Charlotte-based Carlisle Cos. is looking to exit the business on which it was founded nearly 100 years ago, citing price-aggressive Chinese competitors driving down its profit margins.
Started in 1917 in Carlisle, Pa., the company has its roots in selling inner tubes for automobiles. Since then, Carlisle, which employs about 40 at its Ballantyne headquarters, has expanded into other manufacturing lines, from airplane wiring to restaurant plates, including the ones at Panera Bread.
Last month, while releasing second-quarter earnings, the company described its transportation products segment as no longer a strategic asset. The company said it was seeking a buyer for the segment, whose profit before interest and taxes is in the single digits compared with double digits in other Carlisle units. The segment makes speciality tires, including those found on all-terrain vehicles and boat and horse trailers, but not for use on automobiles.
It was a very difficult decision because its the foundation of our company, CEO David Roberts told the Observer in an interview.
But, he said, If we are going to achieve our overall strategic financial objectives, it would have been very difficult to do that still owning the tire business.
A year ago, Carlisle had told investors it expected the transportation products segment to be a solid and consistent contributor going forward. The company said in its 2012 annual report that the units earnings grew by 476 percent amid lower costs after it closed tire factories in China and Pennsylvania.
But last month the company announced that it had hired SunTrust Robinson Humphrey, part of Atlanta-based SunTrust Banks, to help it with a sale of the transportation products segment. No buyer has been named yet.
Profit before interest and income taxes for the transportation products unit was 6.5 percent in the quarter, excluding a $100 million impairment charge, which resulted in a loss of $86.8 million before interest and income taxes.
The company has five business segments. Its construction materials segment makes roofing products. Another sector makes cable and wires for commercial and military aircraft. Another sells brake and friction systems used by the military and various industries. Another sector provides dishes, cookware and other supplies to restaurants and hospitals.
Carlisle had profit of $270 million in 2012, up 50 percent from $180 million the year before. The stock is up 14 percent since the start of the year, closing at $66.97 Friday.
The company says Chinese tire manufacturers, such as Kenda Tires, have made it hard for Carlisle to grow its profit margins for lawn and garden tractor tires what Carlisle refers to as outdoor power equipment.
Carlisle makes those tires in the one factory it has left in China, benefiting from low labor costs. While labor remains cheaper in China, other costs shipping, materials, warehousing have gone up, making it just as practical to make the tires in the U.S., the company said.
The company said it tried to compete with the Chinese by lowering tire prices, which hurt profit margins, and cutting costs elsewhere, such as in reducing its number of distribution centers and plants. It wasnt enough.
While we are optimistic about the future for CTP, it is not core to Carlisles growth strategy, the company said in its second-quarter report.
China has really gone hard
Roberts said the Chinese have really gone hard after the lawn and garden tire segment, which really forced us to go ahead and make a decision to sell the business.
Walter Weller, vice president of sales for Monrovia, Calif.-based China Manufacturers Alliance, said Carlisles plant in China should have enabled the company to compete.
Thats the only thing thats a little bit confusing, said Weller, whose company is part of China-based Double Coin Holdings, which makes truck and heavy-equipment tires.
The other thing to consider is that, in general, the tire industry is a ... capital-intensive business, Weller said. Theres a tremendous investment in equipment and factories and raw materials and everything associated with it.
The sale of the transportation products segment will reduce Carlisles employment by one-third. Carlisle employs roughly 12,000 worldwide. Of those, about 4,400 work for the transportation products segment.
No Carlisle tires are made in Charlotte, so the company said it does not expect jobs in the region to be lost in a sale. The tires the company makes in China are assembled to wheels in a plant in Aiken, S.C., that employs 188 people. The company also has plants elsewhere in the U.S. One in Clinton, Tenn., makes tires for all-terrain vehicles.
While a new buyer might decide to shut down Carlisle wheel and tire factories, Roberts doesnt think thats likely.
I think the buying company will want to keep those factories, he said.
Chinese competition is not hurting Carlisles profit margins for other types of tires, Roberts said.
Roberts said Carlisles goal is to use the proceeds from the sale of the transportation products segment to buy a business with higher profit margins.
If we cant find one ... shortly after selling the tire business, then we would consider buying back shares, Roberts said.
Roberts: 704-358-5248Twitter: @DeonERoberts
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