The Company: Carlisle Companies Inc. is a Syracuse, New York, diversified manufacturing company. It's a lean-running business whose various subsidiaries aim to be number one or two in their markets.
The markets: Carlisle has focused on building businesses with defensible niches and good cash-flow characteristics in such markets as transportation equipment, construction materials and food-service equipment. For instance, Carlisle claims to be the largest U.S. manufacturer of golf cart tires. The company manufactures products for a range of industries, from fine wire for the high-growth commercial aircraft manufacturing sector to the low-growth business of supplying tableware to the food-service industry.
The sizzle: As humdrum as Carlisle's products might sound, the company's returns to shareholders are exciting. Over the past five years, Carlisle has generated a pre-tax compounded annual return of 32.4 percent per year. Given the simplicity of the business model--growth through carefully selected companies bought at attractive prices, low-cost operations, intelligent financing, and buying family-owned businesses for which Carlisle doesn't have to supply the operating expertise--its annual goal of building earnings and revenues by 15 percent is quite attainable.
The risks: The diversity of Carlisle's businesses lessens the risks. Its management team developed its present strategy. Should one or more of those officers leave, the prospect for future outstanding performance may fall somewhat. Other risks include a spike in interest rates or a recession; those things can't be controlled by management, however, and should not be overly worrisome to investors.
Historical financial performance: Fiscal year 1997 was another good year for Carlisle, as it grew revenues 24 percent, operating income 31 percent and per-share earnings 27 percent. Since the current management took control of the company in 1989, revenues have grown at a compounded annual rate of 15.2 percent, while per-share earnings have grown 53 percent annually. This boring (read: exciting to The Fools) company has generated an 18 percent return on invested capital and a 22 percent return on shareholders' equity over the past 12 months. Given that the blended cost of capital for Carlisle is around 7.4 percent per year, a return on invested capital of two to three times that requirement means the company is creating value for shareholders.
Projected financial performance: Based on Carlisle's ability to hit its long-term earnings growth targets, it should grow earnings by 15 percent to 20 percent per year over the next three years. Based on projected 1998 EPS of $2.74 and a return to normal revenue and earnings growth of 15 percent in 1999, Carlisle could generate a 16 percent annual return (including dividends) between now and the end of fiscal 1999. Considering that the stock has run up from the low $40s in a matter of months, Carlisle's two-year return potential would be far more interesting if the stock fell back to the mid-$40s.
The Motley Fool can be found on the Web at http://www.fool.com and on AOL at keyword: FOOL. Dale Wettlaufer contributed to this article. The above opinions are those of the authors and not of Entrepreneur. Past performance is no guarantee of future results.
Past and projected sales and earnings:
Revenues ($M): $1,017.5
Net Income ($M): $55.7
Earnings per share: $1.80
Revenues ($M): $1,260.6
Net Income ($M): $70.7
Earnings per share: $2.28
Revenues ($M): $1,487.5
Net Income ($M): $83.4
Earnings per share: $2.74
Revenues ($M): $1,710.6
Net Income ($M): $95.9
Earnings per share: $3.21
Figures are as of February 13, 1998
At A Glance
Name: Carlisle Companies Inc.
Recent price: $49
Price/earnings ratio: 21.5
Market: New York Stock Exchange
Carlisle Companies Inc., http://www.carlisle.com