Good afternoon. My name is Tim and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Carlisle Companies Incorporated First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarkets, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Chris Koch, President and CEO of Carlisle Companies, you may begin your conference.

Thank you, Tim. Good afternoon and welcome to the Carlisle Companies first quarter 2018 conference call. On the phone this afternoon with me are Bob Roche, our Chief Financial Officer; Titus Ball, our Chief Accounting Officer. On today's call, I will discuss our first quarter 2018 performance and our 2018 outlook. Bob will review our segment performance, balance sheet and cash flow. Please now review slide two of our presentation entitled forward-looking statements and the use of Non-GAAP financial measures. Reconciliations of U.S. GAAP to non-GAAP measures are provided in the appendix to this is 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. Turning to slide three, after closing out our 100th anniversary in 2017, we entered our second century of operations with the launching of Vision 2025, the cornerstone of our next 100 years. In Vision 2025, we seek to drive above market organic growth; build scale in our core businesses by pursuing synergistic acquisitions; further leverage our COS culture to efficiency through all our business processes; continue to return capital to shareholders; and invest in attracting, developing and retaining exceptional talent. With consistent execution of these initiatives, we seek to achieve $8 billion of revenue, 20% operating income, and 15% ROIC. The rollout of Vision 2025 has generated significant enthusiasm among those investors, customers and employees we have met with since its unveiling. The progress we made in 2017 has continued into the first quarter and has reinforced our commitment to our key strategies outlined in Vision 2025. In the quarter, we delivered organic…

Thank you, Chris. Please turn to the sales bridge on slide five of the presentation. As Chris mentioned in his opening remarks, we are pleased with our record first quarter revenues. Organic growth had a positive 8.8% impact, driven by strength in our core CCM business, continued SatCom ramp and Aerospace recovery at CIT, and strengthening construction, agriculture and mining equipment markets at CBF. Acquisitions contributed 15.5% of sales growth in the quarter. Foreign exchange had a positive impact of 1.5%, and the adoption of the new FASB revenue recognition standard had a positive impact of 1.4%. Turning to our margin bridge on slide six, operating income decreased 200 basis points in the quarter to 9.6%. Net revenues had a positive 60 basis point impact. COS drove 150 basis points of margin improvement, acquisitions had a negative 190 basis point impact in the quarter, and finally, rising raw material costs, driven largely by CCM, had a negative 210 basis point impact. Now, let's turn to slide seven to review the first quarter performance by segment in more detail. At CCM, revenues increased 34.2% in the quarter, driven by mid-single-digit organic growth. The Accella, Arbo, and Drexel Metals acquisitions contributed 26.9% to the year-over-year growth. We experienced slight but meaningful positive price realization in our CCM core markets and we are anticipating positive results related to previously announced price increases. Additionally, we have implemented freight surcharges that we expect will offset the inflation we are seeing in our transportation and logistics expenses. We anticipate the combined effect of both actions will offset some of the cost headwinds in the second quarter and more than fully offset them for the second half of the year. In the face of a rising raw material cost environment, CCM delivered operating margin of 12.7% in…

Thanks Bob. Please turn to slide 14 as we discuss our updated 2018 outlook. For Carlisle overall, we are raising our 2018 consolidated revenue outlook to mid to high teens growth. By segment, at CCM, driven by a healthy 2018 forecast for the U.S. commercial construction market and including contributions from acquisitions, we now expect CCM to grow in the low 20% range. CCM remains focused on being the price leader and as a result, we'll maintain discipline around the execution of our price increases and freight surcharges to offset the previously discussed inflationary cost pressures. We will also seek to drive operational efficiencies in our factories, continue to deploy COS throughout the organization, ensure the Accella integration delivers expected synergies, and continue to expand into the building envelope. In the CIT segment, we now expect revenue growth to exceed 10%, driven by a strong Aerospace market, growth within the Med Tech platform and the SatCom ramp continuing to accelerate. We remain focused on converting a strong pipeline of new projects, driving to higher content per aircraft and seeking high quality acquisitions for our Med Tech and Aerospace businesses. At CFT, we continue to expect revenue growth in the mid-single-digit percent range for 2018. As we close 2017, we transition from building the foundation of our Fluid Technologies platform, including consolidating eight sites over the last two years, implementing COS throughout the organization, and optimizing our leadership team to focus on delivering increased margins on strong organic growth, new product introductions, expansion into core adjacencies, and seeking acquisitions to continue to build out this platform. At CBF, we now expect revenues to grow in the mid-teens, driven by accelerating growth in CBF's core markets. We are seeing continued improvement at key OEM customers related to rising commodity prices, solid growth…

[Operator Instructions] Your first question comes from the line of Neil Frohnapple with Buckingham Research. Your line is open.

Great. Thanks guys. So, a lot of moving pieces for the CCM EBIT outlook. So, first, could you provide an update to your outlook as it relates to the raw material impact to EBIT that you would expect for the full year? I think you had previously talked about $40 million headwind. So, if you can provide an update, what you're projecting there, that would be helpful as a starting point.

Yes, Neil this is Bob. Yes, nothing's changed on our outlook. We still are seeing the $40 million I talked about on the last call with -- we ended up with $11 million. We thought $10 million would be in the first quarter. And we continue to believe that the remaining $30 million will be offset by price in the back half of the year.

Okay. So, I guess, that was my follow-up. So, I mean could you talk more about pricing in Q1, quantify the slight positive? And then, I guess, more importantly, any initial thoughts on the 6% price increase that was implemented in March? You mentioned anticipating positive results from the recently announced price increase. So, any commentary there? So, is it the anticipation then that $30 million will be realized with the pricing and the freight surcharges? Is that how we should read that?

Yes, that's exactly how we're thinking about it.

Okay. So, that -- from the pricing actions and the raw material headwinds, including the freight, it should be only a $10 million negative headwind for the full year.

Yes. Yes and that's consistent with what we talked about last quarter.

Okay, great. Yes, I'll hop back in the queue. Thanks so much.

All right. No problem. Thanks.

Your next question comes from the line of Garik Shmois with Longbow Research. Your line is open.

Thank you. Just wanted to follow-up on some of Neil's questions. Just on the pricing, just to be clear in your confidence in offsetting raw material inflation, does this assume any additional price hikes are necessary? Or given what you implemented earlier this spring, you have already enough in the market to offset inflation. Just want to be clear.

Yes. We had two price increases that began March 1st. We had the TPO 6% increase and we had the ISO 6% increase. And then we had the second, was in every TPO, EPDM, ISO, and accessories, we were up ranging from 5% to almost in some of our accessories up to 10%, that's effective May 1st. So, that's what we see now. What we anticipate happening through the year would be based upon those price increases.

Got it. Okay, that's helpful. The increase in the CCM revenue growth outlook, could you provide some color on what was driving that specifically?

Yes, that's just largely a normal across the Board increase. As we see Accella being a bit better and -- we have more confidence on what's going on in the base business now after getting through the first quarter.

Okay, great. And then just also just on the increase on the SatCom guidance, how should we think about how that ramps through the rest of the year? You had $20 million in the first quarter. Is that a good number to use for 2Q? And then it starts accelerating in the second half or would the increase off of the 1Q run rate be pretty consistent through the remaining three quarters?

It will be -- I think, you will see stronger second and third quarters with rising and then a pretty much leveling out in the fourth quarter.

Okay.

--at the third quarter rate.

Got it. Thank you very much.

You bet.

Your next question comes from the line of Charlie Brady with SunTrust Robinson Humphrey. Your line is open.

Hey, thanks. Evening guys.

Evening. Yes, thanks.

On CCM, the organic growth there, given what weather we're seeing in the quarter, came in a little bit better than we were looking for. I wonder if you can just talk a little bit about maybe -- more granular on geography. Or were there certain parts of the U.S. that were particularly stronger than maybe more than you thought they were going to? So, how do you -- so I'm asking how you offset the weather impact.

Yes, it was difficult weather. We -- you did comment that on the script and we think we might have lost anywhere between six to eight roofing days in the Northeast and Midwest. So, with that being said, I mean, it kind of talks to the strong demand. When you look at it across product lines, pretty much very consistent strong growth in all of our product lines throughout the business. One exception might have been our PVC business. That is somewhat smaller than the rest and grew at a higher rate, but it was pretty consistent, just solid growth across the product lines. And I would say, regionally, I don't think there was any exceptional area that stood out. I think we had good strong traction in every region. Bob, would you like to add to that in any way?

No, I think that's right, Chris. I mean we say in our slides, U.S. commercial roofing was up only 3% and then across the Board, other waterproofing, our international markets, our specialty markets were up nicely to bring it up to 6% in total.

Okay. Thanks. Helpful. And just on CIT on the acquisition pipeline, clearly, life science is where you guys are targeted. Can you just speak to kind of the, I guess -- obviously, the multiples in that market, I would assume, tend to be a little bit higher. Kind of what your line of sight is to really doing acquisitions more to that space and amping that part of the CIT business up.

We are seeing good pipeline. We're -- we are seeing a fair amount of deals. They range in size. You are correct that the multiples tend to be higher than our average deal we're looking at the other parts of the business, and there's also some pretty good competition for those assets. So, we think we've got prospects out there that will do quite nicely in CIT and be very helpful to building out that Med Tech business. But I think that the pricing, we want to be disciplined, and then the competition for that will be pretty fierce. So, that's kind of the situation, but there is no lack of opportunities.

Okay. Thanks. Just one more for me and I'll hope back in. On brake and friction, you have pretty strong margin performance there. What's your expectation for a full year contribution margin for that business?

Hey, Charlie, we're not really giving anything really specific, but I would say that we would expect that what we're seeing today, as we said in the call, would only increase over the year as our pricing kicks in, as we start to gain some more efficiencies. But I would say we're dramatic, I would say would be a measured march to those historical levels we had.

Appreciate it. Thanks.

Your next question comes from the line of Jim Giannakouros with Oppenheimer. Your line is open.

Hi, good afternoon.

Hey Jim.

Hey Jim.

CFT, you've consolidated eight sites. You -- the restructuring, it seems like you have line of sight to the end of that. How should be thinking about what end markets you're more confident in that you can maybe sustain growth intermediate term? And I guess, the second part of that question is what kind of incremental margin progression can we expect once restructuring is really behind you, say, in 2019 and beyond.

Let's tackle the margin one first. Bob, would you like to--?

Yes, sure. I think on margins, we see a steady march throughout the year, as I mentioned before, going from where we were last year up to -- as we exit the year, getting up closer to historical levels, not back up to the 20% we talked about for long-term, but a march up there from where we were last year.

And then, Jim, when you look at -- if we look at regions, we still expect the Asia-Pacific region to be a strong contributor to growth. We are seeing excellent receptivity to the new pump technology we introduced a couple of years ago, that's still growing. We like the auto refinish business, that's had a good start to the year, and we view that as a good growth in Asia. And when we look to the U.S., we see some recovery in our sales growth there and we would think that would be another strong area for sales as we move forward. When we look specifically at product lines, the finishing business that we have has always been strong, and that will be continuing to be a focus. We also like the sealants and adhesives space. We feel there is an opportunity for our technologies and differentiation on those technologies in the adhesives and sealants, specifically in the automotive body shops, but also in general industrial. And then we're looking at powder applications. We bought the company M/S a couple of years ago and we're starting to see some traction there with new products and then we would look to potentially entering the foam market. That's been a good market throughout the years for other manufacturers and now with our presence with Accella, we think we have an opportunity there to provide a good combination solution for the market.

Thank you. That's helpful. And going back to CCM and I apologize if I misunderstood or you did highlight and I just missed it. Where are you getting the pricing traction? I mean just if you cut it by EPDM, TPO and insulation, my impression was, during the quarter, having my conversations in the channel, that EPDM is a bit firmer but in TPO and insulation, a bit tougher because they're more heavily competed. Is that accurate? And is that where you are actually seeing better than expected pricing?

I think, just in general, we saw the pricing traction primarily on the two price increases we had in the TPO and the ISO there. That started March 1st and we saw some traction in the month of March there on those two product lines. EPDM, we -- I think, given the market characteristics, we always tend to be a bit firmer there on our pricing. And accessories have been -- have had some good results. So, it's across the Board, but if you pointed to two actions, I'd say the TPO 6% increase on March 1st and the ISO increase of 6% on March 1st had the most effect on the quarter.

And just as a follow-up, I mean, what do you attribute that to? I mean, we know that you guys are the most disciplined in this space. Are you seeing more rational behavior from competitors? Are you -- or just a more general market acceptance and a better appreciation that, hey, manufacturers across the Board are getting hit with input cost inflation and so it's more reflective of that than rational competitor set?

I think it's a combination of both, Jim. I think in the long-term, we've been talking about this for a while. If we look back at 2016 and 2017, we were still seeing price declines, but they were -- they tended to decrease as we got closer to the end of 2017. And then here, we've actually had a little bit of positive on that price in the first quarter of 2018. So, I think there is becoming a more -- an ever increasing, let's say, rational competitor set, and then these short-term inflationary pressures have just added, I'm sure, to their resolve as they increased cost for everyone. So, I think it's a convergence of those two. That long-term trend on more rational competitors and then the short-term trend on the inflationary pressures.

Good job on executing there. I'll go back in queue. Thanks.

Your next question comes from the line of Kevin Hocevar with Northcoast Research. Your line is open.

Hey, good evening everybody.

Good evening.

Wondering if you could comment. Bob, I think you mentioned that Accella faced a $4 million price versus raw headwind in the quarter. Did I hear that right? And what was the actual contribution of EBIT from Accella in the quarter? And I believe your initial guidance when you first acquired it was that it would be $0.09 accretive this year, so I just wanted to see if that's still the expectation.

Yes, there was a couple -- you'll see in our Q when it comes out, there was a couple million dollar loss for Accella in the quarter, a true loss and that was due to that. Now the Accella $4 million clearly wasn't year-over-year because it wasn't in our results, but it was higher than what we expected. And that was largely due to the MDI pressure that everyone saw in the quarter. If you recall, Accella still buys in the spot market -- or at least they were still buying in the spot market as we just get them into our fold, where the base business is buying on contract. So, that pressure in the MDI is what caused the difference there. And related to the $0.09, with this $4 million pressure in the first quarter, we believe we can make some of that up throughout the year, but we think we're going to fall a little bit short of our $0.09. We're looking in the probably the $0.05 accretive range now but longer term going into next year, we're looking for more synergies to get back on track to where we expected to be.

Got you. And then I think you mentioned taking pricing increase actions across a bunch of businesses and we've talked a lot about CCM. But particularly here, are you taking pricing actions here as well? And are you seeing any type of traction? And what are you seeing out of MDI specifically? Because I know that there was a lot of force majeures that probably raised price here in the near term. So, any chance that those come online? Are you seeing that coming down? Or do you expect it to come down that can help out? Or could you give us some type of update on those dynamics would be helpful?

Yes, MDI for the quarter was relatively benign for the core CCM business. Bob will touch on the price increases in Accella here in a second. But I think with the capacity we've seen and is pretty well-documented, our expectation will be that as the year moves on, we should see some stability, perhaps even decline in MDI pricing.

Got you. And then the pricing actions in Accella?

Yes, I mean, we took a couple 5% pricing increase actions in the first quarter and we're seeing a better traction across those in some of our markets. But like with the rest of the construction businesses in CCM, when you're in the low first quarter season of -- when you get in better construction season, you're better able to get those increases. But we did see some in that business as well in the first quarter.

Got you. Okay. And two quick ones. On CCM, the 6.3% from price and volume, maybe I missed it. What was the breakout between volume and price for that?

The price was relatively low as we said. We're seeing some positive price, but it was a couple hundred thousand dollars.

Okay, got you. And then finally, on the share repurchase, it looks like you spent $129 million on share repurchases. The share count was essentially flattish, down just a touch sequentially. Just wondering if you have sense for that. Were there share repurchases late in the quarter? And maybe we'll see a step down here in the second quarter share count. Wonder if you can just give a little color there.

Yes, we expect to do see it continue to decline throughout the year. As the purchases come in, we did not do it as early in the quarter. Obviously, you can't do it. Our earnings was late, so we didn't have the process when we started. So, all the repurchases were after earnings, which pushed a little out into the second and third quarter of realizing that share count decline.

Makes sense. Okay. Thanks so much.

Your next question comes from the line of Joel Tiss with BMO. Your line is open.

Hey guys. How is it going?

Good evening.

Just wondered, is -- can you talk a little bit about Huntsman kind of vertically integrating a little bit into parts of CCM? Is there a chance that, that kind of structurally changes the profile of that industry? Or you think that there's not enough -- that they don't have enough market share and enough vertical integration to be able to make a difference?

Yes, it's a good question and we'll have to see what happens. I think at this initial stage, we think that it's a good move if you look at purely the market dynamics for getting into this, someone who's upstream and understands what's happening with the source chemicals there. We think it points to some good signs that they're seeing increasing demand in this space and they've done their work. So, I think from a volume perspective, it reinforces that this is probably a pretty good space to be in. We think also that any reduction in the -- and consolidation in the space helps out, and Huntsman, we think, is going to be a rational competitor. They have shareholders and they have expectations as well. So, our hope is that it will bring good discipline having a major business like Huntsman participating in the market.

And then next, in the first quarter, was in CBF, was the decline in that the Aerospace business, is that kind of finished? Or was that part of -- was that still part of what happened in the first quarter?

Aerospace in the first quarter actually was up a little bit, Joel, but it's now become such a small part of the business that the impact is not as great as it used to be. And that's really the story there. It -- that legacy aircraft business will continue to decline and when we do get spikes, it's generally around a purchasing pattern, as we've said before, most of it coming in the first quarter and then diminishing in the second half of the year.

Okay. Thank you very much.

You bet.

Your next question comes from the line of Liam Burke with B. Riley FBR. Your line is open.

Hey good afternoon Chris, good afternoon Bob.

Good afternoon Liam.

Chris, can you give us some color on CCM's performance in Europe? I mean you talked about strength across different product lines, but geographically, how has Europe been doing?

Europe was relatively flat in the quarter. We had some positive increase. Most of it was due to FX. Bob and I were just over there. I mentioned Aircraft Interiors Show. We were there also with the management team at CCM Europe and we're pretty pleased with the action they're taking. They're doing a lot of outreach to architects to building owners, out with contractors. They have a little bit of a different EPDM product over there. It's -- it is well received, but it's a very small market share. So, we think the actions they're taking are going to produce results. We've got to get conversion going. And obviously, the construction to the Waltershausen facility should help them as well as show that we have a lot of confidence in where that market can go.

Okay. And on CIT, you talked about the acquisition front being expensive on medical. Are there any new programs that can be developed in-house through the CIT programs either in aviation or in medical?

Absolutely. We could talk at length about new programs within the aerospace and the medical. As we spend -- I'll just touch on medical for a bit. As John Berlin and the team at CIT get further into the major OEMs that are out there, we are finding that working with them on our existing products that came from the LHi organization is now exposing us to more opportunities and the opportunity to work with those teams that are developing new products and then be specified on that. And those take time. The aerospace and the -- or the FAA and the FDA process as we get these things certified is -- can be extensive. And that's why we talk about the 120 projects and look to see those generate substantial organic growth for us in the coming years.

Great. Thank you, Chris.

Your next question comes from the line of Marc Heilweil with Gratus Capital. Your line is open.

Thank you. I'm new, so maybe I don't have a grasp of Vision 2025 as well. But could you give some idea of how -- maybe contrasting with the last three or four years, how important these bolt-on acquisitions are for the next three to four years? I know you've singled out Med Tech and Aerospace, and -- but generally speaking, do you expect the pace of acquisitions, and I know this is difficult to quantify, to be similar to what's happened over the last three to four years?

Well, we'd like the pace to be strong because we do feel that, in addition to our strong organic growth and some of the growth that we just talked about with Liam, where we're developing those products with our OEs and we're working on that that really provides the best growth we think from an ROIC perspective long-term. We do feel that a great opportunity is where we have bolt-on acquisitions. And as we ran up with CIT over the last 10 years, taking that business from $100 million to now over $800 million, most of that was bolt-on acquisitions that added key products to that portfolio suite. What we did in Vision 2025 was we added a dimension to that and we said we wanted them to be synergistic. So, the bolt-on acquisitions that we'll be looking at for the future are going to be bolt-on acquisitions that can leverage some competency we have at Carlisle, whether it's COS or manufacturing technology or sales networks to be able to extract more earnings from those once they're integrated. So, I think your comment is a good one and it's really where we want to point to on acquisitions, just to those bolt-on acquisitions that have synergies with our existing businesses. Does that help?

It does. Thank you very much.

You're welcome.

[Operator Instructions] Your next question comes from the line of Charles Brady with SunTrust Robinson Humphrey. Your line is open.

No, you guys go ahead. I had question on MDI pricing, but you guys have hit it. So, I'm good. Thanks.

Thanks Charlie.

Thanks Charles.

There are no further questions at this time. I'll turn the call back over to the presenters.

Well, thanks very much, Tim. This concludes our first quarter 2018 earnings call. We thank everybody for their participation, the great questions, and your continued interest in Carlisle. And we look forward to speaking with you at our next earnings call. Thank you, and good night.

This concludes today's conference call. Thank you for joining. You may now disconnect.