Carlisle Companies Incorporated (CSL) Q2 2017 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies’ Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn today’s call over to Mr. Steve Ford, Vice President of Investor Relations and General Counsel. Please go ahead.

Thank you, Karen. Good afternoon and welcome to the Carlisle Companies’ second quarter 2017 conference call. On the phone this afternoon are Chris Koch, our President and Chief Executive Officer; Bob Roche, our Chief Financial Officer; and Titus Ball, our Chief Accounting Officer. On today’s call, Chris will discuss our second quarter 2017 performance and will provide an update on our 2017 outlook. Bob will review our segment performance, balance sheet, and cash flow. Before we discuss our results in more detail please review Slide 2 of our presentation entitled forward-looking statements and the use non-GAAP financial measures. Reconciliations of U.S. GAAP to non-GAAP measures are provided in the Appendix to this presentation. Those considering an investment in Carlisle should read these statements carefully, along with reviewing the reports we file with the SEC, before making an investment decision. These reports explain the risks associated with investing in our stock, which is traded on the New York Stock Exchange under the symbol of CSL. Chris will now review our second quarter results. Chris?

Thanks, Steve. Please turn to Slide 3 in the presentation to review our second quarter performance. As announced after the stock market closed today, Carlisle reported second quarter – record second quarter sales of $1.1 billion. This is the first time in Carlisle’s 100 year history that quarterly sales have surpassed the $1 billion mark. Our year-over-year sales growth at Carlisle was a strong 7.5%. Contributing to our growth was another quarter of exceptional sales performance at CCM, where the team was able to deliver growth in excess of favorable nonresidential roofing market growth rates. The San Jamar acquisition within the foodservice segment contributed just under $23 million for the year-over-year sales growth. CBF delivered high single-digit top line growth versus prior year. And CFT grew 4.1% in the second quarter, a sequential improvement of approximately 17%. Partially offsetting the growth from these four segments was the performance at CIT, which closely resembled the first quarter of 2017. Although sales at CIT declined 3.6%, SatCom sales exceeded $10 million and we’re up approximately 50% sequentially. Second quarter earnings per share from continuing operations of $1.58, a decline of 9.7% from prior year, included $0.09 of charges related to restructuring and facility rationalization initiatives in the CIT, CFT and CBF segments. The decline in earnings was largely driven by lower sales volume, an unfavorable mix experienced at CIT and an unfavorable price environment coupled with higher raw material cost at CCM. Despite significant price and raw material headwinds, CCM continued to maintain price discipline in its markets, delivering an EBIT margin of 20.4%, marking the third consecutive year where seasonal EBIT margins have exceeded 20%. In the second quarter, we repurchased $150 million of Carlisle stock as part of our capital allocation optimization efforts. We have anticipated further share repurchases of approximately $100 million in the second half of the year. Also in the quarter, we returned $23.1 million in capital to shareholders through dividends and invested $35.7 million in capital expenditures. On July 5th, we announced the acquisition of Drexel Metals, Inc., a leading provider of architectural standing seam metal roofing systems for commercial, institutional and residential applications. The Drexel Metals acquisition is an example of CCM’s strategy of expanding into premium building envelope products in attractive growth markets. We are pleased to welcome the Drexel Metals team to Carlisle. Bob will now review our second quarter segment performance, balance sheet and cash flow. After Bob’s review, I will discuss our outlook for the remainder of 2017. Bob?

Thank you, Chris. Please turn to Slide 4 of the presentation, which is a recap of our sales results. Selling prices, primarily at CCM, had a negative 20 basis point impact to sales. Volume was up 4.2% with improvement in all of segments with the exception of CIT. Overall organic growth of 4% in the second quarter was driven by strength and U.S. commercial roofing and recovering of highway construction and mining equipment markets. Acquisitions contributed 4.2% of sales growth in the quarter. Turning to our margin bridge on Slide 5, EBIT margin decreased 301 basis points in the quarter to 14.8%. The net impact of selling pricing in raw material had a negative 180 basis points impact to margin. Unfavorable mix and organic investments had a negative 190 basis point impact to margin. The volume was a positive 60 basis points, and COS drove 80 basis points of improvement. Acquisition related expenses diluted margin in the quarter by 40 basis points. Lastly, net restructuring and facility rationalization cost had a negative impact of 40 basis points. Now let’s turn to Slide 6 to review the quarterly performance by segment in more detail. At CCM, sales increased 8.4% in the quarter, led by high single-digit volume growth in domestic commercial roofing sales. The Arbo acquisition contributed less than 1% to the year-over-year growth. Selling price at CCM was lower versus the prior year by 70 basis points, a reduction in the rate of decline over past quarters and has remained relatively stable on a sequential basis. CCM delivered EBIT margin of 20.4% in the quarter and has now surpassed 20% EBIT margin level in three of the last five quarters, a significant accomplishment despite challenging, competitive pricing pressures and a rising raw material cost environment. The impact of unfavorable selling price and raw material dynamics was approximately $17 million. Higher sales volume and savings from the Carlisle Operating System were partial offsets to the price raw headwind. CCM has announced an 8% polyiso price increase effective July 10th to help mitigate the negative impact from raw material increases. Please turn to Slide 7 to review CIT’s results. CIT’s net sales declined 3.6% in the quarter, with volume and selling prices down 10.7%, partially offset by acquisitions which added 7.3%. CIT’s EBIT declined 49% due to lower sales volumes, unfavorable mix and $5.6 million of pretax restructuring and facility rationalization costs partially offsets by COS savings. Turning to Slide 8 to review foodservices results for the quarter. At foodservice, our focus on operational excellence, sales growth and the San Jamar integration continue to yield year-over-year sales and earnings growth. Foodservice’s organic sales increased 2.6% this quarter. San Jamar performance met expectations for the quarter and contributed sales of just under $23 million. EBIT margin was close to 14%, driven primarily by favorable mix, higher selling prices and COS savings. Turning to Slide 9. We’ll review CFT’s results. CFT’s sales increased 4.1% in the second quarter representing an organic sales increase of 7.9%, offset in part by the significant negative impact to foreign exchange of 3.8%. Net sales increased approximately 17% sequentially. CFT’s EBIT increased 2.7% driven by higher sales volume and COS savings. CFT will continue to make investments in sales resources, consolidation of their global footprint, insourcing initiatives and expanding manufacturing capabilities to support their core strategies of operational excellence and driving profitable sales growth. These investments are expected to lead to further margin improvement beginning in 2018. Turning to Slide 10. CBF sales increased 9% in the quarter, reflecting an organic net sales increase of 10.5%, partially offset by unfavorable foreign exchange of 1.5%. The strong sales performance at CBF was an encouraging sign that we may have reached the bottom of the four-year global downturn in commodity markets and corresponding weakness in demand for our off-highway mobile equipment. Sales to the mining market grew 44%, sales to the agricultural market grew 20% and sales to the construction market grew 14%. CBF’s EBIT declined $3.4 million as a result of unfavorable product mix primarily due to lower – legacy aircraft sales volumes, higher raw material costs and expenses related to the previously announced closure and relocation of the Tulsa, Oklahoma manufacturing facility into our Medina, Ohio facility. As Chris mentioned earlier, our Q2 results included $0.09 of charges related to restructuring and facility rationalization initiatives. On Slide 11, we further outline the quarterly charges by segment. For the full year, we are now expecting total restructuring, facility rationalization and other nonoperating charges of between $45 million and $55 million. Turning to Slide 12, as of June 30, we had $140 million of cash on hand and $890 million of availability under our revolving credit facility. In the quarter, we returned $173 million to our shareholders through share repurchases and dividends. Our balance sheet remains strong. As of June 30, our net debt-to-capital ratio was 19% and our net debt-to-EBITDA ratio was 1x and our EBITDA-to-interest ratio was 25x. Turning now to Slide 13, our free cash flow for the quarter was $67.1 million compared to $43.7 million in the prior year. And with those remarks, I will turn the call back over to Chris.

Thanks, Bob. Please turn to slide 14 and 15 as we discuss our updated 2017 outlook. We expect our 2017 consolidated sales growth to be in the mid to high single digit range. By segment we are increasing CCMs outlook to high single digit sales growth. CCM remains focused on maintaining price discipline in their markets, driving operational efficiencies in their factories and delivering another year of outstanding performance. In the CIT segment, we are now reducing our forecast to mid-single-digit revenue decline for the full year. As outlined in Slide 15, the decline can be attributed to the following: first, the pace of SatCom sales build. The SatCom sales build is slower than we expected due to customer configuration changes and related certification delays. Second, the decline in demand for our legacy IFE products at existing customers is greater than previously anticipated due to retrofit market dynamics, a slowdown in wide-body aircraft production and the impact of pricing pressure. Finally, insourcing efforts by a large aerospace customer that began in the first quarter of 2017 will have a greater impact than planned. On a more positive note, SatCom sales in the second quarter were up approximately 50% sequentially and are expected to increase another 50% in the second half of this year versus levels seen in the first half. As we look to2018, we anticipate SatCom sales increases in the 40% to 60% range. Additionally, our legacy IFE products of which we are sole sourced at approximately 80% of the world’s blind fit production and retrofit installations are expected to rebound from this year’s low watermark as retrofit dynamics improved and the production of next generation wide-body aircraft begins. We have an anticipated impact of mid to high digit sales growth beginning in 2018 from this product line. Outside of commercial aerospace our medical business remains a focus of growth as we continue to drive new programs at major medical device producers and seek high quality acquisitions in the med tech. Moving on foodservice, we expect net sales growth of approximately 40% for the year inclusive of the San Jamar acquisition. At CFC, the restructuring activities underway will accelerate in the second half of 2017 to drive improved financial performance beginning in 2018. The outlook across CFC’s global end markets remains positive and our expectations for sales growth remain in the mid-single digit percent range for 2017. In CBF, we remain cautiously optimistic that we may – that we have reached the bottom of the cycle in our key end markets and look to see continuation of the recent improvements for the remainder of the year. The CBF team remains focused on driving sales growth from new products and customers, driving operational improvements and we are now increasing our expectations for CBF that anticipate mid-single net sales growth in 2017. Corporate expense is expected to be $70 million, which includes approximately $4 million to $6 million of restructuring and non-recurring acquisition related costs in the second half of the year. Depreciation and amortization expenses expected to be $160 million. For the full year, we expect capital expenditures will be approximately $125 million to $155 million. We’re anticipating free cash conversion to be approximately 100%. Interest expenses expected to be $28 million and our tax rate is expected to be approximately 33% in 2017. We’re pleased by the record sales performance in the quarter and exceeding the $1 billion mark in the quarter for the first time in Carlisle’s history. We’re excited about the prospects we see for our business segments and confident in the growth initiatives our teams have underway. We will remain focused and diligent on the successful execution of our key restructuring plans. This concludes our formal comments on the second quarter results and 2017 outlook. Karen, we’re now ready for questions.

[Operator Instructions] And your first question comes from the line of Kevin Hocevar of Northcoast Research.

Hey, good afternoon everybody.

Good afternoon.

I’m wondering – you gave some great guidance in terms of the impacts, the change in the sales expectations for CIT. I was wondering if you could help frame up what that means to an earnings perspective in the back half of the year. Will we be looking at kind of a continuation of the type of earnings you saw in the first half of the year? Or should we think of it differently?

Yeah, Kevin, this is Bob. We’re expecting a slight improvement in the back half, but no dramatic changes in what we’ve seen. So I would say more of the same, just a little bit of volume increase as we ramp SatCom a little bit.

Gotcha. Okay, when you – looking at CCM, you grew domestic volume 7%, you know, I think in the first quarter you grew volumes domestically 14% and I get this sense that the industry really isn’t growing nearly as much as you guys are. So what’s driving that? And given that you raised your guidance a little bit, maybe you think it’s sustainable. So what’s driving that really strong growth for you guys? How does that growth compare to the industry? And what makes you think this strong growth can continue?

Kevin, we’ve enjoyed strong growth really in all regions and in all of our product verticals. And we do expect that momentum to continue. There probably has been a little bit of share gain along the way. We’re just -- that business is just operating on all cylinders.

Okay. And then from our perspective, can you update us on your expectations for the year? Correct me if I’m wrong. I think last quarter, you said that you expected a $40 million price versus raw headwind this year kind of flat pricing down raws. But I know there’s been a lot of moving pieces. You’ve got a couple price increases since then. MDI surged back in May, and oil prices have come back down, so kind of a lot moving pieces. So I wondered if you can update us on your expectations for price which is raws.

Yeah, you’re right. So on the insulation side, we are forecasting a little bit more inflation with respect to both MDI and polyol. And that, I think, is pushing that $40 million number that we’ve been talking about throughout the year up closer to $50 million. Now that the $50 million is assuming that we don’t get very much of the 8% that was announced effective earlier this month. So a lot of it is dependent on the success of that price increase. But we’re looking at a range from anywhere from $40 million to $50 million. Again the $50 million assumes very little of that price is effective. And if we get half or so of the announced price increase, then we’re back down to the $40 million number that we talked about earlier.

Got you. And then just last question. On Slide 11, you provide – that’s really helpful, all the quarterly breakdown by segment of all the one-time charges that you’re occurring. So $45 million, $55 million is the million is the range you expect this year. How much – I know you have some of these expenses each year. How much of this just goes away next year? How much – because like, for instance, I think in brake and friction, at one point, you called out you have $16 million to $18 million of charges over the next 12 months to 18 months, something like that. So maybe you saw like $10 million there next year or something, but wondering if you could help us – do most all of those go away? Maybe brake and friction is the only one that still has some next year. Could you help us break out how much of that goes away next year?

Yes. I think – Kevin, I think it’s going to be – it’s Chris. I think I’d start at about half. If we just look at it, they had significant progress on the Shenzhen, the Dongguan move. The CFT, the bulk of the facility rationalization will be done in an investment there. And then CBF will be significantly to the Tulsa project. So barring any pick-up of any new projects, I think – I’d say probably around half.

Yes, got you. Okay, thank you very much.

Thank you. Your next question comes from the line of Jim Giannakouros of Oppenheimer.

Thank you. Good job you pronounced my name. Good afternoon everyone.

Hey Jim.

So on the pricing in CCM, it slipped 70 bps. Should we be assuming a sequential stabilization? I know that you’re hoping that some of the pricing sticks. If we were to be conservative, from what I’m hearing in Jackson, just correct me if I’m wrong, that it’s really hard to get pricing. And so I’m trying to figure out how to think about the price cost equation when thinking about potential price pressures from one – aggressive competitors that are seeing a share gain and might not have the discipline that you do. Can you kind of talk through the puts and takes of just what you’re seeing in the competitive landscape and paint a picture for us on the prospects for getting some of that price in the second half?

Yes well Jim, first of all, the second quarter, I think we were pretty pleased because I would agree with you on your assessment of most of the market dynamics there and the increasing pricing pressures, and I think our team did an excellent job of selling value, selling their service levels, their unique value proposition and keeping in line there on the price leadership. So Steve, do you want to break down how you see the third quarter materialize?

Yes again the 70 bps decline, that’s a little bit better than we have been seeing on a year-over-year basis, where we’ve been 1% or higher. So we take some comfort in that. Again, we were relatively stable on a sequential basis. We certainly – we expect to be no worse than sequentially stable moving into the third and fourth quarters. And we’re cautiously optimistic that we’ll get some price and that we’ll actually have positive price come the fourth quarter. That’s the goal.

Got it, okay. That’s helpful. And on the CFT, I mean, that 8% organic, pretty solid. I mean, is there particular strength in a region or an end market? Or was there an easy comp just as far as project activity? I mean, how should I be thinking about that 8% print and kind of bridging to the full year guidance that you mapped out?

Jim, it was pretty good across all of that. If you think across our top three, transportation, general, industrial, automotive, refinish, it’s like the positive all the way up to high single digits there. If we look across globally, North America was strong in the quarter. Even in Asia, I would say China had a good quarter. If we look at the systems business, both the systems business was up mid to high single digits. Standard business was up as well. So across the board, I think it was just a good quarter for the team. And obviously, there were some areas that didn’t do as well, but in general, we were pleased with that quarter.

Got it. And one last one, if I may. CBF, clearly better than any of us anticipated. Does that influence the restructuring actions there maybe on the print certainly not any kind of facility consolidation. But is there anything that maybe you’re taking off the table because demand seems to have stabilized or even improved relative to how you were thinking about it coming into the year?

If you think about restructuring in terms of – I would just focus on the facility rationalization. We still think the footprint is a little too big for that business. The team is doing a nice job with the Tulsa consolidation. As part of that, it’s not just the facility rationalization. It’s also some improvement in the processing that’s going under to drive some efficiencies. I wouldn’t see any slowdown in those type of, what I’ll call, COS restructurings as well. So I don’t think it really changes, I think, right now for us.

Thanks. That’s all what I had.

Yes.

And your next question comes from the line of Joel Tiss of BMO.

Hey guys, how is it going?

Good Joel.

Hi Joel.

I just have one question. It sounds like the in-flight entertainment, sort of the loss of that versus the gains in SatCom and all the moving parts, it sounds like those would have a better chance of kind of nullifying each other in early 2018 versus late 2017. Is that fair?

I think it’s fair to say, yes, absolutely, 2018 gets a lot closer to nullifying into 2017, yes.

Okay. And then I guess on the flu technology business, the restructurings ought to be kind of out of the way by 2018, too. And is there any disruption to the business that’s kind of baked into the numbers or you think once we get into 2018, everything is going to be all set and ready to attack some new business?

Yes, our goal – we’re – well, first, we’re still attacking new business. As you know, we’ve got some great new products that we’ve launched. And we’re still seeing the effect of the growing sales investments we made in the last year. But this restructuring will be done by the end of the fourth quarter. We don’t anticipate it having any disruption to the business as we’ll be moving production lines and products into existing facilities that are performing well. So – and the technology is really well understood. So I think we get that in the end of 2017 and then we move into 2018 away to see that mid-teen performance we’ve been expecting.

Well that’s great. Thank you very much.

And you next question comes from the line of Garik Shmois of Longbow Research.

Hi thank you. Thanks for taking my question today. Just wanted to start off, the CCM guidance raise, improved sales outlook, does any of that include the Drexel acquisition? Or is it all organic that – and the confidence in the market that – as you’re thinking your guidance of today?

Drexel is in there, but the Drexel piece of it is not that significant, about $25 million.

Okay, $25 million, okay. And then you called out mix headwinds in CBF, the partial drag on the quarter despite very strong sales. Just wondering how we should think about mix moving forward if that’s going to be a potential headwind and how it impacts incremental margins.

Yes think it’s going to – I think the mix will dissipate as we’ve – the legacy aircraft business was, I would say, the most significant mix. And that really occurred beginning, I would say, about a year ago, if my recollection is correct. And we think that will be behind us then as we normalize into 2018.

Okay thanks a lot.

And your next question come from the line of Tim Wojs of Baird Equity Research.

Hey guys good afternoon.

Good afternoon Tim.

Good afternoon Tim.

Just the capital allocation optimization efforts. Could you just add a little bit of color around what that implies for buyback, dividends and M&A, Chris?

Yes, well, certainly our dividend has been something we’re proud of. We’ve had many consecutive years of dividend. I wouldn’t expect anything to change on our approach to the dividend. When we look at it, the effort really centers around that repurchase that’s seeing – as we have made that statement about being opportunistic on share repurchase. We just feel the market conditions right now are appropriate for us to meet those. And I would say we’re not changing our philosophy. We have indicated in the second half we would buy up to $100 million. But again, we’d stick with that opportunistic approach and then reevaluate as we head into 2018.

Okay, so it’s not a situation where you said, "Hey, we may be undercapitalized and we want to put a certain amount of leverage or targeted leverage," or anything like that on the balance sheet?

No. Tim, I think it’s just a case of us seeing, as we have in the past, I think, an opportunity to purchase shares. We think, as I said, it was attractive time and we moved in that direction but nothing other than that. Bob you want to add?

Yes Tim, just the way I think about capital allocation, as you use the current year cash to pay dividends, organic investments and then the return shares through repurchases when you’re – you feel that you have the opportunistic ability and you feel your shares aren’t up to what the long-term potential might be. And then as you have large acquisitions, you use that to fund those. So that’s sort of the model we’re using. And again, it’s cash. We all know cash is all fungible. So it gets mixed together but that’s sort of the overall thought process.

Okay, great. Thanks for the help. I appreciate it.

Yes.

[Operator Instructions] You next question comes from the line of Charlie Brady of SunTrust Robinson Humphrey.

Thanks, good afternoon guys.

Good afternoon Charlie.

Hi Charlie.

So I just wanted to dial in on CIT for a second. And I guess the guidance changed for 2017. I’m just trying to understand. It sounds as though expectations on some of the in-sourcing, a few of the moving parts, a little more negative than you thought. I’m just trying to understand the magnitude and the timing of that given that we had an Analyst Day out at the CIT facility in early June. Did something materially accelerate subsequent to that day? Or I’m just trying to understand the moving pieces because it’s a pretty big switch from up-mid to down-mid.

Yes Charlie, and when you think about this, I mean, this is a major technology shift in what’s going on in the airplane. At that point, we were clearly assuming the SatCom ramping faster. We talked about the number of planes that were going on. That has been delayed further than we thought in the ramp. I don’t think the overall market is smaller. It’s getting started later, and the programs are getting delayed out a little bit. That being said, the ramp is still at a 50% level, and it’s going to go up nicely. I think when we look at the customer declines, which are the other pieces, I think Chris mentioned we supply a good portion of the wiring and cable harnesses for the seatback market. And that market is – I’m going to say it’s in a lull or in a delay as these technologies shift from narrow-body, moving away from that, wide – some of the wide-body aircraft getting – I’m going to say, some rolling off to 747, the 777 waiting for the next generation to come on. So we’re seeing a lull in demand for that product right now.

And Charley, we sell a lot to the retrofit market. And the retrofit market is driven a lot by airline incomes and things like that and timing. And when we look globally, we saw some decline in that, especially – I think a good example is if you look at Emirates, I think it was – I think we all know at that time that they hadn’t paid a dividend in their first quarter back to the country or Dubai. So we have seen some slowdown there and conversions as well. So because the SatCom is so small, it’s ramping. Any change and delay or any configuration change is going to have a significant impact on that replacement revenue stream.

Thanks, it’s helpful. And just on the SatCom ramp pushout, it sounds – has that changed your expectation for 2018? I mean, you talk a little bit what you expect there. But I mean, is it pushing to 2018, some of the 2018 is pushing into 2018 or beyond? Or is it just kind of, I guess, being tightened up within 2018?

No, I think, you’re right. I think as you move through this and these certifications and these configuration changes occur and it gets delayed, obviously, that just pushes that out. And then there’s only a limited amount of hangars to retrofit these planes and labor in that. And unless that changes, then the lineup just backs up and we just push it out. But as Bob said, we don’t see any change in the market size. I think in the third and fourth quarter, we have somewhere in the neighborhood of 85% of the bookings in. As you look to 2018, I would say it’s a similar condition where we see the projects played out. It’s just a question of will they occur on time or not. And unfortunately, as we said and we said all along, we don’t control the timing on the airlines or their certifications.

But it sounds like the length of this, the SatCom is – markets are the same, but we’re going to go a little bit longer than maybe you thought because we’re starting later in the game, right. And so as I look out two or three years, there’s still a decent-sized tail to this?

I think you’re right, and I think one of the things we talked about at the Investor Day – we haven’t talked a lot about it on the call though, has been the opportunities in Europe and Asia and how they stored out their SatCom communication standards and how satellites are added. And I think there have even been some delays in satellite coverage. It may have pushed things out a little bit for some people that thought that might have occurred sooner. So I think you’re right. I think the market gets delayed and pushed out a little bit, but ultimately, this conversion is taking place and we’re in a good position to take advantage of it.

Great, thanks.

And your next question comes from the line of Liam Burke of FBR Capital Markets.

Thank you. Good afternoon. Chris, it looks like organically, the foodservice products was relatively flat, but you stepped up operating margins 90 basis points and it’s become second most profitable business at least this quarter. What are they doing there that are – that’s been able to generate those kinds of profit margin improvement?

I think going – I’ll just make a correction. I think the organic business was up about 2.5%. So obviously we got a little bit…

Okay fair enough, relatively flat, okay.

That’s fair. [Indiscernible] makes a difference. We have improved – two things we’ve done that have really improved performance has been to increase levels. We’ve continued to drive the first-time fill rate in the factories to be what a – what I would call a better supplier to this industry, where response time is incredibly important and getting it all at the same time is very important as well as our on-time delivery rates have exceeded now 95%, which is a significant improvement over the last couple of years. Within the factories, COS has driven a lot of improvement. We’ve made significant investments in the physical structure within those plants in terms of the number of machines. I think in our Oklahoma facility, out of – let me take a guess, out of 38 machines that we had in 2013, we’ve probably replaced upwards of 28 or 29. And when we’ve done that, we’ve also looked at the layout, improved the flow, added automated handling and things like that. So the team continues to do a good job every quarter of uncovering projects to improve efficiency. And I’d also say our workforce has improved. We’re keeping the team in place longer, and we’re getting good productivity out of our labor force. So they’ve done a really nice job.

Okay. And on CIT, outside of aerospace, your medical business, you said, is doing well. How do you see that building out and helping you diversify a bit from your concentration in aerospace?

Yes. I mean, obviously, that’s going to be a focus. That’s the leg that we have talked about for a while. Since the LHi acquisition, we continued to be very interested in acquisitions within the med tech space. We think that med tech space is an accretive space to aerospace in terms of profit margins. So it’s attractive from that perspective, and it’s growing well with the industry dynamics around health care. So on the acquisition front, we’re being very vigilant for opportunities. And then within the organic business, we have invested significantly in our sales teams and our technical teams and our production facilities to set ourselves up to be a good supplier and to take on new projects. And those teams are working with BOEs to work on new products they’re delivering. And unfortunately, that time to develop a new product just takes a couple of years as you get certification and that’s – we’re still in early stages with those products. So we see that improving over the next couple of years as those projects come to fruition or are salable.

Great, thanks Chris.

And there are no further questions at this time. I would now like to turn the call back over to Mr. Chris Koch for closing remarks.

Thanks, Karen. This concludes our second quarter 2017 earnings call. We just want to thank everyone for their participation. We look forward to speaking with all of you on our next earnings call. Bye.

This does conclude today’s conference call. All participants may now disconnect.