Carlisle Companies Inc Q1 FY2021 Earnings Call

Good afternoon. My name is Kavita and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies First Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, we will conduct a question-and-answer session. I will now turn the call over to Mr. Jim Giannakouros, Carlisle's Vice President of Investor Relations. Jim, please go ahead.

Thank you, Kavita. Good afternoon, everyone, and welcome to Carlisle's first quarter 2021 earnings conference call. We released our first quarter financial results after the market close today and you can find both our press release and earnings call slide presentation in the Investor Relations section of our website carlisle.com. On the call with me today are Chris Koch, Chairman, President and Chief Executive Officer; and Bob Roche, our Chief Financial Officer. Today's call will begin with Chris discussing business trends experienced during the first quarter of 2021, views of what's to come and context around our progress toward an unwavering commitment to achieving Vision 2025. Bob will discuss the financial details of Carlisle's first quarter performance and current financial position. Following Chris and Bob's remarks, we will open up the line for questions. Before we begin, please refer to slide two of our presentation where we note that comments made on this call may include forward-looking statements based on current expectations of future events and their potential effect on Carlisle's operating and financial performance that involve risks and uncertainties which could cause actual results to differ materially. A discussion of some of these risks and uncertainties is provided in our press release and in our SEC filings on forms 10-K and 10-Q. Those considering investing in Carlisle should read these statements carefully and review reports we file with the SEC before making an investment decision. Today's presentation also contains certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financials in our press release and in the appendix of our presentation materials and we've also have historicals provided in supplemental tables which are available on our website. With that, I introduce Chris Koch, Chairman, President and CEO of Carlisle.

Thanks, Jim. Good afternoon. I'd like to welcome everyone to our first quarter 2021 earnings call. I hope all of you, your families, coworkers and friends are staying safe and healthy as we collectively manage through what is hopefully the beginning of the end of the COVID-19 pandemic. Reflecting on the last 12 months of uncertainty, I take great pride in how roughly one year ago, the Carlisle team handled the immediate threats borne out of the pandemic. Our first actions were to ensure our teams at Carlisle were taking the steps necessary to provide a safe work environment. We ensured that our team members had access to healthcare, continued to be paid and had company support for the difficult situations many were facing. We enacted strict health and safety protocols based on the CDC, World Health Organization and best-in-class recommendations, which contributed to a low infection rate at Carlisle across the globe. Our next steps were to support our highly engaged and flexible workforce as they took proactive measures to ensure we supported our customers that were providing essential services to the economy. We wanted to ensure that they could count on Carlisle to be there to provide the right product to the right place at the right time. Overall, we've come to call the Carlisle experience. Throughout 2020, it was essential for leadership to cut through the confusion, misinformation and complexity present in our daily lives and communicate a clear, direct, and simple strategic vision for the organization that would inform our priorities, educate our collective mission, and guide our everyday actions of work. At Carlisle, we call this Vision 2025 and this compelling strategic framework gave us clear direction and consistency of mission during the tumultuous past year and will continue to guide our efforts as we accelerate into the recovery in 2021. During the past 12 months, Carlisle again proved its ability to navigate varying economic cycles with steadiness and focus, while delivering strong financial performance, reconfirming our conviction in Vision 2025 and its key strategies. The first quarter of 2021 continues to validate the hard work, effort and commitment by all at Carlisle to our stakeholders and signals that operational momentum is building across our platforms. Due to the strength in our CCM, CFT, and CBF businesses, our revenue was flat year-over-year despite a very tough comparison to quarter one of 2020. The well understood impact of the COVID-19 pandemic on the commercial aerospace markets continued to weigh on CIT results and it had a significant negative impact on the first quarter of this year. More than offsetting this was outstanding performance at CCM where our team delivered 6.3% year-over-year revenue growth, a tremendous achievement when considering the first quarter of 2020 was 1% higher than 2019 and Q1 of 2019 was 12% higher than 2018. Additionally, we are encouraged by CBF's rebound from a multi-year sector decline in demand for our off-highway vehicles and lastly CFT continues to build on its second half 2020 performance and we're encouraged with CFT's global end market strengthening. Our strong results and rapid recovery from the initial shock of the early stages of the pandemic reinforce our confidence in the Carlisle team's ability to achieve its Vision 2025. The first quarter results highlight how we continue to execute on our long-term strategies including maintaining the highest standards in providing the Carlisle experience to our customers, investing in high return capital projects to drive organic growth across our core platforms, working on an active pipeline of acquisition targets, returning excess capital to shareholders through share repurchases and dividends, continuing on our ESG journey and demonstrating the exceptional and sustainable earnings power of the Carlisle business model. It's our history of innovation, investment and continuous improvements that supports more conviction than ever in Carlisle's future success. The first quarter of 2021 continues to demonstrate the strength of the CCM franchise and reaffirms our commitment to reinvesting in this our highest returning business. Our pivot to CCM that began with the introduction of Vision 2025 several years ago was an obvious strategic choice after more than two decades of exceptional returns on capital, strong organic growth and solid financial performance. This has further been bolstered by the now well understood value of the Carlisle experience. By the Carlisle experience, we mean ensuring delivery of the right product at the right place at the right time, industry-leading investment in production facilities and R&D capabilities, best-in-class education for channel partners on the latest roofing products and installation best practices, and an award-winning customer service team. Continuing to innovate and provide value-added products that ensure quicker, easier, and safer installation of our building envelope systems and solutions in an increasingly labor and material constrained environment. Finally, and perhaps most importantly, contributing products that provide a better environment for all stakeholders. Taken as a whole, the Carlisle experience is how CCM has become a manufacturing, engineering, and commercial leader in the construction products industry. Further evidence of our commitment to the Carlisle experience is our investment in our highest returning businesses. Earlier this week, Carlisle announced plans to invest more than $60 million to build an innovative state-of-the-art manufacturing facility in Sikeston, Missouri. This investment will support our organic growth initiatives and also create jobs for the City of Sikeston and surrounding communities. The building and its surrounding footprint will incorporate the latest advances in LEED building technologies and the highest standards of sustainability. The insulation materials manufactured here not only lower energy costs for building owners and operators but also help reduce a building's GHG emissions. Additionally, the site's central location will reduce the carbon footprint of the CCM supply chain and improve material lead times for customers in the region. Demand continues to grow for our insulation solutions, given the strong reroofing cycle underway in the US, as well as the growing needs to improve the energy performance of commercial buildings. With that in mind, we felt this was the right time to expand our capacity and enhance the Carlisle experience for our customers in the Midwest. I'll illustrate some specifics on our first quarter results where CCM exhibited the remarkable strength of its business model. CCM organic sales grew nearly 6% year-over-year, reflecting strong demand for our sustainable building envelope solutions and underscoring the importance of the Carlisle experience. March volumes were particularly strong, more than offsetting significant weather-induced softness in February. Additionally, bookings entering the second quarter are at record levels. Fortunately, our conviction in a strong 2021 meant that we anticipated the market needs and drove elevated production levels during the latter part of 2020 and into the winter months as others in the industry cast doubt on underlying demand. We did this as a commitment to our customers to ensure their needs would be met and to continue to earn our place as the supplier of choice for their building envelope solutions. CCM continues to benefit from the strong reroofing cycle in the United States. Our products and solutions for non-residential buildings are non-discretionary and can only be deferred for so long. We believe CCM volumes in 2021 should benefit from work postponed in 2020 due to the pandemic. When we maintain our conviction in the sustainability of reroofing demand in the US, where we continue to expect the market to grow from $6 billion to $8 billion in the next decade. Additionally, CCM is meeting the challenges presented by the significant acceleration in raw material and logistics cost inflation during the quarter. Coming into the year, we expected an inflationary environment coupled with strong demand, and thus had prioritized selling price increases across most product categories at CCM to ensure we could continue to invest in and provide world-class customer service to our customers. Our procurement and supply chain teams are doing a great job navigating a volatile and extremely tight marketplace. Again, with the goal of providing the best-in-class Carlisle experience to our customers. The first quarter results for CIT were in line with subdued expectations, given the ongoing disruption in the commercial aerospace market. However, improving leading indicators, which include the expanding vaccine rollout, increasing numbers of domestic travelers, growing aircraft manufacturer backlogs, and improvements in CIT's order books give us confidence that CIT is positioned for sequential improvement going forward. CFT delivered improved revenue and profitability performance in the first quarter driven by its re-energized commitment to new product innovation, improved operational efficiencies, price discipline, and integration of our newer platforms. We are especially pleased that new products accounted for over half of the volume growth in this quarter. At CBF, the significant actions taken to improve the business over the past few years are yielding expected results. Demand for off-highway vehicles and equipment, especially in agriculture and construction, is driving very strong volumes. CBF is delivering positive and accelerated earnings growth in what looks to be a significant inflection year for this business.

Thanks, Chris. Starting with this quarterly call, when referencing profitability, I'll be speaking to adjusted EBITDA margins and adjusted earnings. Please now turn to the revenue bridge on Slide 9 of the presentation. Revenue was flat in the first quarter driven by CCM, CFT, and CBF offset by the well-documented commercial aerospace declines at CIT. Organic revenue declined 1.4%. CCM, CFT, and CBF all delivered greater than 5% organic growth in the quarter. Acquisitions contributed 0.4% of sales growth for the quarter and FX was a 90 basis point tailwind. Turning to our adjusted EBITDA margin bridge on slide 10, Q1 adjusted EBITDA margin declined 180 basis points to 14.4%. Pricing and volume headwinds combined for a 150 basis point decline driven by CIT. Acquisitions were a 10 basis point headwind. Freight, labor, raw material, and other operating costs netted to a 140 basis point decline. COS benefits added 120 basis points. On Slide 11, we have provided an adjusted EPS bridge where you can see the first quarter adjusted EPS was $1.47, which compares to $1.67 last year. Volume, price, and mix combined were a $0.24 year-over-year decline. Raw material, freight, and labor costs were a $0.25 headwind. Interest and tax together were a $0.01 headwind. Partially offsetting the decline, share repurchases contributed 5%, COS contributed $0.16, and lower OpEx was a $0.09 benefit year-over-year. While COVID-related volume declines at CIT clearly represented the most significant headwind during the quarter, our CIT team did a commendable job of managing costs, leveraging COS to improve efficiencies, and taking actions to position Carlisle for the recovery while mitigating the pandemic's impact on earnings. Now, please turn to Slide 12 to review the first quarter performance by segment in more detail. At CCM, the team again delivered outstanding results with revenues increasing 6.3% driven by volume and 60 basis points of foreign currency translation tailwind. CCM continued to exhibit its resilience with solid US commercial roofing performance despite continued COVID-related restrictions in some areas and severe weather in February. Our European and architectural metals teams were solid contributors to the quarter's revenue performance. Adjusted EBITDA margin at CCM was 20.1% in the first quarter, a 50 basis point improvement over last year driven by the higher volumes. COS savings and cost management were partially offset by wage and raw material inflation. On Slide 13, please review CIT's results. CIT revenue declined 30.6% in the first quarter as has been well publicized; this decline was driven by the pandemic's impact on commercial aerospace markets. While recovery in aerospace could be prolonged, we are confident that there will be a resumption of growth with the continued rollout of the COVID vaccine and airlines returning to profitability. In our medical platform, sales were up nicely in the quarter year-over-year. We continue to expect sequential improvement from pent-up demand as the impacts of COVID on hospital CapEx and postponement of elective surgeries ease. Additionally, our project pipeline is robust and our backlogs are improving. CIT's adjusted EBITDA margin declined year-over-year to 7.1% driven by commercial aerospace softness, partly offset by savings from COS and lower expenses. While the actions taken by CIT in 2020 to right-size our footprint and reuse the overall workforce were difficult, we are positioned to deliver sequentially improving performance throughout 2021. Turning to Slide 14; CFT sales grew 12.9% year-over-year. Organic revenue improved 5.3%, acquisitions added 4.1% in the quarter, and FX contributed 350 basis points. Stabilization in key end markets driven by an improved industrial capital spending outlook in 2021, coupled with new product introductions, pricing resolve, and efforts to upgrade the customer experience positioned CFT to accelerate through the recovery. Adjusted EBITDA margins of 15.5% represented a 590 basis point decline year-over-year. This decline primarily reflects an FX gain of approximately $3 million from the previous year, partially offset by growing volume. CBF's first quarter organic revenue growth was 20.4% and FX had a positive 3.7% impact, driving CBF's organic total growth to 24.1% in the quarter. Demand for agricultural and construction equipment was the primary contributor to Europe. Additionally, backlog continues to strengthen where bookings are up 80% year-over-year. Adjusted EBITDA margins were 13.3%, a 600 basis point improvement driven by higher volumes and COS savings. On Slide 16 and 17, we show selected balance sheet metrics. Our balance sheet remains strong. We ended the quarter with $767 million of cash on hand and $1 billion of availability under our revolving credit facility. We continue to approach capital deployment in a balanced and disciplined manner, investing in organic growth through capital expenditures and opportunistically repurchasing shares while also actively seeking strategic and synergistic acquisitions. Free cash flow for the quarter was $47.6 million, a 57% improvement year-over-year. Turning to Slide 18, you can see the outlook for 2021 in corporate items. Corporate expenses are now expected to be approximately $120 million for the year driven by stock and incentive-based compensation along with higher medical expenses. We continue to expect depreciation and amortization expense to be approximately $225 million. For the full year, we expect to invest in our businesses and still expect capital expenditures of $150 million to $175 million. Net interest expense is still expected to be approximately $75 million for the year and we still expect our tax rate to be approximately 25%. Finally, we expect restructuring in 2021 to be approximately $20 million.

Thanks, Bob. Entering the second quarter of 2021, we are very optimistic about the remainder of the year. From record backlogs at CCM to growing positive trends in CIT aerospace markets to recovery in both CBF and CFT, coupled with excellent sourcing and price discipline, we're confident in our ability to deliver solid results for our shareholders. We will continue to seek to deploy capital into strategic acquisitions, share repurchases, and dividends. While there are still uncertainties around the pandemic for the full year of 2021, we anticipate the following: at CCM, supported by a strong multi-year reroofing base, project deferrals that occurred in 2020, positive momentum in our newer businesses of architectural metals and polyurethanes, and expansion of our European business. We now anticipate revenue growth in the low double digits in 2021. At CIT, given improving leading indicators, including a vastly better COVID-19 outlook, increasing daily TSA screenings for domestic travel, and improving airline financials translating into increased manufacturers' orders, CIT's financial performance has stabilized and is positioned for sequential improvement going forward. That said, we anticipate pressures remain near term, given a very difficult year-over-year comparison in the first and second quarters; we continue to expect CIT revenue will decline in the mid to high single-digit range for the full year 2021. At CFT, with end markets strengthening, especially in general industrial and improvements in the team's execution of our key strategies, we continue to expect low double-digit growth in 2021. And at CBF, supported by strengthening demand in core markets, price resilience, and a growing backlog, we now expect over 30% year-over-year growth in 2021. For Carlisle as a whole, we expect low double-digit growth in 2021. In closing, I want to once again express my gratitude to our dedicated employees, their families, our business partners, and all those associated with Carlisle's success. Given our 100-year history and the resilience this company has shown in times of adversity and uncertainty, we remain confident in Carlisle's outlook, our strong financial foundation, cash generating capabilities, unwavering commitment to our Vision 2025 strategic plan, and to providing products and services essential to the world's needs. This concludes our formal comments. Kavita, we are now ready for questions.

And our first question comes from Bryan Blair with Oppenheimer.

Good afternoon, guys. Very solid start to the year.

Yes, thanks, Bryan. Good afternoon.

I would like to know more about the trends in CCM volume throughout the quarter. I'm particularly interested in what I believe was a change in March. Our observation was that February was challenging, and there was a slowdown for much of the month. January wasn't very strong, remaining flat or slightly increasing, which suggests a substantial margin momentum heading into the second quarter, consistent with achieving record bookings. Can you provide details on that level of momentum?

Yes, I think we are pretty consistent with you. But I’d also say the third quarter and fourth quarter the teams were already seeing a return to some pretty solid numbers in backlog that is continuing to be quite stable and growing. We did say I think in the fourth quarter call that we came into the year with momentum and the first quarter was going to be fairly good, and I think as we've talked about, we did anticipate a strong 2021 coming off of the tough 2020 where we had some adds that we knew were going to come back specifically in distributor stocking, for instance, and we also know there'll be a big backlog that hadn’t been addressed in 2020. So, yes, you're right, January was good. I think it continued to trend. February was a dip that created some uncertainty out there. I think people were wondering how many days were lost at the roof and then March did come back, which reflected what we anticipated all along. 2020 was going to be a good year, that we were going to get some distributor restocking, that contractors were going to have more flexibility going on under the roof, and we were going to see momentum build.

I appreciate that color. And how is your team thinking about second quarter growth for CCM and if we work off of the 719 in the first quarter and think of historical seasonality and again with record bookings going into the quarter that implies very significant second quarter growth versus obviously a weak comp, but nonetheless very significant growth. Anything you could quantify would be appreciated?

Yes, I'll let Bob address that. But I think the seasonality thing I would kind of set aside. I think, again, the last year was an exceptional year. And I think there are some forces that overwhelm any seasonality that might be there, but Bob you want to give some more specifics?

Yes, Bryan, on second quarter, we're expecting over 20% growth off a weak last year. So I think the normal bump from Q1 to Q2 was there, but the year-over-year is definitely going to be bigger than usual because of the weakness last year.

Okay, fair enough. And then any updated thoughts you can offer on price cost outlook? Input costs have been less than cooperative, that's well understood, you have been aggressive on price. We know there is traction there. How do you see that shaking out on a full-year basis? And how should we think about first versus second half dynamic?

Yes, I'm thinking about, at least from my perspective what we talked about at some of the other calls, which where we thought we were going to be relatively flat in 2021, that we were being very aggressive on price. Again, I think the team anticipated what was going to happen in the year. The news is going to be high demand, there's going to still be labor constraints, and I think they knew this idea of having product would be important, especially in inflationary times. So when we look at Q1 and Q2, I think for Q1, from my perspective, it was relatively flat on price cost. I think Q2 might be a little bit negative. As we roll into Q3 and Q4, we may turn flat and then maybe a little positive, so net-net for the year, I'm thinking flat. Bob, you want to add anything?

Yes, Bryan, just even with what Chris said about the second quarter, we still believe adjusted EBITDA margins will be relatively flat year-on-year even with the slight pressure we may see.

Okay. Excellent, Chris. I appreciate that. I'll leave it there.

All right. Thanks, Bryan.

Hey, guys. Good afternoon. Nice start to the year.

Thank you.

Maybe just first question, could you talk a little bit about material availability? Maybe not for yourself, but the broader industry and what you’re hearing around lead times and how those compare relative to your own business?

Yes, I think you're right. I think our team has done a good job of ensuring that we have supply and things are getting tighter. We're able to keep everybody satisfied for right now, but across the business, I think there are those who are perhaps struggling. I know, on the foam side, polyols have been tough to get, and MDI I think for some has been tough to get. Even on the fasteners and steel decking has been surprisingly tough to get. So, yes, I think in a broad sense Tim, across what we're seeing, it's getting a little bit worse, and that's putting pressure obviously on the ability to deliver product, and I think for some folks lead times are extending. But as I said, I think for us we're keeping our customers satisfied. We'll see what happens there because if demand rates continue like this, it's going to put even more pressure. I do think as the year progresses, suppliers will catch up, they will have compensated for what they took out in 2020, and probably as we look at the back half of the year, things should normalize, but I think this summer is going to be interesting.

Okay. And then, if I remember correctly, distributors really tightened up in April last year. Are you seeing that significantly loosen up, or are they scrambling for inventory?

Well, I think that some of the record bookings obviously are people who are restocking. Last year we had that big hit. We did talk about in the second quarter how people were not putting in that normal load for the year. I think now there is probably that normal load plus there is the backlog from last year's jobs that didn't get completed. We might have some buying where people are worried about being able to deliver jobs in July and August and want to make sure they get priced and get them in inventory at least have a line of sight to being able to deliver.

Okay. Good. And then just free cash flow conversion, it looks the same, but I think it's actually off adjusted net income now. I guess from a dollar perspective what changed relative to before, because if you put it relative to would be significantly higher, right?

Yes, relative to GAAP it was higher. The new metric that we have is on adjusted net income, Tim.

Okay. And I guess what changed?

Yes, nothing has changed.

But you had 120 on GAAP last time. I know you have 120 on the adjusted in terms of conversion, right?

We did. We leave some room for conservatism on the preliminary call for free cash flow conversion. So the math is the same.

I got you. Okay, good. Okay, great. I'll hop back. Thanks, guys. I appreciate it. Good luck.

Okay. Thanks, Tim.

Hi, good evening. Typically, a positive sign when companies are increasing capacity. What's the capacity of your new facility and how long will this capacity last before you think you're going to require another one?

Well, I think we generally think that a Polyiso plant adds somewhere between 5% and 10% to the capacity of the industry. When you think that we're growing in the first quarter 6% and we think that's going to continue, I think it's just an appropriate level of capacity to add, and likely it will take a couple of years to consume that. We've seen competitors add plants over the last five or six years; it’s been one every couple of years, and that seems to have been the appropriate level of capacity to not over-capitalize the industry and then have pressure on pricing.

And then, maybe can you talk about what you saw from an end market perspective in CFT and do you see an acceleration through the quarter? How are orders trending? I believe you have a decent amount of auto exposure there, so maybe any impact you're seeing from production issues?

Right. Most of the things I'll address revolve around production issues there and capacity; when they're putting in these paint systems and sealer systems, typically, it's a longer-term project with an ROI-based investment over multiple years. We haven't seen much in terms of negative impact over the long-term visions of people upgrading. The trends in industrial I think are good. I've been surprised at how Europe has been as strong as it has been, China has returned and North America, if anything, will be a little bit of a laggard, but that's coming on strong now too. So end market trends and I think you see that in CBF as well where we're seeing heavy equipment and that pickup after many years of that kind of malaise. Bob, do you want to add anything?

No, I think that covers it, Chris.

Okay. Thanks for the questions.

Thanks, Saree.

Great, thank you. Just with respect to CCM volumes, you cited record bookings and that's clearly driving some of the strength here, but maybe you could flush out what you're seeing from a regional or end market standpoint, how new construction versus re-roofing, and any region stands out in particular?

Yes. The regions that still stand out—being headquartered in Phoenix—one of the interesting things that we see is how strong building in the Southwest has been, and obviously in Texas where there's a lot of talk about the migration that occurs there; Florida, we see that surprisingly our business so pretty much everywhere has been pretty good. One of the leading indicators we've always said for years has been, when residential construction is good, non-residential tends to follow; when you're building houses and expanding suburbs, you tend to draw long shopping centers and places to eat, Walgreens, CVS, and kinds of things. I think across the US it's been very good, and you can see that in residential as well. For new construction, it's been a contributor; Bob and I've talked for a while about how anything north of zero probably really helps, and it has been low single digits for new. So that's been really good to add to what we articulated in this presentation around how strong we think the reroofing backlog and growth has been and will be over the next decade. So it’s kind of an interesting thing here, but I mean, really, if I think about hitting on all cylinders, pretty much doing it right now.

That's encouraging. What are the thoughts on the price-cost outlook? Is this— you reiterated it; is this predicated on getting or needing additional price increases or do you think what you secured so far this year should get you there, just given the visibility that you have on the cost sides?

Yes. And what I articulated about the cost side I think is a key part of that. Obviously, we anticipate that suppliers will get their capacity back online and we'll see some modulation as we get into the third quarter and then into the fourth quarter. Obviously, if anything substantial changes it throws it off, but given where we are from a price perspective, I think our team was very proactive in getting ahead of us and that’s what’s embodied in this flat call for the year.

Great. And then just lastly, just wondering on the supply side for CCM. Just given how tight it is and recognizing that some manufacturers will be able to get their production in line later on this year, but given how strong the market appears to be for you and how strong the market appears to be when looking out over the next several quarters and several years assuming a recovery. Do you think we're at an inflection point? And you've been talking about this for several years. But do you think we're truly at an inflection point now for pricing in CCM?

Well, I can't speak for the rest of the market, but I think given where we are on various fronts, first of all, the demand, the labor constraints, the productivity needs, and ESG globally, there are a lot of trends that just point to what we've been saying which is this market is going to be robust, and people are going to place a premium on having a supplier that will deliver every time with the right product. Our teams' work over the last few years, investing in our R&D center, training, education on application things like this leads us to believe that they're going to pay, they will pay a premium for a company that delivers on their promises like that. So I think for us going forward we've had this pricing resolve for a while now. Many years, and I think our inflection point was three or four years ago. I think maybe the rest of the industry may get there, but the only thing I would say is if people don’t deliver on those things, if you're not providing innovation, if you're not providing superior customer service, if you're not providing products that take labor off the roof, then I don't think the pricing situation is the same and you may not be at an inflection point.

Understood. Thanks again.

You bet.

Hey, guys. How is it going?

Joel, how are you doing? Good to hear your voice.

All right. Yes, good to hear you guys too. Glad everyone’s safe, and it sounds like happy and making everybody money, that's what it's all about, right?

Thank you.

Can you clarify what price discipline means in CFT?

Well, one of the things we know is that a large part over the years of our competitors' growth and profitability has come through pricing. The same idea is in CCM; you create innovative products, provide excellent service, and then you price it appropriately. You don't just lower the price because a competitor has a good deal. You stick to pricing your product to the value you provide. That's what we mean there is that CFT is now delivering on time, good customer service, innovative products as we said in the call. Half of the volume in the first quarter came from new products. We're building that business the way we wanted to, and we could continue to get pricing and be disciplined in how we do it. We're not getting into price competition; we're selling value.

Okay, so that's smart like establishing yourself as the premium brand there?

Yes, a premium brand.

Can you talk a little bit about CIT? I'm sure you have a little more insight just into what the customers are thinking, and I'm thinking more '22 and '23. I'm not really thinking about the second quarter, but anything you can help us with because I know we went into kind of this time last year, and there was a little too much inventory in the channel. Is that all cleaned out? Just give us maybe a little bit of a deeper look at how that is setting up for the next three years.

Yes, I think it's all, Joel. I mean, it all depends on travel, and we're seeing increased travel. We're seeing increased leisure travel, certainly in the US. I know China travel has picked up too. Things that we can see indicate that there should be a gradual improvement. 2022 should bring us back to profitability and then marching forward from there.

Okay. So it sounds like maybe just a little bit too early to have a clear view. Can you just talk quickly about acquisition valuation?

So the trend that's happened over the last couple of years, you know it well, that there has been increasing amounts of money in the market with decreasing amounts of assets, and so multiples continue to increase. I think we saw with the Firestone deal at somewhere around 12, which for construction products compared to five years ago is probably a couple of turns higher than it would have been. Yes, as long as we have money out there and we have strategics and sponsors looking for assets to deploy and now we have SPACs and other things, demand is high for assets and multiples continue to rise.

And can you do anything creative to get through Bob's screens, like buying things for stock or not really?

Can do Polyiso creative guy. I can't do anything creative because he won't respond to it Joel; it's just mean potato. So, we have to make sure we're fine and assets that have great synergies and good strong organic growth programs embedded in their businesses. When you look at construction products or in CFT or even in CIT in medical, there are businesses that have great products with good runways for strong organic growth. Luckily in those markets, we now even in medical, we've got bases that are big enough that we can make acquisitions and get synergies out of it. That’s the only way we can make the model work as we must have good strong organic growth and leverage with those synergies.

Okay, great. Thank you so much.

You bet.

Hey, everybody. Nice start to the year there.

Hey, thanks, Kevin.

Wondering if Bob, I want to revisit you; you mentioned CCM margin. Do you expect it to be flat in the second quarter compared to the prior year-end? I guess with sales expected to be up over 20%, and price cost just a small headwind, I guess, why would that be the case? What would be the offsets there?

Well, it's a little bit of the price cost that Chris mentioned; we think the second quarter is going to be the toughest compare and then growing into the back half.

Okay. And in terms of the—you guys mentioned metal roofs. I think you had mentioned in the prepared remarks, when you're talking about CCM that metal roofing in Europe did well. I wonder if you could just give a little bit more color there. And you didn't—I don't think you mentioned Polyurethanes, so curious what you're seeing out of each of those businesses within CCM?

We're really pleased with Europe and the new management team that came in a little while back, impressive leadership, how things have solidified. We invested in the expansion of Walter's house and we're really pushing our new products and that's going to continue to be a good story. The story in Europe is just a new management team with a really exciting outlook and great strategic direction. Architectural metals is another great story. Both leaders of the business at Drexel and Petersen are doing a great job. Petersen had an all-time record month in March. The Drexel team continues to also do a great job as well. Polyurethanes is great; the only issue in Polyurethanes is really for us right now that some of the materials are challenging to come by across the industry and everyone is kind of suffering on MDI and polyols. We can’t get as much as we would like to have and that's really the only thing that I think is constraining the growth in that market, and that's a market where we have projected high single-digit growth out of Polyurethanes. We still think that growth is there that product line continues to be more and more accepted and desired in homes for its insulating properties and vapor barrier properties and it’s a very high-performing insulation. So there are three great segments for CCM; there are three great additions and we like what the management teams are doing and how they're creating value. Bob, do you want to add anything to that?

No.

Great.

And there are no further questions at this time. I'll turn the conference back over to Chris for closing remarks.

Thanks, Kavita. This concludes our first quarter 2021 earnings call. I want to thank everybody for your participation. We look forward to speaking with you at the next earnings call. Thanks, and stay safe.

And that does conclude today's call. Thank you for your participation. You may now disconnect.