Carlisle Companies Inc (CSL) 2014 Q3 法說會逐字稿

Good morning.

My name is Jackie, and I will be your conference operator today.

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

(Operator Instructions)

Thank you.

I would now like to turn the call over to Mr. David Roberts, Chairman, President and CEO of Carlisle Companies.

Please go ahead.

Thank you, Jackie.

Good morning, and welcome to Carlisle's third-quarter 2014 conference call.

On the phone with me is our Chief Operating Officer, Chris Koch; our Chief Financial Officer, Steven Ford; our Chief Accounting Officer, Kevin Zdimal; and our Treasurer, Julia Chandler.

You've had an opportunity to read the earnings release.

I'm sure you'll agree that performance in the third quarter was excellent.

We had superb organic sales growth, which led to record quarterly earnings.

All of our segments grew in the third quarter, led by our largest business, construction materials.

Overall, CCM grew at 16%.

But more impressive is the fact that new, non-res construction grew at a rate greater than that.

The aerospace industry build rates continued to be strong, which drove 11% organic growth at CIT.

And in our smaller businesses -- food service, and brake and friction -- they grew at 6% and 5%, respectively.

The growth we saw in all of our businesses in the quarter was outstanding, especially in an economy purported to be growing at 3%.

Our nearly 15% quarterly operating earnings reflected high utilization rates at most of our factories.

One strategic objective -- to generate 15% operating margins -- is moving closer to being realized, as our product portfolio continues to change, and we continue to have success with COS.

If we were to adjust the acquisition cost out of our earnings, the margins would have been 15% in the quarter.

At the end of the quarter, we took two more steps in changing the face of Carlisle when we announced the acquisitions of LHi and Finishing Brands.

The purchase of LHi, which is a leading supplier of medical cabling, is the beginning of a broader diversification within CIT.

We now have 15% of the segment sales being generated within medical equipment manufacturing.

Of even greater importance was our announced agreement with Graco to purchase the Finishing Brands business.

We have been pursuing this acquisition for more than two years.

And once regulatory approval is received, we will begin building it into a direct competitor of Graco's industrial business.

As we scale fluid technologies -- as the new segment will be called -- it will become a sizeable, highly-engineered product segment that will improve Carlisle's overall margin profile.

What I enjoyed during my years at Graco was the competitive spirit that drove Graco management to be a world-class supplier of fluid handling products with industry-leading profitability.

That same competitive spirit lives here at Carlisle.

It exists at construction materials -- has driven us to be the class in the field in non-res roofing products.

That same spirit has been embedded at interconnect technologies, where, in six short years, we have become one of the premier manufacturers of aerospace cabling.

That drive will be instilled at fluid technologies.

There is room in the market for two premier suppliers.

Keen competition drives a company to be successful, and going head to head with a great company like Graco will make Carlisle even better.

The next few years are going to be fun.

The third quarter brought another record to Carlisle, as we once again improved our working capital as a percent of sales.

Sequentially, we reduced working capital 30 basis points, to 17.7%.

The approximate $120 million we've invested in new plants and maintenance capital each of the past three years, and the $785 million we are investing into the acquisitions of LHi and Finishing Brands, have been funded by the cash generated from our operations and the proceeds of the sale of transportation products.

No new debt was required to make these investments.

Speaking of new factories, I was in Nogales, Mexico, a few weeks ago reviewing the progress of our new CIT plant.

I was impressed with the speed at which the plant has been constructed, and more importantly, the level of quality of the facility.

As planned, we will be producing product early next year in this state-of-the-art facility.

Our employees are anxious to move out of the four older, inefficient buildings that we're in today, and into the new, modern facility.

I also recently visited our new TPO plant in Carlisle, PA, and it, like Nogales, is nearing completion.

It is also a state-of-the-art manufacturing facility, and we will be producing salable TPO membrane late in the fourth quarter.

This added TPO capacity will be needed as we ramp up for the 2015 construction season.

With the completion of Carlisle and Nogales, we will have built five new factories in less than three years.

All five of those factories were constructed in our businesses that are currently enjoying double-digit organic growth.

Everyone here at Carlisle is very excited about our achievements in the third quarter.

These were the next steps in the creation of the new Carlisle, a company that is much different than it was seven years ago.

Let's now turn to the slide presentation that's available on our website.

Before we begin the review, turn to slide 2, and read our forward-looking statements, and the explanation of the use of non-GAAP financial measures.

I strongly urge you to read these statements, and review the documents we filed with the SEC.

Both detail the risks associated with investing in Carlisle.

As we begin our review, turn to slide 3, where you'll find our third-quarter financial summary.

Sales increased 13%, as all of our businesses grew.

The fastest growing was construction materials, with organic growth of 16%.

Say that again -- that was 16% organic growth.

Followed closely was CIT, with 11% organic growth; and at brake and friction, sales were up 5%, and food service sales grew 6%.

EBIT increased 22%, as we earned $134 million, yielding an operating margin of 14.8%, a 100 basis higher than 2013.

Included in the margin calculation is $1.1 million of one-time costs associated with the purchase of LHi, and $400,000 of one-time costs associated with the purchase of Finishing Brands.

EPS for the quarter was $1.31, up 28.4%, compared to $1.02 in 2013.

In the third quarter, cash flow was $65 million, down 61% over last year.

Our receivables increased during the quarter, due to the strong sales we enjoyed in all of our businesses.

And this will have a short-term impact on cash flow.

Last year's cash flow also included transportation products, which generated most of its cash in the first half of the year.

Slide 4 is our sales bridge, which details the positive and negative impact on revenue.

Organic sales were up 13.4%, driven by volume growth of 14.1%, offset by negative pricing of 7/10%.

The pricing impact was felt at CIT and construction materials.

At construction materials, much of the pricing impact was due to our distributors reaching new pricing levels as their volumes increased.

FX was positive 1/10%.

Slide 5 details our EBIT margin bridge.

Our quarterly operating margins increased by 100 basis points on higher volume and COS savings, while being offset by acquisition costs at CIT, higher freight costs at CCM, and slightly unfavorable pricing at CCM and CIT.

Our operating earnings grew $24.4 million.

Slide 7 begins our review of the individual businesses, starting with construction materials.

Sales for the quarter grew 16% from $506 million to $589 million.

Thankfully, we added two new polyiso plants and are adding a new TPO plant.

They have, and will, allow us to support the increased demand we are seeing in the industry.

Pricing was slightly lower, while volume was up an impressive 17%.

Third-quarter European sales slowed a bit on very tough comparisons.

We may also be seeing a slight slowdown in the German economy, but it's really too early to tell.

Year-to-date European sales are up 15%.

EBIT for the quarter were up 17%, to $97 million, compared to $83 million in 2013.

Margins moved higher 10 basis points to 16.5%.

While margin was impacted by $2 million of start-up costs, these costs are starting to wind down.

Last year, our third-quarter plant start-up costs were $3.4 million.

As a side note, we should experience another $2 million of start-up costs in the fourth quarter as the TPO plant comes online.

Slide 9 details CIT's performance.

Sales in the third quarter set another segment record as we shipped $164 million worth of racking, wire, cable, and connectors to our customers.

Sales were driven by a healthy 13% growth in aerospace, 11% in test and measurement, and 3% in military.

Industrial sales were down 3%.

As in the first half of the year, we continue to see heavy demand for aerospace cabling in the quarter.

Test and measurement sales were also strong, driven by a telecommunications customer.

EBIT grew 37% in the quarter as we earned $34 million, compared to $25 million last year.

EBIT margin was up 380 basis points, to 20.6%.

Included in the margin calculation was $1.1 million of acquisition charges associated with the purchase of LHi.

LHi margins are approximately 60% of what we think they should be.

And the first day we owned the company, our operations people were on site, preparing for a COS blitz to lean out the Shenzhen plant.

It may take a year or so to start to see significant margin improvement, but there's margin to be had in this business.

I can't think of a better acquisition for CIT.

LHi puts us smack in the middle of the medical cabling market, and in a big way.

With the addition of LHi, 15% of our overall segment sales will now be coming from the medical field.

The first three quarters of the year have been record setting, and I see nothing on the horizon that would suggest that 2014 won't end without setting segment sales and earnings records.

Slide 11 details the performance of our braking business.

Sales grew 5% on strong demand for construction equipment braking systems.

Considering that our CCM new construction sales were up significantly in the quarter, and our braking sales to construction equipment manufacturers were up 26%, the recovery in non-res construction appears to be underway.

We did see our ag business soften, and had a slight downturn in mining compared to last year.

We think ag will be soft for the next 12 months or so, and mining has still not shown any signs of economic recovery.

The silver lining in that cloud is that the sales in mining equipment can't get much worse than they are -- not that that's a good thing.

EBIT was up 17% in the quarter.

Higher volume drove 70 basis points increase.

Akron closing costs were minimal this quarter, as we near the completion of this project.

There will be another $600,000 spent in the fourth quarter, as these operations wind to a halt and the production begins at our Tulsa plant.

Turning to slide 13, details the results of food service.

Sales grew nicely in the quarter, up 6% over 2013.

Foodservice was up 7%, healthcare up 5%, while Jan/San was flat in the quarter.

We are regaining some of the market share we lost earlier in the year when we cut our inventories too deeply.

Profitability improved 7%, as we generated 12.1% operating margins.

In addition to increased volume, we saw better pricing realization in the quarter.

2013's results have -- had a one-time, $1 million gain on the sale of our Reno facility.

So one could conclude that our year-over-year improvement from operations was even better.

We expect earnings and sales momentum to carry us into the fourth quarter.

This concludes my review of the business segments.

We're going to turn the floor over to Steve, who will take us through the balance sheet, cash flow, and working capital.

Steve?

Thanks, Dave.

Good morning.

Please turn to slide 14 of the presentation.

We ended the quarter with $805 million of cash on hand.

On October 1, we acquired LHi for an enterprise value of $195 million using our cash on hand.

We also plan to fund the acquisition of Finishing Brands with cash on hand, and expected a cash flow generation in the fourth quarter.

Following these two acquisitions, we expect to have all $600 million of availability under our credit facility, leaving us ample liquidity to further pursue our long-term growth objectives and return capital to our shareholders.

Our balance sheet remains strong.

We had no net debt at quarter end.

Following the two acquisitions, we expect our net debt to capital to be less than 25%.

Turning to slide 15, our free cash flow from operations for the three months ended September 30 was $65.1 million, $102.6 million lower than the prior year, primarily due to higher receivables and inventory related to strong organic sales growth at CCM and CIT, as well as the sale of our Carlisle transportation products, where cash generation is concentrated in the first half of the year.

For the full year, we expect to convert our free cash flow at the rate of close to 90%.

Turning to slide 16, our average working capital as a percentage of sales for the third-quarter 2014 was a record low 17.7%, a 120-basis-point improvement from the 18.9% reported for the third-quarter 2013.

We further improved inventory turns -- 7.4 turns compared to 6.9 turns -- and continue to make progress toward achieving our long-term goal of 15% of sales.

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

Thanks, Steve.

Jackie, can we open the floor now for questions, please?

(Operator Instructions)

Our first question comes from the line of Ivan Marcuse with KeyBanc Capital Markets.

Hello.

Great quarter, guys.

Quick question.

If you looked at your new construction business in roofing and your replacement, how much would you say each of them grew?

Well, we were up 16% overall.

New construction grew at a rate much faster -- not much, but grew at a rate faster than reroofing.

I think reroofing was up about 13%, and new construction was pushing 20%.

What do you think the industry was growing at in reroofing?

Ivan, I -- I think it's pretty close to that.

I think that we may have picked up some share, but not dramatic.

I think that the industry probably had a heck of a quarter.

Got you.

And was there any sector within new construction that was stronger than the other that -- or region?

No, no regional differences.

The Midwest is still a bit slow, but the perimeters of the US are doing very well.

Nothing that is noticeable or going on in any region.

Okay.

And with your acquisition-related costs, is there anything in your results for Liquid Finishing brands?

Or is it that -- has no cost been booked for that yet?

Well, we have $400,000 that we took at corporate, but obviously we don't own it yet.

But those are just some legal costs and so on that we had during the quarter.

Okay.

And then with your CapEx being -- looking to be $120 million for the year, how much of that is related to the new plants?

And then, how much of that -- of CapEx will be associated with the acquisitions?

Well, none of it was associated with the acquisitions.

Right now, going into 2015, how -- what would you expect the CapEx to sort of net out to be?

Yes.

I don't think there is going to be much in LHi -- and I am guessing here -- maybe a few million dollars.

We don't know about Finishing Brands yet.

As you walk through their plants, they are actually in pretty good shape at Finishing Brands, fairly typical of what we would expect to see.

I don't think that there that is going to be any large capital projects next year in Finishing Brands.

Okay.

And then the new plants this year, how much was the CapEx associated with them?

I think you can figure there was probably -- I am guessing, was it $40 million?

Yes, not quite half of the capital spend was new plant.

We think that probably next year, and I haven't seen the budgets yet, but I would expect that maintenance capital next year is going to be $70 million to $80 million.

On the current business?

Yes.

Yes.

And like I said, I don't think there will be much in the acquisitions that will be required.

Then lastly, with crude falling off here, are you seeing any sort of relief on your raw material costs, or on your freight costs?

Not in the freight costs.

Freight costs were up -- those continue to climb.

And I think that is more associated with driver costs, than it is fuel cost.

We have seen no appreciable decline in raw material costs.

We had some raw materials going up, some that were actually going down, and they basically offset each other.

So not much in the way of raw material cost increases.

Okay.

Thanks for taking my questions.

You're welcome.

Our next question comes from the line of Ajay Kejriwal with FBR Capital Markets.

Thank you.

Good morning.

Good morning, Ajay.

Dave, I did not hear that construction material growth number right.

Could you repeat that please?

Well, we were up 60% overall.

Congratulations.

(Laughter).

Okay, I see you are pulling my choke.

Okay.

Good.

Now, it was a heck of a quarter, man.

Yes, it certainly was.

Maybe update us so far in October, what you are seeing?

Any change versus what -- the performance you have seen in third quarter, either by region, by product?

(Laughter).

Without giving you guidance, weather is still great out there, and construction continues.

Good.

And then, following up on that raws question, I know it is, on balance not much change for you.

But in the context of lower oil, maybe just help us think about your raw material purchases, how much do you hold in inventory?

And how far in future, do you contract most of these materials?

Yes, generally no more than a quarter out, is what we are doing with raw materials.

We have found if we go further out than that, we have suppliers that are reluctant to do that.

And also, it generally gets ourselves in trouble, because we just can't predict what is going to happen beyond a quarter.

But more, a quarter, no more than that actually.

So just, so if material prices went down significantly, you would expect to see some benefit maybe early next year?

Yes.

Yes.

2015 is when you would see it.

Got it.

Good.

And then CIT, maybe update us on the negotiations with your largest customer?

It is still underway.

I think that there is some mutual understanding between the two parties.

There will be some impact, but probably not until early next year.

Okay.

Good.

And then, ag -- so within brake friction, could you maybe just remind us how much is ag as a percent of the segment?

I know you said expectations are for it to be down the next 12 months.

But just maybe if you can provide rough kind of parameters as to, it is down 20%, down 30%?

What are you kind of thinking?

I would -- I think it is probably going to be where it is.

Our biggest fall off, which was our biggest grower before was in Europe.

Europe is starting to slow.

Ag represents anywhere from 20% to 25% of our revenue.

So we would expect it to be down on a comparison basis, about where it is or was in the third quarter going forward.

So 20%, 25% of the segment right, so?

Yes.

Of sales.

So overall for the Company, it is less than 10%?

Less than 5%?

Yes.

It is much smaller than that.

I mean, if you look at brake and friction, it is about 8% of our overall revenue, and you got 20% of that, that is ag related.

So it is fairly small, in the scheme of things.

Excellent.

All right.

Thank you very much.

You're welcome.

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

Hey, guys, how's it going?

All right, Joel.

I wonder, just two or three things.

On that construction, more -- this is more for the brake and friction business.

Can you give any sense of what is behind that?

Because you talk to Caterpillar and some of your customers, and they don't seem like they are seeing a lot of improvement.

So I just wondered, is it more aftermarket, or are they building up inventories?

Or just any sense you have there?

Yes, I don't think it is the inventory build.

I think that the customers are -- they are smarter than they were 10 years ago.

I think they are buying what they need.

What we are seeing is the equipment that is used in heavy construction equipment.

So if you think about putting streets in, and the development so on and so forth, that is the kind of equipment that we are seeing sell, and it drove sales upward.

Not a lot of aftermarket component in that.

That is almost all going into new equipment.

And then, can you give us a little shape of the opportunity in this medical business, how big is the market?

Who are some of the competitors there, just to sort of frame the longer-term opportunity?

Yes, the competitors are the likely suspects, all the big cabling guys.

And we think that there is opportunity.

As far as size of the market, I am guessing it is -- and I am guessing, Joel, it might be a billion dollars in size?

So there is some opportunity there.

And then last, there has been some talk from Boeing about sort of pushing on their suppliers to, to get the margins down.

Can you give us any sense of what you are hearing from them, and any timing?

Like what could the impact be?

Yes, that is what -- we mentioned with Ajay, is that the -- there has been ongoing negotiations with one of our large air frame manufacturers.

And as I said, there is some mutual consent that has been reached.

We don't expect that anything dramatic will happen until -- and it won't be dramatic -- until probably the first of the year next year, so early in 2015.

I don't see it being significant, but that is about all I can tell you.

Okay.

That's great.

Thank you so much.

You're welcome.

Our next question comes from the line of Glenn Wortman with Sidoti & [Capital].

Yes, good morning, everyone.

Good morning, Glenn.

Can you just give us your outlook on pricing for construction materials, and maybe any pricing actions you have in place, and then your expectations heading into 2015?

Yes.

We had a little bit of price that we got in the third quarter, a very, very small amount, but it was the first time we saw some price.

We had another 5% price increase that went into effect October 1, primarily in insulation, and we hope to get some of that.

It -- it is still a -- it is hard to explain because it doesn't follow business school logic.

The demand is high, yet pricing is very difficult to get.

Now with that said, we are still getting 16.5% margins in the business.

So we would love to have additional price.

But it is just -- it is just difficult to get right now.

Okay.

And then, and within brake and friction, is there much difference in the margins between end markets and ag, mining, construction?

Well, mining is generally a higher margin business.

It is usually a higher dollar content, and higher dollar in the margins.

But not -- I mean, there is not significant difference.

Generally what happens with the size of the brake, which is the relationship to the size of the unit you are putting it on, will have a higher dollar amount and a higher margin content.

So on the smaller units, lower margins.

On the bigger units, higher margins.

Okay.

All right.

Thanks for taking my questions.

You're welcome.

Our next question comes from the lane of Tim Wojs with Baird.

Yes, hey, guys.

Nice job.

Thanks, Tim.

Just, you talked about adding a few factories in CCM, over the past couple years.

I guess, as you look over the next few years, how do you think capacity is looking in the CCM business?

I think we are in great shape.

We have got the brand new plant going in Nogales that handles the Airbus contract.

We have got the two new polyiso plants, the PVC plant, and a new TPO line going in.

We should be in great shape for the next three or four years.

Okay.

So it sounds like some of those investments should be a tailwind going forward?

Oh, yes.

It had better be.

(Laughter).

Okay.

And then, and I guess, just an update on the capital allocation priorities post the two acquisitions.

Are acquisitions still a priority for capital?

Would you look a little bit more at buy backs?

Just a little bit of an update there would be helpful.

Well, yes.

I think that we have made two sizable acquisitions over the last two weeks basically, or are in the process of making two.

We will -- what we are looking at next is to start to build-out the fluid technologies business, and we will be looking for a pump companies so on and so forth.

But frankly, the pipeline today doesn't really have anything in it.

So I would think as we generate cash, we will be actively involved in share repurchases.

I think we have said it in the past it is going to be a systematic program.

We are now -- we have now ended our blackout period.

We have been in a blackout period for two years, because we have been chasing, basically fluid technologies.

And that is now over, and we can put a 10b5 plan in place to start buying back some shares.

That is great.

And then, I guess, just looking at brake and friction, the margins took a little bit of a step back from what we saw in the first half of the year.

How should we think of that business going forward, just in terms of the margin profile?

I think the margins will get better as we get into next year.

Keep in mind, we are winding down the Akron plant, and there was some additional cost associated with that.

Not significant, but some cost.

And as we, as we go forward, we would expect 2015 to actually see improved margins on a small increase in revenue, I guess.

Okay.

Okay, that is helpful.

Thanks a lot, guys.

You're welcome.

Our next question from the lane of Neil Frohnapple with Longbow.

Hello, guys.

Congrats on a good quarter.

Thanks, Neil.

Dave, I understand you guys won't give 2015 guidance until February, and I know you just gave some color on the last question on brake and friction margins.

But any commentary you can offer from a higher level because it seems like your --?

Sure.

Your largest segments, all have a lot of runway of --

You bet.

Market growth ahead.

(Multiple Speakers).

And just wondering, is that how we should be thinking about next year and beyond?

Or does the macroenvironment, particularly international, give you guys a little pause?

(Multiple Speakers)

Yes, we think new construction is definitely improving.

I mean, and we have seen it actually over the last year and a half or so.

So we think that will carry strong momentum into 2015 in CCM.

We have got the -- the comparisons are going to get a little tougher in CIT, as we have enjoyed the ramp up.

But we have got new business there, coming in the form of Airbus through the year, and we have got the new LHi, so you are going to see growth in the business.

And I think as we go through the year, I think there will be a margin decline -- overall margin decline, primarily because we are in pricing negotiations with a large customer, and LHi doesn't have the margins that we have today.

So as we improve the margins at LHi, as we bring the new pricing scheme in, I think you will see a shortfall or a downward trend in margins early in the year, with them ramping up as the year goes by.

Brake and friction, we just talked about it -- I think it will be up a few percentage points.

I think margin will improve.

And I think you will see you know the same type of growth at food service, and the margins will improve there as well.

Great.

Thank you.

Hey, we are never done, man, you know?

Right.

No, and then just looking at 16% CCM growth in the quarter, you guys mentioned Europe slowed a bit.

Just wondering what was the difference in volume growth between Europe and North America?

Well, 16% obviously is North America.

I think -- and it is a small segment.

I think Europe, itself, was probably flat in the quarter.

So there wasn't a lot of -- it wasn't tremendous impact on the overall business, because it is a smaller component of our business.

And I think it was relatively flat in the quarter.

Okay.

And then just finally, am I reading too much into the timing of closing for Liquid Finishing Brands?

I mean, I think you guys cite, it is estimated to close on or about year-end, where before it sounded more like 1Q 2015.

So any comments there?

Well, yes.

I mean, it is -- we can't predict what the FTC is going to take from a timing standpoint.

I think we have -- we have had meetings on site with FTC.

Both Graco and Carlisle went and met with the FTC last week.

They are moving it forward.

We are just anticipating that -- they had vetted us, prior to us signing an agreement with Graco, and we are just anticipating that that will happen before the end of the year.

Nothing that indicates that is going to happen, that is just what we are anticipating.

We also have approvals we have to get from Germany, and also from China.

In the past, we have had no problems getting those approvals of past acquisitions.

Frankly, we have nothing that competes today.

So it should be an easy approval process.

But we are waiting on three government agencies around the world to give us approval.

We are just hopeful that it will be by the end of the year.

All right.

Thanks very much, guys.

(Operator instructions)

Our next question comes from the line of [Rob Pristol] with Goldman Sachs.

Dave, I guess, on the questions around CapEx, could you give us a general idea as a percent of sales, what you think CapEx would be without expansion?

Say that again, what percent of sales?

What percent of sales would CapEx be without assuming new plants, right?

So sort of 2% or 3% of sales or some number like that?

Yes, the easiest way to look at it is, is that it is going to probably be $70 million, $80 million, and revenue is going to be 3 point -- if we get the finishing business, is going to be $3.4 [billion], $3.5 [billion].

Okay.

Thank you.

Okay.

And at this time, we have no further questions.

I would like to turn the floor back over to Mr. Roberts, for any additional or closing remarks.

All right.

Thank you, Jackie.

As we draw a close to the conference call, turn to slide 18.

For modeling purposes, we expect full year sales to be high single-digits.

Corporate expenses will be $52 million.

D&A expense will be approximately $104 million, and capital expenditures will be right at $120 million.

Free cash flow conversion is now projected to be 90%, again because of the strength of shipments that has driven our receivables upward.

Interest expense is projected to be $32 million.

And when we do our internal projections, we use a 33% income tax rate.

Let me close the call by saying that we expect 2014 to end with record results.

Demand for new construction and reroofing product is expected to remain strong, and this momentum will carry us into 2015 as I said earlier.

As we look at the -- the construction business, the only wild card will be weather.

As long as the weather holds as it is, we should have a very good finish to the year and a very good start to the year in 2015.

We are planning for an additional $2 million of start-up costs for our new TPO plant in the fourth quarter at CCM.

So I would suggest everyone take note of that.

CIT should continue to see high single-digit organic growth in the fourth quarter.

While LHi will grow nicely, there shouldn't be any expectation of profit, as we write-up the inventory to fair market value and then sell off that inventory at little or no profit.

The inventory will be sold in the fourth quarter and early in 2015.

We certainly plan on streamlining LHi's operations, and expect it to be a strong contributor to profitability late in 2015.

Start-up charges for the new plant at Nogales at CIT should be about $500,000 in the fourth quarter.

But we will have more start-up costs or move costs that will take place early in the first quarter of 2015.

Food service is going to grow at low single-digits in the fourth quarter, but we expect to see a slight increase in margins.

We also expect to see margins continue to increase in 2015.

CVF will have its usually seasonally low -- or slow fourth quarter, and we don't expect any pick-up in sales until 2015.

In 2015, we anticipate modest growth and we expect to see an increase in margin, as we wrap-up our restructuring projects.

Restructuring charges should be approximately $500,000 in the fourth quarter.

We expect to begin planned systematic repurchase of our stock, as we move through the remainder of 2014 and into 2015.

As a reminder, the Board has authorized us to buy up to 3 million shares.

As I bring the call to a close, let me say that the past 12 months will be remembered as significant strategic change that has occurred within the Company.

It took us seven years to get here, but in the past 12 months, we have gone from having a significant portion of our revenue generated by a low margin commodity product, to a point where we have become a manufacturer of high margin, highly engineered products.

And the work has just begun.

We are on the verge of becoming a premier, highly profitable Company.

Thank you for attending the third quarter 2014 conference call.

We are on record pace for sales and earnings in 2014.

And we look forward to reviewing those results with you in February, as we review our year-end results.

Jackie, you may now end the call.

Thank you.

This concludes today's conference call.

You may now disconnect.