Carlisle Set to Benefit From Solid End Markets, Risks Remain

On Oct 4, we issued an updated research report on Carlisle Companies Incorporated CSL.

Let’s delve deeper to find out the key factors that are likely to influence its operational performance going forward.

Existing Scenario

Carlisle has been benefiting from its diversified business structure, which enables it to tap opportunities and neutralize operating risks associated with a single market. Of late, one of the company's major segments — Carlisle Construction Materials — has been witnessing significant improvement on account of continued high volume of reroofing projects in the North American non-residential construction markets. Also, strength in aerospace, medical, space and defense markets, as well as its initiatives to enhance capabilities at the medical technologies platform have set the tone for strong future growth at Carlisle Interconnect Technologies segment.

Moreover, the company intends to acquire businesses and boost shareholders’ remuneration with increased liquidity. In this regard, its buyout of Petersen Aluminum Corporation (January 2019) is worth mentioning. The acquisition has expanded the company’s product offerings in the metal roofing platform. In addition, the acquired MicroConnex business (May 2019) will help Carlisle to add key sensor and micro flex circuit technology to its medical technologies platform. Notably, acquisitions had a positive contribution of 4.7% to sales growth in the second quarter of 2019.

However, the company is experiencing weakness in the Carlisle Fluid Technologies segment. The segment’s sales declined 8.2% in the second quarter on a year-over-year basis. It is experiencing lower volumes of sales due to difficult automotive market conditions, particularly in China. As a matter of fact, it expects the softness to persist in the near term. In addition, Carlisle’s business is exposed to the financial and credit markets, including interest rate and currency exchange rate fluctuations as well as economic conditions where it operates. For instance, foreign exchange headwinds had an adverse impact of 0.6% on the company’s sales in the second quarter.

Further, the company is currently dealing with rising costs and expenses. For instance, in second-quarter 2019, its total cost of goods sold increased 1.8% from the prior-year quarter. In addition, Carlisle faces strong competition in all of its product categories. Its major peers include Crane Co. CR, Macquarie Infrastructure Company MIC and ITT Inc. ITT.

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