Executives at many rubber industry companies would break out the champagne if their business posted a 6.7-percent profit margin.
At Carlisle Companies Inc., they put it on the auction block.
This is not to say Carlisle has no regard for its Transportation Products operationsgenerally non-automotive tires and wheels, and industrial belts and componentswhich it now is shopping. Indeed, Carlisle has supported the business over the years, and it conducted considerable restructuring and consolidation since 2009 to ensure its success.
It comes down to two questions often posited in the business world: How do you increase shareholder value, and what is core?
The answer to the first question is obvious. A company's directors do whatever it takes to boost the value of the shareholders' investment. That mission overrides any other factors, such as the effect on personnel, communities where factories are located, or history. Capitalism at work.
What is core? can be more complex. At Carlisle, the answer to why its tire and belting operations aren't in that category is linked to profit margin.
The tire/wheel and belting businesses in the long run may be strong in their own sectors, but the parent company demands profit margins of 15 percent or more for its operations. Expecting that from the Transportation Products division would be a fantasy.
A business with $778.2 million in sales and EBIT (earnings before interest and taxes) of $52.7 million for its last full year is quite valuable and could fetch as much as $450 million, analysts say. The company said it would invest those funds in other businesses that fit into its core, which is led by its Construction Products segment. Carlisle pioneered single-ply rubber roofing membrane, and together with Firestone Building Products, it is a leader in that field.
The divestment of Carlisle's Transportation Products business could go in a number of directions. The best outcome would be an owner that finds its traditional profit margin acceptable.
This editorial appeared in Rubber & Plastics News, an Akron-based sister publication of Tire Business.