Boring Portfolio Boring Buys CSL
August 13, 1996

Carlisle Companies, Inc. (NYSE: CSL)
250 S. Clinton St, Suite 201
Syracuse, NY 13202-1258

Phone: 315-474-2500
Fax: 315-474-2008

Closing Price, August 12, 1996: $51 5/8
Trade: Buy 100 shares


Carlisle Companies, Inc. was incorporated in 1986 as a holding company for Carlisle Corp., whose operations began in 1917, and its wholly-owned subsidiaries. The company manufactures and distributes rubber, plastic, and metal industrial products, classified into three broad segments:

o Construction Materials: elastomeric membranes, metal roofing components, adhesives and related products for roofing systems and water barrier applications, and outdoor recreation tiles.

o Transportation products: custom manufactured rubber and plastic products for the automotive market, brake linings and pads for heavy duty trucks, trailers and off-road vehicles, specialty friction products, brakes and actuation systems for construction equipment, refrigerated containers, insulated wire products, specialized low-bed transport trailers, and specialized dump bodies and trailers.

o General Industry: molded plastic food-service utensils, small pneumatic tires for lawn equipment and golf carts, stamped and roll-formed wheels, medical monitoring devices, insulated wire products, and stainless steel in-plant processing equipment.

Total revenue contributed by each industry segment (in millions):

                           1995    1994     1993 
Construction Materials   $308.3  $288.6   $247.6 
Transportation Products   278.9   200.2    177.0 
General Industry          235.3   203.9    186.7 
                         ------  ------   ------ 
Total                    $822.5  $692.7   $611.3

Dennis Hall, former Executive VP and CFO, was promoted to President last year. Dr. Robert Ryan, Jr. joined the company to become VP for Finance, Treasurer, and CFO. Dr. Peter Krogh, Dean Emeritus of Georgetown University's School of Foreign Service joined the Board of Directors last year, also. MF Raleigh (Dale Wettlaufer) visited with Dr. Ryan recently, to learn more about Carlisle and its management, and I've spoken with Dr. Ryan, as well.

Under Chairman and CEO Stephen Munn, the company has focused on achieving continuous improvement in value to shareholders through smart acquisitions and increasing international sales. The strategy is intended to produce consistent earnings growth in excess of 15% annually. From all indications, the management team is executing its strategy successfully.

In 1995, Carlisle completed four acquisitions: Thunderline Corporation, a producer of rubber parts for the automotive industry; Trail King Industries, Inc., the leading manufacturer of specialized low-bed trailers used in the transportation of construction equipment; Ti-Brook, Inc. and Ti-Brook South, Inc., manufacturers of a variety of specialized dump bodies and trailers; and Walker Stainless Equipment Company, Inc. and two related corporations, manufacturers of transportation trailers for liquid food products and in-plant processing equipment.

This year, Carlisle has continued its acquisition activity, buying Intero, Inc. and Unique Wheel, Inc., manufacturers of steel and aluminum wheels and rims sold to OEM trailer customers and the automotive aftermarket, and the manufacturing assets and roofing technology of Insulfoam, Inc. To balance things off, the company sold some of its underperforming West Coast metal roofing operations.

On August 2, Carlisle announced its latest acquisition: Scherping Systems of Winsted, Minn. Scherping, which has annual sales of approximately $20 million, supplies cheese processing equipment to the dairy industry. The acquisition is part of Carlisle's growth strategy in the food and dairy industry and is particularly related to Carlisle's 1995 acquisition of Walker Stainless Equipment Co.

Through the end of 1995, Carlisle's 3-year CAGR in revenues was 15.9% and in EPS was 20.5%. Through two quarters of 1996, the company is exceeding those rates. Selling, general and administrative expenses as a percentage of revenue has declined steadily, from approximately 17% in the early 1990s to 13% in 1995.

On April 16, Carlisle reported 1Q:96 sales of $225.1 million, a 20% increase over 1Q:95, and net earnings of $10.6 million, or $0.69 a share, a 25% increase over last year. Transportation segment sales increased 46% over 1Q:95, and segment earnings improved 66% despite a strike at General Motors that limited sales at Carlisle's custom rubber and plastics operations. The general industry segment saw sales rise 29% in 1Q 1996 versus 1995, and segment earnings improved 31%. In contrast, the construction materials segment was off a bit in 1Q:96, hurt by severe winter weather. That same weather may have increased demand for roof repair in the balance of this year, however.

On July 16, Carlisle reported 2Q:96 earnings of $1.06 per share, a 34% increase over last year's $0.79 and easily topping analysts' expectations of $0.93 to $0.94. Sales totaled $262.3 million, a 31% gain over last year's $200.8 million.

Selected Financial Data (source: Morningstar and 10-Q)

                        1995   1994   1993   1992 
Revenues ($Mil)        822.5  692.7  611.3  528.1 
Net Profit ($Mil)       44.1   35.6   28.4   24.7 
Net Profit Margin(%)     5.4    5.1    4.6    4.7 
EPS ($)                 2.82    2.30   1.83   1.61 
Dividend ($)             .84     .76    .70    .66 

Balance Sheet ($Mil)   1Q:96   1995   1994 
Total Current Assets   305.1  281.9   273.2
Total Assets           597.9  542.4   485.3 
Liabilities and Equity
Current Liabilities    180.1  128.2   108.6
Long Term Debt         145.5  140.9   128.9
Shareholders Equity    272.3  273.3   247.9

Carlisle's run of acquisitions has increased debt somewhat and drawn down cash. Even so, as of 1Q:96 debt was a manageable 22% of the company's total capitalization. Net cash flow for 1Q:96 was a positive $1.3 million, bringing total cash and cash equivalents to $4.5 million. Value Line awards Carlisle an "A" for financial strength.


First Call notes three analysts who follow the stock. (Value Line also follows Carlisle but is apparently not included in First Call's estimates.) Analysts are expecting the company to make EPS of $3.52 in 1996, which would constitute a 25% gain over last year's $2.82. Current estimates for 1997 are in the $3.95 to $4.10 range (mean = $4.03). Over the past three months, EPS projections for both 1996 and 1997 have moved up steadily.

CSL's 52-week range is $38 to $56 3/8 (set on June 21). At its current price of approximately $52, CSL is trading at a bit less than 15-times projected 1996 EPS. The stock also pays a quarterly dividend, which on August 7 was increased from $0.22 per share to $0.245 per share; that works out to around 1.9% on an annual basis. This is the 20th consecutive year in which Carlisle has raised its payout to shareholders.

The stock is a decent bargain at current prices. On a dividend-adjusted basis, CSL is trading at a discount to fair value: CSL outperformed the S&P 500 by 43% between 1990 and 1995, yet the stock is trading at a discount to the market.

One of the three analysts included in First Call's survey rates CSL a "strong buy" and the other two a "buy." In early July, Merrill Lynch initiated coverage of CSL with ratings of "intermediate-term accumulate and long-term buy." Value Line recently upgraded the stock to a "1" on Timeliness and "2" on Safety. Investor's Business Daily scores CSL 92 on EPS, 75 on Relative Strength, and "B" on Accumulation/Distribution. Average daily volume is a modest 13,000 shares, and the stock's beta is a placid 0.90.

Information from the Wall Street Journal indicates that 133 institutions collectively own 55% of CSL shares. The company's proxy statement states that as of December 31, 1995, Fidelity, with 7.9% of outstanding shares was the only institution holding more than 5%.

Carlisle officers and directors own 13.2%. Company Directors Magalen Bryant and George Ohrstrom, Jr. (sister and brother, in their late 60s) hold the vast majority of that. The company informed me that the Ohrstrom family was among the founders of the modern Carlisle Co. and that it was unlikely that they would sell their shares. CEO Stephen Munn also owns over a half-million shares (3.6%).


Carlisle is classified as a "consumer cyclical" company, which means that its fortunes are tied to a fair degree to the health of the overall U.S. economy. The company has diversified itself across a number of lines, however, which presumably smoothes out the cyclicity of its earnings, and it continues to grow through acquisitions that fit well with its core competencies.

If you simply looked at a chart of the company's stock, you'd think for all the world it was a "growth" stock. Sales have risen sequentially for 14 consecutive quarters and net earnings for 18 consecutive quarters. Value Line rates CSL 85 for price stability and 80 for price growth persistence.

In sum, Carlisle offers the Borefolio several benefits: healthy share price appreciation potential, a decent dividend, exposure to the transportation and consumer products industries, and some stability to help balance the zigs and zags of some of our more volatile holdings.

--Greg Markus (MF Boring)