Carlisle Companies Inc (CSL) 2018 Q3 法說會逐字稿

Good afternoon.

My name is Vincent, and I'll be your conference operator today.

At this time, I would like to welcome everyone to the Carlisle Companies' Third Quarter 2018 Earnings Conference Call.

(Operator Instructions) I would like to turn the call over to Mr. Jim Giannakouros, Vice President of Investor Relations and FP&A.

Jim, please go ahead.

Thank you, Vincent.

Good afternoon, everyone, and welcome to Carlisle's Third Quarter 2018 Earnings Conference Call.

We released our financial results after the market closed today, and you can find our press release and our earnings call slide presentation on our website at www.carlisle.com in the Investor Relations section.

With me today are Chris Koch, President and CEO of Carlisle; and our CFO, Bob Roche.

Today's call will begin with Chris and Bob discussing Carlisle's third quarter operating and financial performance, with updated comments on our business outlook and progress towards our Vision 2025.

Following our prepared remarks, we are happy to open the call up for questions.

Before I hand you over to Chris, though, I'd refer you to Slide 2 of our presentation.

Please note that certain statements made during this call may be forward-looking, and actual results may differ materially from our expectations due to a number of risk factors.

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 an investment in Carlisle should read these statements carefully, along with reviewing the reports we file with the SEC, before making an investment decision.

With that, I'd like to turn the call over to Chris.

Thanks, Jim.

Good afternoon, everyone.

Please turn to Slide 3 of the presentation.

As we reported in our press release, Carlisle's third quarter performance reinforces our belief that the momentum we have built in Year 1 of Vision 2025 is on solid footing.

In Vision 2025, we target doubling our annual revenues to $8 billion, expanding operating margins to 20% and generating 15% ROIC.

The foundations on which Vision 2025 success rests include driving 5% plus organic revenue growth; utilizing COS consistently to drive efficiencies and operating leverage; building scale with synergistic acquisitions; continuing to invest in and develop exceptional talent; and deploying over $3 billion in capital expenditures, share repurchase and dividends.

When coupled with our long-standing and defining management approach of combining continuous improvement, entrepreneurial spirit, decentralization, we create a unique culture that assures that the day-to-day energy, focus and efforts of our employees are directed towards actions that drive results and support the key initiatives within the context of our strategic plan.

With 3 quarters of the year behind us, we've gained solid traction on the key pillars we introduced in February under Vision 2025.

In the third quarter, we achieved 5.5% organic revenue growth, on track with our long-term growth targets and driven by continued core volume growth and sustained price leadership at CCM, healthy aerospace volume at CIT and positive trends in the construction and mining end markets within CBF.

We remain committed to driving efficiency throughout Carlisle, as demonstrated by the acceleration of savings generated by COS in 2018, specifically 1.4% of sales and cost savings within the quarter, well within our long-term target of 1% to 2%.

With respect to our goals of deploying $3 billion of capital through 2025, we continue to seek suitable candidates for our MedTech, Aerospace, Fluid Technologies and building envelope platforms.

Our M&A pipeline is robust, and we remain disciplined in what we view as an expensive landscape.

We made great strides in bringing in new talent throughout the organization and providing opportunities to our most promising employees.

And notably, given our strong cash flow characteristics and balance sheet, we remain active in deploying capital toward internal investments as well as dividends and significant share repurchases.

Specifically, Vision 2025 commits to deploying $1 billion to share repurchases over the planned horizon.

And with our most recent activity, we're well ahead of that plan, having returned over $550 million to shareholders since the beginning of 2017.

Turning to Slide 4. In the third quarter of 2018, Carlisle experienced strong organic growth at CCM, CIT and CBF, resulting in third quarter revenues of $1.2 billion, an 18% increase year-over-year, our 22nd consecutive quarter of year-over-year sales growth.

Our operating income in the third quarter grew 3.9% to $140 million, driving $1.59 in diluted EPS from continuing operations.

EPS was positively impacted by a lower effective tax rate and reduced share count, which Bob will discuss in more detail later.

Our third quarter earnings performance reflected strong organic growth and continued progress on operational execution.

In the quarter, we continue to face significant headwinds across our businesses, especially in our raw material, freight and labor-related costs.

We were largely able to offset these pressures with higher sales volume, proactive and strategic price increases, continued implementation of freight surcharges and generating savings from the Carlisle Operating System.

We were especially pleased with CCM's performance on pricing, recording price gains of 1.8% in the quarter, the largest quarterly price gain since the third quarter of 2012.

We anticipate our business will operate in an increasingly inflationary environment in the near term.

However, we expect the actions already taken and underway, coupled with the impact of COS and decisive pricing actions implemented across our businesses, to continue to deliver solid gains in profitability for the rest of this year and into 2019.

Now let's turn to the divisional achievements in the quarter, starting with CCM.

CCM grew sales 21.3% year-over-year, approximately 3% organic.

Our pricing result proved fruitful in our core products as we achieved over $11 million in price realization in the quarter.

Additionally, our move into the metal roofing segment continues to build momentum, with Drexel's third quarter sales growing over 30%, reinforcing the positive benefits of moving further into the building envelope.

Partially offsetting these positives was the effect of wet weather in September in much of the Eastern U.S. and Midwest, including a record rainfall in Texas.

This above-average wet weather impacted demand for our products due to a reduction of available days on the roof for our contractors.

While negatively impacting results versus our plan, these weather conditions proved temporary in the third quarter, as we've already seen a rebound to more normal levels of activity in the first few weeks of October.

With roofer backlogs at an all-time high in a very tight labor market, there is little flexibility in construction capacity to make up the shortfall in the near term without a warm and dry fourth quarter in North America.

With regards to Accella, we continue to remain focused on integration efforts, and we are tracking on plan with our stated synergy target of $10 million this year.

While we continue to drive offsets to first half MDI pricing and freight costs in the third quarter, we experienced greater than expected sensitivity to our significant price increases in the market, which impacted sales of our spray polyurethane foam product lines.

We made adjustments and we're already seeing volumes rebound from the lower August and September demand levels at Accella.

However, despite remaining on pace to deliver our stated synergies, profitability levels are below our expectations and, frankly, disappointing given the spray polyurethane foam market growth rates and our expectations of solid post-acquisition integration leverage on that growth.

We've begun to implement structural improvement actions to drive Accella profitability toward the high single-digit operating margin levels in 2019 as we communicated in our real -- in our original deal model.

These include facility optimization, accelerated implementation of the Carlisle Operating System and a more aggressive reduction of SG&A.

Lastly, on CCM.

In mid-September, we announced the retirement of John Altmeyer, who served as President of CCM for 21 years.

I thank John for his service, particularly in the last few years as he provided valuable guidance in the growth of our company, made our largest acquisition ever in Accella last year and contributed to the development of Vision 2025.

We wish John all the best.

And I'm very pleased that Nick Shears has agreed to serve as Interim President of CCM.

Nick has been at CCM for over 3 decades, most recently as Executive VP of Sales and Marketing.

Nick is well positioned to continue to develop and implement CCM's successful strategic and operating initiatives and, more importantly, drive to the profitability levels we know this business can deliver.

CIT's third quarter revenues reflected continued strength in aircraft build rates as well as our increased content per plane.

The satellite connectivity ramp in sales this year remains in line with previous expectations.

This market continues to evolve as geographies are added, the technology and applications related to in-flight connectivity advance, and partnerships grow and evolve.

We're excited to be -- to have become a meaningful player in the SatCom connectivity market in 2 very short years.

This rapid changing technology and market will provide opportunities and challenges in the coming years, and we must stay close to our customers, drive the technology and provide flexibility in dealing with the rapid changes that accompany an evolving market.

Recent customer announcements and acquisition activities suggest the aerospace connectivity evolution will only pick up speed in the coming months and years.

CIT's global medical technology business continues to grow, well positioned to leverage favorable industry dynamics such as aging populations and trends towards minimally invasive procedures, and is supported by a pipeline of approximately 130 active projects.

We strengthened our efforts in new product development with the acquisition of the redgroup, a Minneapolis-based medical engineering and design company, in the third quarter of this year.

We anticipate the redgroup will further strengthen our product pipeline with their significant relationships in medical OEMs.

We are also pleased the 2-year Shenzhen to Dongguan, China factory move is behind us, a move that has significantly expanded our medical technology production capabilities, allowing us to accelerate conversion of our product pipeline and the capacity to serve our growing MedTech sales base.

At CFT, we're extremely pleased with the progress the team has made in 2018, in our view, putting us back on track with the original CFT acquisition deal thesis and establishing a solid platform on which to build.

As a reminder, CFT's Vision 2025 included driving organic growth, vertically integrating our manufacturing operations, deploying COS, entering new segments and geographies, and acquiring complementary businesses.

We believe you can see the progress in our margin improvement, which Bob will discuss in a bit more detail later in the call.

CBF continues to benefit from the recovering commodity markets, as evidenced by the double-digit growth in our off-highway markets of construction and mining.

The Tulsa, Oklahoma to Medina, Ohio plant consolidation remains on track to be completed by year-end, and we continue to expect the annualized savings of $12 million to $15 million from this move.

With the positive end market environment and our plant consolidation investments winding down, we expect CBF's operating margin to continue its upward trend and ultimately return to its pre-downturn levels of profitability.

Bob will now provide further detail about our segment performance and review our balance sheet and cash flow.

After Bob's review, I'll look and discuss our updated outlook.

Bob?

Thanks, Chris.

Please turn to the revenue bridge on Slide 5 of the presentation.

As Chris mentioned in his opening remarks, we are pleased with our overall third quarter revenue performance.

Organic growth had a positive 5.5% impact, lifted by 10% at CIT and 15% at CBF.

As we have previously discussed and was the case in the first half of the year, new revenue recognition standards impacted revenue in the third quarter by 60 basis points, and acquisitions contributed 11.7% of sales growth for the quarter.

Turning to our margin bridge on Slide 6. Operating margin percentage decreased 150 basis points in the quarter to 11.9%.

The net impact of revenues had a positive 130 basis point impact.

COS drove 140 basis point of margin improvement.

Acquisitions had a negative 140 basis point impact in the quarter.

And finally, rising raw material, freight and labor-related costs, driven largely by CCM but also CBF, had a negative 350 basis point impact.

On Slide 7, we have provided an EPS bridge.

As previously stated, we reported third quarter diluted EPS from continuing operations of $1.59, a 26% increase over last year.

Higher volumes contributed $0.15, tax-related items added $0.30, COS contributed $0.14, share repurchases added another $0.06, and price realization added $0.15.

Offsetting these positives were higher raw material, freight and labor-related costs amounting to a $0.22 year-over-year headwind; higher interest expense, a $0.06 headwind; unfavorable product mix of $0.07; and other costs of $0.12.

Our tax rate of 20.5% was lower versus last year due to U.S. tax reform, and we had approximately $5.7 million of onetime tax benefits in the quarter.

Now let's turn to Slide 8 to review the third quarter performance by segment in more detail.

At CCM, revenues increased 21.3% in the quarter driven by acquisitions, mostly Accella, contributing 18.2% of the growth.

This was roughly 3% organic growth.

As Chris mentioned earlier, volumes in the core business were impacted by a very wet weather in September, driving revenue below the plan we had coming into the quarter.

We continued to achieve solid price realization in our legacy CCM business, and we expect to continue positive results related to the previously announced price increases for the duration of 2018 and into next year.

We anticipate the effect of our price actions will more than offset higher raw material inflation and freight costs in the coming quarter, as they did in Q3.

At Accella, price actions weren't as well received.

We have adjusted our strategies in certain markets and already experienced benefits to volumes thus far in the fourth quarter.

Despite the rising raw material, freight and labor cost environment, CCM delivered operating margins of 15.6% in the quarter, driven by higher sales volume, price realizations and savings from COS.

These positives were offset by a little more than $9 million of raw material and freight cost increases.

Dilution from the Accella acquisition also contributed to 380 basis point operating margin decline.

As Chris mentioned, we remain on track with our original synergy targets for Accella, $10 million per year in '18, '19 and '20, but we are in the process of implementing further actions to make structural improvements in the business.

Please turn to Slide 9 now to review CIT's results.

CIT delivered outstanding revenue growth of 13.9%, of which 3% was attributable to ASC 606 revenue recognition standard.

CIT experienced high single-digit organic growth in the aerospace market.

Additionally, organic growth initiatives in the medical and test and measurement markets are accelerating where product pipelines are robust.

CIT's operating income improved 13.1% to $29.3 million due primarily to higher volumes, lower restructuring costs and COS savings.

This positive momentum was offset by unfavorable mix and labor-related costs.

Operating margins of 12.2% represented a 10 basis point year-over-year decline.

Turn now to Slide 10.

CFT's revenues, excluding foreign exchange, increased by almost 3% year-over-year.

General Industrial markets were up double digits, and standard product sales improved given the strength in Asia Pacific.

This was partially offset by softness in the transportation and automotive refinish markets.

CFT's operating income improved $11.5 million year-over-year, driving operating margin of 16%, approximately 13% excluding the gain on a sale of a facility in Mexico.

Operating income benefited from previous actions we have taken to drive efficiencies from our facility rationalization efforts, progress on vertical integration and price.

Turning to Slide 11.

CBF again achieved excellent revenue performance in the quarter, increasing 14.3%, which reflects an organic sales increase of 14.9%, unfavorable foreign exchange of 0.6%.

The sales increase reflects price implementation, share gains and continued recovery in off-highway vehicle markets.

With the recovery in sales, CBF's operating income continued to improve.

The $2.5 million year-over-year decline included $4.8 million of expense related to consolidation of the Tulsa, Oklahoma manufacturing facility into our Medina, Ohio facility and $3.1 million of raw material inflation.

We are on track to complete the consolidation by the end of 2018 and expect to realize annualized savings of $12 million to $15 million from this project beginning in 2019.

On Slide 12, we have provided detail of restructuring, facility rationalization and other acquisition/divestiture-related items by segment.

Charges in the third quarter included in operating income were $7.1 million for all segments.

For the full year, we expect approximately $33 million to $37 million of costs, an increase from our previous guidance driven primarily by an acceleration of certain costs related to our footprint consolidation.

Turn now to Slide 13.

As of September 30, 2018, we had $781 million of cash on hand and $1 billion of availability under our revolving credit facility.

Our balance sheet remains very strong.

As of September 30, 2018, our net debt-to-capital ratio was 23%, our net debt-to-EBITDA ratio was 0.8x, and our EBITDA to interest ratio was 16.4x.

Turning to Slide 14.

Our cash flow year in the quarter was $76.2 million compared to $125.2 million in the prior year.

The decrease in free cash flow was due to the timing of payments of customers whose fiscal year ends September 30 and cash taxes paid related to the sale of Carlisle FoodService Products.

With those remarks, I'll turn the call back over to Chris.

Thanks, Bob.

Please turn to Slide 15 as we discuss our updated 2018 outlook.

For Carlisle overall, given the impact of the September shortfall of CCM, we are lowering our 2018 consolidated revenue outlook slightly from approximately 20% to high-teens percent growth.

By segment, at CCM, driven by continued healthy underlying demand in the commercial construction market and including contributions from acquisitions, we now expect revenues to grow in the low 20% range, with the change to forecast predominantly the aforementioned drivers we experienced in September.

CCM will continue to maintain discipline around pricing actions and freight surcharges to offset the previously discussed inflationary cost pressures.

And finally, we will move forward with the structural improvement plans at Accella, including facility optimization, accelerated implementation of the Carlisle Operating System and a more aggressive reduction of SG&A, notably all within a solid demand backdrop.

We're excited about Accella.

Our deal thesis remains intact, and we view it as a platform on which we can build organically and augment via M&A.

In the CIT segment, we continue to expect double-digit revenue growth, driven by a strong aerospace market, growth within the MedTech platform and continued year-over-year growth of SatCom connectivity sales.

We remain focused on converting a strong pipeline for new products, our projects driving to higher content per aircraft and seeking high-quality acquisitions for our MedTech and aerospace businesses.

At CFT, we continue to expect revenue growth in the mid-single-digit range for 2018.

With our significant efforts and investment to restructure the business, the Fluid Technologies platform is exhibiting targeted margin expansion while focusing on operational excellence, launching new projects and seeking acquisitions to continue to build out this platform.

At CBF, we continue to expect revenues to grow in the mid-teens.

We are seeing continued improvements in key end markets while order rates and backlog remain healthy.

Corporate expense is expected to be approximately $75 million to $80 million.

Depreciation and amortization expense is expected to be approximately $190 million.

For the full year, we expect capital expenditures will be approximately $100 million to $130 million.

And we are anticipating free cash flow conversion to be approximately 100%, excluding the effects of the sale of Carlisle FoodService Products.

Depending on timing and investment income derived from the sale of Carlisle FoodService Products, we expect our 2018 net interest expense to be towards the lower end of a $55 million to $60 million range.

Our tax rate is expected to be approximately 22% to 24%, lower than previously expected given discrete items.

With our strong balance sheet and cash flow generation, we will continue to invest in our businesses, fund strategic acquisitions and return capital to Carlisle shareholders through dividends and share repurchases.

Following our solid year-to-date performance, we enter the fourth quarter well positioned to achieve our 2018 goals, key objectives and progress towards Vision 2025 despite facing an increasingly inflationary environment, profitability headwinds at Accella and the effects of weather on our September selling environment at CCM.

We're excited to build on our positive momentum as we close out '18 and set the stage for continued improvement in 2019.

This concludes our formal comments on our third quarter results and 2018 outlook.

Vincent, we're now ready for questions.

(Operator Instructions) We have your first question, comes from the line of Tim Wojs from Baird.

So maybe just on CCM.

Could you give us -- so just a couple of clarifications.

So first, it sounds like -- was price more than offset the higher cost in the core CCM business?

It sounded like about $11.5 million of price and $9 million of cost.

That's exactly right, Tim.

Okay.

And just on the guidance, I mean, the lowering of kind of the organic guidance to low to mid-single versus mid to high, it does imply a little bit of sequential moderation, I think, in the growth rate in the fourth quarter.

So I'm just trying to marry maybe that comment with the comment that October has actually picked back up due to some of the September shortfalls.

Yes, Tim, I think October is returning to those expected levels we had for October.

I don't -- I think the modulation and the slight reduction really comes from the fact that we don't -- unless some extraordinary situation occurs from -- on a weather perspective and we extend fall deeply into the winter, we don't think we're going to make up that September shortfall in any measurable way.

As we said, labor is very tight.

The backlogs are there.

I think it just continues to build backlog.

And when the winter comes, it'll have to move into the spring.

Okay, okay.

So I mean, the expectation would be that you'd still -- you could still see a mid-single-digit growth market in CCM next year?

Definitely.

Okay, okay.

And then could you just baseline us on what Accella profitability was in the third quarter?

Because it sounds like, I think, year-to-date, it might be breakeven.

So is it still kind of breakeven on an underlying basis?

Yes, including the synergies that we get in by putting them together with CCM, about 1% to 2% profitability right now in the quarter.

Okay.

And then any change to the commentary you made before in terms of pricing being $30 million and cost inflation being about a $40 million headwind?

No.

That's good.

Your next question comes from the line of Charley Brady.

(technical difficulty)

Vincent, maybe we can pick that one up in a minute.

Move on to the next question.

Okay.

We have your next question.

It comes from the line of Neil Frohnapple from Buckingham Research.

I just wanted to go back to the Accella profitability in 2018.

I think, Bob, you just mentioned 1% to 2% profitability in the quarter.

But can you just level set us for what the expectation will be for the segment for the full year of '18 relative to the high single-digit margin commentary for 2019?

Yes.

Now we're expecting in the low to mid-teens -- or low to mid-single digits, sorry.

Low to mid-single-digit?

Okay.

Yes, so 3% to 5%.

Okay.

So call it 500 basis point sort of improvement in '19 on 20% of segment sales.

So that should be, if my math is right, 100 basis point tailwind to total CCM segment margins.

Does that sound about right, just from the improvements in Accella?

Yes.

No, the math sounds appropriate because we expect to go back to the 8% now in '19.

Okay.

And then just given the price increases you've implemented year-to-date in CCM, and Bob, you sounded positive that these will continue to hold in the fourth quarter, if we assume these continue to stick at these current levels through 2019, just hypothetically, and then raw costs are flat from here, what does the carryover at least for the first half of 2019 look like from a price cost standpoint?

Well, we're getting about $20 million in the back half, a little over $20 million in the back half.

So you would assume some of that would carry through to the first half, and then you'd be flat in the first half.

So let's just say $15 million of carryover.

Okay.

On a conservative basis.

And then as far as along the same lines from a material cost standpoint including freight, what would that carryover sort of look like in the first half of '19 relative to that $15 million?

Yes.

I mean, I think, as we look at it, freight -- or I'm going to say, total costs have been reasonably flat quarter-on-quarter.

So it's been about $10 million a quarter versus last year.

So if it stays where it is, you would expect nothing.

But we continue to see freight increase, and we don't know what's happening to oil.

So like I said, based on the $10 million a quarter, you would think if it stays where it is today, you'd be fine for the -- even for the full year next year.

Okay.

Great.

And then one last one.

I'll pass it on then.

The $10 million increase in the 2018 forecast for restructuring and facility rationalization to get to the $33 million to $37 million?

I guess, just more importantly, what's the outlook for 2019?

Because assuming that was the pull forward, that should come down, which will help underlying profitability next year.

So I know there's always going to be some sort of restructuring in the business, but can you just kind of help us understand what that tailwind could be in 2019?

Yes.

I mean, we're thinking about $15 million for '19 on a normalized restructuring basis, and we think that's sort of our normal run rate going forward because we're always going to have projects to get cost out, spread across all the businesses in all the locations.

Your next question comes from the line of Charley Brady from SunTrust Robinson.

Sorry about that.

Not sure what happened there.

On Accella, can you guys quantify or pre-quantify the cost in that restructuring and kind of what that payback is going to be now?

It sounds like things are being accelerated.

And then I guess, the differential, it sounds like pricing went up.

It was too high, and it pulled back down.

Can you give some granularity about what the delta between that was?

Yes.

On the pricing, Charley, I think it was a very marginal pricing on the delta change.

Everything was kind of in, and I'm going to say, in the mid-single digits on pricing, and we came back a bit.

So we still did make some progress for the year on pricing.

But it was just marginally enough to, I think, have a few people switch.

And obviously, the product still maintains a lot of great characteristics that was -- were desired, and so those folks would come back in October.

And at that marginally reduced product price there, they're back in the game.

And Bob will take on the first question.

Yes.

First one was related to what the restructuring cost was.

We don't expect -- a lot of it is going to be -- we don't have a lot of big facilities to close or plants to move.

A lot of it's SG&A and getting more efficient in our factories.

So we don't expect a big restructuring to come out of that either in the fourth quarter or for next year, and that's kind of encompassed in the $15 million I talked about a little bit earlier.

All right.

And just one final for me.

On CCM, the -- if you covered this, I apologize.

The extra cost in the executive exit cost, can you quantify that?

Yes.

We put out an 8-K, it was about $5.5 million.

Your next question comes from the line of Garik Shmois from Longbow Research.

Maybe I missed it, but I was wondering if you could provide how CCM volumes are tracking prior to September just to give an idea of how strong your underlying demand was before weather hits.

Yes.

Well, we were down, I'm going to say, mid -- we were down mid-teens in September.

And prior to that, it was high single digit, Garik.

So that's without giving too much competitive information away.

I would say it's high-single digits in July and August, and then obviously, the weather hit and down mid-teens.

Consistent, by the way, with the industry when we look at our industry associations, very consistent with what we saw across the entire competitive landscape in single-ply roofing.

And I guess just to that, I think there was a question earlier just around mid-single-digit growth into next year.

But given the trends prior to September, high single digits, I think that's how you were growing, if not a little bit better, earlier in the year.

Recognizing that there is labor constraints and timing issues heading into the fourth quarter, and winter weather is uncertain, but is there anything that you're seeing from the end markets standpoint that changes the outlook, either better or worse, if you look out to 2019, just from what you're hearing from your customers?

No, really, when we look at the ABI and we look at Dodge and these other reports, we just take the commentary from the field, I mean, pretty much the verticals that we're in that we highlight, warehouse, education, office, stores, things like that, not much modulation downward or upward on what we've seen earlier in the year.

And I think, again, just to reiterate it, the big question is, where would that extra labor come from to complete the jobs?

The backlog is still strong.

Demand is still there, underlying demand for both reroofing and new.

And I think the question going into '19 is, is there a pool of labor that we could draw in, in some way to expand the ability to take on new roofing projects?

And just wondering, if you look out to next year to some of the comments on Accella improving, how sensitive would it be if we're in a relatively stagnant housing environment, given the builders have talked about decelerating orders?

How sensitive to the business would it be into your outlook if housing does stagnate into next year?

Well, I think stagnating is not good for anyone in the resi housing market.

But I think the interesting thing with Accella is, remember, this is a new technology.

We're really a very low market share, versus the traditional types of insulation.

We've been gaining a lot of traction as energy costs have been fairly high, and Accella's value proposition really starts to play out.

I think Bob referenced once that at a job site he was in, they were starting to reduce the size of the heating and ventilating and air-conditioning units in homes because of the extra insulating power of foam, and it offsets that so it becomes cost-neutral.

So our real goal with Accella is to continue to penetrate the insulation market and resi.

And so I think we'd offset some of that stagnation with our efforts to grow that new technology into the construction market.

Next question comes from the line of Kevin Hocevar from Northcoast Research.

On Slide 7, you showed that the product mix was a $0.07 headwind to EPS.

What is driving that exactly?

I mean, some of that is going to be Accella, right?

It's a big part of it as it's less profitable and then we have some of that out of CIT as well as we talked about with medical coming up to the profitability levels we want, with the factory move and then SatCom, again continuing to get efficiency out of our factory in Franklin.

So those are the 3 big drivers of it.

Okay.

Got you.

And then in terms of the -- back to an earlier question.

The -- you updated the guidance for full year organic growth in CCM in the low to mid-single digits.

And as you kind of play with the model to see -- you're running at about 2% pricing and volume suffered here in September, obviously pretty hard, like you said, down mid-teens in September.

But as you also mentioned, kind of up again into where you'd expect in October.

And it seems like if you plug in a mid-single-digit-type volume growth number, you're going to come in at the very high end of that guidance range of that low to mid-single-digit organic growth range for the year.

So just kind of curious, what -- like -- is -- what would it take to see low single digits?

Is there some upside there?

Just wanted to get a sense for that range and how comfortable you are with where you think you -- that could shake out.

Yes, I think it's a good question.

And the fourth quarter and first quarter are always ones that -- again, we're just going to go back to weather.

That would be one that, again, I mentioned.

If we could get a dry, warmer fourth quarter across the U.S., we would do well.

Texas is our biggest market.

That had record rainfall.

Obviously, any recovery there is going to be important.

Also, labor.

We can see some relief on labor.

That would help.

But I think the biggest thing that would affect any upside is just how does that fourth quarter look from an ability to get on the roof, Kevin.

We think we missed something like, overall, maybe 4 to 5 days, roofing days in September, and you can see the impact.

So if we can pick up 3 to 5 roofing days in the fourth quarter, it wouldn't probably have the same impact as September did, but it could be very beneficial to us.

Got you.

Okay.

And then -- and CFT, the margins, 13% excluding the onetime benefit there.

So obviously, real nice progress there.

So how should we think of that margin progressing as we exit the year?

I think you guys have kind of talked about maybe exiting the year at mid-teens.

And so how should we think of -- is that still a good way to think about that?

And how should we think of that margin progressing in 2019?

Yes, we're still on track for what we talked about earlier in the year and I think approaching mid-teens.

And I think the nice progress we made in the third quarter gives us a lot of confidence in that.

And then going into '19, right, you do have some modulations throughout the year, if not an even volume year.

So we expect 150 to 200 basis points, as I talked about before, improvement year-on-year in the full year.

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

You called out the strong new product growth in CCM.

I'm assuming that the RapidLock contributed to that.

I was just wondering if you could parse out what is driving that growth and perhaps what the revenue base is that is growing at that percentage.

Yes, the revenue base is pretty small.

I mean, it's $22 million to -- $20 million to $30 million right now and $20 million last year, $30 million this year that we're talking about there.

And it's RapidLock and it's some new ceiling capabilities we have with APEEL as well.

So we have a couple of new products in there.

Okay.

And as they continue to gain scale, is it fair to assume that those are margin accretive?

Yes, I would say both -- really the RapidLock, this is the velcro-applied roofing.

It's got a great margin profile and very good pricing characteristics.

It's taking about half the labor off.

We have APEEL, which obviously reduces the cleanup on a roof, and that has some great margin.

And then CAV-GRIP and some others, again, are taking these VOCs out and reducing labor and ease-of-use and increasing the performance.

So yes, we're definitely trying to drive an ROIC mindset in that and get value for the products -- the new products we're introducing.

Your next question comes from the line of Liam Burke from B. Riley FBR.

Chris, you mentioned that in the CIT, there was a product mix that set back operating margin slightly, and aerospace was a big grower.

Was it new projects within the aerospace?

Or what created that margin headwind within the -- I'm presuming within the aerospace area?

Really, Liam, it revolves around the SatCom business and the efficiencies related to our Franklin and Mobile factories in SatCom.

We have had tremendous growth, obviously, in these 2 years in SatCom, and these factories are processing that and growing and establishing their manufacturing operations as we do it.

I think we expanded Franklin twice over the last 3 years.

So it really relates to that SatCom efficiency.

And the other piece I would touch on is the medical in Dongguan.

Obviously, we did the factory move.

It's a startup.

We think it went fairly smoothly.

But as with any startup, we have issues around scrap and around the lower efficiency performance out of new employees in a new environment.

So those were the big hits at CIT.

Okay.

And COS, you're taking that to the next level to get to your long-term 2025 objectives.

How are you tracking in terms of -- you've got some ambitious goal within those programs.

How is that tracking towards your long-term goal?

I think it's right in there.

This quarter, as we mentioned, it was at 1.5%, I think, and we were right in that 1% to 2% that we want.

We think it's picking up speed.

We've made some investments both in people, in software, in our factories to drive that, Liam.

So every day, we build on that.

And the other nice thing, as I think it's starting to really take on, some of the, I would say, ownership within the divisions.

And this is no longer just a corporate project after 10 years or a corporate-led project, it's now embedded and people can see the benefits from it.

So the great thing is, is those savings are seen and experienced in the divisions, and they're the ones pushing it.

So we feel very comfortable that we'll get to that 2% savings.

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

So I don't know if you -- if this number was called out at all.

But how much was the gain in CFT from the sale of the Mexican facility?

$2.3 million.

Okay.

And then the -- inside on Slide 7, that $0.12 of other cost in the third quarter.

What is that from?

Yes.

A big part of that is the retirement cost that we talked about in the 8-K.

$0.07 of the $0.12, Joel, is -- $0.07 of the $0.12 is John Altmeyer, and the other $0.05 really relates to some onetime medical expenses we had, and that's it.

Okay, okay.

So that's pretty clear.

And then just -- I know you -- I don't want 2019 guidance, but I'm just holistically like trying to think if the pricing that's in the system now, is there enough in CCM to be able to offset what seems reasonable to expect is coming in 2019 in terms of cost increases?

Or is there going to be more pricing there, sorry?

I think what we're seeing now with where MDI and oil seems to be modulating, I think we're pretty comfortable.

The wildcard is freight.

It's how high is that really going to go.

So we may need to do further freight actions to be able to make up for that.

But we're feeling pretty good now with the big gains we have made that we should be even year-on-year.

And Joel, the gains on the other side of the Accella are really going to come from operational improvements, things we control.

I think that pricing we've -- based upon how we pushed in, in the third quarter, I think we have a really good feel for what we can do on price in Accella, and now we're turning inward to work on cost improvements and manufacturing efficiencies.

Your next question comes from the line of Neil Frohnapple from Buckingham Research.

Oh, Neil just got disconnected.

We have no further questions in queue.

Mr. Koch, any closing remarks?

Vincent, thank you very much.

Appreciate that, and this concludes our third quarter 2018 earnings call.

I want to thank everybody on the call for their participation, and we look forward to speaking to all of you at the next earnings call.

Thanks, again.

Thank you.

This concludes today's conference call.

You may now disconnect.