Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Mr. Jim Giannakouros, Carlisle’s Vice President of Investor Relations and Financial Planning and Analysis. Jim, please go ahead.

Thank you, Rob. Good afternoon, everyone, and welcome to Carlisle’s third quarter 2020 earnings conference call. We released our third quarter financial results after the market closed today. And you can find both our press release and earnings call slide presentation on our website at www.carlisle.com in the Investor Relations section. On the call with me today are Chris Koch, Chairman, President and Chief Executive Officer; and Bob Roche, our Chief Financial Officer. Today’s call will begin with Chris discussing business trends experienced during the third quarter and context around our continued confidence in achieving Vision 2025. Bob will discuss Carlisle’s third quarter performance and current financial position. Following Chris and Bob’s remarks, we will open up the line for questions. Before we begin, please refer to Slide 2 of our presentation, where we note that certain statements made under this call may be forward-looking and actual results may differ materially from our expectations due to a number of factors, including impacts from COVID-19. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on forms 10-K and 10-Q. Those considering investing in Carlisle should read these statements carefully and review reports we file with the SEC before making an investment decision. With that, I will turn over the call to Chris.

Thanks, Jim. Good afternoon, everyone. As we enter the 10th month of operating in this COVID-19 pandemic, I hope everyone out there is healthy and staying safe. I’d like to first say, how proud I am with the Carlisle team and how grateful I am for their continued passion, dedication and commitment to serving our customers, to protect each other that is supporting our communities through these uncertain times. We all know that this virus continues to be a threat to our health and economy and want to assure everyone that safety has and always will be the number one priority at Carlisle. And protecting ourselves and each other against this virus is at the forefront of our thoughts, even more so as the winter and flu seasons approach. If we all do our part, we can help manage this pandemic and get us all back to a healthy and productive state, both in our professional and personal lives. And while being safe and healthy is always our first priority, we also have the commitment to keep all our stakeholders in mind and to deliver on our key objectives, including Vision 2025 and our ESG initiatives. By doing this, we ensure that we will continue to be a positive contributor and long serving member of our communities. Now let’s turn to Sides 3 and 4. While the COVID-19 pandemic has affected our 2020 results, our proactive approach has allowed us to continue to operate at a high level of efficiency and capacity. Our operating income generation and cash position at the end of the third quarter, speak to the hard work, discipline and perseverance of the entire Carlisle team. The same attributes will allow us to further improve the efficiency of our businesses through the Carlisle Operating System to continue…

Thanks, Chris. Please turn to the revenue bridge on Slide 5 of the presentation. Revenue decreased 12% to $1.1 billion in the third quarter. Organic revenue declined 14.3% and acquisitions contributed 1.9% of sales growth of the quarter and in fact it was about a 40 basis point tailwind. Turning to the margin bridge on Slide 6, Q3 operating margin declined 110 basis points. Pricing and volume headwinds combined for minus 360 basis points and acquisitions were minus 60 basis points, offsetting these freight, labor and raw material and other operating costs netted to a 230 basis point improvement, and COS added 100 basis points, net restructuring and rationalization costs were an additional 20 basis point headwind. On Slide 7, as we do every quarter we provided an EPS bridge. As Chris mentioned earlier, we reported third quarter diluted EPS from continuing operations of $1.87, which compares to $2.42 from last year. Volume, price and mix combined were $1.04 year-over-year decrease while tax and interest combined for $0.13 headwind. Restructuring was another $0.04 headwind. Partially offsetting these raw material, freight and labor costs netted to a $0.29 benefit. Share repurchases contributed $0.09 and COS contributed an additional $0.18, lower operating expenditures contributed $0.10. While COVID related volume declines clearly represented the most significant headwind during the quarter, our teams around the world did a commendable job managing costs to help mitigate its impact on bottom line earnings. Now let’s turn to Slide 8 to review the third quarter performance by segment in a little more detail. At CCM, revenues decreased 7.8% driven by volume and net of 30 basis points foreign exchange – foreign currency translation tailwind. Operating margin at CCM was 22% in the quarter, a 260 basis point improvement over last year, driven by favorable raw materials, lower…

All right. Thanks, Bob. In closing, I want to once again express my thanks to our dedicated employees, their families and our business partners and all those associated with Carlisle’s success. Simply put, we can’t do without you. With over a century of history, Carlisle has proven to be a resourceful, resilient and stable organization in times of diversity and uncertainty, and remain confident in Carlisle’s outlook supported by our strong financial foundation, cash generating capabilities and unwavering commitment to our Vision 2025 strategic plan. This concludes our formal comments, Rob, we’re now ready for questions.

[Operator Instructions] And your first question comes from the line of Adam Baumgarten from Credit Suisse. Your line is open.

Hey, good afternoon, everyone.

Good afternoon.

Just a question on freight, costs have despite pretty meaningfully at least in the spot market and it seems like contract rates are expected to be up in 2021. Can you walk through your exposure to spot versus kind of more contracted rates?

Yes. Most are freight, most are freight in CCM and a lot of that is contracted. It’s flatbed from our factories out to the job sites. So, we don’t really play that much in the contracted market and it takes time for our contracted folks to get up as quick as the others do. So, we’re not seeing a ton of inflation quite yet, but we expect it to come a little bit next year. And then we’ll...

Okay.

Of course we pass that on in price when we see it go up too much.

Got it. Okay. Helpful. And then just in CCM you talked about slightly positive growth on a year-over-year basis in September. Can you give a sense for how that’s kind of trended into October and maybe that forming your 4Q guidance?

Yes. I think, you’re right on there. I think, we saw things build in the third quarter, September obviously was good considering everything that’s been going on and then we see that carrying into October.

Great. Thanks guys.

Yes.

And your next question comes from the line of Saree Boroditsky from Jefferies. Your line is open.

Thanks for taking my question. So, CCM has not really seen any benefit yet from pent-up demand. So, could you just talk through how we should think about the re-roofing activity that didn’t get done this year? How long can this activity be delayed for?

Yes, it’s a good question, Saree. I think, it’s one of the great tensions it’s been out there that’s helped us for the last really 10 years drive some big almost close to 10% CAGR in our sales, obviously that includes the acquisition, but the – we’re really running up against the big stress on the contractor base that we were before which is there are just so many contractors out there that are trained and qualified, I know prior to COVID that was – in 2019 that was still a big push it was around having these jobs and many delays with weather and anything else that was occurring, how do you get them done and kind of create extra demand and really the constraint is around that contractor base. And now I would say we’re adding into it the whole idea of getting business permits or getting construction permits and things like that through the government agencies that may be adding time by working from home. So, it does continue to build, obviously, you’re going to continue to try to do, what you can to get by. But I think that there is some pressure on getting these things done obviously before the winter season comes in the north and then – and the spring season with rain in the South and in the East. So, I think, they will be trying everything they can do to get it done and work as much over time as possible. But that demand just will build until we see a break there on construction workers are getting more trained, which I think had some delay here with COVID. So, hopefully, they’ll get through it quickly and we’ll see people want to return to work.

Thanks. And then can you just talk about the outlook for aerospace and how we should think about your growth as the MAX production volumes pick up but maybe there is some headwinds from widebody production.

Yes. Bob, could talk about the production levels. I’ll just talk about our forecast. We’re still very, I’d say, we’re cautiously optimistic. I saw the CEO of Delta on today talking about the need to be a connected world and the people’s natural tendencies are to wanting to return to business travel to be connected to do things in person to visit family and friends, and I mean we buy and all of that and we believe it, we have seen, as I said in the call or the script there, TSA checkpoint traffic increasing. And I’d say, we’re optimistic that some of the news we’ve seen recently is going to reinforce the fact that airline travel is very safe. I think, I saw something today that the air is changed in the plane every six minutes through HEPA filters and other type of filtration devices. So, I think, it’s just a question of passengers getting comfortable and once we get over that tipping point it should pick up pretty rapidly. And I think also there have been some interesting deals that have been done with different airlines maybe in Europe where regulations are on being a much cleaner airline have occurred or having energy efficiency and we think the new planes that are out there will likely displace some of the old planes that have them be retired. So, again, we’re optimistic about what’s going to start to occur in 2021 and beyond. And then, Bob, you want to talk about production rates on?

Yes, I mean, from everything we’re seeing and hearing from the two big OEMs, 4Q of 2020 is going to be the lowest build rate period that we’ve seen in a long time. And then that all projected growing from there, including wide bodies. The question comes how quickly does the MAX airplanes that are grounded get put into production and then they need to refill those. We continue to produce them and that’s – we got a keen eye on that and seeing when that starts coming through and the build rates for the MAX start up again.

Perfect. Thanks for taking my questions.

Yes. You bet, Saree. Thanks.

Thank you.

Your next question comes from the line of Tim Wojs from Baird and the line is open.

Hey, gentlemen. Good afternoon.

Hi, good afternoon.

Maybe just on price, how should we think about the potential and I guess your confidence around realizing price next year and volumes here if kind of turned up a little bit, we don’t really have capacity coming on and we are starting to see some cost inflation kind of run through the system. So, I mean, do you think that’s enough for the industry to meaningfully realize price as you look into 2021?

Well, I think, just looking at the fourth quarter, Tim, I think everything you said is absolutely correct. And we’ve seen with the actions of our competitors and ourselves that the prices are going up and I think that’s actually the organizations getting a little bit ahead of where they would have been usually on price. So that makes me believe we might be flat on price in the fourth quarter. And then I think if demand continues to pick up and we see some – the increases in costs and rise like we anticipate then I would anticipate there could be at least it sets the stage for what could be a positive price environment in 2021.

Okay. Okay. So, it’s really relying on kind of where volumes trend as we go through the years is...

Yes, I think so, and I think it depends on – yes, absolutely, volumes. And as I said, Saree, the whole idea of contractor availability and obviously for us and it’s a little bit different maybe for others, but for us, the value proposition, the Carlisle experience is a premium service people pay for and when demand is high and volumes are high and they need to get at the right place right product right time, obviously it gives us more pricing ability than it does when volumes are down.

Okay. Okay. And then the non-resi roofing market, the $5 billion to $6 billion kind of growing to $8 billion over the intermediate term, I mean, how would you think about the composition there between kind of a reroofing kind of cycle and new construction. I’m just trying to kind of think about how much of that kind of $2 billion to – call it $2 billion to $3 billion of improvement is really just replacing stuff that’s already in the ground.

Well, I think it’s all based on that – if you look at the square footage charts that Bob has put out there, we continue to see square footage rising. I think it’s out there, if anybody who needs it, we can get it to him. So you coupled that, I think you leave the structure the same way with the percentage of new construction related to the reroofing parts. So reroofing is really growing. New construction, we do think will pick up a little bit from where it is. And then there’s a little bit of price in there as well that we think it will be a modest inflation as we go forward over that period. Maybe somewhere – price out of that might be somewhere in the 1%, 1.5% something like that.

Yes. Tim, that was largely around all reroofing that we’re commenting on is that’s the annuity that Chris always talked about around the reroofing cycle that’s coming forward. And that chart that’s in our Vision 2025 that shows the next 10 years and I’ll call it the bubble from the Elliott 2000 build cycle that’s going to come through at 2.5% to 3% growth over the next 10 years.

Okay. Okay. Well, appreciate the help guys. Good luck on the rest of the year.

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

Thanks. Good afternoon, guys.

Hey, good afternoon, Bryan.

Nice performance from CCM in the third quarter and great to see that business back to at least modest growth in the fourth quarter. I understand – absolutely, a lot remains fluid in terms of the pandemic and its impact. But assuming we don’t have a crippling second wave following up on some of the other questions here. Is it fair to assume that CCM volume kind of snaps back next year? That seems to the set up today.

Yes, I think that’s somewhat fair to say. I mean, as Saree pointed out, there’s building demand due to the – at least in the second quarter, the inability to get on the roofs and some confusion there over what the health practices were and then government offices shutdown and remote working. So I would say that we set up nicely to pick up some of that, if we can. And again, I always say it, but really for us, the constraint is not supplying the materials, it’s the ability for people to get on the roof and put it on. And that’s why weather and these governmental delays around building permits and things like that are so impactful for the people out there in the field. They’re really the ones that set the pace of the work.

Understood. And then secondly a simple math, Bob you’re expecting about $10 million in price cost benefits in the fourth quarter. Is that correct?

Yes. Yes, and remember, volumes are a little lower and we are seeing some cost pressure that’s well publicized in the oil and MDI markets.

Got it. And given current visibility, you walked through some of the moving parts here, the offsets. It sounds like a reasonable expectation for early 2021 would be kind of neutral press cost. Is that fair or am I – you’re not appropriately.

I think early 2021, we probably won’t want to project out further than that. But I think, yes, as far as, we’re looking here at first Q of 2021 from what we can see, I think that’s fair.

Everybody announced the pricing thesis and the cost that we have is close as we can see.

Okay. That’s fair. And then thinking about CIT conservatively, if we were to assume that third quarter run rate volumes were aerospace launch where the – go forward for the foreseeable future, given the restructuring that’s ongoing, when you get to the back end of that, what kind of margins could CIT aerospace generate?

Let me defer that and we’ll get that answer for you. I don’t know that we want to take a quick swig at that. That’s an impactful meaning.

Yes. And Bryan, we’ve been looking at it in total business rather than the pieces. And clearly, when aerospace even comes back a little, this thing’s going to accelerate because of the costs we took out and the leverage you get off of the sales, but I don’t have it broken out in front of me.

Okay. Got it. Then last one, can you walk through CFT’s monthly order or sales? The third quarter result was certainly better than what I was modeling and then the rate that I had early in the quarter. So I’m guessing there was some acceleration but then there seems to not be as much of a seasonal lift as has been there in the past going into the fourth quarter.

Yes. I think you read it the right way. I’m not going to break down – yes, I’m not going to break down each month in the third quarter, but I think you’ve got the thing, right. That as you got out of the summer and just like at CCM, as you went into September, you saw things starting to come together from a sales perspective. And I don’t think that’s unrealistic for anybody considering we were emerging out of this terrible second quarter with a lot of uncertainty and things like that. I think people started to jump back into CapEx purchases and things like that. And then going into the fourth quarter, yes, I mean, last year we had a really robust fourth quarter project driven. And so those projects, as you can imagine with COVID in that they do take some time to put together and to get organized and they just haven’t materialized in the fourth quarter. And that’s really where the impact is as we go into the fourth quarter.

Okay. Appreciate all the color.

You bet. Thanks, Bryan.

Your next question comes from the line of Garik Shmois from Loop Capital. Your line is open.

Hi. Thanks. Just to follow up on the $10 million in price cost benefits in the fourth quarter. Is it fair to assume that it contemplates some of the disruptions that some of the MDI suppliers have announced?

Yes. We are assuming some price or some costs headwinds falling into there from like I said, the well-publicized increases that have taken.

Okay. Got it. And then just on the SG&A savings that you called out is helping on CCM. Is it possible to quantify how much that’s been and how much is permanent versus how much could come back when demand improves more materially?

Yes. Yes and I think we talked about this little bit on prior calls. In CCM, while the volumes were down in the second quarter, it was almost all temporary. We didn’t adjust any kind of structural cost in that business. And it goes to the variable cost of that business. Salesforce is variable. A lot of the costs we can get out quickly, but then when volume comes back, you got to put them back. So I don’t think there’s been any structural adjustment to the cost of the business.

Other than what Bob would say would be the ongoing COS efficiency gains and raw material purchasing gains and things that we do on a normal basis.

Okay. And then just lastly, just on CIT. Just looking at it sequentially, just with the revenue drop of about $15 million from the second quarter to the third quarter, but EBIT was only down about $2 million, so a pretty good sequential profit control. I’m just wondering how to think of that moving into the fourth quarter, not to get too granular, but how should we think about margins in CIT just given the projected revenue drop again in Q4.

Yes, Garik, we got to remember that there was $3 million less restructuring in Q4 than Q3. So the GAAP dropped, if you factor that and it was bigger than that due to the volume drop through. But also the cost management is coming in, and we expect that to continue and we announced the factory closures and things like that. And those take some time, especially the Washington want to come through. So I mean, again, I don’t think it’s going to change drastically and the normal drop through margins will be there on the decline. And then when it comes back, it’ll come back quickly.

Okay. Thanks. And as soon as possible, just to touch on restructuring notes early, but just given the pace of restructuring that you had pulled forward here in 2020, anyway to, to handicap the amount of restructure that we might be looking on 2021?

Yes. I mean, I’ve been saying for years, it’s probably around $15 million a year, $15 million to $20 million, and we do have that kind of carryover. And as you know, from prior discussions, it is take a long time to close down an aerospace factory because of the approvals of both the FAA and the OEM. So it takes a while to move these things. So that will carry into 2021. So we’d expect to carryover, but somewhere in the $15 million to $20 million range is what we think to that.

Okay. Helpful. Thank you very much.

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

You see a little more sort of the tone in your voice sound a little more positive on European TCM. I wonder if we can just take a minute and get a sense of what’s going on there, because everything else we hear from Europe is a little more muted.

Yes. It’s been surprising. I’ve been in touch with the CFT teams there. And although, they’re a smaller business, our group in Europe has been somewhat positive and what’s happened and maybe that’s a reflection of coming out of the bad Q2 and what was going on there with the people in Italy and their homes and the Spanish impact from COVID was tough. So maybe it’s just – they’re out of that, and restaurants are reopened, things like that, but they were upbeat. And then with CCM, we’ve had good sales, which as I said, the underlying demand there has been really good, which has been a little bit of a surprise, but positive. And then we also have made some leadership changes over there that we think are going to really get us onto more of a track that we’ve been in the United States, where we’re looking at filling in some of the niche markets, filling out the portfolio of products we offer to the market and perhaps getting more active in the acquisition space within Europe. So now I think you’re right to pick that up, all the thanks. We do. And I think we’ve always seen Europe is that frontier that was a little bit untapped for Carlisle. And given some of the initiatives we’ve done on energy savings in green and things like that, we’ve been a little bit like getting to that market, where I really think our message will be well received and I think we can build on the good demand we’ve got going on right now.

That’s really good. And then can you talk a little bit about the competitive environment? It sounds like your competitors in CCM are raising prices a little bit and any sense. I know you can never know what everyone else is going to do, but any sense that kind of that environment is going to stay favorable through 2021.

Well, for sure, for us to see a relatively quick and uniform response to the raw material price increases by all competitors coming out with their price increases really quickly as a group kind of independent, not thinking that it was a reaction to what others were doing, that’s really hardening. And then I do think the pressures on raw materials are going to bolster their resolve to go into 2021, protecting their margins and things like that. And I think that’s understandable, because obviously we’ve got we looked over the resi side and the shingle market is on back order and people are seeing great demand in resi. And I think non-resi when it picks up, is going to be – have some of the same pricing pressures on labor and things like that too. So I think I do have some confidence that we’ll get some good pricing traction going into 2021.

Your next question comes from the line of David MacGregor from Longbow Research. Your line is open.

Yes. Thanks. Good afternoon, everyone. Just to go back to it earlier, a couple of questions around just the deferral business from 2020 and to 2021. What’s your best estimate of the 2020 dollar value, volume that’s been pushed out into 2021?

All right, David. I know this is going to be a cop out. I really don’t have an idea because we were really – I mean, we had a strong 2019, I went into first quarter of or we went into the first quarter of 2020 thinking it might be another record year. And so when you look at how quickly that dropped off and the impact in Q2, I don’t know that I have an estimate for you. I think that when the reroofing side, you can look at Bob’s projections and maybe parse one of that – one of those years out. But maybe let me – just big picture $200 million, $300 million maybe. But I mean that’s a guess.

Yes. No, that’s helpful though. Thank you. And then I want you to get to talk about, what you’re seeing in distribution right now, in terms of inventory levels and out the door sales patterns?

Well, we have seats of breeze of hope with – I won’t give specific, but with a few distributors having some confidence to put some inventory back in, we did talk in the second quarter, at the end of the second quarter call about the destocking that had occurred there. So I do think there’s a little bit of demand left there that if we went into 2021 with some confidence, we’d see distribution, maybe in the back in the spring usual stocking season, we’ll go back to normal and that’ll certainly help 2021, but we haven’t seen a lot of stock go back into distribution right now. And I think people are obviously, you’re through most of the heavy season here when you start to get into October. And I don’t know anybody that wants to put a lot of inventory and going into Q4 in the winter months. So again, I think we look through the spring and then look to get back on a more normal schedule and add in that inventory that needs to be there.

Yes. And as you know, most of our products go from our factories to the roof, even if they’re sold through distribution. So they’re not holding a lot of product for us.

Okay. And then what can you say about out the door sales patterns right now? What kind of comp growth you’ve seeing there?

Probably at distribution?

Yes.

Yes. I don’t – we don’t really measure that. I mean to be honest with you, we – I suppose, you went and talked to our CCM reps, they would might have some idea of that. But we don’t track that at our level. Apologize.

It’s okay.

No, from our perspective, though, we’re focused on the slight growth in September and then our few percent growth in Q4, which is consistent with what the market’s taking so.

And I think, if you think that there’s no inventory in the channel and sales were up in there, a little bit up in September that implies, then that the pass through and the out the door sales are higher.

All right. Okay. Thanks very much.

Yes. You’re welcome.

There are no further questions at this time. Mr. Chris Koch, I turn the call back over to you for some closing remarks.

Well, thanks Rob. That concludes our third quarter 2020 earnings call. Again, we really appreciate everyone being on the call and your participation. We thank you for all the questions. We hope everybody stays safe and healthy as a journey through this fourth quarter. And we’ll look forward to speaking with you at our next earnings call. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.