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Why Is Carlisle (CSL) Up 16.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Carlisle (CSL - Free Report) . Shares have added about 16.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Carlisle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Carlisle Q3 Earnings Surpass Estimates, Revenues Miss

Carlisle reported mixed third-quarter 2020 results wherein earnings beat the Zacks Consensus Estimate but revenues missed the same.

The company’s adjusted earnings were $1.94 per share, beating the consensus estimate of $1.74 by 11.5%. However, the bottom line declined 19.8% on a year-over-year basis due to lower revenues.

Inside the Headlines

In the reported quarter, Carlisle’s revenues were $1,126.7 million, down 12% year over year. The decline was attributable to a 14.3% fall in organic revenues, partially offset by 1.9% benefit from acquired assets and a positive impact of 0.4% from changes in foreign exchange rates.

The top line missed the Zacks Consensus Estimate of $1,131 million by 0.4%.

The company reports results under four segments — Carlisle Construction Materials, Carlisle Interconnect Technologies, Carlisle Fluid Technologies, and Carlisle Brake & Friction. The quarterly segmental results are briefly discussed below.

Revenues from CCM totaled $823.5 million, decreasing 7.8% year over year. It represented 73.1% of the company’s revenues. Organic revenues declined 8.1% due to a fall in sales volume across product categories.

CIT revenues, representing 15% of total revenues, were $168.5 million, down 30.3% year over year. The decline was primarily attributable to a 39.1% fall in organic revenues on account of the significant decrease in orders from Aerospace customers amid the coronavirus outbreak, partially offset by benefits from acquisitions.

CFT revenues, representing 5.8% of total revenues, were $65 million, down 5.1% year over year. In the third quarter, organic revenues declined 10.8% on account of lower sales volume, particularly in the transportation and automotive refinish markets, partially offset by benefits from acquisitions.

CBF revenues were $69.7 million, decreasing 9.1% year over year. It represented 6.1% of revenues. Organic revenues in the quarter declined 10.8%. Softness in vehicle end markets had an adverse impact.

Operating Margin Details

In the reported quarter, Carlisle’s cost of sales declined 11.6% to $796.4 million. It represented 70.7% of net sales compared with 70.3% a year ago.

Selling and administrative expenses decreased 7.3% to $162.3 million. It represented 14.4% of net sales compared with 13.7% in the year-ago quarter. R&D expenses totaled $13.7 million, down 9.9% year over year.

Operating profit was $155.7 million, down 18.5% year over year, while margin contracted 110 basis points to 13.8%. Margin was adversely impacted by lower sales volumes, wage inflation, higher raw material costs and higher restructuring costs. These were partially offset by benefits from Carlisle Operating System and lower expenses.

Balance Sheet and Cash Flow

Exiting the third quarter, Carlisle had cash and cash equivalents of $719 million compared with $351.2 million as of Dec 31, 2019. Long-term debt (including current portion) was $2,080.3 million compared with $1,591.6 million at the end of 2019.

In the first nine months of 2020, the company generated net cash of $440.2 million from operating activities compared with $489.5 million in the year-ago comparable period.

Outlook

Due to uncertainties regarding the impact of the coronavirus outbreak on financial and operating results, Carlisle has not provided its earnings and revenue guidance for 2020.

However, given its solid balance sheet and cash flow generating capabilities, the company anticipates generating free cash flow conversion of 150% in 2020. For the year, Carlisle anticipates incurring capital expenditure of $100-$110 million. Its net interest expenses are expected to be $75 million.

For the fourth quarter, the company anticipates its revenues to decline in high single digit range on a year-over-year basis.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -9.64% due to these changes.

VGM Scores

Currently, Carlisle has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Carlisle has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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