Carlisle Cos., Inc. (NYSE:CSL) Q2 2016 Earnings Call July 26, 2016 8:00 AM ET
Executives
D. Christian Koch - President, Chief Executive Officer & Director
Steven J. Ford - Vice President & Chief Financial Officer
Analysts
Jim Giannakouros - Oppenheimer & Co., Inc. (Broker)
Joel Gifford Tiss - BMO Capital Markets (United States)
Matthew McConnell - RBC Capital Markets LLC
Ivan M. Marcuse - KeyBanc Capital Markets, Inc.
Kevin Hocevar - Northcoast Research Partners LLC
Neil A. Frohnapple - Longbow Research LLC
Josh K. Chan - Robert W. Baird & Co., Inc. (Broker)
Charles Brady - SunTrust Robinson Humphrey, Inc.
Liam D. Burke - Wunderlich Securities, Inc.
Operator
Good morning. My name is Jennifer, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Incorporated Second 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. Thank you.
I will now turn the conference over to Mr. Chris Koch, President and CEO. You may begin your call, Sir.
D. Christian Koch - President, Chief Executive Officer & Director
Thank you, Jennifer. Good morning, and welcome to Carlisle Companies' second quarter 2016 conference call. On the phone with me this morning are: Steve Ford, our Chief Financial Officer; Julia Chandler, our Treasurer; and I'd like to welcome for the first time, Titus Ball, our new Chief Accounting Officer.
On this call, I'll be discussing our overall second quarter performance and the 2016 outlook, and Steve will review our segment performance, balance sheet and cash flow.
Before I discuss our results in more detail, I would ask that you review slide 2 of our presentation entitled Forward Looking Statements and the Use of Non-GAAP Financial Measures. 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. These reports explain the risks associated with investing in our stock, which is traded on the New York Stock Exchange under the symbol CSL.
As announced this morning, Carlisle reported record earnings per share of $1.75 in the quarter, a 22% improvement over the second quarter of 2015. We also generated record EBIT margin of 17.9% in the second quarter. We're extremely pleased with these record earnings. And they're a reflection of our focused efforts to invest in our businesses, pursue acquisitions and drive a culture of operational excellence throughout Carlisle.
Please turn to slide 3 of the presentation to begin our review of second quarter results. Net sales were up 1.2% in the quarter, reflecting 0.7% organic sales growth and 0.5% contribution from the acquisitions of Micro-Coax in the Interconnect Technologies segment and MS Powder in the Fluid Technologies segment.
Our 0.7% organic net sales growth generally reflects the current demand in our core markets partially offset by sales declines relative to our strong pricing discipline in Canada, challenging economic conditions in the Middle East and continued weakness in CBF's industrial markets. Overall, Carlisle's core markets remain favorable and we continue to affirm our positive outlook for the year.
Our EBIT was up 21% in the quarter and EBIT margin increased 290 basis points to 17.9%, setting a record margin for a quarter. These results reflect robust demand in the U.S. commercial roofing market, continued selling price discipline by CCM along with a favorable raw material environment, sales growth at CIT and CFT and solid execution of the Carlisle Operating System at all our businesses.
Income from continuing operations and earnings per share were each up 22%. Free cash flow was $43.7 million in the quarter, adding to the strong year-to-date cash generation of $134 million, up 16.5% over last year.
At CCM, sales in the U.S. were up 5%. Demand in the U.S. for commercial roofing and commercial insulation continues to be robust driven by growth in new construction and re-roofing demand. In addition to CCM strong U.S. performance, sales in the Europe grew 2% in the quarter, a solid result given the economic conditions in that region.
These positive results were offset by lower sales to Canada and the Middle East. In Canada, revenues were lower in the current quarter due to the non-recurrence of certain low-margin sales contributing to improved product mix at CCM. In the Middle East, we experienced project delays due to the decline in oil prices.
Continued favorable selling price raw material dynamics, along with further COS-driven operation efficiencies, contributed to outstanding earnings leverage at CCM in the quarter and a record EBIT margin of 22.8%.
CIT sales in the second quarter met the expectations for higher growth we'd indicated would occur as we moved further into the year. CIT achieved 4.4% year-over-year organic sales growth in the quarter, up from the 1% growth in the first quarter. Operating leverage was also strong, with EBIT up 10%.
Aerospace demand continues to be strong, and CIT achieved significant sales growth in medical, up 8%. In the quarter, we began shipments of CIT's SatCom antenna adapter plate from our Franklin, Wisconsin, facility. We remain extremely pleased with the market response and the strong growth potential for this aerospace application.
We're also very excited to have added the Micro-Coax business to CIT on June 10. Micro-Coax provides high-performance radio frequency microwave applications and expands our capabilities in a number of high-technology markets, including space and defense. Integration of the Carlisle Operating System at Micro-Coax is already underway, and we are already seeing significant cost savings potential and revenue opportunities.
Fluid Technologies sales and earnings results were also in line with our expectations for the second quarter. Organic sales grew 6.6% on higher sales outside the U.S. As a reminder, over 60% of CFT sales are outside the U.S. And CFT high single-digit organic sales growth is impressive considering global economic headwinds and reflects focus by the team on its overall growth strategies.
As planned, we incurred $1.7 million of additional expense to integrate the CFT platform globally and drive our key initiatives. These initiatives include consolidation of our footprint, expansion of our manufacturing capabilities through vertical integration projects, and staffing to support CFT's growth strategy. These significant and ongoing investments are reflected in CFT's EBIT results this quarter and are expected to continue for the remainder of 2016. In addition, the ongoing staffing investment and integration of MS Powder will impact EBIT balance for the rest of the year.
Carlisle FoodService sales grew 2.4% in the quarter, and its EBIT grew 14%, as CFS continues to enjoy significant earnings leverage from increased sales and improvements in core operations. This focus on operational excellence has continued to deliver improvement in EBIT for CFS, as evidenced by the favorable earnings leverage, and reflects solid execution of their key strategies that they began in 2014. This is the fourth consecutive quarter of sales growth and margin improvement at CFS.
Carlisle Brake & Friction sales performance in the second quarter continued to be negatively impacted by the ongoing weakness in global commodity markets. Carlisle Brake & Friction sales declined 14% in the quarter. Our large global OEM customers continue to report lower sales volume and a negative outlook. We are not planning for a recovery in 2016. The CBF team continues to focus, though, on reducing costs, generating positive EBIT and cash flow, as well as pursuing new sales and new product initiatives in these tough market conditions.
Slide 4 is a recap of our sales results. Total sales growth was 1.2% for the quarter, comprised of 0.7% organic growth and 0.5% acquisition growth. Foreign exchange had a negligible impact to the quarter. As expected, selling prices at CCM and CIT had a negative 2.2% impact to sales. Sales volume was up 2.9%, driven by organic sales growth at CIT and CFT.
Turning to our margin bridge on slide 5, EBIT margin increased 290 basis points in the quarter to a record 17.9%. The non-recurrence of $10.7 million in acquisition costs from the Finishing Brands acquisition last year had 100-basis-point positive impact to margin this quarter. The net impact of selling price and raw materials also had a positive 100-basis-point impact to our margin. Volume was positive 40 basis points, and COS was positive 90 basis points.
Steve will next review our second quarter segment performance, balance sheet and cash flow. And after Steve's review, I will discuss our outlook for 2016. Steve?
Steven J. Ford - Vice President & Chief Financial Officer
Thank you, Chris. Good morning. Please turn to slide 6 of the presentation.
At CCM, sales increased 0.8% in the quarter, reflecting higher demand in the U.S. commercial roofing market, offset by lower international sales. Increased volume was partially offset by lower selling prices and a favorable raw material cost environment. As Chris referenced, CCM sales into Canada had a difficult comparison to the prior year as certain lower margin sales did not recur in the current quarter contributing to overall improvement in product mix. Orders from the Middle East declined due to holds placed by the Saudi government on project funding. Offsetting these sales declines was an increase in sales into Europe of 2%.
CCM's EBIT grew 19% in the quarter and EBIT margin increased 340 basis points to a record 22.8% reflecting continued selling price discipline, lower raw material costs, savings from the Carlisle Operating System, reduction in lower margin international sales and higher sales volume.
Please turn to slide 7 to review CIT's results. CIT's net sales increased 5.6% in the quarter reflecting organic growth of 4.4% and contribution of 1.2% from the acquisition of Micro-Coax. CIT's organic sales increase reflected higher volume of approximately 6% offset by slower selling price. Sales to the aerospace market increased 5%, primarily on increased demand for in-flight entertainment and connectivity applications. Medical sales grew 8% in the quarter on increased demand in the medical device market and new product developments.
CIT's EBIT margin increased 70 basis points to 18.9%, primarily due to savings from COS and higher sales volume, partially offset by lower selling price. Included in CIT's EBIT in the quarter is $1 million in plant startup costs for its new Dongguan, China facility and $900,000 in charges related to the acquisition of Micro-Coax, a total impact to CIT's EBIT margin of 90 basis points. We anticipate a further $1 million in Micro-Coax acquisition-related costs where inventory step-up in the third quarter and additional plant startup costs for the remainder of 2016.
Shipment of CIT's new SatCom product from our expanded Franklin, Wisconsin facility began in the second quarter. Construction of CIT's new state-of-the-art 260,000-square-foot production facility in Dongguan, China, which will support expected growth in its medical business, also remains on schedule. Production in this new factory also began in the second quarter. We expect the ramp up of operations in Dongguan to continue throughout 2017.
As Chris noted, we completed the purchase of Micro-Coax on June 10. This acquisition expands CIT's capabilities in the satellite and space market as well as highly advanced offerings in the military defense market. We expect Micro-Coax to be accretive to CIT's EBIT in the first 12 months.
On slide 8, CFT's sales grew 10.5% in the second quarter, representing 4.7% growth from the acquisition of MS Powder in Switzerland and 6.6% organic sales growth. Foreign currency fluctuations had a negative 0.8% impact to net sales. CFT achieved significant volume growth in Asia and Europe from execution of its global sales growth strategy. CFT's EBIT margin in the quarter of 10.7% includes 680 basis points of intangible asset amortization expense and 250 basis points or $1.7 million of restructuring costs. The MS Powder acquisition had a 150-basis-point dilutive impact to CFT's EBIT margin in the quarter as integration of this powder finishing system business continues.
Turning to slide 9, CBF's sales declined 14% in the quarter. Foreign currency had a negligible impact to CBF's sales results for the quarter. Sales to the construction market were down 16%. Sales to the mining market declined 15%, and sales to the agricultural market declined 3%. CBF's EBIT margin declined 300 basis points to 6.5% as a result of lower sales volume, partially offset by actions taken to reduce costs through sourcing efforts, operating efficiencies and reduction in SG&A expense. CBF has also increased its positive cash flow generation in 2016 achieving free cash flow conversion well above 100%.
Please turn to slide 10 to review FoodService's results for the quarter. FoodService's sales increased 2.4% this quarter. Sales to the FoodService market grew 6% reflecting higher sales across all categories in part due to order fill rate improvements. Net sales to the healthcare market declined 3% on lower equipment sales. Sales to the janitorial/sanitation market were level to the prior year. FoodService's EBIT margin grew 130 basis points to 12.9% on higher sales volume, savings from COS, operating efficiencies and lower raw material costs.
Please turn to slide 11 of the presentation as we review our balance sheet. As of June 30, we had $398 million of cash on hand. We used $95 million of our cash in the quarter to acquire Micro-Coax. We continue to have all $600 million of availability under our credit facility. In the second quarter, we returned $31.9 million to our shareholders consisting of $19.5 million in dividends and $12.4 million in share repurchases. Through the second quarter 2016, we have purchased a total of 1.9 million shares returning $178.1 million to our shareholders, since we began our systematic repurchase program in the first quarter of 2015.
Our balance sheet remains strong. At June 30, our net debt to capital ratio was 12%. Our net debt to EBITDA ratio was 0.5 times and our EBITDA to interest ratio was 20.3 times. In August of this year, our $150 million senior notes are due and we currently plan to repay these notes with cash on hand.
Turning to slide 12, our free cash flow for the second quarter was $43.7 million compared to $84.6 million in the prior year. Year-to-date, we have generated free cash flow of $134 million, compared to $115 million in the prior-year period while increasing our capital expenditure investment.
Turning to slide 13, our average working capital as a percentage of annualized sales for the second quarter 2016 was 18.7%, level with the prior year.
And with those remarks, I will turn the call back over to Chris.
D. Christian Koch - President, Chief Executive Officer & Director
Thanks, Steve. Please turn to slide 14 as we discuss our 2016 outlook. Consistent with our view from previous quarters, we expect Carlisle's total sales growth to be in the mid-single digits in 2016. While global economic headwinds have increased since the beginning of 2016 and we've added the uncertainty of Brexit, we feel that, on the whole, we have the strategies in place to deliver sales growth and earnings leverage in 2016 for the Carlisle Companies.
By segment, at CCM, our expectations are that demand in the U.S. market will remain robust, the relative selling price discipline will continue and that our international sales situation will remain challenging. We expect 2016 to be a record earnings year with overall revenues growing in the mid-single digits.
At CIT, we expect high single-digit growth for the full year, including sales contribution from the Micro-Coax acquisition. Demand for our key verticals in aerospace and medical remain strong. We are anticipating further sales growth in the second half of the year from increased aircraft production and the ramping of our SatCom product shipments. CIT remains on track for another record year of sales and earnings growth.
At CFT, we continue to plan for mid-single digit growth, reflecting continued progress on its global sales growth initiatives. CFT's new headquarters in Phoenix will be ready in August, and the transfer of certain administrative functions will occur throughout the remainder of the year. We will continue to drive consolidation and manufacturing improvements, and we will continue to execute on our previously stated operational initiatives.
At Carlisle FoodService, following another quarter of positive results, we expect to achieve sales growth in the low single digit range in 2016 with corresponding EBIT improvement.
At CBF, our outlook remains largely unchanged from the previous quarters. We expect CBF sales in 2016 will decline from 2015 in the high single digits. The team at CBF continues to focus on sales and new product initiatives, as well as operating efficiencies to offset the lower demand.
The impact of the recent Brexit vote on our sales and manufacturing activities in the UK and EU will take some time to unfold as the UK negotiates terms of its exit from the EU. Thus far, we have not seen any immediate material impact, and the currency effect has been very limited. Our current view is that we do not believe Brexit will have a material impact to our operating performance in 2016. And while staying vigilant to potential changes, we'll continue to drive our long-term strategies for growth in the UK and the EU markets.
Corporate expense is expected to be $62 million, and D&A is expected to be $139 million. For the full year, we are planning for capital expenditures of between $90 million and $110 million. We're expecting free cash conversion to exceed 100%, providing us with additional liquidity to pursue our growth objectives while continuing to return capital to our shareholders. Interest expense is expected to be $30 million, and our tax rate is projected to be 33% versus 31.7% in 2015.
Once again, we are very pleased with our record results this quarter and the disciplined execution of our strategies. We continue to be on track for another record year at Carlisle. This concludes our formal comments on our second quarter 2016 results and the 2016 outlook.
Jennifer, we're now ready for questions.
Question-and-Answer Session
Operator
Your first question will come from Jim Giannakouros with Oppenheimer.
Jim Giannakouros - Oppenheimer & Co., Inc. (Broker)
Good morning, everyone.
D. Christian Koch - President, Chief Executive Officer & Director
Good morning, Jim.
Steven J. Ford - Vice President & Chief Financial Officer
Hi, Jim.
Jim Giannakouros - Oppenheimer & Co., Inc. (Broker)
Could you remind us how big the Middle East is in CCM? And also, are there different price-cost dynamics there or materials driving lower mix there versus the experience in the U.S.?
Steven J. Ford - Vice President & Chief Financial Officer
Yeah. Well, Jim, the Middle East is relatively small. It's certainly well below 5%, but Middle Eastern sales were down 90%. And just in general, international sales represent 14%, 15% of CCM's total sales, and international sales on a whole were down 28%. And that is why the second quarter ended up only being up 1%.
D. Christian Koch - President, Chief Executive Officer & Director
And, Jim, there's no real difference in the raw material base or that dynamic going into the Middle East either.
Jim Giannakouros - Oppenheimer & Co., Inc. (Broker)
Got it. Well, that down 90% explains it. I thought it was bigger. I wasn't expecting that to be down that much. And in the U.S., was there any pull forward or anything you'd call out in that 5% volume growth?
Steven J. Ford - Vice President & Chief Financial Officer
No. No, not really. Very good quarter in the U.S. No real pull forward.
Jim Giannakouros - Oppenheimer & Co., Inc. (Broker)
And I'm sorry if I missed it in your prepared remarks, did you disclose the price cost impact to margin specifically in CCM?
Steven J. Ford - Vice President & Chief Financial Officer
The net was a positive $7 million.
Jim Giannakouros - Oppenheimer & Co., Inc. (Broker)
Was pricing down in the quarter?
Steven J. Ford - Vice President & Chief Financial Officer
Pricing was down about 3%.
Jim Giannakouros - Oppenheimer & Co., Inc. (Broker)
3%. Okay. And I'll get back in queue, but one quick one. The $2 million restructuring in CFT, is that expected to be ratable through the second half or is that a 3Q event?
Steven J. Ford - Vice President & Chief Financial Officer
We will see approximately the same level of restructuring costs and investments as we move through the rest of the year, Jim.
Jim Giannakouros - Oppenheimer & Co., Inc. (Broker)
Got it. Thanks, guys.
Operator
Your next question is from Joel Tiss with BMO.
Joel Gifford Tiss - BMO Capital Markets (United States)
Wow! I didn't think I'd make it so quick.
D. Christian Koch - President, Chief Executive Officer & Director
Good morning, Joel.
Joel Gifford Tiss - BMO Capital Markets (United States)
How is it going? I wonder just a little bit of color on a couple of the end markets. Is there any sense that the Ag equipment market is bottoming? That was kind of a small decline relative to what we've seen in prior quarters. And just a quick outlook on the construction equipment end market too.
D. Christian Koch - President, Chief Executive Officer & Director
Yeah. On Ag, we like to think it's at a bottom. We've had a tough time, I don't even think we've tried to call it bottom in the past. But we saw lower declines which was positive, but yet we saw layoffs at Deere, Moline this quarter. And so, I think we're cautiously optimistic that maybe we're at the bottom, but I'd hate to call it that.
And then on construction, I think there's been some uptick. And as you see that some of the other companies that are in the equipment market, I think Asia-Pacific had a little uptick for the first time in the construction market and I think the U.S. is doing better.
Joel Gifford Tiss - BMO Capital Markets (United States)
And just on acquisitions, are there anything that's bigger that's out there that make sense for you? Or do you think the way that the pipeline is looking that it's going to continue to be a series of these kind of smaller niche year kind of acquisitions?
D. Christian Koch - President, Chief Executive Officer & Director
Joel, we're seeing potential acquisitions of all sizes. I can't really tell you what the next one will be, but they are all out there, big and small.
Joel Gifford Tiss - BMO Capital Markets (United States)
Yeah. I was just wondering about sort of your roughly billion-dollars worth of easy availability. Is that plenty for what you see out there for the next 18 months or 24 months on your liquidity?
D. Christian Koch - President, Chief Executive Officer & Director
Yeah. I think we're fine. And we have plenty of cash and available liquidity to execute whatever strategies we see in the near future.
Joel Gifford Tiss - BMO Capital Markets (United States)
That's great. Thank you.
Operator
Your next question is from Matt McConnell with RBC.
Matthew McConnell - RBC Capital Markets LLC
Thank you. Good morning.
D. Christian Koch - President, Chief Executive Officer & Director
Good morning.
Matthew McConnell - RBC Capital Markets LLC
Just hitting on the decline in Canada. It sounds to me like some of that might have been proactive, and this is in construction materials. Are you proactively walking away from business there? And if so, could you size that just so we understand what kind of drag might be coming in the next couple quarters?
Steven J. Ford - Vice President & Chief Financial Officer
Yeah, Joe. In Canada, we were down 35%, 45% year-over-year. And as we noted in the comments, that was because there was a number of low margin projects did not recur. I think we are more disciplined here in 2016 and that's reflected in the quarter. We'd expect that that to continue, although I don't expect the year-over-year decline to be as pronounced in the second half of the year as it was in Q2.
Matthew McConnell - RBC Capital Markets LLC
Okay. Great. And then just on the roofing price comment. One of your competitors, I think, was trying to push through an increase. Did you also have any list price increases or just what are you seeing in the marketplace maybe expectations for price over the next couple quarters?
D. Christian Koch - President, Chief Executive Officer & Director
Yeah. We saw the pricing action there by one of the competitors and that rolled out, I believe, in July. Our commentary on whether we'd stick or not, I would say, we would classify it as maybe bring more stability to the market. I wouldn't really want to characterize the prices were increasing, but did it brought more stability and pricing to the market. And as we look out, we hope that continues. There has been, as Steve mentioned, some pricing degradation in each quarter this year. We do think it's relatively stable and so that's our outlook.
Matthew McConnell - RBC Capital Markets LLC
Okay. Great. And then last one real quick on MS Powder. So, that added about $3 million. I thought the run rate was around $6 million. I know the numbers are kind of small, but did that have a bunch of new products coming or should we expect a run rate higher than the $6 million when you bought it?
D. Christian Koch - President, Chief Executive Officer & Director
The demand I think is through the acquisition period here. And end of the second quarter, it's a little bit lumpy. I think your initial estimate at $6 million to $7 million range for the year is probably a good range. And then, I think as we roll out new products, which should come in the third quarter, fourth quarter this year, we should see some uptick as we move into 2017.
Matthew McConnell - RBC Capital Markets LLC
Okay. Great. Thank you very much.
D. Christian Koch - President, Chief Executive Officer & Director
Yeah.
Operator
Your next question is from Ivan Marcuse with KeyBanc Capital Markets.
Ivan M. Marcuse - KeyBanc Capital Markets, Inc.
Hi. Thanks for taking my questions. First one, are you seeing any inflationary raw materials or raw materials remaining fairly stable? And sort of your outlook looking out next quarter or two?
D. Christian Koch - President, Chief Executive Officer & Director
Yeah. Raw materials are pretty stable, Ivan. We don't see much happening in that front, at least not increases.
Ivan M. Marcuse - KeyBanc Capital Markets, Inc.
Okay. And for CBF, I know the second half tends to be a lot seasonally weaker at this sort of level of sales or it is another decline of high single digits or maybe, can it stay profitable?
D. Christian Koch - President, Chief Executive Officer & Director
Yeah. We'd like to think it'll stay profitable. The team's doing a good job. They've done a good job over the last – well, many quarters now to maintain that. And that's our goal for the second half of the year is to remain positive.
Steven J. Ford - Vice President & Chief Financial Officer
And, Ivan, the revenue comparisons get easier second half of the year. So, we would not anticipate double-digit revenues decline year-over-year in Q3 or Q4.
Ivan M. Marcuse - KeyBanc Capital Markets, Inc.
Okay. And then, in CIT, I believe pretty large customer of yours is talking about extending payments, et cetera. Have you seen any impact from that or any, I guess, initial discussions or how do you expect that to impact you going forward?
D. Christian Koch - President, Chief Executive Officer & Director
We haven't seen any impact yet. We're very close with that customer, and we're always in discussions. So, we're aware of the things that are happening, but I can't really comment on what would be happening in discussions in the third quarter and fourth quarter. I just say, we haven't seen anything to date.
Ivan M. Marcuse - KeyBanc Capital Markets, Inc.
Great. And last question, the bond that you'll be paying off. Will there be a cost associated with that, or is that built into your, sort of, interest expense outlook?
Steven J. Ford - Vice President & Chief Financial Officer
Yeah, there's no costs associated with the retirement of the bond. And, obviously, the interest expense on that note goes away. So, it'll be positive to results, and no incremental cost.
Ivan M. Marcuse - KeyBanc Capital Markets, Inc.
Great. Thanks for taking my questions.
Operator
Your next question is from Kevin Hocevar with Northcoast Research.
Kevin Hocevar - Northcoast Research Partners LLC
Hey, good morning guys.
D. Christian Koch - President, Chief Executive Officer & Director
Morning, Kevin.
Kevin Hocevar - Northcoast Research Partners LLC
Wondering if you could comment on, you mentioned pricing down 3% in CCM, which is a bit of an acceleration from kind of where it's been. It's been down kind of 1%, 1.5%. So, wondering if you saw some increased competition during the quarter in that segment.
Steven J. Ford - Vice President & Chief Financial Officer
Yeah. I think, again, Chris made the comment early about one of our competitors announcing an increase effective for July. We're certainly hopeful that that provides some stability and improves the pricing environment as we head into the second half of the year.
I mean, we did see some – again on the pricing side, the pressure is not across the board. It's not all product categories. It tends to be more on the insulation and in certain regions. And again that is what contributed to the 3% decline here in Q2, but we're optimistic with the announced increase by one of our competitors that things will further stabilize.
Kevin Hocevar - Northcoast Research Partners LLC
Got you. Okay. And then, typically, when I look back at margins, margins have been phenomenal in CCM, and when I look from kind of second quarter to third quarter, at least in my model, back about nine years, it looks like it's always increased except – so eight out of last nine years it's increased sequentially. So kind of curious how we should think about margins there. I mean, is it crazy to think margins could be a little higher in the third quarter from where they were in the second quarter, or how should we think about that?
Steven J. Ford - Vice President & Chief Financial Officer
Well, Kevin, obviously, the second quarter was truly an exceptional margin quarter for the business. We were up 500 basis points from an outstanding first quarter, and the 23% margin that we recorded here in Q2 was a record. So you need to take that into consideration when you look back at history. And I think as we move into the third quarter that benefit that we've enjoyed from a raw material pricing standpoint, we're not anticipating that same sort of benefit. So it will certainly be a real challenge to improve on Q2's margins in the third quarter.
Kevin Hocevar - Northcoast Research Partners LLC
Got you. Okay. And then, just final question, and maybe I missed this, but in terms of cash deployment, so how should we think of share repurchases going forward? M&A has been pretty active this year, completing a couple acquisitions, and then you're paying off – I think you mentioned you're expecting to pay off that senior note. So, I guess, how do you think of share repurchases the balance of the year?
Steven J. Ford - Vice President & Chief Financial Officer
Similar to what you've seen in the first half of this year and what we saw throughout all last year, we are buying on a regular and continuous basis certainly enough shares to avoid any further dilution from equity awards. And I think the level that you've seen in these last six quarters, we'd expect that to continue in the second half of the year.
Kevin Hocevar - Northcoast Research Partners LLC
Okay. Great. Thank you very much.
Operator
Your next question is from Neil Frohnapple with Longbow Research.
Neil A. Frohnapple - Longbow Research LLC
Hi. Good morning, guys. And congrats on a great quarter.
D. Christian Koch - President, Chief Executive Officer & Director
Thanks, Neil.
Neil A. Frohnapple - Longbow Research LLC
Regarding the CFT segment, could you talk more about the margin outlook for the back half of this year? Can you give us a sense on whether you would expect margin growth versus the second half of 2015, or will the additional restructuring costs and other initiatives you guys have talked about kind of preclude you from delivering higher profitability?
D. Christian Koch - President, Chief Executive Officer & Director
I think you should see some improvement as we go through relative to the first half of the year, but these projects, the vertical integration, the footprint consolidation, the staffing levels, adding salespeople, this kind of thing, moving the headquarters, as it continues, I think we'll be a little bit higher than the first half, but those will have a significant impact going forward.
Neil A. Frohnapple - Longbow Research LLC
Got it. And then will the recent rise in steel prices negatively impact any of your segments, such as CFT; obviously, it wouldn't impact CCM, but just trying to get a sense for, in the coming quarters, will you guys see any sort of steel cost inflation in any of the segments?
D. Christian Koch - President, Chief Executive Officer & Director
I don't think we'll see any material impact from the steel increases.
Neil A. Frohnapple - Longbow Research LLC
Got it. And then one final one. Can you provide any more detail on the Micro-Coax acquisition? Can we think about margins being additive to CIT's overall margin profile longer term? Certainly, it's going to take time for that to occur. And then just could you talk about some of the revenue and cost synergies? I think you mentioned COS is already underway.
D. Christian Koch - President, Chief Executive Officer & Director
The COS is underway. We see some opportunities to invest in capital there. Also just bringing in the whole Lean/Sigma toolkit into Micro-Coax will deliver some nice cost savings opportunity in terms of factory layout. When we look to the sales side, there are some very good synergies between our CIT teams and the Micro-Coax teams. We think they have a good, obviously, a good sales force and a good product line, and I think bringing that into the fold just creates more opportunities for us on sales. And we would not expect it to be a dilutive to CIT earnings long-term. If anything with the investment in these space missile defense, unmanned aircraft segments, we would expect them to be a little bit additive.
Neil A. Frohnapple - Longbow Research LLC
Great. Thanks very much, guys.
D. Christian Koch - President, Chief Executive Officer & Director
Yes.
Operator
Your next question is from Josh Chan with Baird.
Josh K. Chan - Robert W. Baird & Co., Inc. (Broker)
Hi. Good morning. Good quarter. Just a follow-up on Canada. Did the competitive environment there change or did you think about, I guess, margins a little bit differently? Or, can you explain a little bit more about kind of the decision or the strategy to step away more aggressively in that market?
D. Christian Koch - President, Chief Executive Officer & Director
Yeah, Josh. Again, this is a very fluid situation. And just based on where we were in the quarter this year compared to last, there were some business that we pursued last year that we just did not feel was an interest to pursue this year. It was lower margin. And again, I think it was the right decision that the business made. It had a negative impact on overall revenues, but it was certainly very positive to product mix.
I think the comparison gets a little bit easier in second half of the year. We're not going to have quite the revenues decline in the second half as we did in Q2, but in Q2, I think, it was the right call that the business made and that's reflected in the strong margin performance.
Josh K. Chan - Robert W. Baird & Co., Inc. (Broker)
Sure. Absolutely. Yeah, you reported very good margin there. And switching over to the Fluid margin comment, it sounds like that some of the improvement initiatives could actually result in somewhat of a step-up in margin at some point. When do you think we'll start to see the benefits of those initiatives?
D. Christian Koch - President, Chief Executive Officer & Director
We have already seen some benefits and initiatives. They've been small, but on COS, for example, we're already seeing improvements there. In fact, we'll add on that. The other improvements in investments really are going to be a little bit staged. If you think of the vertical integration that return will occur a lot sooner than something on the order of factory consolidation. So, I think we'll start to see things continue to build in 2017 and 2018 as we execute on those strategies. But, obviously, buying machinery putting it into place, making those major capital expenditures, and then changing the factory footprint takes time.
Josh K. Chan - Robert W. Baird & Co., Inc. (Broker)
Okay, great. Yeah. Thanks for the color and good quarter.
D. Christian Koch - President, Chief Executive Officer & Director
Thank you.
Steven J. Ford - Vice President & Chief Financial Officer
Thanks.
Operator
Your next question is from Charlie Brady with SunTrust.
Charles Brady - SunTrust Robinson Humphrey, Inc.
Hey. Thanks. Good morning, guys. My first question really is on CIT. With respect to SatCom, sounds like it started shipping a little bit earlier than you had thought. I'm assuming it's pretty small in 2Q, but can you quantify what that was and what's your expectations for SatCom sales for the year?
D. Christian Koch - President, Chief Executive Officer & Director
Yeah. It was very small. Some very initial order – the beginning of the initial orders there to be shipped. So, I wouldn't even want to characterize it in dollar terms on the call. Let's just say, it was small, but we did begin shipping. And then about $10 million is our projected for the second half of this year.
Charles Brady - SunTrust Robinson Humphrey, Inc.
Okay. Thanks. And just, can you comment overall on the market in commercial aerospace? You've seen a lot of negative commentary from the air show a week or so ago from Boeing and from Airbus. Airbus cutting back on some of their shipments. Boeing doing the same. It doesn't really seem to be having any impact on your outlook for the aerospace segment. Can you just kind of speak to how you're being insulated from that and what's driving that?
D. Christian Koch - President, Chief Executive Officer & Director
Well, I think when you look at the Airbus and Boeing, these are big companies with a big portfolio. We know, for example, Airbus with the A380, there are issues there; they've been widely publicized. We also know there've been issues on engine delivery and other things, but for our big platforms, the 787 and that, we still see good demand. We think those planes are rolling out. They're well accepted in the marketplace. In the long-term, traffic patterns that we see and demand from customers for air travel around the globe just continues to really point towards a very favorable market for us. So I think one of the things is the platforms we're on, one of the things is the market for the planes we're on and then lastly we continue to introduce new products and gain share on planes and a great example is just SatCom and how that CIT team has expanded their presence on the airframe.
Charles Brady - SunTrust Robinson Humphrey, Inc.
Thanks. And just one more and I'll get back in the queue here, just on CIT, I don't know if I missed it or not, but the commentary on lower selling price, can you quantify that?
Steven J. Ford - Vice President & Chief Financial Officer
It's about just under 2%, about 1.5%.
Charles Brady - SunTrust Robinson Humphrey, Inc.
Great. Thank you.
Operator
Your next question is from Liam Burke with Wunderlich.
Liam D. Burke - Wunderlich Securities, Inc.
Yes. Thank you. Good morning, Chris. Good morning, Steve.
D. Christian Koch - President, Chief Executive Officer & Director
Good morning.
Steven J. Ford - Vice President & Chief Financial Officer
Hi, Liam.
Liam D. Burke - Wunderlich Securities, Inc.
On the Fluid Technologies side, you had very strong growth organically. You highlighted two geographies outside U.S. Were there any particular verticals within those geographies that were stronger?
D. Christian Koch - President, Chief Executive Officer & Director
Really, the core verticals were strong. The transportation, the general industrial were really strong in both those regions.
Liam D. Burke - Wunderlich Securities, Inc.
Okay. Thank you. And just getting back on the pricing on CIT. Is that within any particular vertical? I mean, you quantified it, but is that across the board or within any particular vertical?
Steven J. Ford - Vice President & Chief Financial Officer
Combination in commercial aerospace and a little bit on the medical side.
Liam D. Burke - Wunderlich Securities, Inc.
Okay. Great. Thank you.
D. Christian Koch - President, Chief Executive Officer & Director
You're welcome.
Operator
At this time, there are no further questions. I will now turn the conference back to Mr. Koch for any closing remarks.
D. Christian Koch - President, Chief Executive Officer & Director
Thanks, Jennifer. This concludes our second quarter 2016 earnings call. I want to thank everyone your participation, and we look forward to speaking with all of you on our next earnings call. Thanks again.
Operator
Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.
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