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Carlisle Companies Incorporated (NYSE:CSL)

Q4 2009 Earnings Call Transcript

February 3, 2010 10:00 am ET

Executives

David Roberts – Chairman, President and CEO

Steve Ford – VP and CFO

Kevin Forster – President, Asia-Pacific

Fred Sutter – President, Engineered Transportation Solutions

Analysts

Saul Ludwig – KeyBanc Capital Markets

Peter Lisnic – Robert W. Baird

Deane Dray – FBR Capital Markets

Alan Metroney – Sylvan Lake

Operator

Good morning. My name is Marci and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Incorporated Fourth Quarter 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). Thank you.

I would now like to turn the call over to Mr. David Roberts, Chairman, President and CEO of Carlisle Companies. Thank you, Mr. Roberts. You may begin your conference.

David Roberts

Thank you, Marci. Good morning and welcome to our year-end 2009 conference call. In the room with me is Steve Ford, Kevin Forster and Fred Sutter, the President of Engineered Transportation Solutions. In a few minutes Steve will give you a detailed summary of our performance in the fourth quarter and the full year.

Before I turn the floor over to Steve, let me brief you on some of the changes we announced a few days ago. Keeping with our strategic direction to divest of non-core businesses, yesterday we completed the sale of Johnson Truck Bodies. Our Refrigerated Truck Body business is located in Rice Lake, Wisconsin. This may be seen odd as it was the business that grew organically in 2009. But JTB, while it is a good business, it added to the complexity of Carlisle and was not a strategic growth platform.

A few days ago, we also announced the sale of our EcoStar roofing business. EcoStar utilized recycled rubber to manufacture a line of synthetic tile and shake roofing products for the residential construction market. As with JTB, EcoStar was a small and non strategic business. Both businesses are better suited with another parent.

Also contained in the press release is a realignment of our business segments. We're combining our tire and wheel, power transmission and industrial brake and friction business into a segment called Engineered Transportation Solutions. In many instances, these businesses share a common customer base and common manufacturing technologies.

Looking at each individually and then as a combined group, it was obvious that we could create value for our customers by having one sales force, a dedicated engineering organizations supporting our customers' need and one back office billing the customers.

With an increased emphasis on product development, strategic selling, we will become a more important supplier to these customers. While we made this change to better serve our customer, we also feel that there are cost synergies in combining the businesses as well.

Another change is the elimination of the Applied Technologies segment. Both FoodService and Interconnect Technologies have grown to a size to where they're large enough to be their own segment. Going forward, both will be reported independently.

With the sale of Johnson Truck Bodies, the specialty products segment is Trail King. To make it easier for everyone to run comparisons to previous years, we are reporting 2009 results in this new segmentation alignment.

In keeping with the productivity improvements that have been in process over the last 12 months, or 18 months, we've also announced the closing of our Interconnect Technologies plant in Vancouver, Washington and the CIBF plant in Logansport, Indiana in the fourth quarter. We are in the process of closing these facilities and both should be closed by the end of the first quarter. A detailed expense summary describing this plus other restructuring charges in the quarter and the year were included in the press release. As you can see from our fourth quarter and yearly results, progress continues to be made in achieving our strategic objectives.

Now let me turn the call over to Steve to explain in detail our performance during the quarter. Steve?

Steve Ford

Thanks, Dave and good morning. We have included a supplemental schedule to our financials highlighting significant items included in our fourth quarter and full-year results. Carlisle reported a year-over-year decline in sales of 15% for the fourth quarter 2009. Organic sales were down 17%, offset by 2% sales growth from the Jerrik, ECS and Japan Power Brake acquisitions.

EBIT decreased 4% for the fourth quarter 2009 compared with 2008. Lower sales volume as well as $17.3 million of asset impairment and restructuring expenses were substantially offset by favorable raw material pricing and efficiencies gained through the Carlisle operating system allowing us to increase EBIT margins from 4.3% in the fourth quarter 2008 to 4.8% for the current quarter. For the full year, EBIT margins improved to 8.7% as compared to 6% for 2008 which now includes a $69 million impairment charge at our power transmission belt business.

For the quarter, we reported net income from continuing operations of $35.6 million or $0.57 per diluted share compared with 15.4 million or $0.25 per diluted share in the fourth quarter 2008. Fourth quarter results were positively impacted by reduced interest expense and the release of a $19.6 million tax accrual provided with respect to foreign earnings.

We continue to be very pleased by the impact the Carlisle Operating system is having on our cash flows. For the year, we generated 447 million of net cash from operations as compared to 274 million for the same period 2008. The improvement in year-over-year cash flow was driven by improvements in inventory management, a primary focus of COS.

Inventory reductions in 2009 resulted in a positive contribution to cash flow of $157 million. Our inventory turns improved from 4.4 in the fourth quarter 2008 to 5.3 in the current quarter.

As Dave noted, we have simplified our management structure by eliminating the Group President layer of management and have combined our tire, wheel, power transmission belt and braking businesses to form a single fully integrated operating unit. These changes have caused us to realign our segments beginning in the fourth quarter as follows. Construction materials, our new Carlisle Engineered Transportation Solutions segment, Carlisle Interconnect Technologies, Carlisle FoodService Products and Carlisle Specialty Products, which includes Trail King and Johnson Truck Bodies.

JTB is included in this segment for 2009 reporting purposes. In 2010, as a result of today's announced sale, JTB will be reported in discontinued operations. The construction material segment reported a 12% decline in sales. Despite this decline for the quarter, construction materials increased EBIT to $38.7 million from 21.3 million in the fourth quarter 2008 and more than doubled EBIT margin from 7.1% to 14.7%. Favorable raw material costs and efficiencies gained through COS contributed to the margin improvement.

Fourth quarter 2008 results included a $5.9 million charge at Insulfoam. The Engineered Transportation Solutions segment reported an 18% decline in sales. And EBIT loss of $8.6 million in the fourth quarter compared with an EBIT loss of 2.2 million for the same period 2008. The decline was primarily attributable to lower demand for all three product lines. The fourth quarter results were also negatively impacted by $12.8 million of restructuring and impairment charges attributable to previously announced consolidations including $6.7 million attributable to the integration of the transmission belt business.

Sales at Interconnect Technologies increased 6.3% with 26% acquisition growth offset by a decline in organic sales and mix. The decline in EBIT from 7.5 million in the fourth quarter 2008 compared to 2.6 million in the current quarter was attributable to volume decline as well as a $3.1 million restructuring charge relating to the closure of our Vancouver, Washington facility.

Despite a 6 about 4% decline in sales our FoodService segment more than doubled its EBIT margin from 4.5% in the fourth quarter 2008 to 10.8% for the current quarter. The improvement was attributable to lower raw materials and COS efficiencies. The fourth quarter 2008 results included a $2.2 million restructuring charge related to the brush business.

Sales at specialty products increased -- I'm sorry, decreased by 26.6 million or 46% and EBIT was a loss of $700,000 compared to positive EBIT of $7.9 million for the fourth quarter 2008. This was largely due to weak sales in the specialty trailer market.

As stated earlier, our operations provided $447 million of net cash in 2009, our third consecutive record performance, allowing us to fund acquisitions, contribute $53 million to our pension fund and repay $235 million of outstanding debt contributing to a $19 million reduction in our 2009 interest expense.

Our debt to capital was 11.4% at December 31 and our net debt to capital was 4.4%. CapEx for the year was 48.2 million, compared to $68 million in 2008. Depreciation and amortization for the year was $68 million.

Interest expense for the quarter was $1.9 million, as compared to $12.3 million in the fourth quarter, 2009, which included a $7.3 million charge for the termination of a treasury lock entered into in 2006, in anticipation of issuing bonds in 2008.

Interest expense for the full year was $9 million, compared to $27.7 million in 2008. Our tax rate for the year was 23.3% and includes the release of the $19.6 million deferred tax accrual, excluding the release of the deferred tax accrual; our effective rate was 33.2%.

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

David Roberts

Marci, if you would open the floor for questions, please.

Question-and-Answer Session

Operator

Your first question comes from Saul Ludwig with KeyBanc.

Saul Ludwig – KeyBanc Capital Markets

Good morning, everybody.

David Roberts

Good morning, Saul.

Saul Ludwig – KeyBanc Capital Markets

I guess the only thing that changed is the Interconnect and food service were split and then you put in the power transmission belt in, what was the old transportation segment.

David Roberts

Well we also put in CIBF, Saul. That was in specialty last year.

Saul Ludwig – KeyBanc Capital Markets

And took out Trail King.

David Roberts

Right.

Saul Ludwig – KeyBanc Capital Markets

What's CIBS?

David Roberts

The industrial brake and friction business in Bloomington, Indiana. We put that in and we took Trail King out and put that in specialty.

Saul Ludwig – KeyBanc Capital Markets

Okay. They used to be in transportation, right?

David Roberts

Right.

Saul Ludwig – KeyBanc Capital Markets

Are you going to give us the restated quarters, Kevin?

Kevin Forster

That will be part of our 10-K filing.

Saul Ludwig – KeyBanc Capital Markets

Okay. What special charges do you expect to incur through 2010 or is all of the restructuring over?

Kevin Forster

No, Saul, there will be a bit of restructuring. Steve is looking at the chart here.

Steve Ford

Yes. Saul, we still have restructuring that relates primarily to the Jackson, Tennessee, consolidation. And we're anticipating restructuring charges next year of about $20 million and that compares to restructuring charges in '09 of about $36.7 million, but we should start seeing a lot more savings. The net impact in 2009 was about $23 million negative charges over savings. We expect that to reverse and although we again, will have about $20 million of charges, we're forecasting about $25 million of savings, so this should be a net benefit in 2010. And then in 2011, we will have all of the restructuring behind us and we anticipate significant savings.

Saul Ludwig – KeyBanc Capital Markets

The 25 million in savings, that's incremental to 2009.

Steve Ford

Correct.

Saul Ludwig – KeyBanc Capital Markets

And where will that be most visible?

Steve Ford

In the new ETS segment, primarily related to tire and wheel. There will be a little bit falling in CIT as we close the Vancouver facility, but with the movement of CIBF into ETS, the restructuring charges that would have been shown in specialty this year will actually, the benefit of that will be gained from ETS in 2010.

Saul Ludwig – KeyBanc Capital Markets

The next question relates to prices and raw materials and I think you alluded to the major savings in raw material were in construction materials and in food service. I remember in prior years, there would always be a discussion of how much you were getting negatively impacted because of raws versus prices. And what was the degree of benefit that you achieved in the fourth quarter and then how do you look at the price raw material costs this year, recognizing that whatever you say is a little bit of a guess, but…

David Roberts

Right. Let me just maybe answer the question on raw material in 2010 and then Steve can look at the other data. 2010 starting at the end of 2009, we started to see anything that is petroleum-based or natural-gas based, having cost pressure flowing through the, not only the construction materials business, but also food service and ETS. We have been very aggressive in being able to combat those raw material cost increases. In cases where we can't, we have implemented some price increases. So, we are seeing aggressive price increases, I'm sorry cost increases from our vendors. Do you have the…

Steve Ford

Saul, for the quarter, we had about a net benefit of about $25 million. Raw materials were favorable relative to some price decline.

Saul Ludwig – KeyBanc Capital Markets

Price of raws, 25 million favorable in the quarter?

Steve Ford

Yeah. On a net basis.

Saul Ludwig – KeyBanc Capital Markets

That number was for the year?

Steve Ford

Yeah. For the year, raw materials were about 150.

Saul Ludwig – KeyBanc Capital Markets

Price over raw materials?

Steve Ford

Year-over-year, we had selling price increases and favorable raw materials. Together, they combined to about $150 million.

Saul Ludwig – KeyBanc Capital Markets

That added 150 million to earnings because of the, versus the prior year because of price mix.

David Roberts

That is pretty substantial.

Steve Ford

Yes.

Saul Ludwig – KeyBanc Capital Markets

And 25 million in the fourth quarter. And did most of that occur in the construction materials?

David Roberts

I think it was tire and wheel and construction material, a bit of it in food service.

Saul Ludwig – KeyBanc Capital Markets

In food service, so.

David Roberts

Right.

Saul Ludwig – KeyBanc Capital Markets

So these big gains in price over raw materials, it would seem like what you're thinking is, if you can hold your price-raw material margin, if you will, your variable margin in 2010, versus 2009, that would be a hell of a good accomplishment.

David Roberts

No question.

Saul Ludwig – KeyBanc Capital Markets

Do you think there will be some decrement?

David Roberts

I think it is still too early to tell that, Saul, but certainly there is going to be raw material price pressure, or cost pressure and frankly, our markets are still soft. We're going have to fight for every penny of price increase we can get. But, we've got to pass them along, because we've got these cost increases that are flowing through.

Saul Ludwig – KeyBanc Capital Markets

And, is the competition supporting you?

David Roberts

So far, we've seen people following with price increases, yes.

Saul Ludwig – KeyBanc Capital Markets

And then finally, talking about the use of cash, would you buy back any stock? What do you think you're going to do? It looks like you will probably generate some more cash this year because you maybe comment on cap spending and DNA expectations, but what do you expect to do with the cash and opportunities that you see coming your way?

David Roberts

Saul, I think that when it comes to the cash utilization, it is the same as it has been, acquisitions remains our top priority. The market is becoming a little more active. And we will continue to pursue those and primarily in the CIT business.

If we got to a point where we were generating cash at a rate that we couldn't put it to good use through investing back in the business, we may look at our share repurchase program, or continue with a share repurchase authorization that we have today but right now, it is not a priority for us.

Saul Ludwig – KeyBanc Capital Markets

What about the bump in the dividend again? I guess you do that every year.

David Roberts

We have, traditionally. And we will take a look at it, with the board and we will make that determination if we bring the dividend up or not.

Saul Ludwig – KeyBanc Capital Markets

And finally in CapEx spending and…

David Roberts

Yeah. I think we will be up a little bit this year, but not significantly over what we were last year. We've got the investment that is going into Jackson, but CapEx plans look like they might be marginally higher than last year.

Saul Ludwig – KeyBanc Capital Markets

Okay. Great. Thank you.

David Roberts

You're welcome.

Operator

Your next question comes from the line of Peter Lisnic with Robert W. Baird.

Peter Lisnic – Robert W. Baird

Good morning, everyone.

David Roberts

Good morning, Pete.

Steve Ford

Hi, Pete.

Peter Lisnic – Robert W. Baird

I guess first question would be the Johnson divestiture and EcoStar, are we kind of at the point now where pretty much what we have now is the core portfolio? Are there any other underperforming assets if you will that wouldn't be part of the growth platform?

Steve Ford

Well, no, I think we've said all along that Johnson would be one of those that if we got a good offer for it, we would consider it. I think where we are today is fairly in alignment with where we would like to be long-term. The focus is on making CIT and food services bigger.

Peter Lisnic – Robert W. Baird

Okay. And then just switching gears, if I heard Steve right, it looks like the incremental delta '09 versus '10 on the restructuring side and the benefits is about 28 million or 25 or $0.30 a share. And I just want to make sure I captured the number right. I didn't hear it exactly?

Steve Ford

Yeah, Pete. I mean again for '09, we had a P&L hit of about 23 on that basis and we're looking at having that reverse and be a positive to the tune of about 7 million next year. So it is about a $30 million year-over-year change.

Peter Lisnic – Robert W. Baird

Okay. 30million. Okay. All right. And then on the construction material side, I'm wondering if you can actually breakout the COS benefit and also the raw material benefit, because the analyzing this profitability going forward I think is probably one of the key factors for…

Steve Ford

Yeah.

Peter Lisnic – Robert W. Baird

All of us.

Steve Ford

Pete, I think the vast majority of what we saw in the profit improvement not only construction materials, but also in the other businesses was the relationship of raw material 2008 to 2009. There were significant COS savings in the year. I can give you an overall number. We think it's somewhere in the area of 22 to $25 million. But that spread throughout all of the businesses.

Peter Lisnic – Robert W. Baird

Okay. Is there maybe a way that you can give us a sense as to what decremental margins may have been in the CM, if you take out the materials cost impact? I'm just wondering how structurally different the business is now that you implemented COS at…?

Steve Ford

Yeah. It's -- I mean I don't know.

Peter Lisnic – Robert W. Baird

Between 25 to 30%.

Steve Ford

Yeah. It's…

Peter Lisnic – Robert W. Baird

It is a bit of a range.

Steve Ford

It's significantly different than it was.

Peter Lisnic – Robert W. Baird

Okay.

Steve Ford

All I can say.

Peter Lisnic – Robert W. Baird

No. No. That's fine. I know it's not…

Steve Ford

Yeah.

Peter Lisnic – Robert W. Baird

Okay. If you look at the -- you gave a little bit of color on what you're expecting for 2010 in terms of modest top line growth. I was wondering if you could talk about construction materials specifically. I guess the thing that I'm really interested in would be sort of your assumptions or what you're seeing on the new construction side, what you're seeing or hearing on the remodel side or the re-roof.

Steve Ford

Re-roof, right.

Peter Lisnic – Robert W. Baird

Yeah. And then exactly what's happening on the pricing trends there ex raw materials?

Steve Ford

Sure. What we're seeing is that construction continues to slow. I don't think that is any surprise. We actually had good success in the second half of 2009 in getting the re-roofing business or as you say the remodel business. We would hope to that trend would continue in a year, we are looking at probably a flat year in construction materials this year. Pricing actually held up fairly well during the year. It was -- I think modest price degradation in the fourth quarter maybe to the tune of about a percentage point or so, nothing significant and nothing really to be alarmed about at this point.

Peter Lisnic – Robert W. Baird

So the 2010 just to be clear, you're looking at top line flat when you kind of combine all of that.

Steve Ford

Yeah. I mean that's the best feel we have today. We're doing some things to become more aggressive and going after a larger portion of that re-roofing market. But yeah, we're thinking probably flat growth.

Peter Lisnic – Robert W. Baird

Okay. And then I would assume implicit in that is a -- at least double-digit sort of decline on the new construction side?

Steve Ford

Probably, yes.

Peter Lisnic – Robert W. Baird

Okay. All right. Already, I will jump back in queue. Thanks for your help.

Steve Ford

Okay, Pete. Thanks.

Operator

Your next question comes from the line of Deane Dray with FBR Capital.

Deane Dray – FBR Capital Markets

Great. Thank you. Good morning, everybody.

Steve Ford

Good morning.

Deane Dray – FBR Capital Markets

I jumped on a little bit late but I just wanted to make sure we're clear on the -- and the sort of the headline results out of Carlisle this morning. Because you've had some puts and takes within the some one-time items. So the $0.57 was the headline but we would back out the $0.32 tax benefit as a one-timer. But the impairment of $0.11, we would add back. Is that your expectation for an operating result?

Steve Ford

Yeah. That's correct.

Deane Dray – FBR Capital Markets

Okay. And so then I got some brochure list of questions so I'm going to jump around a bit if I could. The first was the power transmission back as a core business and I remember when it was acquired it made a world of sense because there was overlap especially in other raw materials and the manufacturing process itself. But maybe you lost your way and decided it was non-core, but now it's back. So I can make a case of why you should have had it all along, but what was the decision about bringing it back?

Steve Ford

Yeah, Dean. That's exactly what we looked at. Not so much a core business, but a core product line. And I think that's the difference in the philosophy as we looked at it. To bring it in, we don't need all of the overhead structure to support that business. It can be handled by the folks who are doing basically the tire and wheel business. And as we looked at it, it became more evident that it could be a core product line for us. We actually, we're very close to selling it. I mean we had an agreement on price and so on and as we really sat down and said do we want to sell it, we decided not to and to bring it back in as again, a core product line, not a core business.

Deane Dray – FBR Capital Markets

Terrific. And is it still coordinated through China? I remember being in one of your facilities in Shenzhen, where actually, you are testing the belts but were you actually able to monitor it back in the U.S. Is that system still being used?

Steve Ford

Yeah. We do have some manufacturing that occurs in Buji and -- that will be moved out of the Buji plant into either back into the U.S. or into our Meizhou facility and that is the intent today. But yeah, we have got capability of -- in fact, we've got a very nice lab in Springfield Missouri, that allows us to test any new product and so on.

Deane Dray – FBR Capital Markets

Great. And then in the latest realignment, it was interesting how you've got trail king set there by itself Johnson is out the door. But what's your sense on this business? It is by far the market leader in a niche technology and no one ever questions the quality and the name brand. But is this really a business that you want to be in? Can you get bigger? And just expectations going forward.

Steve Ford

Yeah, Dean. I think that certainly trail king is everything that you said. Can we get bigger? Yes. It is going to mean the acquisition of some of our competitors. The only thing today that makes the business unfavorable is the market that they're in. I think they performed admirably considering they're down 65%, but we have no plans at this point to divest of that business. Now, if somebody came to us with an outstanding offer, we would certainly have to consider it. But we have no plans to sell the business today.

Deane Dray – FBR Capital Markets

Any benefit from stimulus? I mean that was the expectation that you might see some of that coming through the construction side has that materialized?

Steve Ford

Yeah. What we're starting to see is a little bit of a pickup in our material trailers that we manufacture up in Fargo. These are what we call light bottom trailers they are used primarily for road construction, we're starting to see a little bit of activity improve there. But the specialty hall of the large trailers for wind farm, heavy mining equipment, construction equipment still has not picked up.

Deane Dray – FBR Capital Markets

Got it. And then I would suppose the wind market, wind turbine, the blade, all of the towers is that still an opportunity for you?

Steve Ford

No question. We're focused on that, not only in the U.S., but also particularly in China. We sold some trailers into China and we think there is some activity that is going to start occurring down in South America that could drive that business as well. So we're very closely focused on it globally, as well as the U.S.

Deane Dray – FBR Capital Markets

Okay. And then over in the roofing side, the standard question you always have to ask in the fourth quarter was how many roofing days did you get? And as I recall, looking out the window in the Northeast, it was pretty messy. And so did that impact?

Steve Ford

Yeah. It did. It had a small impact on it. But that wasn't the primary reason. Actually, I think October, if I recall October, November weren't bad and December got worse and then January is off to a wet, cold wet start. So that potentially could have some impact short-term on the business. But nothing that is significant in the fourth quarter.

Deane Dray – FBR Capital Markets

Okay. And then one of the data points that came out of the third quarter was specifically some pricing pressure in TPO. And it came on at the very end of the quarter and we weren't sure how to extrapolate that. So how did that play out in the quarter? It didn't sound like just from your summary comments that it was that meaningful but how did it play out?

Steve Ford

It wasn't meaningful. I think again and I've told a number of folks that I think that was more of my conversation on the third quarter call, as much as what it was pricing pressure. We had minimal impact in the fourth quarter. I think it was less than a percent pricing that we had to give back. It was just a minimal or deminimus impact.

Dean Dray – FBR Capital Markets

And how are you feeling about margins? I know we're thinking flat price for 2010, but you have that the third quarter that was just a record margin, 17.7. What is the kind of normalized run rate? And I know raw materials are a swing factor but still, if you kind of normalize that, what is your sense because that was a surprise to everyone.

David Roberts

Yeah. And I think that if we can maintain raw material costs or at least offset them with price increases, as we go through the year, I think our operating margins should be mid double digit probably lower than 15 but with sometimes in the larger sales months, above the 15% range. But anywhere between 13 and 16 is probably a good number.

Dean Dray – FBR Capital Markets

Terrific. And then maybe for Steve or as well as you, Dave, the idea is you have another high quality problem and that your balance sheet is under levered, I mean 4% net debt to total cap is enviable for most CEO's and CFO's. So what is the optimal amount of leverage for Carlisle based upon your cash flow, based upon what you're thinking divestitures and where do you think this should be towards the next couple of years?

David Roberts

Dean, let me answer that in general, then I will let Steve address it specifically. We are going to be aggressive this year in looking at acquisitions in our Interconnect Technologies business. And I think that will allow us to certainly to use the cash that we're generating and we will require us probably to go out and borrow some money. Now, with that said, I will let Steve try to address the specific issue going forward.

Steve Ford

Yes, Dean. Clearly, we're underleveraged and when we think that is a good problem to have. Historically, we have been very comfortable with debt-to-cap ratios, 25 to 30% and we would be willing to go past that for the right transaction. We’ve got a lot of flexibility here. But we’re certainly – we’re certainly willing to take on and planning to have some leverage on our balance sheet as we move forward and as we pursue acquisition candidates.

Dean Dray – FBR Capital Markets

Great. Thank you.

David Roberts

You’re welcome.

Operator

(Operator Instructions)

David Roberts

Marci, why don't we go ahead and wrap it up.

Operator

One moment, sir.

David Roberts

Okay.

Operator

And sir, you do have a question from the line of Alan Metroney with Sylvan Lake.

David Roberts

Okay.

Alan Metroney – Sylvan Lake

Hi. Hi. Thank you. Can you just tell us what your basic outlook is on commercial construction for next year, it seems light for this year, I guess and where do you see that bottoming and how that is going to affect your business?

David Roberts

Well, I think we said it earlier is that we think that will probably be down low double digits this year and probably about the same as it was last, but we're forecasting flat revenue growth in the construction materials business, because we know that there is going to be a continued emphasis on re-roofing buildings so that will drive to where we were flat revenue-wise.

Alan Metroney – Sylvan Lake

It seems like -- I think we spoke about this a couple of months ago and but it seems like we're just keep getting worst data points on the commercial construction side and those guys are forecasting 15% to 25% down as opposed to the low teens way. What gives you confidence on what you're seeing that it should be closer to what your numbers are?

David Roberts

The only reason we say that is that institutional buildings are not going to be down 15% to 20%, anything related to the government building. We think that we will actually have either minimal growth or at least flat growth from the previous year. In some year, that's about half of our business. We agree with you, when you look at warehouses, factories, those types of buildings, I think it will be down 15% to 25% and that is just data I read as you're reading. So we have no indication that’s going to be any different.

Alan Metroney – Sylvan Lake

Okay. And then your tax rate for 2010, what should we be looking at?

David Roberts

Between 33% to 34%.

Alan Metroney – Sylvan Lake

33% to 34%. And is there any plans for any sort of tax planning or is that just standard?

Steve Ford

There are always plans for tax planning. That is sort of our operating run rate. But we're always looking for ways to reduce that rate and we've had a lot of successes over the years as evidenced by what we reported here in the fourth quarter.

Alan Metroney – Sylvan Lake

Okay. Great. Thank you.

David Roberts

You're welcome. Marci?

Operator

And you have a follow-up question from Saul Ludwig with KeyBanc.

David Roberts

Okay

Saul Ludwig – Keybanc Capital Markets

On China, you now closed the one plant. How are things going in China and what is the size of your business in China and what's their profitability?

Steve Ford

Now, China is a manufacturing facility for us, if you're talking about the tire and wheel business. I mean we're manufacturing tires. We shut down the Buji facility. We moved that into Meizhou. We’ve had some startup problems in Meizhou -- we’ve had some startup problems in Meizhou and what we're doing is getting that up and running. But I think we're achieving what we expected to achieve there on the cost side.

Saul Ludwig – Keybanc Capital Markets

And the tire production, there is running -- what is your unit output there now?

David Roberts

Well, I will let Fred answer that.

Fred Sutter

About 30,000 a day.

David Roberts

So 30,000 units a day, Saul.

Saul Ludwig – Keybanc Capital Markets

Got it. Thanks a lot.

David Roberts

You're welcome.

Operator

And sir, there are no further questions at this time.

David Roberts

Okay. Thank you. 2009 was a year of accomplishments, led by $447 million of cash generation, a record for Carlisle, by the way. Obviously, as we said earlier, we used that cash to pay down debt. We bought our new facility for the tire wheel business in Jackson. We made three strategic acquisitions. We've got a fully funded pension plan. So we are obviously very solidly positioned going forward from a balance sheet standpoint. While it is too early to project 2010, we're seeing some life in our Interconnect Technologies business.

Our industrial brake and friction business is showing slight signs of life. But the other business remains soft. But frankly, it is only January. And we're still anticipating double digits growth in -- I'm sorry, mid single digit growth in the overall business this year. We had a cold start to -- in the construction materials business and a wet start in January. We think frankly that will feed into replacement market as we get further into the year. The tire business is just starting its season so we don't have a good feel there. Food services coming off the holiday season. January is traditionally a slower month for us in January and that's the trend we're seeing. But we think these businesses will wrap up, or will ramp up as we go. And as I said, we expect to see modest growth in all of our businesses this year. We talked about raw materials. We're continuing to watch what’s going on with anything petroleum-based or natural gas-based. We think we're better equipped to manage those in 2010 than we were in 2008. We're going to watch this area very carefully.

We will negotiate aggressively with our current suppliers and frankly, we will seek alternatives if we can't negotiate with those suppliers to levels we think that are reasonable price increases. Those that we can offset with productivity and alternate sources, we're going to have to pass those along to customers and we will be aggressive where need be to maintain our margins. So with that said, I would like to bring the call to a close and thank you for attending.

Operator

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

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Source: Carlisle Companies Incorporated Q4 2009 Earnings Call Transcript
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