Earnings Call Transcript - CSL Q3 2020

Operator, Operator

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I would like to turn the call over to Mr. Jim Giannakouros, Carlisle’s Vice President of Investor Relations and Financial Planning and Analysis. Jim, please go ahead.

Jim Giannakouros, Vice President of Investor Relations and Financial Planning and Analysis

Thank you, Rob. Good afternoon, everyone, and welcome to Carlisle’s third quarter 2020 earnings conference call. We released our third 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. 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 third quarter and context around our continued confidence in achieving Vision 2025. Bob will discuss Carlisle’s third 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 2 of our presentation, where we note that certain statements made during this call may be forward-looking, and actual results may differ materially from our expectations due to a number of factors, including impacts from COVID-19. A discussion of some of the risks and uncertainties that may affect our results 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 the reports we file with the SEC before making an investment decision. With that, I will turn over the call to Chris.

Chris Koch, Chairman, President and Chief Executive Officer

Thanks, Jim. Good afternoon, everyone. As we enter the 10th month of operating in this COVID-19 pandemic, I hope everyone out there is healthy and staying safe. I would like to first say how proud I am of the Carlisle team and how grateful I am for their continued passion, dedication, and commitment to serving our customers, protecting each other, and supporting our communities through these uncertain times. We all know that this virus continues to be a threat to our health and economy and want to assure everyone that safety has always been and will always be the number one priority at Carlisle. Protecting ourselves and each other against this virus is at the forefront of our thoughts, even more so as the winter and flu seasons approach. If we all do our part, we can help manage this pandemic and get us all back to a healthy and productive state, both in our professional and personal lives. While being safe and healthy is always our first priority, we also have the commitment to keep all our stakeholders in mind and to deliver on our key objectives, including Vision 2025 and our ESG initiatives. By doing this, we ensure that we will continue to be a positive contributor and long-serving member of our communities. Now let’s turn to Slides 3 and 4. While the COVID-19 pandemic has affected our 2020 results, our proactive approach has allowed us to continue to operate at a high level of efficiency and capacity. Our operating income generation and cash position at the end of the third quarter speak to the hard work, discipline, and perseverance of the entire Carlisle team. The same attributes will allow us to further improve the efficiency of our businesses through the Carlisle Operating System and to continue to make the investments necessary to deliver a world-class Carlisle Experience well into the future. This will ensure we maintain discipline and rigor in our capital allocation process. When taken with our other initiatives, these actions will provide the horsepower to drive our success in achieving our Vision 2025 goal of $15 of earnings per share. Reinforcing and demonstrating our ability to deliver on this commitment, we have generated $1.9 billion of free cash flow and a 25% CAGR over the last five years ending in 2019, which was basically the pre-pandemic period. This track record of success supports our confidence in this team’s ability and capability to execute on the components of Vision 2025, including our capital allocation strategy and to create value through our business model. Our confidence is built on numerous factors. First, the significant and proven annuity contained in the U.S. non-residential reroofing market segment, which is estimated to be between $5 billion to $6 billion per year today, growing to approximately $8 billion in the next decade; second, we’re reframing our pricing approach, which since mid-2017 has delivered a new paradigm tied to our enhanced value proposition in the marketplace; third, the financial flexibility to access up to $3 billion for acquisitions; fourth, operational efficiencies from our culture of continuous improvement; and lastly, the revenue growth opportunities in several key areas, including European construction markets, our medical technologies platform within CIT, highly-engineered fluid technology solutions, and aerospace markets returning to pre-COVID levels of demand. Most of all, it's our belief in our employees' ability to deliver for Carlisle customers as they have for over 100 years and to continuously improve the Carlisle experience that allows us to accelerate through the recovery. Transitioning to our third quarter results, we believe the third quarter reflects the remarkable strength and resilience of the CCM business model and Carlisle’s balance sheet. Carlisle’s cash-generating ability ensures that we can continue to invest organically and through acquisitions, particularly in our high growth platforms and building envelope solutions, medical technologies, and fluid technologies. Coupled with returning capital to shareholders via dividend increases, which we increased by 5% in September, marking the 44th consecutive year of increases and share repurchases, we continue to demonstrate a strong underlying foundation. In the face of the pandemic, our team has taken many proactive steps across our businesses to position Carlisle for an improved 2021 and beyond. We have taken tough but necessary restructuring actions at CIT, which included the announced closures of our Mobile, Alabama and Kent, Washington facilities. I want to be direct in saying, we are facing challenges head-on and absolutely remain committed to and focused on achieving $15 in earnings per share by the end of 2025. Our conviction in our ability to deliver on Vision 2025 is supported by several factors. Starting with CCM, which continues to exhibit resilience and is set up extremely well for attractive, sustainable top-line growth and margin improvement. We continue to see sequential improvement in daily sales volumes throughout the third quarter at CCM, with September sales ending slightly positive year-over-year for the first time since the pandemic began. We foresee robust and growing reroofing markets, with positive trends continuing well through 2025, driven by the need for maintaining aging roofs and the continuous cycle of replacement of U.S. roofing infrastructure. This distinction is important as most of CCM's sales are driven by replacement demand, not new construction. And at times of financial stress, those needs are not canceled but deferred. Year-to-date, we have benefited from CCM’s variable cost structure and notably lower input costs versus last year. Due to our size and scale, we believe we have the lowest cost structure in the industry, which creates significant value through the Carlisle Experience, and we continue to demonstrate price leadership, connecting pricing to our value proposition. In summary, our commitment is to deliver the right product at the right place at the right time, every time. We’re very pleased with the progress we continue to make on our newer platforms of polyurethane and architectural metals, as well as our specialty roofing materials produced and sold in Europe. Within polyurethane spray foam, we continue to regain market share by refocusing on core customer relationships and launching new differentiated products, all under a new consolidated brand structure. These improvements have helped drive year-over-year revenue growth in the third quarter and year-to-date. Architectural metal was a bright spot in the quarter, delivering relatively flat sales in a challenging environment. Architectural metal margins continue to improve with solid progress on integration initiatives. Profitability in Europe continues to improve, and we believe that Europe provides an opportunity for meaningful expansion for CCM. We anticipate fourth quarter sales at CCM will grow low single digits barring any weather or COVID-related disruptions. Turning to our Interconnect business, as it has been well publicized, global air travel and aerospace financial health have both been severely impacted by the COVID-19 pandemic. The impact on aircraft manufacturers, such as Boeing and Airbus is momentous, with build rates continuing to decline substantially this quarter. Since the beginning of March, the CIT team has been focused on dealing with the rapid declines and fallout that all suppliers in the aerospace industry have felt. Our focus has been to position CIT aerospace to support the strong recovery we anticipate will occur as global air travel returns in the coming years. Despite aggressive action and minimized losses in the near term to right-size our footprint, we continue to invest in new products and capabilities that will enable us to maintain our industry-leading position and exceed our customer expectations when growth in aircraft production rates resumes. We are maintaining a close eye on our aerospace competitors and remain positioned to be opportunistic should a strategic and appropriate asset become available. While we all know that the aerospace markets have been significantly impacted by the pandemic, we do remain confident that over time passengers will become comfortable with the safety measures airlines are implementing. Supportive of this, TSA passenger screenings have increased dramatically since March, and we believe it will continue to rise in the fourth quarter. Additionally, recent data show that the risk of transmission of COVID-19 on an aircraft is quite low. We’re encouraged by global efforts and progress toward the development of a COVID-19 vaccine, which, once deployed, should drive passenger confidence, accelerate a return to higher levels of passenger miles, and aid recovery. Transitioning to our medical platform within CIT, we entered the medical technologies sector several years ago through the acquisition of LHI, with the goal of leveraging our core wire and cable expertise into the MedTech markets. The acquisitions of MicroConnex, RedGroup, and Providien over the last few years have contributed significantly to our platform, and MedTech remains a key area of focus for both organic investment and bolt-on acquisitions. CIT medical technologies has proven stable in this uncertain environment, benefiting from increased demand for COVID-19 related patient monitoring equipment, partially offset by deferred hospital capital investment. Recently acquired Providien, which expanded our component and vertically integrated device solutions capabilities, continues to perform well and integration is on track. Additionally, product rationalization actions taken in legacy medical product lines in 2018 and 2019 have improved the CIT medical technologies margin profile. Our long-term bullishness on MedTech remains intact, and we see CIT revenues trending toward a better balanced and more profitable mix over time. Near term, while CIT medical technologies remains a positive offset to CIT aerospace weakness, we remain watchful of key MedTech demand drivers, such as capital spending in hospitals, elective surgery, and procedure deferrals, particularly in the United States. Taken together, we expect CIT’s revenue in the fourth quarter of 2020 to decline approximately 35% versus the fourth quarter of 2019, reflecting significant inventories of aircraft in the channel, limited new orders, and reduced production rates. At CFT, operating income grew 5% due to solid pricing gains, operational improvements, and cost discipline despite revenues declining 5%. All the pressures from subdued industrial capital expenditures remain. CFT continues to execute on internal initiatives laid out in Vision 2025. Our new technology initiatives can be highlighted by the launch of our market differentiated premium solution for spray foam applications, which gained traction throughout the third quarter. We’re proud to be delivering a spray foam insulation industry first: the combination of application equipment with polyurethane foam material. This combination will allow us to provide the spray foam contractor, builder, and homeowner with greater application efficiency, tighter ratio tolerances, and ultimately a better foam insulation product in the wall. We are also encouraged by our latest strategic acquisitions in sealants and adhesives within CFT, including Ecco, Shinhang, and IDS. This combination of market leaders in specific niche products, coupled with CFT’s legacy products, brings CFT closer to offering a comprehensive sealants and adhesives product portfolio for our global customer base. We are also extremely proud of the progress CFT made in the third quarter, continuing to upgrade the customer experience from our order entry capabilities to our quality and deliver improvements in all our global locations. We are beginning to see positive signs at CFT end markets, particularly in Asia and Europe, and we’re optimistic that we are past the worst of the COVID-19 impact to our industrial customers. We remain committed to our original long-term margin goal of 20% plus percent for CFT and are confident that the multifaceted plans we’ve put in place, including developing and introducing innovative new products, capturing the value of these products with enhanced pricing, applying COS rigorously, and maintaining hyper-focus on plant safety, quality, delivery, and cost management will result in significant improvements in 2021. We currently expect fourth quarter revenue to decline mid-teens year-over-year, reflecting sequential improvement over the third quarter of 2020, but up against a relatively strong fourth quarter 2019. Turning to CBF, CBF sales were down 9% in the quarter, reflecting the additional impact of the pandemic on top of the multi-year downturn CBF was already experiencing in the global off-highway vehicle markets. The expected COVID-related contributing factor to CBF's results was similar to CIT’s in terms of exposure to the aerospace industry, where it supplies high margin metallic and carbon aircraft braking products. Significant progress and business improvement actions taken in the past few years in this business, including the Tulsa and Medina plant consolidation and many new product introductions, have not been enough to offset volume declines, especially in the high margin aerospace business. CBF has made substantial progress in lowering its cost base, refining its production processes, and reducing its footprint, all actions that will help us reach our targeted margins as demand improves. We believe global demand for CBF products will continue to be pressured in the fourth quarter of 2020, and as such, we expect fourth quarter sales to be down low single digits. Reflecting on capital deployment, accretive and synergistic acquisitions remain a key pillar of Vision 2025. Despite the temporary impacts of COVID-19, we continue to aggressively track opportunities to deploy capital into our strategic segments of CCM, CIT, and CFT with returns in excess of cost of capital as our guide. Our financial strength and cash flow generating capabilities afford us flexibility, and we intend to remain opportunistic. Notably, when acquisition activity is subdued, we remain committed to returning capital to shareholders. This is evidenced by our deployment of more than $340 million in share repurchases year-to-date in 2020. Finally, we continue to be relentless in the expansion of our decade-plus Carlisle-wide operating system based on the principles of Lean and Six Sigma or COS. COS or the Carlisle Operating System will continue to be a unifying cultural imperative, providing an essential toolkit for our businesses to rely on as they seek new opportunities to make our operations and businesses more efficient. In the third quarter, COS once again delivered savings and efficiency gains, this time approximately 1% of sales. This result was a remarkable feat given our very challenging volume environment. COS has proven to be more than just a cost savings program, providing the tools, training, and clear goals and objectives for our teams to remain focused on quality, safety, and delivery in their operations. Bob now will provide operational and financial detail about the third quarter and review the balance sheet and cash flow. Bob?

Bob Roche, Chief Financial Officer

Thanks, Chris. Please turn to the revenue bridge on Slide 5 of the presentation. Revenue decreased 12% to $1.1 billion in the third quarter. Organic revenue declined 14.3%, and acquisitions contributed 1.9% of sales growth in the quarter, providing about a 40 basis point tailwind. Turning to the margin bridge on Slide 6, Q3 operating margin declined 110 basis points. Pricing and volume headwinds combined for minus 360 basis points, and acquisitions were a minus 60 basis points offset. Freight, labor, raw material, and other operating costs netted to a 230 basis point improvement, and COS added 100 basis points; net restructuring and rationalization costs were an additional 20 basis point headwind. On Slide 7, as we do every quarter, we've provided an EPS bridge. As Chris mentioned earlier, we reported third quarter diluted EPS from continuing operations of $1.87, which compares to $2.42 from last year. Volume, price and mix combined were a $1.04 year-over-year decrease while tax and interest combined for a $0.13 headwind. Restructuring was another $0.04 headwind. Partially offsetting this, raw material, freight, and labor costs netted to a $0.29 benefit. Share repurchases contributed $0.09 and COS contributed an additional $0.18, while lower operating expenditures contributed $0.10. While COVID-related volume declines clearly represented the most significant headwind during the quarter, our teams around the world did a commendable job managing costs to help mitigate its impact on bottom line earnings. Now let’s turn to Slide 8 to review the third quarter performance by segment in a little more detail. At CCM, revenues decreased 7.8%, driven by volume and net of a 30 basis points foreign currency translation tailwind. Operating margin at CCM was 22% in the quarter, a 260 basis point improvement over last year, driven by favorable raw materials, lower SG&A, and COS, which partially offset volume declines and wage inflation. CCM executed well in delivering approximately $25 million of net price-cost realization in the quarter. We now anticipate full-year net price-cost realization of approximately $70 million for 2020. Turning now to Slide 9 to review CIT’s results, CIT revenue declined 30.3% in the quarter. As Chris talked about earlier, this decline was driven by the crisis in commercial aerospace markets, partially offset by positive trends in our Medical Technologies platform. CIT's operating margin declined significantly year-over-year to negative 2.2%, driven by commercial aerospace volume declines and accelerated restructuring actions. These were partially offset by savings from COS, lower SG&A, and some price increases. Turning to Slide 10, CFT sales declined 5.1% year-over-year. Organic revenue declined 10.8%, and acquisitions added 4.4% in the quarter. Despite the sales decline and related deleverage, operating income at CFT increased by 5% year-over-year, with operating margin improving 70 basis points to 6.8%. This improvement was driven by price realization, efficiencies from COS, and lower SG&A. Turning now to Slide 11 for CBF, CBF's third quarter organic revenue declined 10.8%. FX had a positive 1.7% impact; operating income was $0.9 million, or 1.3% operating margin, driven primarily by volume declines and unfavorable mix in aerospace markets, partially offset by COS efficiencies. On Slides 12 and 13, we show selected balance sheet metrics. Our balance sheet remains strong, and we ended the quarter with $719 million of cash on hand and $1 billion of availability under our revolving credit line. We deployed approximately $150 million in the second quarter, repurchasing 1.2 million shares. Additionally, we increased our dividend in the third quarter, marking the 44th consecutive year of increases, and paid out $28.5 million in September. 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 first nine months of 2020 was a solid $367.5 million, and we expect Carlisle overall to generate free cash flow conversion in excess of 150% for the full year. Turning to Slide 14, Chris earlier gave fourth quarter revenue guidance referenced here, and you can see the items affecting comparability in corporate items. Corporate expense is expected to be approximately $95 million for the full year. We continue to expect depreciation and amortization to be approximately $230 million, and for the full year, we continue to invest in our business and now expect CapEx to be in the range of $100 million to $110 million. Net interest expense is expected to be approximately $75 million for the year, and we expect the tax rate to be approximately 23%. With that, I will now turn the call back over to Chris.

Chris Koch, Chairman, President and Chief Executive Officer

All right. Thanks, Bob. In closing, I want to once again express my thanks to our dedicated employees, their families, our business partners, and all those associated with Carlisle’s success. Simply put, we can’t do without you. With over a century of history, Carlisle has proven to be a resourceful, resilient, and stable organization in times of adversity and uncertainty. We remain confident in Carlisle’s outlook, supported by our strong financial foundation, cash generating capabilities, and unwavering commitment to our Vision 2025 strategic plan. This concludes our formal comments, Rob, we’re now ready for questions.

Operator, Operator

[Operator Instructions] And your first question comes from the line of Adam Baumgarten from Credit Suisse. Your line is open.

Adam Baumgarten, Analyst

Hey, good afternoon, everyone.

Chris Koch, Chairman, President and Chief Executive Officer

Good afternoon.

Adam Baumgarten, Analyst

Just a question on freight; costs have increased meaningfully at least in the spot market, and it seems like contract rates are expected to be up in 2021. Can you walk through your exposure to spot versus more contracted rates?

Chris Koch, Chairman, President and Chief Executive Officer

Yes, most of our freight in CCM is contracted. It’s flatbed from our factories out to the job sites. So, we don’t play that much in the spot market, and it takes time for our contracted folks to align with the recent hikes. So, we’re not seeing a ton of inflation just yet, but we expect it to come a little next year, and then we’ll...

Adam Baumgarten, Analyst

Okay.

Chris Koch, Chairman, President and Chief Executive Officer

Of course, we will pass that on in price when we see it escalate too much.

Adam Baumgarten, Analyst

Got it. Okay. Helpful. And then just in CCM, you talked about slightly positive growth on a year-over-year basis in September. Can you give a sense of how that’s trended into October and maybe that is informing your fourth-quarter guidance?

Chris Koch, Chairman, President and Chief Executive Officer

Yes, you’re right on there. We saw improvements in the third quarter, and September was good given the context of everything that’s been going on, and we see that carrying into October.

Adam Baumgarten, Analyst

Great. Thanks, guys.

Chris Koch, Chairman, President and Chief Executive Officer

Yes.

Operator, Operator

And your next question comes from the line of Saree Boroditsky from Jefferies. Your line is open.

Saree Boroditsky, Analyst

Thanks for taking my question. So, CCM has not really seen any benefit yet from pent-up demand. Could you just talk through how we should think about the re-roofing activity that didn’t get done this year? How long can this activity be delayed for?

Chris Koch, Chairman, President and Chief Executive Officer

Yes, it’s a good question, Saree. I think, it's one of the great tensions that has helped us over the last 10 years drive some significant growth. Obviously, that includes acquisition-related growth, but there's a big stress on the contractor base that we were encountering before COVID. The delays are being compounded by government processes as they work from home, which pushes permits and inspections back further. There will be increasing attempts to get work completed before winter in the north and spring rain in the south and east. So there’s a need to get jobs done as quickly as possible.

Saree Boroditsky, Analyst

Thanks. And then can you just talk about the outlook for aerospace and how we should think about your growth as the MAX production volumes pick up but maybe there are some headwinds from widebody production?

Chris Koch, Chairman, President and Chief Executive Officer

Sure. Bob can discuss production levels. I’ll just comment on our forecast. We’re cautiously optimistic. I saw the CEO of Delta discussing the need for a connected world. People's natural tendency is to return to business travel and stay connected. We believe this will stipulate a quicker rebound in air travel trending.

Bob Roche, Chief Financial Officer

From everything we’re seeing and hearing from the two big OEMs, 4Q of 2020 is going to be the lowest build rate period that we’ve seen in a long time. That all projects growth from there, including wide bodies. The question is how quickly the grounded MAX airplanes get put back into production. We have keen eyes on that.

Saree Boroditsky, Analyst

Perfect. Thanks for taking my questions.

Bob Roche, Chief Financial Officer

You bet, Saree. Thanks.

Chris Koch, Chairman, President and Chief Executive Officer

Thank you.

Operator, Operator

Your next question comes from the line of Tim Wojs from Baird, and the line is open.

Tim Wojs, Analyst

Hey, gentlemen. Good afternoon.

Chris Koch, Chairman, President and Chief Executive Officer

Hi, good afternoon.

Tim Wojs, Analyst

Maybe just on price; how should we think about the potential and your confidence around realizing price next year if volumes are expected to turn up a little bit, and we see some cost inflation pass through the system? Do you think that’s sufficient for the industry to realize price improvements in 2021?

Chris Koch, Chairman, President and Chief Executive Officer

From what I could observe in Q4, I think you’re right. We’ve seen actions from our competitors and ourselves that prices are headed up, and organizations have gotten ahead of where they typically would be on pricing. This gives me belief that we might be able to be flat on price in Q4.

Tim Wojs, Analyst

Okay. So, it really relies on where volumes trend as we go through the year?

Chris Koch, Chairman, President and Chief Executive Officer

Yes, it depends largely on volumes. For us, the value proposition, the Carlisle experience comes to premium service; people pay for that, and it is magnified when demand and volumes are high.

Tim Wojs, Analyst

Okay. And then regarding the non-residential roofing market, the $5 billion to $6 billion growing to $8 billion long-term, how should we interpret the composition there between reroofing and new construction? How much of that improvement over time is truly just replacing what is already in play?

Chris Koch, Chairman, President and Chief Executive Officer

Our sales growth is driven by replacement demand. New construction should improve a bit but only modestly, alongside some inflation in pricing in areas driven by demand.

Bob Roche, Chief Financial Officer

Most of our comments about sales growth are dedicated to the reroofing cycle that we're focused on, which reinforces the annuity Chris often references with the roofing market.

Tim Wojs, Analyst

Okay. Well, appreciate the help, guys. Good luck on the rest of the year.

Operator, Operator

Your next question comes from the line of Bryan Blair from Oppenheimer. Your line is open.

Bryan Blair, Analyst

Thanks. Good afternoon, guys.

Chris Koch, Chairman, President and Chief Executive Officer

Hey, good afternoon, Bryan.

Bryan Blair, Analyst

Nice performance from CCM in the third quarter and great to see that business back to at least modest growth in the fourth quarter. I understand that a lot remains fluid regarding the pandemic and its impact. But assuming we don’t have a crippling second wave, is it fair to assume that CCM volume snaps back next year? It seems like that’s the setup today.

Chris Koch, Chairman, President and Chief Executive Officer

Yes, that’s somewhat fair to say. There is building demand due to the inability to proceed with certain jobs and confusion around health practices that compounded with government offices shutting down and remote work. We have set up nicely to capture demand if we can manage it well.

Bryan Blair, Analyst

Understood. And then regarding a simple math, Bob, you’re expecting about $10 million in price-cost benefits in the fourth quarter. Is that accurate?

Bob Roche, Chief Financial Officer

Yes, and remember, volumes are a bit lower, and we’re seeing some cost pressure that’s well-publicized in oil and MDI markets.

Bryan Blair, Analyst

Got it. Given current visibility, sounds like a reasonable expectation for early 2021 would be neutral press cost. Is that fair?

Chris Koch, Chairman, President and Chief Executive Officer

Yes, as far as projecting out into Q1 of 2021 from what we can see, I believe that's reasonable.

Bryan Blair, Analyst

Okay, and thinking about CIT; conservatively, if we were to assume that third-quarter run-rate volumes were about the growth rate for the foreseeable future, what kinds of margins could CIT aerospace generate?

Chris Koch, Chairman, President and Chief Executive Officer

Let’s hold off on that; I want to defer that question for potential impacts later.

Bob Roche, Chief Financial Officer

Yes. We’ve been looking at it as a total business rather than specific segments. When aerospace starts recovering, the way we’ve positioned ourselves will enable a strong comeback given the costs reduced, allowing excellent leverage.

Bryan Blair, Analyst

Okay. Got it. Then lastly, can you walk through CFT’s monthly order or sales pattern? The third-quarter result was better than my modeling, and it seems like there was some acceleration at the end of the quarter, but not as much of a seasonal lift as prior years into Q4.

Chris Koch, Chairman, President and Chief Executive Officer

Yes, you're reading the situation correctly. The improvement we saw in September compared to the slow recovery in Q2 laid a strong foundation for a robust recovery.

Bryan Blair, Analyst

Okay. Appreciate all the color.

Operator, Operator

Your next question comes from the line of Garik Shmois from Loop Capital. Your line is open.

Garik Shmois, Analyst

Hi. Thanks. Just to follow up on the $10 million in price-cost benefits in the fourth quarter, is it fair to assume that it contemplates some of the disruptions that some of the MDI suppliers have announced?

Bob Roche, Chief Financial Officer

Yes, we are assuming price increases and cost headwinds in that estimate.

Garik Shmois, Analyst

Got it. And then just on the SG&A savings that you called out as helping CCM, is it possible to quantify how much that’s been and how much is permanent versus how much could come back when demand improves more materially?

Bob Roche, Chief Financial Officer

Yes, while volumes took a hit in Q2, we didn’t make any permanent structural cost adjustments as it pertains to CM. The variable nature of our expenses allows us to rebound quickly when volume returns. So, I don't envision structural adjustments overall.

Chris Koch, Chairman, President and Chief Executive Officer

With the ongoing COS efficiency gains and raw material purchasing gains, we continue to optimize without structural implications.

Garik Shmois, Analyst

Okay. Lastly, on CIT; revenue sequentially dropped about $15 million from the second to the third quarter, but EBIT fell only about $2 million, indicating notable profit control. How should we interpret that heading into the fourth quarter?

Chris Koch, Chairman, President and Chief Executive Officer

We must remember that there was $3 million less restructuring in Q4 than Q3. The drop reflected our efforts to manage costs amid a softened environment while allowing efficiencies to reflect in EBIT.

Garik Shmois, Analyst

Okay. Helpful. Thank you very much.

Operator, Operator

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

Joel Tiss, Analyst

You seem to exhibit a positive tone towards European TCM. I wonder if we can take a minute to discuss what’s happening there as other insights from Europe seem more muted.

Chris Koch, Chairman, President and Chief Executive Officer

Yes, it’s been surprising. I've been in touch with the CFT teams there, and although they’re smaller, we’ve been feeling encouraged by good sales in Europe, which has been a bit of a surprise. We have made some leadership changes with a view to tapping into niche markets and are optimistic about growth in line with our efforts.

Joel Tiss, Analyst

That's really good. Could you also talk a little about the competitive environment? It seems that your competitors in CCM are raising prices somewhat. What is your sense of the pricing environment remaining favorable into 2021?

Chris Koch, Chairman, President and Chief Executive Officer

For sure, we’re seeing rapid responses regarding raw material price increases; our competitors are demonstrating resolve heading into 2021 to protect their margins. This reinforces my confidence in capturing pricing advantages next year and the robust demand dynamics we anticipate.

Operator, Operator

There are no further questions at this time. Mr. Chris Koch, I turn the call back over to you for some closing remarks.

Chris Koch, Chairman, President and Chief Executive Officer

Well, thanks, Rob. That concludes our third quarter 2020 earnings call. We appreciate everyone’s participation, and I'm grateful for all your questions. Stay safe and healthy as we navigate the fourth quarter. We look forward to speaking with you at our next earnings call. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.