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Carlisle Cos Inc (NYSE:CSL)
Q4 2019 Earnings Call
Feb 6, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Fourth Quarter 2019 Earnings Conference call. [Operator Instructions] I would like to turn the call over to Mr. Jim Giannakouros, Carlisle's Vice President, Investor Relations and Financial Planning and Analysis. Jim, please go ahead.

James Giannakouros -- Chief Financial Officer, Treasurer and Executive Vice President, Nucor Corporation

Thank you, Josh. Good afternoon, everyone, and welcome to Carlisle's Fourth Quarter 2019 Earnings Conference Call. We released our fourth quarter financial results after the market closed today, and you can find both our press release and earnings call slide presentation on our website at www.carlisle.com in the Investor Relations section. Discussing the results and our updated outlook today are Chris Koch, President and Chief Executive Officer; and Bob Roche, our Chief Financial Officer. Today's call will begin with Chris discussing our progress toward vision 2025 and business trends experienced during the fourth quarter and later in the call we'll discuss our 2020 outlook. But we'll discuss Carlisle's fourth quarter financial performance. Following Bob Bob and Chris's remarks, we will open up the line for questions.

Before we begin, please refer to slide two of our presentation where we know that certain statements made during this call. Maybe forward looking and actual results may differ materially from our expectations. due to a number of factors. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q. Those considering an investment in Carlisle should read these statements carefully, along with reviewing the reports we filed with the SEC before making an investment decision.

With that, I will turn the call over to Chris.

D. Christian Koch -- President and Chief Executive Officer,& Director

Thanks, Jim. Good afternoon, everyone. Please turn to slide three of the presentation. I'm pleased to report Carlisle had record fourth quarter sales and operating income, and we continue to make significant headway toward our Vision 2025 goals of $8 billion in revenue, 20% operating margin and 15% ROIC, all driving to $15 of earnings per share. As a reminder, the building blocks and drivers of achieving Vision 2025 include: growing 5% organically with operational leverage; driving a continuous improvement culture utilizing the Carlisle operating system; building scale with synergistic acquisitions; investing in exceptional talent; and deploying over $3 billion into capital expenditures, share repurchases and dividends. We are pleased with our progress toward delivering Vision 2025, while acknowledging our culture of continuous improvement drives us to seek out new opportunities for growth in sales and operating income.

Highlights of our Vision 2025 journey so far include: driving organic revenue growth of 5% since launching Vision 2025, in line with our long-term target; increasing operating margin to 13.6%; achieving gross savings and benefits from COS within our targeted range of 1% to 2% of revenues; deploying over $630 million of capital into 12 strategic and synergistic acquisitions; and utilizing our strong cash flow and balance sheet to return over $1 billion of capital to our shareholders in the form of share repurchases and dividends. Turning to slide four. For the full year 2019, against the backdrop of challenging global conditions, Carlisle Companies performed very well, benefiting from significant exposure to strong North American construction markets; growing demand in reroofing; increasing exposure in Med Tech; continued strong underlying demand in aerospace; a return to higher levels of profitability in our Brake & Friction business; continued operational improvements effort through COS; and solid execution on our M&A integrations.

Some specific 2019 highlights include total revenues grew over 7% or close to 3% organically for the year despite enduring multiple quarters of global industrial production declines. Pricing increase in all segments contributing 1% of year-over-year sales growth. Operating income grew approximately 29% year-over-year, exhibiting strong leverage on our top line growth, with margins expanding 220 basis points year-over-year to 13.6%. Strong operational performance generated $8.21 of diluted earnings per share, up 40% year-over-year. We generated free cash flow of $614 million, converting at a rate of 130%. Executing on our commitment to return capital to shareholders, we repurchased over $380 million of shares and paid over $100 million in dividends. We increased our dividend 25% to $2 per share annually, our 43rd consecutive year of increasing dividends. And finally, we deployed over $615 million on eight strategic acquisitions during the year.

We introduced vision 2025 in 2018 are excited about the progress thus far, particularly in our two largest segments CCM and CIT. They account for over 85% of revenue and over 90% of our total segment operating income CCM status is the best in class building product supplier continues to be evidence through its price and market leadership, superior products and service industry leading innovation, a strong and increasing reroofing backdrop and a high teens operating income profile. Over the past decade Carlisle construction materials has spent over $500 million in investments in manufacturing, research and development and customer service to build an industry leading platform known as the Carlyle experience, which our contractors and distributors have come to rely on to drive efficiencies and productivity in their own businesses. Then I remained very pleased with the progress the CCM team has made expanding into new platforms, namely our polyurethane and architectural metal businesses.

Reflecting on CIT, there has been significant press surrounding Boeing 737 MAX eight grounding that has clearly created uncertainty around a return to service date, and ultimately, uncertainty for the supply chain. For Carlisle, we anticipate being impacted by these conditions through at least the first half of 2020, in line with Boeing's public comments. While we realize this is an interruption to CIT's consistent growth in the aerospace markets, we are viewing this situation as a delay in sales, not lost revenue. We expect resumption of our normal deliveries when the 737 MAX eight returns to service. We remain -- we maintain a very optimistic outlook for the global aerospace business in the coming years, driven by rising demand for air travel globally, sustained aircraft build rates as well as increasing content per plane, given growing electrification and data needs. Our engineering expertise, brand and strong customer relationships position us well to leverage the attractive long-term growth in Commercial Aerospace markets, and we'll continue to pursue synergistic acquisitions in this space to drive our reputation and position as a leading supplier to global aerospace OEMS. Reinforcing this, we announced our commitment to acquire Fileca in October of 2019.

Fileca augments and diversifies our position at major European Commercial Aerospace, space and defense customers and enhances our geographic presence. We expect to finalize the closure of the Fileca acquisition in the first quarter of 2020. We also continue to build out our Medical Technologies platform within CIT. This platform has strong growth and profitability characteristics and will transition CIT to a more balanced portfolio of interconnect solutions. We intend to accomplish this growth both organically and through acquisitions, capitalizing on aging populations that are demanding a higher level of medical equipment and technology globally. We continue to work with building out a more comprehensive offering of manufacturing solutions to our medical OEMS. Our recent acquisition of Providien represents a significant step in establishing a leverageable Medical Technologies platform.

Providien has over $100 million of annual sales as a leading provider of comprehensive solutions for global nickel device OEMS, including medical device contract manufacturing, precision machining and metals, thermoforming and medical injection molding. In the coming years, we will invest significant capital into expanding Providien's product offerings and seek synergistic acquisitions to grow our med tech platform to $1 billion in sales. Turning to Fluid Technologies. 2019 was a year of focus on improving customer satisfaction, driving manufacturing efficiencies, entering new markets and introducing new products. The team at CFT made substantial progress in 2019 on all these fronts, introducing 10 new products, making four acquisitions, further expanding into the Sealants and Adhesives market and reducing our lead times by almost 1/3. Despite this progress, as we predicted about this time last year, impacts from Brexit and U.S. trade negotiations with China drove an increasingly negative global industrial production environment throughout 2019, and ultimately, drove declines in volumes that overshadowed CFT's progress toward their Vision 2025 goals.

On capital deployment, our free cash flow and strong balance sheet continues to offer us both strategic optionality and financial flexibility. When we introduced Vision 2025, we envisioned a balanced approach of organic growth investments, acquisitions and returning significant capital to shareholders. For the past three years, we have been opportunistic buyers of our stock, spending over $1 billion in share repurchases, notably exceeding the total level contemplated in our Vision 2025 plan. Going forward, we will remain balanced, yet opportunistic in our approach with driving $15 of EPS by 2025, the key focus for our vision. In addition to our strong financial performance in 2019, we're pleased with the continued momentum our team has generated around Environmental, Social and Governance issues. In 2019, we established an ESG steering committee; developed an ESG reporting process; elevated the position of Director of Sustainability to report directly to the CEO; and established a plan to publish our first ESG report in 2020. We're at the beginning of our ESG reporting journey, but Carlisle has always been a responsible corporate steward through our 100-year lifetime.

We're excited to share our progress with investors, customers and the communities in which we operate. In addition to these actions, we have made progress in diversifying our Board of Directors and have made commitments to ensuring a $15 per hour minimum wage in our U.S. operations, gender pay equity and a gender-balanced management team. Now please turn to slide five, as we look at our fourth quarter results in greater detail. In the fourth quarter, revenue increased 6.2% to a record $1.14 billion, our 27th consecutive quarter of year-over-year growth. We generated $141 million of operating income, a 23% increase over prior year, which led to record fourth quarter diluted EPS of $1.81, up 22% year-over-year, confirming that we are making the right investments in our factories, in our people and in the Carlisle operating system.

Fourth quarter results were driven by continued price discipline in all segments, solid demand and excellent margin expansion at CCM, benefits from lower cost raw materials and efficiencies gained from COS throughout the company. CCM revenues grew over 11% year-over-year, including 5% organic growth, reflecting strong commercial construction and reroofing demand, new product sales growing 50% year-over-year and the addition of Petersen in early 2019. We continue to see a solid backlog of work in North America, tight labor markets, strong reroofing demand and tight capacity. CCM's solid performance in 4Q and all of 2019 demonstrates its market leadership, especially in pricing resolve and in delivering the Carlisle Experience to roofing customers and distributors. With roofing labor markets remaining very tight, we believe our ability to deliver the right product at the right place at the right time, coupled with innovation and training, enhances the value we bring to the market.

The Carlisle Experience continues to be recognized and appreciated by our customers. We instituted a price increase on all CCM products in mid-January, addressing the cost of providing industry-leading value to our customers and general inflation and operating costs. We believe the trends experienced in 2019 will continue into 2020, supporting our positive outlook. At CIT, revenues grew 3.3% in the fourth quarter, reflecting continued solid performance in our traditional aerospace product lines and continued progress in building our Medical Technologies platform. Within the aerospace market, the pressures from the Boeing 737 MAX 8, which I discussed earlier, began impacting us in Q4 in a substantial way. In addition to the direct impacts, we are also being affected in our connectivity product lines, specifically as the airlines are reluctant to remove existing planes from service for upgrades and retrofits. These pressures are significant, but will be resolved when the MAX eight returns to service and will not impact our mid-single-digit growth CAGR potential at CIT long term.

Within the Medical Technologies platform, the significant event in the fourth quarter was the acquisition of Providien. We were extremely pleased to have acquired the talent of Bill Gerard, President of Providien, and his team. In addition to the world-class solutions they have developed for leading medical technology providers, Bill's leadership and product vision will help us accelerate the growth of our portfolio and ensure we allocate capital to the most meaningful growth areas. CFT sales declined 3.5% year-over-year in the fourth quarter, reflecting significant declines in global automotive production and a multi-quarter decline in industrial production. Notably, acquisitions of Hosco, IDS, Shinhang and Ecco Finishing are tracking well, both from a sales and integration standpoint. CFT's operating margin was impacted by lower volumes, primarily from China and global automotive and Tier one accounts.

We remain hopeful that the U.S. trade developments inject a level of certainty that in turn promotes a return to normalized capital investment and spending. As mentioned earlier, CFT continues to make progress on their initiatives that will drive their Vision 2025 plans, including continuing to deliver price gains reflective of their value proposition, launching new products, entering new markets and enhancing our product portfolio and market share through acquisitions. Turning to CBF. Construction, mining and agriculture markets continue to exhibit an extraordinary amount of cyclical demand. After double-digit sales gains in both 2017 and '18, 2019 was marked by accelerating decreases in global demand in CBF's end markets and destocking activities at major OEMS. In the fourth quarter, CBF revenue declined 17.4% year-over-year. Despite these declines, CBF continue to capture the benefits from its significant restructuring efforts around the closure of the Tulsa, Oklahoma manufacturing facility and its integration into Medina, Ohio and in their ongoing COS programs.

Bob will now provide further detail about our fourth quarter financial performance and review our balance sheet and cash flow. Bob?

Robert M. Roche -- Vice President & Chief Financial Officer

Thank you, Chris. Please turn to the revenue bridge on slide six of the presentation. Revenue increased 6.2% to $1.14 billion in the fourth quarter. Organic growth was flat, acquisitions contributed 6.4% of sales growth for the quarter and FX was a 20 basis point headwind. Now turning to our margin bridge on slide seven. Q4 operating margin expanded 170 basis points. COS added 140 basis points. Freight, labor and raw material costs netted to a 60 basis point improvement, and net restructuring and rationalization costs were an additional 60 basis point tailwind. Partially offsetting these positives, pricing and volume combined for a negative 30 basis points, and acquisitions were a 60 basis point headwind. On slide eight, we have provided our earnings per share bridge. As Chris mentioned earlier, we reported record fourth quarter diluted EPS from continuing operations of $1.81, which compares to $1.49 last year.

Volume, price and mix combined were a $0.04 year-over-year decrease. Raw material, freight and labor costs netted to an $0.18 benefit. COS contributed $0.19, a lower share count added an additional $0.07, while taxes were a $0.06 headwind. Now let's turn to slide nine to review the fourth quarter performance by segment in more detail. At CCM, revenues increased 11.4%. Acquisitions contributed 6.5% of the growth; organic growth was 5.1%, partially offset by a 20 basis point foreign currency translation headwind. CCM executed extremely well in delivering approximately $19 million of net price cost realization in the quarter. Operating margin at CCM was 16.9% in the quarter, a 250 basis point improvement over last year. While the macro environment for commodities has helped us in 2019, we are extremely pleased with CCM sourcing initiatives, which add to our confidence in sustaining year-over-year margin improvement. Please turn now to slide 10 to review CIT results. CIT revenue grew 3.3% in the fourth quarter.

Medical, with the Providien acquisition, drove the sales gains in the quarter. As Chris mentioned earlier, the medical growth was offset by the 737 MAX eight delays and related impact to the in-flight entertainment and connectivity businesses. CIT's operating margin declined 220 basis points year-over-year to 12.2%, driven by higher restructuring costs, organic volume declines and the impact of acquisitions. These were partially offset by favorable mix, price realization and savings from COS. Turning to slide 11. CFT's organic revenue declined 16.1% year-over-year, and FX was a slight tailwind in the fourth quarter. Additionally, acquisitions added 12.5% in the quarter, and overall CFT sales declined 3.5% year-over-year. Operating margin declined 190 basis points year-over-year to 12.7%, as significant volume declines and related deleverage were partially offset by the past restructuring facility rationalization efforts, vertical integration savings and efficiencies from the Carlisle operating system.

Now looking at CBF on slide 12. Fourth quarter organic revenue declined 16.6% and was due to a slowdown in off-highway vehicle markets and destocking activities at major OEMS. FX also had a negative 0.8% impact. Operating income was a little less than $1 million or 1.1% operating margin. On slide 13 and 14, we show selected balance sheet metrics. Free cash flow in the fourth quarter was $181 million and free cash flow conversion for the full year 2019 was 130%, up significantly from 2018. We ended the year with a strong cash position of $351 million, which, in addition to our strong balance sheet and available $1 billion of untapped credit in our revolving facility, continues to afford us both financial and strategic flexibility. We continue to approach capital deployment in a balanced and disciplined manner, investing in organic growth through capital expenditures, opportunistically repurchasing shares and actively seeking strategic and synergistic acquisitions.

And with that, I will turn the call back over to Chris.

D. Christian Koch -- President and Chief Executive Officer,& Director

Thanks, Bob. Please turn to slide 15 as we discuss our 2020 outlook. For Carlisle in 2020, we expect revenue growth of mid-single digits. By segment. At CCM, driven by what we continue to view as a positive North American nonresidential new construction market; growing demand for reroofing; a solid backlog of worker contractors; continued tight labor markets; and the addition of Petersen to our Architectural Metals platform, we expect revenues to grow mid-single digits in 2020. At CIT, we expect high single-digit revenue growth. While we expect to see continued strength in our core CIT markets of aerospace and medical and benefit from pricing actions taken to offset inflation and other cost increases, we are realistic about our abilities to offset the negative impact of the Boeing 787 MAX eight issues and the impact from the slowdown in the global economy on our industrial customers.

At CFT, despite the significant decline in the Chinese automotive and industrial markets, coupled with a very real decline in capital spending in North America, we expect 2020 revenue growth of low to mid-single digits. At CBF, we expect 2020 to be another challenging year in the off-highway vehicle markets, with revenues declining mid-single digits. Turning to our corporate items. Corporate expense is expected to be approximately $100 million to $105 million for the year. Depreciation and amortization expense is expected to be approximately $230 million. For the full year, we expect capital expenditures of $100 million to $120 million and free cash flow conversion of approximately 120%. Net interest expense is expected to be approximately $65 million for the year. And finally, we expect our tax rate to be approximately 24%. As we turn to 2020, we are well positioned to build on our record 2019 performance and continue our progress toward the Vision 2025 goals of $8 billion in revenues, 20% operating income and 15% ROIC.

We remain steadfast in our commitment to achieving our goals and driving the $15 of earnings per share by 2025. Despite geopolitical and economic uncertainties, including the effects of the China trade negotiations and challenging industrial production environment and yet to be measured impact of the coronavirus, Carlyle's employees across the globe remain focused on the execution of the strategies and key actions that support Vision 2025. We are very optimistic about the North American nonresidential markets, our emerging Medical Technologies platform and a return to normalcy at our largest North American aerospace customer. In addition to these strengths, we anticipate that we will continue to deploy capital for strategic acquisitions and opportunistic share repurchases. Our team continues to embody a positive and entrepreneurial spirit, a commitment to continuous improvement and a focus on delivering results for the Carlisle shareholders. As we conclude 2019, I would like to extend my sincere thanks and gratitude to all Carlisle team members for their contributions to another record-setting year.

This concludes our formal comments. Josh, we are now ready for questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from Bryan Blair with Oppenheimer. Please go ahead, your line is open.

Bryan Blair -- Oppenheimer -- Analyst

Definitely guys, Another solid quarter. I wanted to start with a question on free cash outlook. Really, really strong performance in 2019. You are actually $1 million off from our 2020 estimate for free cash flow. So that's pretty impressive. Yes. Recognizing there are some near-term headwinds in smaller segments and maybe some offsets elsewhere, CCM's positioning implies pretty strong profit growth next year. You've guided 120% conversion. That nets to continued ramp in free cash flow from our perspective. Is there anything that we're not thinking about that could offset that trajectory? Or is that a fair assumption for the year?

James Giannakouros -- Chief Financial Officer, Treasurer and Executive Vice President, Nucor Corporation

No, I think that's fair. I mean we -- the 120% is certainly within where we expect to be. We do -- it's going from 130 to 120. Some of that relates to a little higher capex we're seeing in 2020. As you know, we had a slowdown in some of the programs, spent a lot over the last '17 and '18, it was a little slow down in '19, but we expect to pick that up a little bit in '20. So now continued free cash flow conversion.

Bryan Blair -- Oppenheimer -- Analyst

Yes, I appreciate the color. Moving to CCM. Strong demand backdrop, you've guided mid-single-digit growth against pretty legitimate stacked comp, so strong outlook. Given that demand, CCM's value proposition, it seems like pricing should be firm. Hopefully you'll get some upside into seasonally stronger quarters. If we combine that with that setup with the still cooperative commodity trends, is it fair to assume there's some upside to the baseline assumption of neutral price cost for the year? Or still too early to make that call?

D. Christian Koch -- President and Chief Executive Officer,& Director

We always say the first quarter, it's really too early to make those calls. I think we're thinking about a price raws number of something between $25 million and $35 million. Obviously, we've implemented that new pricing exercise with an annual price increase. And we saw our competitors follow suit there of about 2%. But again, it's a little bit too early to see if that is actually getting traction. Yes, Bryan, I would just say let's stick with the $25 million to $35 million. And then let's -- as we progress through the year, we'll obviously keep you updated on what's happening in the market.

Bryan Blair -- Oppenheimer -- Analyst

Okay, that's fair. And last one, if I can. Hoping we could take a minute to discuss CCM Europe, that gets a little less attention than the other parts of the story. Remind us the current size of that business, the market opportunity, the potential scale over time.

D. Christian Koch -- President and Chief Executive Officer,& Director

Yes. So we're mid-hundreds, 150, let's say, is approximate for our European sales. We've been in Europe a while. We've made some good acquisitions there a few years ago. And we made the Arbo acquisition recently in the U.K., in Sealants and Adhesives. I think we still see Europe -- I don't think, I know we still see Europe as a significant opportunity. We built a new factory, Waltershausen to show that confidence that we still think it's going to be an expanding platform for us. I think we need to look at some pretty good growth rates going into Vision 2025, in the 2025 year.

I don't want to give you a number on that, but I would say it would be a lot more substantial than $150 million. And some of that will come through acquisition. I think that has to be a play for us. I think it would take too long organically. And some of it has to be an introduction of new product technologies that we haven't had there before. So I think summing it up, we're very bullish on Europe, and we've had some good results in '19, and I think we're expecting those to accelerate in '20, '21 and '22.

Bryan Blair -- Oppenheimer -- Analyst

Okay, great. Thanks again, Your next question comes from Joel Tiss with BMO. Please go ahead, your line is open.

Joel Tiss -- BMO -- Analyst

Good afternoon. Can you give us some of the factors on -- for CCM about -- around like the visibility you have, like how far you can see out for 2020, and then some of the competitive factors? I keep hearing some other guys are adding capacity. And can you just give us a little bit of a lay of the land of how things look for the next couple of quarters?

D. Christian Koch -- President and Chief Executive Officer,& Director

Yes. I mean got leaving -- or entering, I should say, this first quarter of 2020, I feel like we were saying the same thing as we were going into '19, which is pretty much business as usual, you still see the same kind of environment. I think a couple of the maybe minor adjustments would be that our competitors seem to be continuing to follow suit on pricing, which is good. We'll see how that plays out. But hopefully, there'll be some upside there. We will look at capacity, obviously. We haven't added a lot of capacity in the industry. I think the polyiso and TPO plants that we've added have been maybe even under the growth of the industry. So I think they've been absorbed relatively well, which to me says that capacity is not getting any larger in 2020.

We do have a new entrant, who is -- I know the announcement came that they were going to introduce a new plant on the East Coast somewhere. And even if they do, I don't know that, that's a significant amount. That will be absorbed, and I -- we'll see how they can compete in the North American market. I know we had another announcement that a competitor was putting a facility in Texas. I think again that's fine. I think it's going to add some capacity, but not enough that will offset the balance there. I think we'll still remain tight. And certainly, on EPDM, it's going to be -- I mean, there's no capacity being added there, so that will continue to remain a tight market. We think the reroofing, 80% of our business, we estimate comes from reroofing. Reroofing demand, Bob has shown that graph, that continues to build. We think new construction might be a little bit softer this year than it was last year, but it's still positive. Tight labor markets are still there. Contractor backlogs remain about where they've been for the last couple of years. So I think all in all, that's kind of how we see business as usual and a really solid environment for 2020.

Joel Tiss -- BMO -- Analyst

That's excellent. And then can you just give us a little bit of a shape of how the other divisions are going to look? It seems like maybe just with this virus and with all the disruption going on maybe the first half -- second half is going to be skewed a little bit versus history, more for CBS than CFT. I just wonder if you can give us a sense there.

D. Christian Koch -- President and Chief Executive Officer,& Director

Yes. We're waiting to see how that unfolds. There have been some governmental actions in China with respect to factories opening and things like that after the Chinese New Year that are going to impact, I think, CIT and some of the business they export out of the Dongguan facility. Obviously, CBF is affected with our Hangzhou and Suzhou facilities, but a lot of that stays in China. Still, it will affect sales there. I think the biggest impact is the 787 MAX that we were at a 55-plane a month, I think, pace on the 737 MAX going into this problem, reduced it to 42 and now we're at 0. So obviously, we think that we're about, I think, $100,000 of content on that plane.

So you can see what that's going to do to the year. But if they can get the plane going, I mean, that could -- we get certification here quickly and get it back in service, then we're planning on it being out at least until midyear. And that -- obviously, I think earlier than that would be good. I think CFT is one of if we can get one of -- the situation is really dependent on automotive and global industrial. And obviously, the coronavirus does not help the Chinese automotive market for us which that's a big market for us, and also global industrial production and European declines are at least flat. And then North America not, I think, so much spending on the manufacturing side doesn't help. So I think how it plays out, Joel, it's going to impact us. And then we're hoping it gets better by midyear and perhaps the back end, with all those combined, show some increased momentum.

Joel Tiss -- BMO -- Analyst

Okay, thank you very much.

Operator

Your next question comes from Garik Shmois with Loop Capital. Please go ahead. Your line is open.

Garik Shmois -- Loop Capital -- Analyst

Hi, thanks. Just first question on capital allocation. You've got still an acquisition that you have to close on, but if you look out into 2020, just wondering if you could speak to the M&A environment, how much you are comfortable deploying for acquisitions? And which business segment, perhaps, do you see the greatest opportunities?

D. Christian Koch -- President and Chief Executive Officer,& Director

Well, I think we've got a lot of capital. We're comfortable deploying quite a bit. I think the question for us is always around discipline. Can we see a model that provides a good, solid organic revenue stream and then has synergies when we combine it to our platform? So I think we've been pretty clear about that. I don't see anything out there that would come up that we would not be able to afford. And I think we've deployed up to $500 million, $600 million, $700 million a year in acquisitions, and I think we're totally comfortable with that. If we look at where we're going to put it, right now, the preference would be to add to our Medical Technologies platform. We'd like to see accelerating growth there.

I think the team that's come with Providien, as I mentioned in my comments, Bill Gerard and that team, has brought a lot of talent with us and we really like his leadership. And we feel very confident that he can absorb some acquisitions. CCM is, again, another opportunity. I think within the metal, polyurethanes and then as Bryan asked just earlier, I think Europe's got to be a focus this year. And then lastly, back to aerospace, the Fileca acquisition, if we could find more acquisitions like that, they would be perfect. We'd love to build our geographic footprint in aerospace. And we'd also love to build our content, share the content per plane. So those would be the areas of focus. And lastly, I think we're at a point now with CFT where we could handle a larger acquisition. They've handled these initial ones very well. We've gotten good synergies out of them. I think they're working very well. So it would be nice to see something appear that we could put together with CFT and accelerate our growth there.

Garik Shmois -- Loop Capital -- Analyst

Okay. I was wondering if you could comment a little bit on what you're expecting out of the nonroofing pieces of CCM. So -- or non, I guess, traditional roofing pieces of CCM, so metal or installation in 2020, how you expect those growth rates to map out.

Robert M. Roche -- Vice President & Chief Financial Officer

Yes, I mean, I don't -- metal is going to continue where it has been in the mid-to high single digits. That's what we've been looking at. There's nothing changing in those pieces. Europe grew pretty good, close to double digits in 2019. We expect that to continue, and 8% for the Polyurethanes business. So we're expecting those to be a little higher as was expected going into the acquisitions.

Garik Shmois -- Loop Capital -- Analyst

Okay. Great. Last question just on CIT and on the aero side. When the MAX -- if and when the MAX comes back in the middle of the year, is there going to have to be a ramp period for you to get your capacity back to service the -- or I guess -- or just filling the gap from the lost revenues that you are currently experiencing? Or should we not expect any delays, once the MAX is turned back on, you should start to see the revenue flow?

D. Christian Koch -- President and Chief Executive Officer,& Director

I wouldn't see any delays from the production standpoint. We -- as I said, we view it as a delay, not a loss revenue. So we're not doing anything like laying off people and shutting down lines and things like that. We're finding other work for them to do. And we are ready to go. When that MAX eight rolls up, John Berlin and the CIT team will be on it immediately.

Garik Shmois -- Loop Capital -- Analyst

Great. Thanks so much.

Operator

Your next question comes from Josh Chan with Baird. please go ahead. Your line is open.

Josh Chan -- Baird -- Analyst

Good afternoon. Congrats on a good quarter. Hi,I just wanted to ask about the CCM business for in terms of price cost. Could you give us the contribution in Q4? And then for the 2020 guidance that you provided, how much price is included in that $25 million to $35 million?

Robert M. Roche -- Vice President & Chief Financial Officer

Yes, Josh, for Q4, I talked about $19 million.

D. Christian Koch -- President and Chief Executive Officer,& Director

And we're not going to break up the price cost right now, Josh, for the $25 million to $35 million. We'll get back to you on that as the year unfolds. I just think there's too much uncertainty around the price.

Josh Chan -- Baird -- Analyst

Okay. No, that's fair. Just, I guess, from a seasonality perspective, how far into the year would you get before you kind of have some understanding of how the price will shake out?

D. Christian Koch -- President and Chief Executive Officer,& Director

Yes, I think it'll start in 2Q. Q2 and Q3 are big seasons, obviously, or big quarters, I should say, with the season under way. So I think it would be just after Q1, we'll start to see the effects of that.

Josh Chan -- Baird -- Analyst

All right. And then on the CIT business, could you tell us what the margin of the acquired revenue is or will be in 2020? It's one of a few moving pieces there, I think.

D. Christian Koch -- President and Chief Executive Officer,& Director

I mean you're talking about Providien and Fileca?

Josh Chan -- Baird -- Analyst

Correct.

Robert M. Roche -- Vice President & Chief Financial Officer

Yes, it's about low to mid-single digits right now. Currently, we put the amortization and we have to work that back up. So we expect it to be higher. But in the first few years, it's 5% to 10%.

Josh Chan -- Baird -- Analyst

All right. And then I guess lastly on the CIT margins for the full year for 2020, could you just help us think about how we should look at the margin progression? So you've got the 737 headwind maybe for part of the year and then you have this deal impact, but then I think you've done some cost savings initiatives, too. So how should we think about how margin flows through in the CIT in 2020?

Robert M. Roche -- Vice President & Chief Financial Officer

Yes. I mean clearly, we're expecting volumes to be down in the first half just due to the MAX issues that we're seeing. So we'd expect margins to be weaker in the first half and growing into the second half.

Josh Chan -- Baird -- Analyst

Okay, great. So thanks for the time.

Operator

[Operator Instructions] Your next question comes from Daniel Wang with Berenberg Capital Markets.Please go ahead, your line is open.

Daniel Wang -- Berenberg Capital Markets -- Analyst

Hey, guys, thanks for taking my question. Just the first question on the CIT outlook, I suppose. I suppose the 737 MAX is a big component of your outlook for 2020. I was just wondering if there's any other moving parts within this guidance, for example. I think in 2019, you talked a little bit about some rationalization in net devices. Is this expected to impact 2020 numbers as well or it is, for the most part, completed?

D. Christian Koch -- President and Chief Executive Officer,& Director

I think we do -- we had an initiative on the SKU rationalization, but I think that's relatively complete. We do always go through -- there's always product line rationalization as we move through things. But I think the MAX is the biggest issue. Then obviously, it's the integration of the two acquisitions and how they perform and how much we're able to drive there through COS savings and things like that. I think industrial, we'll have some -- I still think some negative impact on the business as the industrial -- global industrial customers are impacted. Hopefully, that starts to wane in the end of the second quarter and gets better in the third quarter. Those would be the big impacts.

I mean, there might be some impact that we haven't completely calculated related to the coronavirus and the global GDP as well as the importing of product from Dongguan, and I have yet to see how that's going to affect us. So that's still to unfold. But I think that pretty much covers -- the one other thing I would add, and we talked about it in the commentary, is I don't think we can underestimate the impact on other business in the in-flight entertainment and connectivity related to the 737 MAX issue that planes are just not being taken out of services like they were. And so that has some negative impact. And then lastly, I think there's the question hanging around the 787 and the reduction of that content in June by, I think,two planes. So we estimate that would be, if it happens, around $10 million for the year. So I think that pretty much covers all the...

Robert M. Roche -- Vice President & Chief Financial Officer

Yes. And just so we're clear on the guidance for CIT. That does not include Fileca yet because we haven't closed it. So we never include anything in our guide until we actually close on it. So while we expect to close on it soon, we didn't put that in.

Daniel Wang -- Berenberg Capital Markets -- Analyst

Okay. And just a second question on some of the sourcing initiatives in CCM. I know you talked about it being a benefit in Q4. Can you provide a little bit more detail and color around I suppose what the sourcing initiatives actually are?

Robert M. Roche -- Vice President & Chief Financial Officer

Yes, we generally don't break that out. I mean, it -- we're just -- I don't think we want to get into talking about what the initiatives are, but they just revolve around reacting to the pricing in the markets and supply and demand, obviously, then our impact and how much we buy from a certain supplier. And so obviously, as our usage goes up, we expect a preferential treatment. And then we trade off different things, including length of the contract and stability there on raw materials. So I don't want to go into each raw material. I'd rather not discuss that on the call. But that gives you kind of a picture of what's going on.

Daniel Wang -- Berenberg Capital Markets -- Analyst

Alright, perfect. Thanks for taking my questions.

Operator

Your next question comes from Kevin Hocevar with Northcoast Research. Please go ahead, your line is open.

Kevin Hocevar -- Northcoast Research -- Analyst

Hey, everybody. What Tax rate, you said 24% is the expectation for 2020. It looks like it's been at about 20% the last two years. So why is that expected to tick up so much in 2020?

Robert M. Roche -- Vice President & Chief Financial Officer

Yes. I mean a lot of discrete items. The base has been around 24% for the last two years. We don't bake in discrete items because you don't know when these hit around what happens in state and federal rebates or any kind of the tax benefits that come as kind of one-timers. So we start with the base rate, and then we -- as we see benefits, we'll tell you that what's going to happen.

Kevin Hocevar -- Northcoast Research -- Analyst

Okay, got you. And what's -- you guys talked about there's some capacity additions coming in on the commercial roofing side of the business and TPO polyiso you talked about capacity being pretty tight. I guess how is your capacity? I mean when you think a TPO polyiso or EPDM, I guess, maybe the first two more than EPDM. But how is your capacity utilization? Others are adding capacity, are you going to need to add capacity soon based on how your plans are running? Just kind of curious your thoughts there.

D. Christian Koch -- President and Chief Executive Officer,& Director

Well, it's a balance. Factories take a long time to build. They're expensive. We like the long-term view. We're going to keep our market share in mind, keep our new product development in mind, keep our segments in mind and make sure we're positioning ourselves so that we don't have excess capacity, but we have just the right amount. And I think the team there has just done an excellent job on this. I think we will need to add capacity in the coming years. I'd say, in the next year to three years, we'll add some capacity in different areas. With respect to EPDM, I don't see us adding any capacity in EPDM. I think if we added capacity it will be along the lines of TPO or polyiso, or perhaps in our polyurethane business or metal. But we like the way the teams run it for the last two decades. We think we've been right on with our capacity versus the market trends. And I think that's -- I think we're in good shape.

Kevin Hocevar -- Northcoast Research -- Analyst

Okay. And then in CIT, I guess, I just want to make sure I understood. So high single-digit percent sales growth, and what is baked into that for the 737 MAX? Is that -- and I think you were kind of alluding to it earlier, does that assumes that it's the first half of the year it's not being produced, and then in the second half it is? So the first half is being impacted by it and in the second half, it isn't? Is that the right way to think of what's baked into that guidance?

D. Christian Koch -- President and Chief Executive Officer,& Director

Yes, Kevin, we took a pretty conservative outlook on the 737 MAX 8. Although it may come into service, we're hoping it comes in, in mid-year. There's been a lot of fits and starts with this. So we're thinking $50 million for the year, negative. And if you -- in revenue. And if you take that by what I talked about earlier, about $100,000 per plane and about $55,000 a month, obviously, that gives you a number that looks more like a year of nonproduction. But we're saying, let's get it back in service, let's be a little more conservative on our outlook. And even if it comes into service, they still have to train a lot of pilots, they have to do other things and we'd rather be a little bit cautious there in what we're projecting.

Kevin Hocevar -- Northcoast Research -- Analyst

Okay, got it.

D. Christian Koch -- President and Chief Executive Officer,& Director

Thank you very much.

Operator

There are currently no further questions at this time. I'll turn the call back to management for closing remarks.

D. Christian Koch -- President and Chief Executive Officer,& Director

Well, thanks, Josh, and thanks, everyone else. This concludes our fourth quarter 2019 earnings call. I look forward to speaking with you all at our next earnings call. Bye.

Operator

[Operator Closing Remarks].

Duration: 48 minutes

Call participants:

James Giannakouros -- Chief Financial Officer, Treasurer and Executive Vice President, Nucor Corporation

D. Christian Koch -- President and Chief Executive Officer,& Director

Robert M. Roche -- Vice President & Chief Financial Officer

Bryan Blair -- Oppenheimer -- Analyst

Joel Tiss -- BMO -- Analyst

Garik Shmois -- Loop Capital -- Analyst

Josh Chan -- Baird -- Analyst

Daniel Wang -- Berenberg Capital Markets -- Analyst

Kevin Hocevar -- Northcoast Research -- Analyst

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