Divesting the tire business would separate Carlisle from its original business purpose. The company was founded in 1917 in Carlisle, Pa., as a tire producer.
Carlisle disclosed its decision in its second quarter financial results, released today. In announcing its decision, Carlisle said it believes the Carlisle Transportation Products (CTP) business has stabilized after several unsteady quarterly performances and the outlook is "favorable."
"While we are optimistic about the future for CTP, it is not core to Carlisle's growth strategy," the company said.
In comments to financial analysts during the second quarter conference call, Carlisle Chairman, CEO and President David Roberts said, "…despite our efforts to improve the margins at CTP, the probability of it becoming a consistent double-digit margin performer was going to be a challenge.
"Consequently, we deemed that CTP is no longer a strategic asset."
For the quarter ended June 30, the segment reported 3.7-percent lower sales of $203.5 million and operating income dropped 32 percent on the negative effects of lower sales and continued inventory reduction measures.
Carlisle also took a non-cash pre-tax loss of $100 million in the quarter to account for the "goodwill impairment," reflecting management's decision to reduce the unit's estimated fair value based on the recent increase in interest rates, which resulted in Carlisle's using a higher rate to discount CTP's projected cash flows.
Carlisle said the transportation products unit's lower revenue resulted from a 10-percent drop in sales to outdoor power equipment market, 4.2-percent lower sales to agriculture/construction market and 3.2-percent reduces sales to the high-speed trailer market.
In the conference call, Mr. Roberts noted that while the rainy weather throughout much of the second quarter hurt the tire and wheel business, it should be a driver of growth for the remainder of the year.
"The wet weather will mean that grass is growing," he said, "which will drive the need for new mowing equipment and replacement tires for the equipment already out there. It should also mean a profitable year for the farming community, which will drive future equipment purchases."
Asked about the possibility of selling the unit's tire, wheel and belting businesses separately, Mr. Roberts said: "…at this point, we would want to sell the entire business. I don't think we'd ever separate wheels and tires.
"There's been some conversation about could we sell the belt business separately. It is a free-standing business compared to the tire business. That's an option for us. But as of today, we want to market the entire business."
Regarding the possible divestiture of the business, Mr. Roberts said: "…the decision to…explore strategic alternatives for Transportation Products was not an easy decision. Carlisle owes our very existence to the tire manufacturing business….
"Despite our origins being embedded in the tire business, our strategic objectives have changed for the business over the past six years. We've invested in CTP and given it every opportunity to be a core business, but it just doesn't have the characteristics that fit with our overall corporate goals.
"It is time to think about a new home for the business. I am confident there is a strategic or private equity buyer out there that will benefit from the hard work that the Transportation Products management team has put into this business. And overall, it's a good business. It just doesn't fit the direction that we want to take Carlisle."
Carlisle in the past few years revamped its tire business, moving production to a converted plant in Jackson, Tenn., from Carlisle, Pa., in a project that cost $65 million. Carlisle also moved some tire/wheel assembly business from Bowdon, Ga., and some tire production from Buji, China, to the new plant.
Carlisle had considered selling its belting business in 2008-09 but eventually decided to keep it and combine it with Carlisle Tire & Wheel to form CTP.
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