not do that.

Most of the competitors have been very price sensitive. In other words, they are out there competing on price. I think they are trying to keep their plants flow and last year our TPO plants through the first three quarters of the year were actually working six and seven days a week. We are all concerned about capacity in TPO. What we saw is that in the fourth quarter were down to five days a week. So there has been some reduction in volume there which is causing those competitors to be more aggressive.

We actually still have decent incoming order rates on insulation. Insulation is probably our second highest gross margin business today as compared to TPO. So its EPDM basically insulation and TPO rated from gross margin standpoint. But, you know we are going to be smart about pricing but we are going to be aggressive enough that we are going not loose share unless we are loosing money on the job.

Wendy Caplan

Hello, is it fair to say that you are bidding on projects or negotiating on projects relative to on a cash basis, in terms of getting cash into the company?

David Roberts

No, no we have not. No, we are not looking at it on that basis. We are looking at it primarily on a margin basis and we have a range in which we would consider taking a job. No, it is not stellar job to get cash into the business.

Wendy Caplan

Okay that is fair. Thank you. Can you talk about your own working capital goals for ‘09? Specifically, it looks like inventory turns were up a bit. How much of the inventory that you are currently carrying should be assumed by your customers at some point?

David Roberts

You now Wendy, we started out the year… when we planned the year, we expected to reduce inventory by about $100 million this year. I think it is going to be a little more difficult to get there just because of the slowdown in the economy, but we still plan on a significant reduction in inventory during the year. That is the reason we have got our plants on, reduce work weeks. Just not to go out and build inventory. Steve, do you have any other information you want to add.

Steve Ford

No, it continues to be a focus for us. If you look at it year-over-year, inventories were relatively flat but the ‘08 number includes about $25 million of additional inventory that we acquired as part of the Dinex and Carlyle acquisitions and there is also a fair amount of raw material inflation in there. So on a unit basis, we did make some progress and we have a lot of momentum heading into ‘09 and it is a big time focus to manage and reduce inventory.

David Roberts

Yes. Wendy, just to give you an idea, just on the COS side, you know I mentioned savings of $14 million that we are looking to add in 2009. Actually our inventory savings at the same time were forecasted at about $40 million. So we think there is opportunity for us to continue to reduce our inventory. Like Steve said, it is a focus for the year.

Wendy Caplan

Okay. Just to clarify, you said in your release and in you comments that you are planning for a low double-digit decrease in organic sales in '09 but improved operating margin. A lot of the predictions forecast that you had described in terms of the construction business and Trail King and some of the others were a lot worse than that. What should we anticipate as the bright spots if you will in terms of on the top line in '09? Where are the areas that you are comfortable that you think you can make some gains or at least stem the losses?

David Roberts

Well, I think if you look business by business, I think if I said earlier that Construction Materials will be down, I think we will be able to… we will still have a reasonable operating margins in that business. I want to really give an idea what we are planning, but I think we are still going to be in a double-digits category and operating margin in Construction Materials. Tire and Wheel, I think has a chance to be flat or slightly down this year. We have had some interesting conversations with our customers. Hopefully they are not too optimistic. On the Ag side there is still tremendous momentum for a gauge wheels and other types of tires going into Ag. Lawn and garden frankly was down for last year that we do not really anticipate any decline. So all the improvements that we make in the operations in Tire and Wheel and where all these plant consolidations and distribution consolidations, we think we can improve the margin in that business and its coming off a very low base; anywhere from 60% to 100% of what we had last year.

You know again it is all based on what happens in volume. If it declines more then we are going to have a difficult time doing that. I think that we can hold margins in the Trail King business even though we have a decline. We have some plant outages that will help us to be able to do that. There is I think a slight decline in our offload braking business, but we are coming up 23% operating margins there. You know just because of the volumes, I think we will have somewhat of an impact on that.

I think we are good at foodservice and CIT, I think operating margins should be equal to or slightly better, what we had coming out of 2009 or 2008. 2009, I think CIT, the volumes should be up slightly, again depending on what is happening with our friends at Boeing, but they are talking about actually building some airplanes this year. That should have a positive impact on it. I think foodservice, what we saw on the latter part of the year, I do not really anticipate any further decline in volume at foodservice for 2009. I think we are probably going to be relatively flat there to last year.

Wendy Caplan

Just to clarify, when you talk about improved operating margin, are you adjusting those margins for the restructuring or do those include the restructuring?

David Roberts

No, they would include the restructuring.

Wendy Caplan

All right. Thank you very much.

David Roberts

You are welcome.

Operator

Your next question comes from the line of Mark Zeff.

Mark Zeff

Good morning.

David Roberts

Good morning.

Mark Zeff

Dave, just a quick clarification on the operating margin comment for the year, does that also account for the $10 million to $15 million of expected additional charges not specified as if you have guided to on the call?

David Roberts

No, they would not. I mean if we had charges of $10 million to $15 million, that would have an impact on the margin line.

Mark Zeff

Okay. Then just, it seems like a lot of the margin opportunity is coming from the transportation segment. Can you talk about the level of visibility that you have especially on the Ag side? Customers are sounding a bit more optimistic coming into the New Year. What are lead times looking like, any order backlog or other commentary there would be helpful.

David Roberts

We are actually into our busy season in Tire and Wheel. We actually have had to bring back 150 people in Tire and Wheel to be able to meet the seasonal needs of the business. Again, Ag is growing and its forecast is grow over what it was last year, and that is what we are seeing, demand from our customers. Lawn and garden is flat with last year. Where we have a decline is in our high-speed trailer tires which come out of China. As you can imagine anybody buying a boat, would have thought of not buying a boat this year, so they do not need a trailer, horse trailers, car trailers, those kinds of things. So that is going to be off but we think that the other categories, other than perhaps ATV. We think replacement may be relatively flat but ATV will be down. It would be offset by what happens in Ag and then the flat growth anticipated in lawn and garden.

Mark Zeff

Okay. And, to jump over to the plant divestitures of the on-highway braking and power transmission, just an update there, and is there any timeframe in which you may have to bring those businesses back within continuing operations.

Steven Ford

At this point, no. We are still actively selling. We have got interested buyers. You know it is a question of price at this point and we will continue to pursue that. I think we will… again, depending on what happens in the market, I think we will have disposition on the braking business.

Within the first half of the year, I think the power transmission business might be in the latter part of the year. So we are running both of those for generating cash, positive cash flows, as far as consuming cash and we were able to do that last year. I think we are still planning on selling and I think we are going to be, as of today in that $100 million range for both businesses.

Mark Zeff

Okay. Thank you.

David Roberts

You are welcome.

Operator

Your next question comes from the line of [Justin Moore].

Unidentified Analyst

Good morning.

David Roberts

Good morning.

Unidentified Analyst

Dave, just a follow-up on Wendy’s question on the base level of op margins is somewhat clear; 8.2% in ‘08, which would include the restructuring charges, that is the level that you are going to be comparing to?

David Roberts

Yes.

Unidentified Analyst

All right, okay. And, just again a clarity; the $10 million to $15 million of restructuring embedded, there is a possibility therefore it could be below that level once you include that in ‘09?

David Roberts

Well, we think… I mean I have not done a margin analysis, but yes, we think that there is going to be margin improvement and you know the charges that flow through you could see. You could see some decline in margin if those flow through and if volumes decline.

Unidentified Analyst

Okay. What was the pro forma if you will instead of A2 as a base in ‘08, if we exclude the restructuring charge, what was the margin?

David Roberts

Do you all know that? Hold on second.

Unidentified Analyst

The reason I am asking I think everybody is wondering in roofing which is a significant piece of the business, 20% volume decline and if you are able to hold margins, it is somewhat heroic obviously.

David Roberts

You know I would agree with you. They are telling me. It looks like the restructuring charges may have been about a percentage point.

Steven Ford

The restructuring charge is about 9 million for the year, so just to add that back.

Unidentified Analyst

Okay. So again, despite what could be fairly severe decline in your largest business, you feel like there is enough add backs like you mentioned in Tire and Wheel and some things you were fighting against last year.

David Roberts

Right. You know the huge positive we have here is raw material.

Steven Ford

It was a huge drag on us last year and frankly we do not see that as much of a drag effect. It should be drag this year other than a little bit in Tire and Wheel in the first quarter.

Unidentified Analyst

What about roofing in the first call? Are you still eating through higher cost inventory there too?

David Roberts

A bit but not a lot. You know the good thing about our Construction Material businesses is that we turn inventory there so quickly. It does not fit in inventory whereas one of the issues we have with Tire and Wheel is our turn are so down and low and it fits in inventory.

Unidentified Analyst

Okay.

David Roberts

So we are basically through the high cost materials in Construction Material.

Unidentified Analyst

Okay. Good luck. Thanks a lot.

David Roberts

Thanks.

Operator

Sir your final question from the line of Peter Lisnic from Robert W. Baird.

Peter Lisnic

I am actually good. Justin answered

Steven Ford

Okay.

David Roberts

Okay, Pete. Thanks.

Operator

We have no further questions,

David Roberts

All right. Thank you very much. You know as I said during my opening remarks, I think 2009 could be a very difficult year, but honestly it is allowed us to accelerate the rate of change that we have planned for the business. I mean we are doing things with plant consolidation, again field driven activity that frankly I think once the storm clouds have parted here over this recessionary times, I think the business will be performing at a very high level going forward.

So with that, I would like to thank everybody for attending the call and we will talk to you after the first quarter. Good bye.

Operator

This does conclude today's conference call. You may now disconnect.

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Source: Carlisle Companies, Inc. Q4 2008 Earnings Call Transcript
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