Carlisle Companies Inc (CSL) 2004 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Carlisle Company’s first quarter earnings call.

At this time all participants have been placed on a listen only mode and the floor will be opened for questions following today’s presentation.

It’s now my pleasure to turn the floor over to your host Rick McKinnish, President and CEO of Carlisle.

Sir, you may begin.

Thank you.

Good morning everybody welcome to the Carlisle first quarter conference call.

With me today is Phil Aldinger, our Controller and Carol Lowe, our Treasurer.

Our format’s going to be the same as it has been or has been recently.

Phil and Carol are going to take you through the first quarter financials for some highlights and turning back to me for some comments by each operating unit.

So with that I’ll turn over to Phil Aldinger, our Controller.

Thank you and good morning everyone.

As said in our press release this morning, there is a slide presentation available for your review on our website.

You will need to open an advanced presentation on your own.

Slides three and four slide screen reflect highlights on the first quarter operating results that I will be reviewing this morning.

As recorded in our press release, Carlisle first quarter 2004 net earnings were $23.7m or 76 cents per diluted share or 39% over (technical difficulty) (inaudible) Sales growth for the quarter was $82m.

This 17% increase included $7.1m of favorable changes in foreign currency rate.

The changing currency rate had an insignificant impact on earning.

Acquisition growth of $6.6m for the first quarter was partially offset by divestitures of $2.3m.

Consolidated first quarter EBIT margin improved 6.4% in 2003 to 6.9% this quarter.

This improvement in margin included $2.1m of pretax charges for plant closure and severance cost compared to $.3m in the first quarter of last year.

Icopal results negatively impacted EBIT margin in the construction material segment and Rick will provide more information on Icopal in a few minutes.

Bank utilization improved to 73% in the first quarter 2003 to 77% in the first quarter 2004.

An unabsorbed overhead was $5.9m favorable to a year ago.

However; significant increases in our raw material cost offset these operating improvements.

Unfavorable raw material costs of approximately $5.1m were largely due to increased prices for rubber and steel products.

Backlog of $430m improved 38% or $118m from the first quarter 2003, now our Treasurer Carol Lowe will highlight the company’s cash flows and balance sheets.

Thank you Phil, if you were following along with our presentation, please refer to slide 5 and 6.

As reported in our earnings release, net cash provided by operating activities was $8m in the first quarter ’04 as compared with negative operating cash flow of $15m in 2003.

This improvement was due to the $23m in proceeds from the sale of trade receivables under our securitization program as well as the $7m year-over-year increase in earning with both of these items offset by $6m increase in working capital.

The working capital increase was the result of increased receivables and inventory to support Carlisle’s current sales growth.

Free cash flows, which we define as cash from operating activity, neutralized for the effect of securitization program less CapEx and less dividend decreased by $8m year-over-year.

The decrease in free cash flow is the result of increased capital expenditures.

The $8m increase in CapEx is to find great opportunities at Carlisle Syntex, tire and wheel and power transmission.

We are very excited about these great opportunities and Rick is going to provide you some additional highlights when he reviews the segment information.

I also want to point out that the investing activity section of our cash (inaudible) statement increased $12m in proceeds from the sale of property and equipment.

These proceeds are almost exclusively due to the disposition of building in Minneapolis that was part of the Slow Pac assets that were acquired in May 2003.

Slide 6 of the website presentation provides you with the review of our March 31st balance sheet.

As I mentioned trade receivables have increased reflecting sales growth.

March 2004 sales volume was 28% greater than December 2003 and 24% higher than March 2003 volume.

Excluding the effect of the securitization program, trade receivables increased $46m from year end and $51m as compared with balance at March 31st ’03.

Inventories increased only a modest 7% with the largest increase realized in our construction material segment and this is to support the upcoming spring building season.

The $7m increases in debt from year end reflect the increase in CapEx and the previously discussed increase in working capital.

Our debt position has actually decreased $62m from March 31st 2003.

Our debt to Cap ratio at the ended the first quarter ’04 as equal the year end ratio of 32% and is down from 37% at March 31st, 2003.

Now I’d like to turn the call back over to Rick so he can discuss operating results.

Thanks Carol.

I’m going to start with the industrial components reporting segment and that’s on page 7 of the web cast.

I think it’s very helpful for any new investor or potential new investor to use the web cast as we give examples of the products we make and it might help you follow along.

There’s two companies in the industrial component segment that are tire and wheel business and our industrial belt business we call power transmission.

I’ll start with tire and wheel.

Tire and wheel had organic growth of 18% in the quarter.

Every supply chain served by tire and wheel showed year-over-year revenue growth.

They all grew in fact double digit.

An interesting comment about March, in March we shift over $61m of tires and wheels it’s a new single month record by over 20%.

Our all terrain vehicle business, a very important segment for us grew by 43%.

We’ve been talking over the last year about some new product lines that we’ve introduced at tire and wheel that go into the agriculture market and the construction market.

These products grew 85% in the quarter.

Now the margins at tire and wheel were impacted by a spike in raw materials of $2.3m.

This increase was lead by natural rubber, a key ingredient in tires.

Our natural rubber costs were up 35% in the quarter.

Switching to power transmission, they grew organically 25% in the quarter.

We had a increased demand across all areas but especially in the lawn and grounds care, the (inaudible) market recreational and international.

Within days of acquiring this business, this was the Oldaco industrial belt business.

We announced a new plan startup in China on the tire campus in China.

We’re pleased to announce that we’re now at 10,000 belts a day and the only question is this how fast we can double that to 20,000 belts a day.

Everyone’s aware of the massive ramp up in Asia in manufacturing.

We’re very excited about our ability to supply industrial belts to this growing industrial infrastructure in Asia.

Our Asian sales of belts in the first quarter were up 79%.

Now I’ll quote the management in the industrial component segment, earnings were disappointing in this segment the first quarter.

We did not get the leverage we expected from the organic grow.

Basically it was raw material in place, if you factor that out the margins were the same.

We have selling price increase underway with effective dates throughout the second quarter from April 1 to May 15.

The early signs on these price increases are very encouraging.

I will also add that the activity levels that we experienced in this segment in the first quarter are continuing into the second quarter.

The next segment is construction materials that’s on number page 8, this consists of SynTec which is a company we’ve been with for year, a half a year, on a joint venture in Europe Icopal.

And there are really two distinct stories to tell about the first quarter.

Let me start with Syntec.

Syntec had organic sales growth in the first quarter or 25%.

We do not consolidate sales of our joint venture in Europe so the sales increase you see in your segment is entirely Syntec.

This was driven by strong commercial roofing demand and a milder winter.

All product lines experienced year over year double digit growth.

Our insulation business that we’ll talk more about expansion grew 31% in the quarter.

Our residential roofing tile business, Eco Star which we acquired a couple ago grew 100% in the quarter.

We are confident Eco Star will remain on the strong growth curve in the foreseeable future.

The first quarter EBIT at Syntec increased 18%, when you exclude our joint venture in Europe.

So the question you ask, sales grew 25, earnings only grew 18%, why?

Well we have three planned start-ups underway at Syntec that I’ll talk more about later.

We also had a one million negative swing in raw material costs.

We have announced price increases in this business with an average effective date of May 15th.

It’s too early to predict what’s going to happen, but we plan to recover these raw material costs.

Now switching to Icopal, our joint venture in Europe where we own 25%.

We took a $1.5m pre tax charge at Icopal in the first quarter related to plant closure, severance and non-routine charges.

Last year Icopal lost $2.7m in the first quarter.

Like many roofing companies they always lose money in the first quarter.

This year they $4.1m the difference is the $1.5m charge I just talked about.

We anticipate additional charges at our joint venture in Icopal throughout the year.

Now as Carol mentioned we’re spending a lot of capital on this sector, we spent $10m in the quarter that reflects these three plant start-ups I just talked about.

But one of the most exciting is a new insulation plant in Florida.

This will be up and running late second quarter.

We have not had a competitive platform to supply insulation in the Southeast.

We’re excited about the feedback we’re getting from the field.

We’re excited about the feedback were getting in the field.

We are getting feedback from the roofers and distributors throughout the Southeast that are embracing this new capability we have and excited about the opportunities in the Southeast for insulation.

I will also say that we plan to have additional expansion announcements in this very important segment this year.

The next segment is automotive components.

We had a disappointing quarter.

As you look at the EBIT shortfall from last year, one third of the shortfall was the $243,000 pre tax charge for plant closure and severance for the plant we shut down late last year that we talked about in the last couple of calls.

That was painful, but more disappointing we’ve taken in a lot new business here, we have a new production program at several plants and we’re having a very difficult launch on these programs.

That’s the balance of the shortfall.

These problems will continue and will be corrected throughout the second quarter.

So we’re forecasting a negative comparison for this business to continue in the second quarter with favorable comparisons later in the year.

The next segment is transportation products, not much to talk about here.

We finally got some help from the market with 16% organic growth with flat earnings, which were negatively impacted by significant price increases for steel, which we’re out there now negotiating to recover those prices but it was a flat earnings quarter for transportation.

The next segment on page 11 is specialty products.

This consists of our motion control, heavy friction company and our specialty friction company, Industrial Break and Friction.

The sales you see in the report are a little misleading, we divested Spring Break in December so this business, so this business did have high single digit organic growth but more importantly the EBITs are improved.

The improvement in EBIT is across the board in both segments, but really led by the consolidation efforts that we’ve done.

We announced one year ago that we were going to consolidate these two businesses and put them under one management structure and the significant improvement in SG&A has led to this EBIT improvement.

We also talked about consolidation opportunities at other areas and we see this as a theme across Carlisle in many of our small businesses.

The last segment’s general industry.

Sales in this segment were up 29% and EBIT up 82% you can see.

I’ll give you some color on that.

The organic growth in this segment was 23%.

The EBIT improvement of 82% was across all operations.

Tinselite, our high speed wire and cable company had a 31% increase in sales.

This was specially noticed in our test and measurement business, which is normally an early indicator in this sector.

Carlisle Process Systems grew by 41%, that’s our cheese and powder business, Carlisle food service grew in the quarter 38%.

This was driven by 14% organic and the balance of that growth is the acquisition of FloPac which is our Sanitary Maintenance Brush Business.

We continue to find consolidation opportunities in this segment between our Walker company, our Life Science company and Process Systems.

I’m excited about the future.

Switching gears, I’d like to just make a few comments in summary.

Most of our business improved in the quarter except our roofing joint venture Icopal and our automotive business.

We grew 16% organically, which excludes the currency gain and we’ve got additional plans to keep that momentum with some of the capital projects in our industrial components sector and construction materials.

We completed 5 cents a share of restructure or as Phil calls it plant closing and severance.

We dealt with a $5.1m raw material issue, which is 10 cents a share.

This prevented us from having the kind of margin improving we expect to drive here.

We exit the quarter with a higher backlog as Phil has talked about and the activity levels our key markets continue to show the same vitality they showed in the first quarter.

Now I’d like to provide some color about our guidance comment in the press release.

I’m sure there is a lot of disappointment that our guidance was not raised, but we would like you to be patient for this reason -- we have significant amounts selling price increases communicated to our customer base in our markets with effective dates, April 1st to May 15.

The tire and wheel and Industrial components business is in early April and it varies across our business with our roofing business around May 15.

The early signs on these price increases are very encouraging.

We also have announcements of additional raw material cost increases.

Historically when you get environment of multiple price spikes on raw material, each successive request for an increase has more difficulty sticking, but it’s too early to predict how much our selling prices will stick that we requested and how much will happen on the raw material increases that have been announced.

So with this uncertainty, in spite of the fact we have a lot of momentum and some very solid market activity underway, we would like you to be patient at this time and simply reaffirm our prior guidance.

So with that we’ll turn it back to the operator and we’d like to have some questions.

Thank you.

The floor is now open for questions.

If you have a question, please press star 1 on your touch tone telephone at this time.

If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key.

We do ask that while you pose your question that you pleas pick up your handset to provide optimum sound quality.

Once again ladies and gentlemen that is star 1 on your touchtone telephone at this time.

Your first question is coming from Deane Dray from Goldman Sachs.

Please pose your question.

Morning everybody.

For the cost restructuring outlook for balance of the year, could you give us a sense of what we should be thinking about, how many plants, what segments and then as you do that also kind of address the, a couple of times you talked about consolidation, consolidating some of the smaller units and -- but you’re not mentioning divestiture so is there a chance that Carlisle wants to be smaller or less complicated, fewer smaller parts and is that still on the cards?

That’s the first question.

Well okay the first question Dane is divestitures, there’s activity underway, I prefer not to – I’m not going to give out specifics about divestitures except to say that we still believe we’re too diverse for our size, and we plan to be simpler, more focused company in three to five years from now.

So no we’ve not taken that strategy off the table.

Now as to the restructuring we reaffirm the guidance, we reaffirm the restructuring amount of 10 to 20 cents, we took a nickel in the first quarter.

I would say the range of 10 – 20 is still our best estimate.

I mean if you want to err toward the higher end of the range that’s fine.

I’ve announced in that comment that we’re - - expect additional comments about Icopal, based on their performance and then we took a restructuring Icopal on the first quarter, there’ll be additional restructurings.

The restructuring activity domestically, I really prefer not get company specific quite frankly until all the proper communication been done and all the proper planning, so the only specific I can give out at this time about restructuring, where its coming is Icopal.

Does that help anything?

Yes, it does Rick.

And then on the raw material cost and pricing strategy, two questions.

First, just give us a sense of - - out of your cost of goods sold, how much is raw material, and how much is steel, how much is rubber?

And then on the pricing side, are you ahead of the pack in terms of your competitors who try to set pricing or has any of your competitors already started the pricing increase process?

Specifically on the roofing side, we know that there’s a whole competitive response, and where does that stand today?

Deane, I’ll respond to your questions about the breakout of cost of sales.

Raw materials is approximately about 65, 64% to 65%, direct labor 7% and the remainder, overhead.

Now one thing to point out about the way we treat direct labor is that it doesn’t include any of the benefits or anything on the hourly labor charges.

In terms of the breakout for steel, it traditionally runs between 18% and 20%, obviously it’s up a little bit with the price increases, so rubber costs will be approximately 25% of our total cost and then plastics will be a lot of the remainder.

Thanks Carol.

When you say rubber.

Is that both natural rubber and compound black?

Yeah.

Okay good, and then how about the pricing side.

Well Deane you specifically talked about pricing on roofing.

Well we’ve announced, you know the history here, we announced May 15th with pricing and quite frankly we are leading that.

There have not been announcements from our number one competitor there, there has been other announcements following, so its mixed bag.

Now I will say on the insulation side, which is key product in our roofing business, that price increases are on-going and appear to be easier to get, so its - - that’s one of the reasons that we’re being patient, we really don’t have a strong sense yet about the roofing.

Now in the other major businesses, for example industrial and tire and wheel, we’re very encouraged with quite frankly the price increase, the environment and - - and things are going well.

So in general, based across all our companies but roofing, the environment to get price increases really are maybe the best we’ve seen in some time.

Hey Rick, last question, just related to that roofing price increase.

Historically, hasn’t - - have you - - when you’ve announced a price increase, isn’t one of the reactions you actually pull orders in, and are you expecting that this time?

Well, I mean you’re right, that can happen - - that can happen, Deane, and you know we’ll have to wait and see.

I don’t think it’s going to be that material, I mean the really issue here is, how much of this price increase that we’ve announced in roofing is going to stick, and we think the insulation as I mentioned is going to stick, but on the membranes we’ll have to wait and see.

As you know, we have one other major competitor and we’ll have to see how this works out.

Great, thank you.

Thank you.

Thank you.

Our next question is coming from Saul Ludwig with Key McDonald Investments.

Please pose your question.

Hey, good morning guys, thanks for eking out another good quarter there Rick.

Saul, I’ve got the dictionary here and I’m just having trouble finding out how you used the word eked.

I understand, “very good”.

Icopal, you said the $1.5m was a pre-tax, was it really an after tax, don’t you take in everything at Icopal after tax?

No, that was a pre-tax - - cause we’re showing you EBIT, Saul.

But when you said Icopal lost $2.7m a year ago in the first quarter and $4.1m this year...

EBIT.

Don’t you take your 25% in as an after tax number?

No.

No?

No, it’s after their taxes because it’s their earnings but it does not reflect Carlisle’s tax rates.

So this is a full pre-tax – these are all pre-tax numbers?

Yes

Okay, where were the other pre-tax charges that amounted to the 5 cents a share, in other words, we have the $1.5m at Icopal and the other couple hundred thousand in the automotive.

Okay, we had some moderate - - yeah.

We had some charges that was mainly in the general industry segment, and that related to the acquisition of Slow Pac and at some relocation cost that have been associated with that process.

So that’s the bulk of the remainder of the charges, (technical difficulties) (inaudible) we also had some low charges or few charges in the (beeping noise)

What was that, I’m sorry?

- - in our industrial components group with some relocation that is going on at the power transmission group.

Okay and special charges- - in the industrial sector, do you think that’s where we’re going to see some margin improvement in the coming quarters based on the price increases, the volume growth?

Are you happy with where - - you know, those margins actually declined in the first quarter versus a year ago, what are we going to see happen from this point forward?

Well, I can’t - - I’m not going to predict the second quarter but I will predict that there’s nothing in the first quarter results in industrial components that tells us we have a long term margin erosion, is the way I would answer that Saul.

I mean I can’t predict - - I’m saying that the uncertainty on the - - in this raw material price increase environment right now, I’ve just - - it’s very hard to predict, but based early indications, I mean I don’t see a long term margin erosion in industrial segment.

Okay.

It’s going to go back, you know, I’m not telling you what quarter, but I’m just saying I’m not too concerned long term.

And it’s encouraging right now about the price increase environment so.

Even with all the cuts and takes and cost increases per shared benefits from last year’s restructuring, you did have the 6.9% margin in the first quarter up from 6.4% a year ago.

I would assume you would expect that each quarter we would see year-over-year margin improvement towards your goal of ultimately getting to the 10%, would that be the way you would hope to see it unfold, obviously you can’t predict all the twists and turns, but would you be surprised if we didn’t see margin improvement each quarter on a year over year basis?

Well Saul, the way I would answer it, I mean is that - - that - - that we’re going to show margin improvement, I’m just not - - I just don’t get into the next quarter, you know I just - - there’s a lot of, I mean as you know Saul, the first quarter for us is a warm up.

I mean go back and look historically, it’s the second quarter where it gets real serious.

And we’ve got an unusual environment to share between this raw material volatility, and we’re obviously out there and I’ve tried to provide some detail, with a lot of price increase activity.

So far so good, big numbers to happen in May with roofing, but I’m not - - yes, are we going to improve margins, yes, but it’s a marathon for us, its long term, I just don’t want to make any comment about second quarter margins.

But I wouldn’t disagree with what you’re saying I’m just disagreeing with how we characterize the timing.

And then finally in the first quarter you have this 18% top line growth, you’ve got a huge increase in the backlog, the pulse of business is good, we’re hearing from a lot of companies.

Shouldn’t we see at least top line growth, you probably could predict fairly well, comparable to the first quarter and the second quarter.

Well, I mean Saul, you been around and you’re pretty good at forecasting these things, I mean I’ve characterized it as the activity levels as we go into the second quarter our - - the vitality level is just as good as the first quarter.

We’ve talked about the back logged, yeah, I mean I see continued pretty good comparisons organic growth.

Okay keep it up, thank you.

Thank you.

Thank you, our next question is coming from Mike Harris with Robert W. Baird, please pose your question.

Good morning.

Good morning

Rick, just wanted to get an appreciation, when you look at the organic growth you had for Q1, how much of that came from the benefit of price increases year- over-year?

Mike, this is Carol, I’ll respond to that.

In terms of price, it was less than $1m consolidated, it’s really all on volume.

Okay, interesting.

Again, as Rick mentioned, the price increases for us come in the second quarter,

Yeah, that leads me into my next question, I mean - - I know, you know, Rick judging from your comments this will be difficult to answer, but can we just get an appreciation of the range of year-over-year price increases we could see in Q2?

Okay, let’s - -I can give some - - I can give some information - - because its going to be almost impossible for you to put - - well you can use it in your model any way you want to, I mean the range of these price increases are anywhere from 3% to 12%.

Now that’s we request - - that’s the range on the price increases, now what’s going to stick?

I just told we’re just into it, over the next six weeks we’re going to have a lot of information coming to us and we may come out with some new information.

Now there’s a couple things here, what’s the effective date of the increase and how do you negotiate it, so what we’ve requested -- to try to answer some of your questions, is in that 3% to 12%, it’s higher on steel.

As an example, you’re familiar with what’s happening there, and the lowest increases are in the plastics area and the rubber is right in the middle, so they’re all over the place and we’ve not gone back ands looked at the weighted average effect because, you know, a 12% increase on a small piece of business, I mean its all over the map, Mike, but that’s where we’re at.

Okay.

But obviously the highest prices come with steel and, you know, we have an appreciation of what businesses are exposed there along with rubber and plastic, so that does help, you know, it does help in modeling (inaudible) to some extent.

And, yeah, if there is a material update in six weeks, I guess we would appreciate, you know, getting a heads up on that.

I don’t want to steal any of your thunder Mike.

Yeah, I understand.

Okay, switching gears here, you know you commented about strong order trends in Q1, can you just comment if possible on a consolidated level how orders progress in Q1 on a monthly basis.

Did you see sequential improvement month by month?

Yes, and I’m not going to comment about tire and wheel about March, but March was a, you know, a very strong month for us, and so we did see sequential improvement.

February grew from January and then March really grew from both months so yes it improved each month.

Okay and so you really saw a pick up in March.

How have orders tracked thus far in April?

Well I think I made that comment we’re seeing the activity level, the---in the East market the same kind of level as we saw in the first quarter, so I know we’ve seen no drop off in activity.

Fair enough and unfavorable raw material class you spend a lot of time talking about this already $5.1m in Q1.

I know it’s difficult to estimate what the unfavorable impact would be in Q2 but could we see the impact in Q2 be even more than what you saw in Q1?

I don’t have an answer to that Mike in other words we’ve talked already.

Normally what happens is that if you go out and talk to a lot of people, these multiple spikes when raw material suppliers go out for their second, third or fourth increase, the buildings for these successive increases to stick normally deteriorate, so there have been announcements, we’re already seeing some signs of I believe negotiates I don’t know.

If you based on what’s announced Q2 could be as big as Q1 but we’ll have some price increases to offset---but that’s what I’m saying it’s so uncertain right now, I just don’t want to predict it.

Fair enough, can I ask when you look at you do have formal guidance for 2004, what is your assumption right now for negative material price variances built into that forecast?

Building our forecast is a decreasing negative raw material impact.

Okay.

Just wanted to confirm that the method used to account for inventories in our classier numerous businesses---I mean it’s really a mix (indiscernible) between (indiscernible).

Yes that’s true which also complicates the forecasting that’s going forward.

Backlog, just a question here $430m at the end of Q1, good growth year over year you had that 3% sequential increase.

Just considering the significant (indiscernible)from during the quarter, I wanted to get your thoughts on any seasonal impact you typically see in the backlog numbers Q1 verses Q4 is just a 3% increase in this top line environment to be expected?

Going from December to the end of March, Mike is that what you’re asking?

Correct.

Well a lot of our businesses don’t have significant backlogs in terms of how the orders and the---being able to look through for that the end customer.

Automotive first quarter is not going to have significant backlog, so it’s consistent with the growth we typically see in the first quarter, we wouldn’t have expected a lot more than that.

Okay and that’s kind of where I’m getting at there, I mean we went back and we looked at your backlog trends, Q1 verses Q4 and I guess really didn’t see a big pattern and just wanted to ask that question.

In specialty products the margin there EBIT margin 7.5% in Q1 is this the sustainable going forward?

You mean sustainable as opposed to improvable?

I mean when it comes to our margins Mike, we’re not satisfied.

I don’t know I thought it was a good example of two small companies when you do some consolidation, it just gives them some scale and some cost sharing that it helps them improve their margins and that’s a theme throughout Carlisle and these small businesses yes I think it’s sustainable.

Okay just last question just wanted to ask what’s the status is of the CFO search?

Well we’re in---we’ve had Hugh Spencer (indiscernible) with some help and we’ve got three final candidates and expect to make some announcements probably it should be a second quarter event.

Great that’s all I had for you thank you.

Thank you.

Thank you our next question is coming from Wendy Caplan with Wachovia Securities.

Thanks just to beat this pricing issue to death, can you help us remember what happened historically when raw material cost spiked and whether pricing stock?

And the second question about pricing is do the request that 3% to 12% request that you’re asking more than cover the cost of raw material increases giving you some negotiation room?

Okay Wendy, let me start with obviously I’m simply trying to relay to the audience some experience.

I go back to the mid 70’s where you start getting these multiple spikes and raw material and I think if you talked to a lot of management out there in the industrial space, you’ll see that normally when you get in this environment the first increase sticks.

And I’m saying when you have these multiple enquiry for an increase for raw material, each successive increase it’s harder for it to stick.

And so we don’t know exactly right now how to deal with this last round of announcements that are going to take effect in the second quarter and beyond, and we don’t think early signs are that as much of the request is going to stick.

Who knows every cycle is a little bit different but that’s our take on it, now as far as the range we’re all over the--- if any customers are listening we’re requesting the exact raw material increase Wendy and not a penny more.

But we expect to get recovery on these raw materials and that’s been the history quite frankly, it’s the timing lag as you know that makes it difficult and hurt us in the first quarter but we’re out now and requesting increases to fully recover this raw material pounding that we talked about in the first quarter.

Okay good answer and the plant utilization increase, can you give us some sense of the plants that are operating in the 80’s verses the plants that are operating at lower rates?

Yes Carol will give you some detail on that Wendy.

The industrial components, the tire and wheel operation are actually an excess of 90% because as Rick indicated they had near record volumes in March historically.

Industrial components in total is right at--- is an 80% threshold.

SynTec for the first quarter is under 70% construction material that’s just because they haven’t hit their peak season, they’ll start building inventories but we’ll expect to see increase utilization for them.

Some of the others are tracking under 70% the specialty products and transportation, general industry is approaching 80%.

Okay and you mentioned the capacity expansion in China, I know you said before that tire and wheel production, roughly 25% of it is in China now can you comment on how much you expect to be in China for the Industrial component segment by the end of the year?

Well Wendy I mean the expansion in China has been continuous for us, we start off at 3,000 tires a day and now we’re working our way to 40,000 tires a day 7 days a week.

I just relayed the belt business which we only been started up there a year, we’re ramping up to 10,000 a day and with the demand coming out of this industrial infrastructure is being built in China and all parts of Asia.

We’re now figuring out how fast we can double that belt output from 10,000 to 20,000, so we see in the industrial components sector a gradual increase in their share of the overall production in this segment.

There’s just no question about it and one of the reason is its industrial components and the gross rates are higher in Asia in that sector.

Wendy in total it will fall under 20% of their total revenue for the year.

Thank you and one last question, in specialty products it was surprising to us that sales were so weak given the strength in those markets, you mentioned after market was off.

Can you talk about how strong the OEM side of the business was?

Well Wendy I want to touch---we divested a business in December of ’03 and that’s the reason in specialty products we’re the comparison, we divested our spring break business and I don’t know.

Our sales were a little bit over $10m in the first quarter last year.

So there’s a $2m swing that we divested, so it really did grow a little bit and you’re right the OEM business has strengthened and we expect that to continue quite frankly there’s good activity levels.

But we’ve been quite frankly short of products which has affected our ability to service some after market demand.

So I think the bulk of this, this should have had 6%, 7%, 8% organic growth if not for the divestment in December.

Does that help any?

It does and the shortage of product is that still with us?

It’s still with us but decreasing each month and it should we hope to by the end of the second quarter to get comp back up.

Thanks very much.

Thank you our next question is coming from Bob Hutchinson (ph) with Harvard Management Company, please pose your question.

Hi good morning just a few here most people have done a pretty good job on these covers these issues.

Just some other ideas if I could the Icopal operation Rick, how much do you expect you’ll have to charge (indiscernible) charges there throughout ’04 in total?

You know Bob I understand, I mean Icopal is going to represent significant portion of what we put out in our press release.

We talked about 10%-20% in our guidance of restructuring and I’ve announced additional charges there and so obviously our current faults are, this restructuring Icopal is going to continue.

Now remember they always loose money in the first quarter, they make money the other three quarters if you take out the restructuring the performance level was about the same as a year ago which is unacceptable okay.

We’ll have some other announcements about Icopal I think the other shareholders are coming around the Carlisle’s thought process about it and we’re positive but we’re going to have to continue restructuring and it’s going represent a good share of the guidance number on restructuring that we put in the press release.

Okay, actually that restructuring though Rick are you thinking ’04 will be about the same turns of profitability for Icopal for the whole year?

I’m hedging because Icopal has a history of not doing their forecast, I want to phrase it like this the Icopal forecast to Carlisle is for the same result as last year.

Okay the Florida plant that you’re bringing on line in construction when will that be on line?

That’s going to be on line and be beginning of production late second quarter and we’re really excited about that because we’ve been shipping installation Bob from Chicago and from Kingston, New York to the South East and as you know the installation because its air, you’re shipping air you don’t get much of a truck load.

So we’ve not had a competitive platform in what’s a really a fast growing area in the South East and we’re really getting a lot of enthusiasm from the field about this.

Can you give us an idea Rick what the size of this plan is in terms of annual revenues?

Well I think that this will be a plant that’s going to start up and it’s going to continue to expand.

I mean as we move in and provide higher value so I don’t want to predict---I’m predicting that overall SynTec is going to continue some very attractive organic growth but I can’t predict anything on that plant, especially Bob in the next twelve months because it’s just starting up.

Okay just back on both the construction and industrial Rick, can you tell us how sustainable you think just on an organic basis those kind of growth rates are that you just saw on the first quarter is it 25% (indiscernible) construction and 18%-24% industrial?

Well I mean at some point I know we talked about we see a lot of opportunities, we’re spending capital everybody is focusing on cash flows and I’m saying this is a good problem to have these kind of growth opportunities in these two segments.

We think that we’re going to demonstrate the continued above average amounts of organic growth.

Bob you’ve been in the game a long time I mean 16%, 18%, 24% organic growth rate.

I’m not going to say you know we can sustain that but we can sustain above average amount.

And we’re also quite frankly in addition to that very focused right now and we’re going all over the world.

We want to buy competition in these two segments.

I mean let’s just cut to the chase.

We’re very interested in acquiring competitors in our industrial components and construction material space.

So we don’t think the story is just going to be organic growth but quite frankly we’ve got a lot of new point development here.

And we think we’re going to continue above average amounts of organic.

But I don’t – I mean 24% these are some pretty big numbers.

Yes what I’m reaching for Rick is this idea that you know especially in construction material you know how much is coming from sort of the base business and any improvement that you’re seeing there.

And I’m thinking more about the EPDM side of things.

How much is coming from new products either if you want so call (indiscernible) or keep your new products with that.

But the residential roofing tile businesses, the insulation strategy that you got.

Just to give us some feel for you know what’s generating this growth – we don’t expect the markets to grow that fast but what I guess we’re trying to reach for is how much of the opportunity you’ve penetrated versus where you are today?

Well I think first off I think your question is a good one to give me some (indiscernible) Lets talk about EPDM Bob which as you know is a mature product.

We’ve had it out there for 30 years.

So it’s not a new product and it grew over 20% organic.

Now what that tells you is that the market was very strong, okay.

And a lot of this other more sale rate growth is coming from new introductions, our movement in the insulation, into Echo Star residential tiles.

We’ve got a lot of other new products, the TPO, our white product for the Sun Belt.

But when EPDM can grow organically at that rate I mean that’s a sign that the mild winter we had in certain regions and the overall market was very good.

So that’s part of it.

So the growth rate on EPDM you know is we believe is quite frankly long term.

It’s a GDP you know maybe slightly better than GDP kind of number but its mature.

The opportunity comes from geographic expansion.

We’ve been in the North East and upper Mid West, we’re taking our platform across the country.

So we’ve got geographic and we’ve got these new products insulation, Echo Star residential roofing tiles and other things.

So I think the story here is going to be continued growth in new products and this geographic expansion.

Did that help any?

Yes that’s right.

Thank you.

Thank you our next question is coming from Godfrey Birckhead (ph) with SBK Brooks, please pose your question.

Okay just to clarify on this Icopal in the past you’ve led me to believe that the way you show this item on your profit and loss statement has been in other income.

And the other income shows 3.5m versus 3.1m.

Now what you said was the loss that you always have a loss in the first quarter and I guess you’re talking about the total loss for the whole Icopal was 4.1m against 2.7m.

And your share of that was what 25% is that correct so far what I’ve said?

The 4.1m Godfrey that is Carlisle’s portion of Icopal that is the 25%.

That is 25%?

Yes.

Okay now where did that show on your profit and loss statement?

That shows that that is a part of our other income expense line.

Okay.

But as I said, it is included in the construction material segment.

You’re including it now in the construction material --?

We’ve always included Icopal as part of the construction.

I always thought that it because – okay then I was wrong in looking at the other income then.

No you’re right it is a loss for Icopal because it is an investment that Carlisle had.

It is recorded in part of our other income expense.

That’s where we showed from a consolidated stand point, from a segment stand point it is included a part of our construction materials.

So from a EBIT comparison basis it’s fine – showing a consolidated on our financial statement and in the segment for construction material.

Okay and the start up cost or the shut down cost are also included in that?

Yes that’s correct.

Okay, alright.

Now the second question is it would help me if you could give us some feel for the general industry, what’s the sale break down of those various elements are.

Can you give us some feel for that?

Godfrey I just – I gave you the sales increase, (indiscernible) I’ve gone through that already.

Well I just wanted to -- I mean (indiscernible) as I remember in the past was about a $50m business is that correct?

Well – I mean all these businesses are – food service is the largest business in that segment.

And that would be what $120m business or so?

No it’s a little larger than that.

We’ve historically have not – I mean we’ve got food service as the largest business as the rest of the businesses are all about the same size.

And then maybe you can see the total there.

Okay.

We’ll give you the percentages on each one and you can kind of tell – I mean there’s not much difference except for food service.

Except for food service.

Alright, thank you.

Thank you.

Thank you our next question is coming form Mark Keeler (ph) with Paradigm Capital, please pose your question.

Good morning every one, Rick if I could just go back to SynTec for a minute and drove down a little deeper you said EPDM grew at 20% can you give us the other two membrane products, their growth rate.

Yes, I mean they all grew TPO grew in the 20s, Iso grew 31%.

Well EPDM grew 29%.

Okay.

I mean, EPDM grew 29%.

I mean TPO grew 22%.

Specialty product well that grew 25%, the residential business I mentioned Echo Star grew 100.

Our insulation business grew 31 and our (indiscernible) and water proofing business grew 22%.

So across all segment except residential they were all in that you know 20 something.

It was very balanced growth.

Could you give us a break out on 3 membrane products how much worth percent they are of the total sales or possibly the total sales of just SynTec?

No actually I don’t know – I’m giving you some overall numbers but there is just so much competitive information.

I would rather not provide that information.

That’s okay.

One other question on the membrane themselves do raw material impact any particular membrane more adversely than the other.

Or is it a pretty equal effect across the board?

Well that’s an interesting question the most important thing to us – we make you know both membranes EPDM and TPO membrane.

Right.

When a barrel of oil starts going up it impacts the other solutions more.

That’s built up roofing, that’s (indiscernible) So really quite frankly in an inflationary environment on a (indiscernible) this accrues to higher benefit.

The membranes have some price increases but it’s not as significant as these other solutions.

So quite frankly we don’t mind in this business increases in a barrel of oil.

So with that said the major increase with SynTec now have been some of the steel type component accessories.

And they have done a good job and that was about $1m in the quarter that I’ve already identified.

Yes you did.

But the EPDM Ethylene Propylene Diene Terpolymer quite frankly has not experienced that much increase as yet but there are some coming now.

And so that’s why they are going after price increases.

But the insulation part of it the (indiscernible) has had some very significant increases.

Okay and one clarification, I think you said some one said the capacity utilization at SynTec was less than 70% in Q1.

Just now is that just for the roofing materials business or is it for the construction material segment?

It’s for construction material segment.

And do you have the roofing material?

We don’t provide that level of detail breaking out from the segment.

Okay do you anticipate any capacity addition at roofing material?

Constantly I’ve just announced 3 plant start ups in this call.

We’re excited about the one in insulation and I also said on the call that we’ve got other announcements.

We are in a full (indiscernible) dead serious expansion mode in this business and we’re excited about it.

And we’ve got 3 plans start ups on the way and we’ll have more announcements this year.

Does that help you?

Yes it does very much.

Thank you.

Thank you.

Thank you our next question is a follow up from Saul Ludwig with Key McDonald Investments.

Hi there was there any gain that you’d booked on the (indiscernible) building sale?

No.

No there was no book gain.

Yes okay.

Corporate expense was down in the quarter any cover on that and you know why that was the case?

What we had there Saul we had favorable results in some of our legal cases that we have on board.

So they have come to an end we also had (indiscernible).

Yes we had several hundred thousand, then we had some other lower expenses about a year ago.

And this again, it continues to be our focus at corporate on reducing cost.

And wither or not this trend is going to hold through out the rest of the year I can’t say for sure but again we did have some very favorable legal settlements and that’s what helped with (indiscernible) – that was the primary driver to the decrease.

And we shouldn’t see that sort of a decrease in such a good quarter so that’s sort of unique to the first quarter.

I would not expect anything as material as we just had.

And then Rich you talked about making 10,000 belts per day over in China.

What’s the belt sell for?

Well we’re all over the map Saul, I mean depending on whether it’s a (indiscernible) belt, a poly-v belt, a synchronous belt, I mean they’re (indiscernible) but pick a number I don’t know 2 to $5 , 2 to $10 it’s all over the place.

What would your sales be of the plant out in China you know if you back into it that way?

Oh I don’t have that at the tip – I mean I don’t have that number Saul, I really don’t.

I know that we plan on quite frankly about 25 million in value out of there – I don’t know wither it’s going concluded the middle of the year of this year.

But use $25m as just as a you know a starting point.

Okay.

And then lastly I just want to clarify this thing on the Icopal accounting.

You take in that $4.1m was that one fourth of Icopal after tax loss?

It was one fourth of their after tax loss.

So if the tax is already been provided on if it were in profit or on tax credited or a loss.

Why would you have additional – it wouldn’t be pretax to you.

You would get a tax credit if they had paid taxes on lets just say they were earnings.

Saul the way we apply our taxes is our effective tax rate is applied to all of our earnings before taxes.

So we pick up our 25% portion it goes then to our other income, other expense which is the component to get us down to our before tax income and then we apply our total tax rate on that total before tax amount.

Cause you wouldn’t be paying taxes on after tax earning from Icopal would you.

I’m not a tax expert to get into the differences and the fact that they are paying taxes in Denmark versus how it’s treated here in the US and how it would roll in.

And we’re not going to pay until there is an impact when they ultimately have dividend distribution and every thing else.

And there is still aspects where you could be taking – you could be you know to the extent that Icopal it self has cost special cost or whatever you share in those 25%.

And then there is the issue of your own investment in Icopal and whither you decide to take any impairment on that investment which would be separate from what Icopal earns or loses on its own.

That’s correct Saul.

Okay great thank you very much for clarifying that.

Thank you.

Thank you sir, I’m showing no further questions at this time I would like to turn the floor back over to you for any closing remarks.

We appreciate everybody taking the time to listen to our call or participate in it.

And we look forward to next quarters call and with that have a good day and that concludes our call.

Ladies and gentlemen thank your for your participation this does conclude today teleconference.

You may disconnect your lines at this time and have a wonderful day.