Carlisle Companies Inc (CSL) 2013 Q3 法說會逐字稿

Good morning my name is Alicia and I will be your conference operator today.

At this time I would like to welcome everyone to the Carlisle third-quarter earnings conference call.

(Operator Instructions)

Thank you.

Mr. Roberts, you may begin.

Thank you.

Good morning and welcome to Carlisle's third-quarter 2013 conference call.

On the phone with me is our CFO, Steven Ford; our Chief Accounting Officer, Kevin Zdimal; and our Treasurer, Julie Chandler.

Before I get started with the details of the third quarter there are four prevalent themes that I want to review with you before I discuss the financial performance of our business segments.

First, we entered an agreement to sell our Transportation Products segment to AIP this past weekend.

From the announcement we made during the second-quarter conference call that we would seek strategic alternatives for CTP, to this weekend's signed agreement, the process moved much more quickly than we anticipated.

Following our second-quarter announcement we had a number of inquiries and offers for parts of the business as well as the entire business.

After comparing other offers to AIP's $375 million offer, along with their commitment to move quickly, we felt it was in our best interest of our shareholders to sell the business as a whole to AIP.

After reviewing fairness opinion prepared by SunTrust Robinson Humphrey on last Friday, our board approved the sale.

We are now seeking regulatory approval for sale in each of the countries where we have operations.

I anticipate we will receive those approvals and will close some time in first quarter of 2014.

This second theme is the third quarter was our first quarter in 2013 that we've seen both sales and earnings growth.

In the first half of the year most of our markets were weak due to weather or customer demand.

In the third quarter we saw sales and/or earnings growth coming from Construction Materials, Interconnect Technology, Transportation Products and FoodService.

While FoodServices sales didn't grow, profitability continue to improve like it has in each of the first two quarters.

Third, we generated superb cash flow in the quarter.

Our free cash flow was $168 million, a 23.5% increase over the third quarter in 2012.

We currently have $332 million on hand with another potentially strong cash flow quarter in front of us.

Following the fourth quarter and the closing of the sale of CTP, we could have between $750 million and $800 million in cash along with an untapped $600 million revolver.

I recently had a portfolio manager whose opinion I respect tell me that money causes people to do stupid things.

Well, I'm here to tell you that we are not going to do stupid things with our available cash.

We've laid out a four-pronged approach to use that cash to create shareholder value.

We will continue to invest in organic growth opportunities like factories, process improvements and new product development.

We will repurchase shares of our stock.

We will seek acquisitions in our three core businesses; those being Construction Materials, Interconnect Technologies and Braking.

And we will seek an acquisition to replace CTP's earnings.

While this is not our top priority, we think there are opportunities out there that will present limited risk and a great opportunity if added to our portfolio.

Fourth, we will continue to see weak sales in our Braking business and we have to further streamline the cost structure.

Last week we announced the closing of our Akron stamping plant.

It is a small facility that's not fully utilized today.

The processes currently being done at Akron will be moved to our existing facility in Tulsa.

In preparation for closing Akron, we will be rebuilding some existing manufacturing equipment to upgrade its capability along with purchasing a few pieces of new equipment.

While the equipment is being upgraded and the new equipment being installed at our Tulsa facility, we will be tapering production at Akron, targeting to fully close by midyear 2014.

The decision to close a factory is always difficult, but in a braking market that's been declining for over a year and doesn't appear to have any signs of life in the first half of 2014, we have very little choice but to reduce our footprint.

With the additional capacity being added at Tulsa we will be well positioned to handle any growth in the market that will be presented to us in the future.

I'm sure you will have questions concerning these four themes.

Steve and I will be happy to answer them for you during the question-and-answer segment following our review of the third-quarter financial performance.

Before we begin the review of third-quarter financial performance, please turn to Slide 2 and review our forward-looking statements.

I strongly suggest that you read and review our documents that have been filed with the SEC as they detail the risk associated with investing in Carlisle Companies.

Also on Slide 2 is our comments about CTP moving into discontinued operations.

Beginning with the fourth quarter, the results of CTP will be reported in discontinued operations and all prior periods will be restated to exclude CTP.

Let's now turn to Slide 3. This slide is a summary of our performance in the third quarter.

Total Company sales increased 6.4% to $969 million.

We experienced strong sales growth in Construction Materials, Interconnect Technologies and Transportation Products.

While Brake & Frictions and FoodServices sales declined in the quarter.

EBIT increased 11.6% and we earned $123 million yielding an operating margin of 12.7%.

Margins were up on a year-to-year basis by 50 basis points.

We saw strong performance at CIT with 16.8% margins; at CCM with 16.4% margins; improving margins at CFS at 11.9%; good margins at CTP at 8.1%; and a challenging margins at CBF at 6.1%.

Free cash flow for the quarter was outstanding.

It increased 23.5% over 2012 while we generated $167.7 million of free cash flow.

At the end of the third quarter, we had $322 million on hand.

Turn to Slide 4 which is our sales bridge.

As we review this slide you will see the price -- that price had a negative impact on sales of 2.2% driven mainly by pricing pressure at Construction Materials and Brake & Friction.

We had volume growth of 5.9%, acquired growth, all at CIT, of 2.6%.

While FX had very little impact on sales.

Organically, Construction Materials grew 11%, Interconnect Technologies at 8%, Transportation Products at 4%, while Brake & Friction declined 23% and FoodService declined 7%.

Slide 5 details our margin bridge.

Our operating earnings in the quarter increased $12.8 million or 11.6%.

Price negatively impacted profitability by 1%, volume positively impacted margin by 0.3%, COS had a 0.5% positive impact, acquisitions added 1% while the other category added 0.6% of a percent of margin.

Included in the other category was the $6.9 million FoodService restructuring charges that we took in 2012.

Slide 6 begins to review the individual businesses segments starting with Construction Materials.

CCM sales increased a very healthy 11% despite pressure being -- beside pricing being under pressure in the quarter.

Pricing was negative 3% while volume was up 14%.

We also experienced very healthy growth in Europe where sales were up 11%.

Both new construction and reroofing drove sales growth in the quarter.

These trends should continue into the fourth quarter and into 2014.

EBIT was up 4.3% as we earned $83 million compared to $79.6 million in 2012.

Our margins, while down 100 basis points compared to last year due to pricing, higher raw material cost and new plant startup cost were a healthy 16.4%.

The new polyiso plants in Washington state and New York State are up and running.

We had $3.4 million of startup cost at Montgomery, New York as startup scrap was higher than anticipated and the cost to prepare to return the leased Kingston facility back to its owner was higher than originally planned.

The 5.5 new plant startup cost we originally forecasted will now be $7 million for the full year, which includes $1.5 million in the fourth quarter for the start up of the Illinois PVC plant.

The PVC plant will be online midyear 2014.

Construction of the new Carlisle, Pennsylvania TPO plant has begun and the plant will be producing product for the 2015 construction season.

We will have 2014 startup cost yet to be determined for the startup of the PVC plant and the TPO plant.

We will be able to share these with you during our fourth-quarter conference call.

Turning to Slide 7 you will see the detail of CIT's performance in the third quarter.

Interconnect Technologies grew 29%, with 21% of that growth coming from the Thermax acquisition.

Organic growth was 7.8%, with Aerospace up 10%, and Test and Measurement up 97%.

Continuing to decline was our military business, which was off 11%, and our industrial business which declined 21%.

Our business continues to be heavily skewed to commercial aerospace so while military and industrial sales declined double digits, the impact on our overall sales was modest.

EBIT growth for the quarter was 33% as we earned $24.8 million compared to $18.7 million last year.

The Thermax acquisition contributed $4 million with margins of 16.9%.

Margin was also up 50 basis points on higher sales offset slightly by mix changes.

CIT's working capital improved from 24.9% of sales in 2012 to 21.6% this year.

Most of that improvement came from inventory reductions that were made while maintaining on-time deliveries to our customers.

Slide 8 details the performance of our Braking business.

We continue to suffer from lower sales as our customers worldwide sell off their finished goods inventory.

Sales were down 23% in the quarter.

By market, heavy construction equipment was down 28% and mining equipment was down 46%.

Our ag business grew 12%, most of which came from our European operations.

In the quarter, EBIT was down 73% as we earned $5.2 million compared to $18.9 million last year.

Reduced volume and negative pricing impacted margin again this quarter and also contributed to a sequential margin decline.

We are taking steps to continue to streamline our manufacturing footprint with the announcement of the closing of our Akron stamping plant.

It has been 12 months since this business began to slow and despite repeated forecasts from our customers that suggest the business would improve shortly, we do not see any significant recovery over the next six months.

Therefore we decided to take advantage of the slow sale cycle to close our Akron stamping facility and move that production to our Tulsa, Oklahoma factory.

We will be taking an estimated $1 million charge for shutdown cost in the fourth quarter and another $2 million charge in the first half of 2014, of which $1.2 million of that is non cash.

On Slide 9 you see the FoodServices revenue declined 7.3% in the quarter.

Selling prices and allowances negatively impacted sales by 2%.

Sales of FoodService products declined 11% while the sale of healthcare products declined 7%.

Our Jan/San category grew 13% in the quarter.

A small part of the revenue decline in FoodService category was self inflicted as we reduced inventory.

While attempting to make inroads in achieving our working capital goals, we cut too deeply in a few critical product categories causing us to lose orders in the process.

We are rebuilding inventory of these critical items to correct the situation.

EBIT was up nearly sevenfold as management team continues to make operational improvements in the business.

We earned $6.9 million in the quarter and generated margins of 11.9%.

As a reminder, we took a $6.9 million restructuring charge in the third quarter of 2012 to start the march to higher margins.

The result of that restructuring has had a positive impact on the margin improvement this year.

For us to continue to see margin improvements we will need to increase our sales volume.

Slide 10 details the performance in our Transportation Products segment where sales were up 4%, with the volume up 5% and price down 1%.

Outdoor power equipment volume was up 18%, power transmission belts up 12%, high speed trailer up 5%, Ag and construction equipment was flat, while power sports was down 12%.

Transportation Products EBIT was up 80% on higher sales volume, lower raw material cost and COS savings.

We earned $13.9 million compared to $7.4 million in 2012.

As I mentioned earlier, because of our decision to sell CTP, the results will be moved into discontinued operations starting in the fourth quarter.

This will be the last time I review CTP's performance with you during a conference call.

This concludes my review of the business segments, I now want to turn the meeting over to Steve Ford who will review our balance sheet, cash flow, and working capital slides.

Steve?

Thanks, Dave.

Good morning.

Please turn to Slide 11 of the presentation.

As Dave stated we generated $168 million of free cash flow in the quarter.

We currently have $332 million of cash on hand as compared to $168 million at June 30.

We expect to receive $375 million of proceeds from the sale of CTP in the first quarter 2014.

We also have $600 million of availability under our credit facility.

Our balance sheet remains strong with a net debt-to-capital ratio of 18% and a net debt-to-EBIT ratio of 0.8 times.

We are very well positioned for future growth and expect to be more active with share repurchases.

Turning to Slide 12, our cash flow from operations for the quarter was $196 million, a $27.1 million increase from the third quarter 2012.

Again, we generated $168 million of free cash flow in the quarter compared to $136 million last year.

The improvement is due to higher earnings, lower CapEx spending and year-over-year working capital improvement.

Turning to Slide 13, our average working capital as a percentage of sales for the quarter was 20.7%, a 140 basis point improvement over the 22.1% we reported for the third quarter 2012, as inventory turns have improved.

We remain committed to improving our management of working capital and achieving our long-term goal of 15% of sales.

And with those remarks, I will turn the call back over to Dave.

Thanks, Steve.

Alicia, would you open the call for questions please?

(Operator Instructions)

Your first question comes from the line of Peter Lisnic of Robert W Baird.

Good morning, gentlemen.

The morning, Pete.

First question, just a quick one.

Is it safe to assume the net proceeds from the CTP sale are at $375 million, in other words, limited tax leak from it?

That's right, Pete.

There will they will be very limited tax leakage.

Okay, perfect.

If my math is right this would be in a net debt-to-cap position of basically zero by the end of the year.

So can you maybe talk about buyback versus acquisitions and give us a little bit of color on the pipeline and just how you think about releveraging the balance sheet?

Sure, as we look at the acquisition pipeline there isn't a lot out there right now.

We have seen some activity increase so we think there are some things that will be coming, but as you look out over certainly the fourth quarter, I don't see us in a position that we'll be announcing acquisitions so obviously we're going to be sitting with a lot of cash.

And as we look at alternatives for it, certainly share repurchases is one that will be a high priority, I guess is the way to put it.

Okay, understood.

Then as I look at the businesses; in the roofing business the pricing it looks like it decelerated from 100 basis points of impact last quarter to about 3 this quarter.

Just wondering what is driving that deterioration in price and is it something that could reverse course a bit here in the fourth quarter as you move through 2014?

Pete, I think what you see is an environment that will probably relatively stable from this point forward.

It really is being driven by polyiso insulation and some in the TPO area.

I think what's happened is that there's been capacity that spot on stream in the ISO insulation product area.

And that has caused some pricing pressure.

I think it is short term.

I think with what we are seeing for new construction and reroofing, I think that capacity will be consumed very quickly.

And I think there'll be additional pricing power at that point.

Okay.

And can you give us a feel for maybe what industry capacity utilization is on the polyiso side right now?

I just don't have a good idea what the industry is.

I don't have a feel for it at this point.

Okay.

Okay, I will jump back in queue, thank you for the color.

Okay.

Your next question comes from the line of Matt McConnell of Citi.

Thank you, good morning.

Morning, Matt.

I like to start on Brake & Friction where the revenue declined probably wasn't a huge surprise just given what your customers have been saying, but the margins really stepped down sequentially.

So if demand kind of remains at this run rate, are these the margins that we should be thinking about for Brake & Friction until you see a pickup later in 2014?

Matt, I think they will get a little better.

We are going to take some additional cost out, as we talked about with Akron.

There were certain product mixes that were less favorable on the margin side in the quarter than they traditionally are.

We think that will improve a bit, certainly as we get closer to the end of the year and into next year.

But I think the margins we were at 6% basically.

I think they should be running maybe a couple hundred basis points higher than that, as we look out to the future.

But yes, revenue I think it is going to be relatively flat from where it is.

Now, keep in mind the fourth quarter is generally a slow revenue month -- quarter for us anyway, so but yes, margin should be anywhere from 6% to 8% and probably trending to 8% more so than 6%.

Okay, great, thanks.

And then even before the Akron plant I guess a lot of capacity had come out of this business so how would you say the capacity changed?

When you do see an uptick maybe it is later in 2014, maybe 2015, how much capacity would need to go back into Brake & Friction at this point?

Matt, really we didn't take any hard assets out.

We've got basically the same footprint that we had in the past.

And towards the start of the downturn we also had a capacity to our European plant.

So as capacity picks up we certainly have--or as demand picks up we certainly have capacity to handle any demand requirement, certainly for the next two years or three years.

I don't see us having to add any facilities.

I think what we'll do is end up bringing people back obviously, but there will be no need for a hard asset or brick and mortar.

Okay, great.

And finally, on the Construction Materials capacity that you have coming online over the next couple of years, what's your demand forecast for Construction Materials?

Can the industry absorb that capacity?

You've seen some pricing headwinds now and more capacities coming online so what demand picture are you anticipating with those new facilities?

Yes, I think as new construction picks up I think you'll see that be consumed very quickly.

I would think we might have a little bit of a situation perhaps in 2014 that may have some pricing impact.

But keep in mind we are still running at 16.5% margins.

So it is a highly profitable business, well run business.

I think it may be short term as we look into 2014 for continual pricing pressure.

But I think that capacity is going to be consumed a very quickly.

Okay, great.

Thank you very much.

You're welcome.

Your next question comes from the line of Ivan Marcuse of KeyBanc Capital.

Hi, thanks for taking my questions.

If you look at your new construction sales and Construction Materials, how much where they up?

They were there were up again about 10% or 11%, Ivan, like they happen over the last couple quarters.

Okay, that same year-over-year increase is maintained?

Yes.

And if you look at your new PVC plant that is going to come out in 2014, how much will that add to sales?

Capacity, keep in mind we are now buying that product on the outside and reselling it.

Capacity in this facility I think is $100 million and the business continues to grow.

I think we will have plenty of capacity in that facility to be able to take over what we're outsourcing today and the business to continue to grow going forward for a couple of years.

Okay.

And then in the asset sale, will there be any stranded cost that you will have to take out over the next year?

Or is pretty much all the cost with the business associated going with it?

Yes, Ivan, the cost will be going with the business and we are not anticipating any stranded cost.

Great.

My last question is on your buyback program which has been pretty much nil for the past several years, how do you envision it going forward?

Do you expect it to be stronger upfront since you don't have a lot of acquisitions, or would you be more being in the market as sort of a steady average -- consistent buyer over time?

Yes, I think we will be average, consistent buyer.

Buy as we can or as we do and I don't see is going out and buying a big slug of shares just immediately.

We will just buy it as we go.

Great.

Thanks for taking my questions.

You're welcome.

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

Hi, good morning.

Good morning, Neil

Just a quick follow up to Ivan's question.

Will you wait to start the buybacks until after the Transportation Products segment sale is complete or will you commence immediately?

I don't think we would do anything immediately.

We want to make sure that the sale goes through and I don't see anything with a preventive from doing that.

And then we'll obviously will have to observe any blackout periods and so on, but we will be in the market certainly by the end of year I think buying back some shares.

Okay.

And then just switching you back to Brake & Friction here.

What gives you guys confidence that things won't get worse in order to have stabilized?

You know, is there a notable improvement in channel inventory that you guys can point to or anything else that gives you confidence?

Yes, if you look at our customers inventory it is being depleted and they are going to have to start replacing it some time.

I think the biggest unknown right now is mining.

I think construction looks like it will come back certainly much more quickly than what mining will.

And I'm not sure when mining will come back.

We are anticipating maybe midyear for construction equipment to come back and then some time after that for mining.

Okay.

And then I understand we are only three weeks into the fourth quarter, can you provide any initial thoughts on what you are seeing in any of these businesses that would be helpful there?

Just the trends that we saw coming out of third quarter I think are continuing to the fourth quarter.

So in other words, Construction Materials is doing okay.

Keep in mind we're going into winter.

CIT we've ramped up to 787, we continue to get additional business at Airbus.

78 is going to 10 early next year so we've got real good momentum both in Construction Materials and CIT.

That's about all I can say.

All right, thank you very much, guys.

Your next question comes from the line of James Kawai of SunTrust.

Good morning.

My question is on the Transportation Products side divestiture.

It looks like it gets you there in terms of your longer-term margin and return on invested capital targets.

It looks like 13.5% margins on a pro-forma basis.

And the [ROIC] may bump up to 13.5%, 14% if you assume some modest share repurchases.

I just want to confirm that's what you're looking at.

And then as a follow on, Brake and Friction obviously we have a new margin profile there.

Can you kind of give us your thinking in terms of how that business fits into context of your longer-term goals and do you view the margins as impaired at this point or is there a path to back up to 15%?

Those would be 20%.

As soon as the volume comes back in this business if you think about the cost structure of the business, it's like anything.

You'll add it back very slowly.

I think you will see incremental margins at a very high rate, probably will be 35% or maybe even 40% as volume picks back up.

This business is our highest margin business, it is just going through--it has been a year of basically negative volume increases.

Now this business is a good business, it is just dependent upon the volume coming back and we think that will start to happen sometime mid year next year.

Okay, got it.

And as a follow on the Brake & Friction side, it seems like if you look at it sequentially, a lot of that was must have been pricing.

I just want A) kind of confirm that and B) just kind of curious if you've got any volume in exchange for that or any other kind of assurances from your customers?

Well, there was some pricing that came out, but that wasn't the vast majority of the reason the sales were down.

You know, yes, we've been beaten up by our customers over pricing.

There have been concessions given and we've gotten something for that going forward, long-term commitments with the new product.

So I think we feel comfortable in the fact that this business will continue to be highly profitable.

Again it's just a matter of when the volume comes back.

Okay, got it, thanks.

Thank you.

You're welcome.

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

Hi, how is it going guys?

Hi, Joel.

That was just one little inconsistency in the construction and transportation was flat and then it was down obviously in Brake & Friction.

So I just wondered what the discrepancy was there between the segments?

CIT and Construction Materials were up.

But the construction business in your transportation was flat and it was down like 30% in your Brake & Friction business.

The only thing I can think of offhand, Joel, would be the fact that light equipment is actually growing where heavy equipment is actually still not growing.

And I think that would be the difference that you are looking at.

When you look at Ag and construction on the tire business, keep in mind that's a heavy replacement cycle.

We don't do -- we do very little with new equipment so the vast majority is replacement and the vast majority of Ag/Construction is Ag.

Okay.

And then everyone's kind of dancing around what are you going to do to offset the potential dilution from the sale of the tire business so can you just be a little more direct?

Do you think we will see dilution in 2014 or do you think that there's other -- you may step up your share repurchase or there's other things that can offset most of that?

I think it is accommodation of the two.

I think you'll probably see some acquisitions and I think you will see share repurchases.

We certainly intend to dilute the dilution, I guess.

(laughter) Okay, so we may see a little bit of it but is just more of a timing issue?

Yes.

I think it would take us into probably into mid next year were you really start to see the impact of what we are doing.

And then -- a quick one for Steve, the receivables are up 19%, is there anything in there that's notable?

The receivables where?

Company wide?

Yes, they are up almost $100 million.

No, I think maybe that's the Thermax acquisition is contributing a little bit to that.

On an apples to apples basis, if you exclude anything from Thermax, our receivables are slightly down year over year.

And our DSOs are improving and that's all contributing to the working capital improvement.

Okay.

Beautiful.

Thank you.

Your next question comes from the line of when Glenn Wortman of Sidoti & Company.

Good morning, guys.

Good morning.

On Interconnect Technologies the markets were up significantly on a sequential basis.

Just a minimal proven on the top line.

Can you just help us understand what happened there and is this a good base to use going forward?

I think it is just mix and I think that what you are seeing is that yes, the margins are trending in the direction that we thought they would.

I don't see reason that the margins should go down unless the mix would change dramatically.

We are at 16.8%, we've said all along this was probably a 16% to 17% margin business.

I think we will just performing at that level.

Okay.

And then in FoodService products, if you get I get some of the volume coming back heading into 2014, you said we can approach a 14% maybe 15% operating margin, is that right?

Yes, Glenn, I think that is very doable.

I think it is somewhat dependent upon volume now.

They continue to make margin improvements.

I think we will see a slight bit of improvement in the fourth quarter and then as volume comes back, I think you will see the vast majority of improvement dependent upon volume.

All right, thanks for taking my questions.

You're welcome.

(Operator Instructions)

We have a question from Ajay Kejriwal of FBR Capital Markets.

Thank you, good morning.

Good morning.

So Dave, maybe just to follow up on that earlier topic of wanting to replace CTP earnings.

Ajay, we cannot hear you.

Can you hear me now?

Perfect.

I'm sorry.

Hit the mute button.

Happened before.

(laughter)

So on that topic of replacing CTP earnings, could you maybe talk a little bit about how to think about leverage?

And the reason I ask is CTP being sold as a mid-single EBITDA multiple and the acquisition I know there's not much out there.

But then to the extent you are looking in the core areas, those multiples are high single maybe even double digit.

So as you seek to replace those lost earnings, are you thinking you have to lever up or are you making in an improvement once you do those acquisitions in earnings dynamic?

Well, I think you can look historically, you're right, they are selling -- if they are in the core businesses particularly in CIT, you are going to pay 10 times or maybe a slightly more than 10, and we have improved the margins in each one of the businesses that we bought.

But we wouldn't have to lever up to make any acquisitions.

I don't see us making any very large acquisitions that would require any leverage.

We're going to end up with $750 million to $800 million plus the revolver of $600 million.

I cannot imagine having to go to the debt markets to get any capital to make an acquisition.

Yes, Ajay, to that point.

In all likelihood we would not even need to cap the revolver based on our forecasted cash position in the types of acquisitions that we are looking at.

Just to emphasize Dave's point, I don't think we would have to lever up the balance sheet to replace these lost earnings.

Got it.

So we see something similar to what you did with Hawk -- you buy a business and improve margins and that kind of helps replace earnings?

Yes.

That's helpful.

Maybe one on Construction Materials.

Nice volume growth, 14%.

Maybe some color on what you are seeing in the market.

Is this a reflection of the market or did you gain share.

And then, what's your expectation into next year?

Will, I think that when you are seeing now is the trend that you'll probably see carrying this into 2014.

The markets both in new construction and reroofing remain very strong.

Keep in mind in the first half of this year they were weak because of the weather.

We just couldn't get on the roofs and I think we are enjoying some of that.

But despite that, the demand remains very strong in both categories.

I would expect that to carry us into next year.

There really are -- there might be minor market share gains, but nothing significant.

I think it is just the strength of the market and everybody in the marketplace.

Got it.

So the volume is strong, pricing little bit larger but that's just new capacity coming in.

You're not seeing any aggressive pricing behavior or share grab going on in the marketplace, right?

Right.

That's very true.

Excellent.

Thank you.

Ajay, I want to go back to the replacement of the earnings.

I think what we are missing here is the fact that Construction Materials continues to grow double digits, that's a 15% to 16% margin business.

That's going to generate additional profitability for us.

CIT continues to grow, it is a 16% to 17% margin business, that's going to generate additional revenue -- earnings for us and we do expect Braking to come back.

We think we can replace the vast majority of what we lose in CTP earnings just through organic growth in our existing businesses.

I don't want to leave anybody with the impression that we are going to end up with a $50 million earnings hold here and not be replaced by some organic activity.

Got it.

So part of that hold will be replaced by growth in the other three businesses, and then the balance through share buybacks and acquisitions?

You bet you.

Great.

Thank you.

You're welcome.

Your final question comes from the line of Joel Tiss of BMO Capital Markets.

Hi, sorry I rushed to get off because a wanted to leave room for other people.

But just can you talk about the sustainability of the operating margins in the food business and maybe a little bit of what you are seeing, what you're hearing from your customers for going forward?

Yes, I think first of all, the markets are growing at about GDP so they are growing at 1% to 2%.

I would expect that would -- that's what we would see over the next couple of years.

I think the sustainability of the margins are certainly doable.

Just because we went from very low single digits last year to 12% this year, we see no reason that would go backwards.

We only see upside in the margin profile of the business.

I think there are a little bit will come still from operational improvements and the remainder will come from volume.

Okay.

Thanks very much.

You're welcome.

Mr. Roberts, do you have any closing remarks?

Yes.

As the conference call draws to a close, if you all turn to Slide 15, total sales for the year including CTP will grow at low-single digits or I'm sorry, excluding CTP will grow at low-single digits reflecting lower sales in our Braking business.

Our two largest businesses, Construction Materials and Interconnect Technologies continue to see strength in their markets.

Both businesses will likely grow at rates similar to what they did in the third quarter.

I think margins will modestly be lower primarily due to the volume decline at Braking.

Corporate expenses will be $48 million and interest expense will remain at $34 million as we projected in the second-quarter conference call.

D&A is now forecasted to be $94 million and the tax rate is projected to be 31%, which is a change from the second-quarter call and that's all driven by the fact that CTP is being moved into discontinued operations.

Our cash conversion rate will be approximately 100%, and capital expenditures for the year will be approximate $108 million down from the $116 million that we estimated at the end of the second quarter.

As we head into the fourth quarter, I expect CCN's reroofing and new construction markets to remain strong.

I think 2014 looks like a very good year in Construction Materials, certainly if the two trends continue.

The 787 is ramped to 7 planes a month, and is targeted to go to 10 early in 2014.

We also are gaining new business at Airbus.

CIT should continue to perform well in the fourth quarter and into 2014.

FoodService will continue to see profitability improvements but we need volume to get to and run consistently at 15% operating margins.

Our revenue suffered a bit in the third quarter as our focus on working capital caused us to reduce inventory further than we probably should have in some critical product categories and we lost a small amount of market share.

We are now increasing inventory in those categories and will aggressively pursue to gain back that share that we lost.

The Braking business continues to be in a deep recession.

Mining trucks and heavy construction equipment sales continue to be off mid-double digits and we see no signs for recovery, certainly in the next six months.

The closing of Akron will help reduce our cost structure, but we need volume to get back to where this business will once again be our highest margin contributor.

We should have excellent cash generation in the fourth quarter and as I said earlier, we should have $750 million to $800 million in cash early in 2014.

Last quarter I mentioned that we will continue to make strides in the pursuit of our strategic financial goals.

This quarter we took another step toward achieving the 15's.

When we negotiated the depending sale of CTP and continue to improve the profitability of FoodService.

Each step puts us closer to achieving 15% operating margins, 15% working capital as a percent of sale, and 15% return on invested capital.

Once we complete the sale of CTP, our time frame to reach the $5 billion sales goal will have to be extended.

We are losing approximately $780 million of sales and while we'd like to replace CTP's operating earnings with higher -- with a higher-margin global business which has a rate of growth greater than GDP, there's nothing on the near-term horizon.

Our Construction Materials and Interconnect Technology businesses have excellent long-term growth prospects.

And coupled with the inevitable return of sales to our Braking business, and a few bolt-on acquisitions we will be back on the road to $5 billion in sales.

Our three core businesses plus FoodService and potentially the addition of another business, will put us on track to achieve our sales goal but that's going to be a few years down the road.

In closing I want to say that we have no intent to sit on the cash, our objective is to create share holder value by reinvesting it.

With that I'd like to thank everyone for attending today's call and Operator, you may now end the call.

This concludes today's conference call, you may now disconnect.