Carlisle Companies Incorporated (CSL) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Incorporated Second Quarter Earnings Conference Call. [Operator Instructions] And I would now like to turn the conference over to Mr. David Roberts, Chairman, President and CEO of Carlisle Companies. Mr. Roberts, you may begin.

Thank you, Jennifer. Good morning, and welcome to Carlisle's Second 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 we get started with the details of the second quarter, I want to discuss the noncash $100 million impairment we took in the quarter through our Transportation Products segment. We have been testing CTP's goodwill for impairment on a quarterly basis by comparing its fair value with its book value. Its fair value has been determined by discounting future cash flows. On March 31, using a 9 1/4% discount rate, our fair value exceeded our book value by 6%, resulting in no impairment. During the current quarter, long-term interest rates rose sharply, causing our discount rate for estimating CTP's fair value to increase 75 basis points. Applying a higher 10% discount rate to the future cash flow projections used in the first quarter, our calculation resulted in a fair value of approximately $25 million below CTP's book value. This necessitated further goodwill testing. Further testing included a hypothetical allocation of our estimated fair value to CTP's assets with any residual amount being allocated to goodwill. Based on our initial allocation estimates, the following -- and following the required asset step-ups, we believe there won't be any residual value to allocate to goodwill, resulting in the current impairment charge of all $100 million of the segment's goodwill cost. It is important to remind everyone that the charge is noncash and relates to goodwill recorded from acquisitions that were transaction -- transacted more than a decade ago. Despite it not being a cash charge, we take any writeoff of goodwill as a serious reminder that we must be diligent with our shareholders' money when making acquisitions. Over the last 6 months, we've been dedicated to moving the company to a higher profit profile, improving our return on invested capital and utilizing less working capital than we have in the past. Hence, the 15s in our strategic goals: 15% operating margins, 15% return on invested capital and 15% working capital as a percent of sales. As we reconfigure the company, we are looking to invest in businesses that will provide us the best opportunity to achieve these goals. The one company that has been a question mark in -- is our Transportation Products segment. During the second quarter, we decided that despite our efforts to improve the margins at CTP, the probability of it becoming a consistent double-digit margin performer was going to be a challenge. Consequently, we deemed that CTP is no longer a strategic asset. With that decision, we've retained SunTrust Robinson Humphrey to advise us on evaluating strategic alternatives for the business. I will answer any questions related to our plan, keeping in mind they've not entirely solidified during the question-and-answer period following my opening remarks. Let's now turn to the slides on our website. These slides will detail our performance in the second quarter. But before I begin, let me set the stage for that conversation. We knew the comparisons to 2012's first and second quarter record sales and earnings were going to be difficult. As I predicted during our first quarter call, the Brake & Friction business continued to lag 2012's results, as our customers continue to adjust their finished goods inventories. What I didn't anticipate was the continuation of the wet weather we experienced in the first quarter that continued into the second quarter. This wet weather had a negative impact on Construction Materials and Transportation Products. In a recent Wall Street Journal article, a weather analysis firm was quoted as saying the weather in the quarter was the wettest in more than 50 years. It was this wet weather that kept roofing contractors off roofs and farmers out of their fields. Both businesses lacked the growth we anticipated during our first quarter call. While Interconnect Technologies saw declines in their military and industrial business, we had double-digit growth in our test & measurement business. More importantly, our commercial aerospace business began to recover from the issues our customers experienced during the first quarter. We saw strengthening in our core FoodService business, but our healthcare business declined during the quarter. Most encouraging was the continuous improvement in FoodService margins throughout the quarter. The good news for all of Carlisle is that we do not feel we lost any market share during the quarter. There does appear to be a general weakness in some of our markets either driven by the weather or softness in demand for economic reasons. Despite a slow quarter, we remain cautiously optimistic for the remainder of 2013. Let's now turn to the presentation, which starts on Slide 2, which is our forward-looking statements. This slide is different than what we've seen previously, as it provides not only our forward-looking statement information but also a simple explanation of the use of non-GAAP financial measures that I will refer to occasionally during the call. If you are considering an investment in our company, I urge you to read this slide. It details the risks associated with making an investment in Carlisle. I also encourage everyone to also review our SEC filings and to be fully aware that some of the information we discuss during this call is not in accordance with GAAP. Let's now turn to the details of the quarter. Overall company sales in the second quarter increased 1% to $996 million, and EBIT declined 13% as we earned $123 million. The $123 million is a non-GAAP number adjusted for the impairment charge at Transportation Products. Organically, the quarterly sales were down 1.4%, heavily influenced by the harsh weather and the lack of sales of heavy equipment, offset by acquired growth of 2.6%. As I mentioned earlier, the weather had the greatest impact on Construction Materials and Transportation Products, our 2 largest businesses. Sales were down 25% in Brake & Friction, but sequentially, were up over the first quarter of 2013. Interconnect Technologies grew 4% organically and 27% overall, and FoodService's sales were lower by 1% in the quarter driven by a decline in healthcare product sales. EBIT was down 13% on a non-GAAP basis as margin declined 190 basis points, on negative price at Construction Materials and lower volume at Brake & Friction and Transportation Products. Having a positive impact on our earnings in the quarter was the improvement in profit margin at FoodService. On Slide 4 details our quarterly sales bridge. Price reduced sales 80 basis points. Volume reduced it an additional 60 basis points, and as we did in the first quarter, we elected to reduce our inventory as compared to building inventory to absorb overhead costs in our plants, especially at CTP. Overall, inventory was down $21 million compared to the first quarter and $67 million compared to the second quarter of 2012. The reduction at CTP was $16 million compared to our first quarter reduction of $27 million year-over-year. Acquisitions added 2.6% to our growth, and FX had no impact on sales. Organically, both CCM and CIT grew 4%, while Transportation Products declined 4%, Brake & Friction declined 25%, and FoodService was down 1%. On Slide 5, you'll find our EBIT margin bridge. It details the 190-basis-point margin decline in the quarter. Price on raw material, primarily at Construction Materials, negatively impacted margin by 150 basis points. Volume had a 50-basis-point impact. Mix had another 70-basis-point impact, while COS added 80% to our margin line. We earned $122.5 million on a non-GAAP basis compared to $140.3 million last year. On Slide 6, we begin our review of the individual business segments, starting with Construction Materials. Sales increased 4% in the quarter, while pricing was negative 1%, and volume was up 5%. Pricing was down as competitors chased work that was available in the quarter. The quarter did not grow as anticipated, as wet weather continued to impact the number of roofing days. As with the last quarter, the good news is the slow sales growth was not a result of declining demand. Our contractors continue to have heavy backlog comprised of both new construction and reroofing projects. Reroofing appears to have been impacted more than new construction, which makes sense. It is more difficult to replace a roof on a building that is in use than it is on a new building where the building envelope needs to be waterproofed before the interior work is started. On the new construction side of the business, we saw a 15% growth in our waterproofing and coatings products and 18% growth in our Insulfoam products, which is an exterior building insulation. Both are indicators that new construction continues to gain momentum. EBIT was 9% lower as we earned $78.2 million compared to $85.5 million in 2012. Despite the fact that we had lower margins in the quarter, resulting from lower selling prices and higher raw material costs, our margins remain very healthy at 16%. As we enter the third quarter, we are seeing a pickup in demand for roofing products, stabilizing raw material cost and less pressure on pricing. If the weather holds as it has done for the first 2 weeks of the quarter, we should have a strong third quarter in Construction Materials. Our new polyiso insulation plant went online in Seattle, and the Montgomery, New York plant is coming online early in the third quarter. We are tracking in line with the $5.5 million of full year start-up costs we mentioned during our first quarter conference call. The $5.5 million should be spread evenly quarter-to-quarter throughout the year. Slide 7 details the performance in Transportation Products segment where sales were down 4%, with volume down 3% and price down 1%. Outdoor power equipment volume was down 10%, ag and construction tires combined with belts were down 4%, high-speed trailer sales down 3%, while power sports grew 5%. Outdoor power equipment continues to suffer from a full retail channel, while ag suffered from wet weather. Transportation Products EBIT was down 32% on a non-GAAP adjusted basis. We earned $13.2 million compared to $19.3 million last year. As I stated earlier, we elected not to build inventory in the quarter. Instead, we reduced inventory $16 million sequentially from the first quarter to the second quarter and $27 million in the quarter compared to 2012. Reducing inventory and reduced sales volume impacted margins by 260 basis points. As we look at the second half of the year, Transportation Products should see performance very similar to a typical second half performance. Our replacement tire business will be the main driver of sales and earnings should be similar to our profitability in the past in the second half of the year. I believe that 2014 will be a good year for CTP. The retail channel should be void of over inventory, which will suggest stronger demand next year. The good thing is that while the rain has hurt our business to date, it should be a future driver of Transportation Products growth. The wet weather will mean that grass is growing, which will drive the need for new mowing equipment and replacement tires for the equipment already out there. It should also mean a profitable year for the farming community, which will drive future equipment purchases. As I mentioned in the first few minutes of this call, we have retained SunTrust Robinson Humphrey to help us explore strategic alternatives for CTP. While Transportation Products remains a good business, it does not fit the financial criteria required to be a Carlisle core business. If we decide to sell the business and are successful in doing so, the proceeds will be reinvested into another core business, which will have similar characteristics to Construction Materials, Interconnect Technologies and Brake & Friction. If we are unsuccessful in finding a new core business in the short term, we will consider other alternatives that will create shareholder value, which would include share repurchases. Slide 8 details the performance of our braking business. We continue to suffer from lower sales as our customers worldwide clear their finished goods inventory. It drove our sales down 25% in the quarter. The market for heavy equipment was down 28%. Mining equipment was down 42%, while ag grew 11% in the quarter. We grew 3% sequentially from the first quarter to the second quarter, which is the first sign of growth in the braking business we've seen over the last 3 quarters. As in the first quarter, CBF management team did a good job working to keep their margins in the low double-digit territory. They generated margins of 13.2% in the second quarter, which translates into earnings of $12 million, which are 48% lower than our 2012. Our sales began to decline in the third quarter of 2012 and have been lower approximately 25% since then. On a comparison basis, the sales comp will come easier as we continue through the remainder of 2013. On the earnings side, comparisons in the third quarter will be difficult. As of third quarter of 2012, our margins were 17.1%. Pricing pressure could challenge our margins the remainder of the year, but I still feel we should end the year with double-digit margins. Other than the 3% sequential growth we saw from the first quarter to the second quarter, there are no strong signs that the business will show any significant growth the remainder of 2013 or into the first half of 2014. Interconnect Technologies grew 27% in the second quarter with 23% of that growth coming from the acquisition of Thermax. The remaining 4% of our growth came organically, as commercial aerospace grew 10% and test & measurement grew 29%. We acquired a new customer in the latter part of last year, and their growth positively impacted our test & measurement business. We saw our industrial business decline 28% along with further declines in military spending of 19%. This is the largest decline we've seen in military spending over the past few quarters. Our business today is heavily skewed to commercial aerospace, so while military and industrial sales are important to us, the declines do not have a dramatic impact on our overall sales. EBIT growth for the quarter was 28%, as we earned $22 million compared to $17 million last year. The Thermax acquisition contributed $5 million with margins of 18%. The remainder of the year should see double -- or mid-single-digit organic growth in Interconnect Technologies as the 787 continues to ramp up. We're building to a monthly schedule of 7 aircraft today, and the schedule is suggesting that, that build rate goes to 10 airplanes early in 2014. One of our customers has invited us to participate in their AOC program, which could challenge our margins, but we're still planning on margin improvement throughout the year. As you turn to Slide 10, you'll see our FoodServices revenue decline was 1% in the quarter. Volume in FoodService Products was actually up 4%, while sales in healthcare products declined 13%. Healthcare sales tend to be lumpy quarter-to-quarter. Selling prices were flat during the second quarter. EBIT was up 28%, as the management team continues to make operational improvements in the business. We earned $7 million in the quarter and generated margins of nearly 12%. The satisfying trend that we've seen through the first quarter of 2013 is that the margins have improved every month. We think margins will continue to improve throughout the year, and we should go out of 2013 with margins in the mid-teens. Sales at FoodService for the remainder of the year should remain relatively flat. This concludes my review of the business segments. I'll now 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 a reminder, in the fourth quarter of last year, we issued $350 million of 10-year senior notes at 3 3/4% to fund the Thermax acquisition. During the current quarter, our cash on hand increased by $56 million to $168 million. We currently have all $600 million of availability under our credit facility. Our balance sheet remains strong with a debt-to-capital ratio of 29% and a debt-to-EBITDA ratio of 1.2. We remain well positioned for future growth. Turning to Slide 12. Our cash flow from operations for the quarter was $81.5 million, a $24.5 million decline from the second quarter 2012. We generated $58.9 million of free cash flow in the quarter compared to $67.4 million last year. The decline is due to lower earnings. Adjusted for the Thermax acquisition, we did reduce working capital by $73 million compared to the second quarter 2012 with receivables down $47 million and inventory down $67 million, partially offset by a $41 million reduction in payables. Also negatively impacting free cash flow was a change in our accrued expenses for various tax items. Turning to Slide 13, our average working capital as a percentage of sales for the quarter was 21%, an 80-basis-point improvement compared to 21.8% reported for the second quarter 2012, as our inventory turns improved in the quarter. 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'll turn the call back over to Dave.

Thank you, Steve. Jennifer, can we open the floor to questions now, please?

[Operator Instructions] Your first question comes from the line of Peter Lisnic with Robert Baird Company. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Dave, I guess first question just on pricing in the roofing business. Can you give us a feel for how much of that is just in particular commodity cost related on the insulation side versus something that might be a bit more competitive due to the weather?

Yes. I think almost all of it was the pricing resulting of low work in the quarter, people chasing whatever work was available. And I think we had some pricing pressure as a result of that. I think what we'll see in the third quarter is that as volumes pick back up because of roofing days, I think we'll see pricing mitigate itself and also raw materials, as I said in the call, will probably mitigate themselves as well. So I don't think pricing will be an issue in the third quarter. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay. And are there any plans to increase or implement a price increase here in the back half of the year?

At this point, no, but depending on what happens with raw materials. Raw materials, as I said, are relatively flat now in all of our categories. Unless we see some raw material pressure, probably not. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay. All right. And then just on the weather impact, were there any regions in the country where weather was normal? And were you able to garner any reads on the underlying demand in those regions to give you a flavor for what things might look like x weather?

Yes. Pete, I just don't have that information. All I can tell you is that the contractors, I think they're feeling the result of the second quarter. They aren't as upbeat as they were as we went into the quarter, but I think they all still fairly positive -- feel fairly positive about the demand out there in all areas of the country. I really can't answer it, where we had the driest weather I guess and how it looked at that point. Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division: Okay. All right. And then just on CTP with the strategic alternative announcement. I'm just wondering, do you look at that business as an aggregate business potentially for sale? Or should we really think about it as a being kind of a carve up between belt, tire and wheel and then having essentially 3 underlying options for CTP?

Yes. Pete, now at this point, we would want to sell the entire business. I don't think we'd ever separate wheels and tires. There's been some conversation about could we sell the belt business separately. It is a free-standing business compared to the tire business. That's an option for us. But as of today, we want to market the entire business.

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

So given the Transportation Product sales, would you have any update on the status of the M&A pipeline? I know that'd be your preference. So is there any meaningful activity that you can kind of speak to on the M&A side?

Matt, I will say, over the last month, it's gotten -- the pipeline has gotten fuller. It's obviously about all I can say, but there is some activity out there that we weren't seeing as late as just a month ago. So there is activity that we're considering, yes.

That's helpful. And then on Interconnect, Boeing's made a lot of noise about their "Partnering for Success" program. So have you heard from them on that? And what are kind of any implications that you expect to come out of that program?

Yes, we've heard from them. We're still negotiating with them. I really don't have a good feel for it yet. There's -- not only are there pricing opportunities for us, but there's also, I think, new work that would be available for bid as well. So I think that while we -- you hate to go through these processes because of the unknown, but I think there's opportunity there as well as there is a downward pressure on pricing.

And then on the kind of re-ramp on the 787, did that have a meaningful impact in the quarter? I know you said it happened kind of late in 2Q. Do you expect that impact to be bigger over the second half of the year kind of it as you recover that 787 revenue?

Yes, I think it will be better in the third and fourth quarter than it was second. I think what happened in the second quarter was that while they were delivering 7 aircraft, we weren't shipping at 7 sets. I think they were delivering some of the airplanes that had to be retrofit, and that was in the delivery schedule. So what we're seeing today is a level of 7 airplane ship sets that are being shipped today as compared to early in the second quarter.

Your next question is from the line of Glenn Wortman with Sidoti & Company. Glenn Wortman - Sidoti & Company, LLC: Just following up on the M&A, would you consider businesses outside of your core segments today? Or are you only focused on enhancing your existing product lines?

Well, the preference would be to stick within the product, the categories that we know, the Construction Materials, CIT and the braking business. But we would consider something that had a -- many of the characteristics of those 3 businesses, so an engineered product, high margin and growth in them. And that's what we'd look at, Glenn. It would be a -- if we decided to buy anything, I think we'd have to have resident knowledge within the company of one of those businesses before we go off and do it. We -- you won't see us buying something we're totally unfamiliar with. Glenn Wortman - Sidoti & Company, LLC: Okay. And then on Construction Materials, it sounds like there might be some pent-up demand there from all the wet weather. I don't know if you can give us a sense of how much orders were up in the first couple of weeks here, but would you expect, I mean, potentially would have double digits for example? If you could just provide us a bit more color on how things are tracking so far this quarter?

Yes. I mean, it's 2 weeks. I'll tell you demand was good in the 2 weeks. It was -- it was just very good in 2 weeks is about all I can say about it. I hate to set any expectation based on a couple of weeks worth of demand, but it has been much better at the start of the quarter than it was last quarter.

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

How much would you estimate the roofing, replacement roofing industry down in the second quarter [indiscernible] ?

Yes. It would purely, I guess, Ivan, I -- it was probably down, I don't know, up to 10% but maybe closer to flat with last year as compared to any more than that. I just don't have that number in front of me. If it went by certainly by a week, it was up and down depending on the weather.

And then similar to this, I guess, is how weather has been a negative impact. Weather was also, but for the opposite reason a negative impact last year due to being very dry, so as comps get much easier as we move to the back half of the year, correct, in the roofing?

Yes, they do. Actually, third quarter last year is normally one of our biggest quarters. Third quarter was actually down over the second quarter last year, so the comp in the third quarter this year will be a little easier than what it was for the second quarter and the first quarter of this year.

And then the polyiso plants that you've been doing, is that completed? Or is there still work to do? And are they contributing to the overall business and profitability?

Yes. Seattle is running, has been running since early in the second quarter. Montgomery, New York will come up sometime probably either later this month or early in August. You'll have some start-up issues with it. It should start contributing sometime in the latter part of this quarter.

And then for -- in the transportation segment, I understand that -- will there be any more -- is the inventory reduction done? Or would you suspect that they're going to still -- still to be a -- still a headwind moving to the back half of the year?

I think that we will -- we'll certainly get ready for the season, which starts in December. I don't think we'll build a lot of inventory, but I don't think you'll see a lot of inventory reduction that will occur in the business.

And then the 250-basis-point reduction in profitability, how much was that, I guess, would be half of that related to the inventory or more than half?

I'm just looking at the slide. With volume down 3% on the 4%, yes, it was at least, probably at least half.

Right. And then my last question is where -- how -- I guess 2-part question, the strategic alternative, how long do you think this will -- this process will take? And then on the back half, what's the good -- what's the book value of this business at this point?

I'll talk about the process itself. We're just starting. Ivan, I think it could take up to 9 months. By the time you get the materials available, get them out into the market so on and so forth. Now we have had some inquiries. So we've had a couple of conversations with folks earlier this quarter, and I think that will perhaps expedite it. But I think it still can take 6 to 9 months to get this completed. As far as book today is...

Ivan, following the write-down, our book is about $350 million.

Your next question is from the line of Neil Frohnapple with Northcoast Research.

Dave, last quarter you mentioned you thought mid to high single-digit organic sales growth in CCM was reasonable. Have your thoughts changed at all on this target? I'm just trying to get a sense for if the demand that was basically delayed due to the wet weather is lost for this year or do you see a scenario where growth rates will be even higher in the back half to make up for what occurred in the first part of the year.

Yes, I think we'll see a little bit of growth in the back half of the year if the weather holds. I think we're probably going to be in the mid-singles to maybe high single-digit growth in the business for the year. We were down in the first quarter. We were up 4% this quarter. I would expect that to accelerate in the third, and depending on what happens in the fourth, I think we'll be in the mid to maybe high single-digit growth in Construction Materials.

Okay. Great. And then just maybe splitting hairs here but just the overall change in sales guidance to low to mid-single digits from your mid-single-digit projection last quarter. Can you just help us understand the moving parts and the change in what segments?

Yes. Neil, it was primarily weather related. We just don't know what's going to happen in the second half weather wise, and that's why I think we're being conservative with that information. We came out of 2 wet quarters where we didn't meet our sales expectations, and we're just being somewhat conservative with the second half of the year.

Okay. And then one last one. Dave, you mentioned potential CIT margin pressure for the remainder of the year, I think you said due to a customer program. Could you just expand on this a little bit more?

Well, we had a customer that has gone to all their vendors, and they're asking to accelerate some of the price -- pricing declines that would have taken place with the ramp-up of an aircraft. And they're trying to accelerate that, and they're reviewing all the programs to see what they can do to help accelerate it. It's about all I can tell you.

Your next question is from the line of Joel Tiss with SunTrust.

With Bank of Montréal. Are you going to move the transport business into discontinued operations? Or are you going to wait to see how the process goes?

Yes. We're going to wait to see how the process goes. I mean, right now other than pursuing alternatives, we've not done more than that. So at this point, it's not discontinued.

Okay. And then at that point, would you be able to give us any sort of metrics like in terms of that helping you get to your longer-term goals, working capital goals and things like that?

Once it -- assuming it became discontinued and then it would no longer be in the continuing op number, obviously, and that would have a positive impact on margins, return on capital, working cap, as a percent of sales, et cetera.

And have you given any guidance on what kind of incremental revenue you expect from all these new from the new Seattle plant, the -- this New York plant and also the PVC product line?

We have not. What we've said is that each plant as it comes up represents about $50 million in revenue. Obviously, it would take a while to fill those factories, but we still see demand out there that we think could take us 6 months to get there. So each plant represents about a half -- or $50 million in revenue. The PVC plant, we have not yet. That's not coming online until sometime midyear next year. And once we get the plant up and running, then we'll have a better idea what will be -- or what it will be contributing at that point.

Good. And then just last one, in the mining friction business, are the prices actually going down? Or are you just feeling pressure from the customers?

No. The -- we have -- every one of our customers are looking for a way to make their quarterly earnings and they're putting pressure on everybody. And at this point, we're continuing to negotiate with them. So that's the only thing I can say about it.

Your next question is from the line of James Kawai with SunTrust.

On the Construction Materials, you noted lower selling prices, somewhat higher raw materials squeezing margins. On a forward basis, it looks like benzene's pulled back quite a bit, but maybe the naphtha-based feedstocks are going to be -- see some upward pressure there. Can you kind of walk us through how you see the second half playing out and if there's any initiatives that potentially get some pricing?

Yes. James, we think pricing for our ROS will be relatively flat in the second half of the year. We've obviously negotiated with all of our vendors, so I don't anticipate any price increases at this point for raw materials. Obviously, that can change depending on demand. But -- so we think that will be relatively stable, and then our pricing, we think, will be relatively stable as well. So with the competition in the market place, we think we have relatively stable pricing.

Got you. And then on Brake & Friction, I just want to understand a couple of issues. One, it looks like we got a little bit of a seasonal lift in the second quarter, which is typical for the business. Should we kind of expect normal seasonality for the rest of the year with the fourth quarter being somewhat weaker? And then, any color on the destocking that you're seeing within your OEM customer base there?

Yes. I think you're right in your assessment of the sales pickup we had in the quarter. I think we will see the typical fourth quarter swoon. Now it's going to be off of a very or a much easier compare to last year than it was in the first half of the year. But I would expect that it's going to be relatively, how would you say it, relatively flat compared to a sales level that we have today. So I would expect sales would be slightly down over last year.

Okay. Got you. And then on the Thermax acquisition, the 18%, that's a very good margin. Is that inclusive of the goodwill associated with the acquisition?

Well, that's all the acquired costs there in there. Yes, that business, when we bought it, it was a high-margin business, and that's why we liked it. And it's starting to -- it got integrated very quickly, and we're starting to get some results out of it very fast. So we're very pleased with Thermax.

[Operator Instructions] Your next question comes from the line of Ajay Kejriwal with FBR Capital Markets. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: So I'm just trying to understand the pricing volume dynamic in Construction Materials a little better. So volume up 5%, pricing down, but then sounds like you expect pricing to improve in the second half. So is that based on better volume expectation overall? Or is there something else going on?

Ajay, I don't think we expect better pricing. I just think that we don't expect pricing pressure. I think pricing will be relatively flat going into the quarter. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Okay. All right. So second half you think pricing will not be down, will be roughly flattish?

Exactly. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Got it. All right. That's helpful. And then maybe on Transportation Products, the decision, strategic review, so I guess why now when you spent 4, 5 years here, just a lot of effort and capital trying to turn this business around, and it seemed like it was on its way to 9%, 10% margin. So why sell the business now when it seemed to be on the road of recovery?

What better time to sell it than now. It's on its road to recovery. We think it's a good business. It doesn't have the characteristics that we want in a business long term. And with the investments we made, the plants are stellar when you walk into them. It will not be higher than a 9% or 10% margin business in good years. So it doesn't meet our criteria, and as you said, what a better time than now to try to market the business. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Okay. So I guess the expectation is that whoever you sell the business to can take it to a higher level, and obviously, you did a lot of work here to get it to 9% to 10%, but that's for -- it gets you better valuation?

Yes, exactly. Ajay, I think if you look at competitive tire businesses around the world, I think a highly profitable tire business is in the 10% range, 9% margin range. And frankly, as I said, that just doesn't meet the criteria that we expect out of our businesses. It's a good tire business. It's just not a good business for what our expectations are at Carlisle. Ajay Kejriwal - FBR Capital Markets & Co., Research Division: Got it. And then maybe one last one for me, on FoodService, just any color on what dynamics you're seeing in healthcare?

It's just -- it's an unusual situation where it will be lumpy quarter-to-quarter. And really what it revolves around is what we call our retherm product, and this is the capital equipment that goes along with the food service items. It's refrigerated and heated in one unit, and it's what they use to serve the food in hospitals. And because of the cost of it or the sales dollars are higher than what the FoodService Products are, when you have a good quarter, the revenue will be up, and when you don't have any sales in that quarter, the revenues will be lower. And you can't really predict on a quarter-to-quarter basis when that's going to occur. So you might be comparing yourself to the first quarter last year where you had retherm equipment sold and the first quarter this year where you didn't, so it will have -- it will decline. Revenue will decline. There's nothing that's, I guess, generally wrong with the business. It's just that you're going to have those lumps in the retherm equipment as we go forward. And as long as we all recognize that, we'll be just fine with it.

And you do have a follow-up question from the line of Ivan Marcuse with KeyBanc Capital Markets.

Real quick, you may have answered this. What -- is there any liabilities or debt associated with the transportation that would go with it if it was to be sold?

No, just trade type payables. There is no -- there's sort of no debt beyond that, that would go or be retained.

And we have no further questions at this time.

Great. Thank you, Jennifer. As our conference call draws to a close, let's turn to Slide 15. I gave you my general thoughts about the remainder of the year during my segment reviews and then answered your questions on the coming quarters during the Q&A session. So rather than rehash the information we've already covered, let's just go through this slide to wrap up the call. Despite sales volume being soft in the first half, we continue to expect our overall growth to be in the low to mid-single digits by year end. The weather was the main culprit in our sluggish sales growth in the first 2 quarters. We don't expect any deterioration in our markets from the first half of the year. We expect to see margins finish the year slightly lower than they did in 2012 excluding the impairment charge at Transportation Products. The slight margin decline we may see will be the result of our first half sales shortfall, along with the raw material and pricing pressures we had in the first quarter in Construction Materials. Corporate expenses will be approximately $48 million. D&A will be $116 million, interest expense $34 million, and our tax rate will be around 30%. Our cash conversion rate will be approximately 100%, and capital expenditures at this time look like they're going to be $116 million. As we near the close of the call, I just want to say the decision to retain an investment banker to explore strategic alternatives for Transportation Products was not an easy decision. Carlisle owes our very existence to the tire manufacturing business that was founded in Carlisle, Pennsylvania in 1917. Despite our origins being embedded in the tire business, our strategic objectives have changed for the business over the past 6 years. We've invested in CTP and given it every opportunity to be a core business, but it just doesn't have the characteristics that fit with our overall corporate goals. It is time to think about a new home for the business. I am confident there is a strategic or private equity buyer out there that will benefit from the hard work that the Transportation Products management team has put into this business. And overall, it's a good business. It just doesn't fit the direction that we want to take Carlisle. With that said, I'd like to thank everybody for attending today's call, and Jennifer, you may now end the call. Thank you.

Thank you. This does conclude today's conference call. You may now disconnect.