Carlisle Companies - Earnings Call - Q3 2020
October 20, 2020
Transcript
Operator (participant)
Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Carlisle Companies Third Quarter 2020 on this conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will conduct a question-and-answer session. 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 (VP 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 two of our presentation where we note that certain statements made under 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 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 CEO)
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'd 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, to protecting each other, and to 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 and always will be the number one priority at Carlisle, and 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. And while being safe and healthy is always our first priority, we also have a commitment to keep all our stakeholders in mind and to deliver on our key objectives, including Vision 2025 and our ESG initiatives. And 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 three and four.
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.
These same attributes will allow us to further improve the efficiency of our businesses through the Carlisle Operating System, to continue to make the investments necessary to deliver a world-class Carlisle Experience well into the future, and 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, or 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, first, the significant and proven annuity contained in the U.S. non-residential reroofing market segment, which is estimated at between $5-$6 billion per year today and growing to approximately $8 billion in the next decade. Two, a reframing of our pricing approach, which since mid-2017 has delivered a new paradigm tied to our enhanced value proposition in the marketplace. Three, the financial flexibility to access up to $3 billion for acquisitions. Four, 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 through the ever-improving 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 via acquisitions, particularly in our high-growth platforms of building envelope solutions, medical technologies, and fluid technologies.
Coupled with returning capital to shareholders via dividend increases, which we increased 5% in September, 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, including the announced closures of our Mobile, Alabama, and Kent, Washington facilities. We also took the difficult actions of reducing headcount by approximately 550 employees in our Nogales, Mexico, factory and by over 100 employees in our Dongguan, China, aerospace factory. In our other businesses, we continue to optimize our footprint and drive efficiencies to manage costs through the pandemic. At CCM, we reduced shifts starting early in the second quarter. At CBF, we consolidated our Solon, Ohio headquarters into our Medina, Ohio, manufacturing facility and made a lot of other cost reductions at CBF around the globe.
Despite challenging dynamics across several markets, I want to be direct in saying we are facing them 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. I'll start with CCM, which continues to exhibit resilience, and we believe it's set up extremely well to continue on its path of both 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 still foresee a robust and growing reroofing market with positive trends continuing well through 2025, driven by the need for maintaining an aging and continuous cycle of replacement of U.S. roofing infrastructure.
This distinction is important as most of CCM's sales are largely driven by replacement demand, not new construction, and importantly, at times the financial stress are not canceled but deferred, as maintaining a commercial roof is not a discretionary item. 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, that we create 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 continues to regain market share, notably by our refocus on core customer relationships and launching new differentiated products, all under a new consolidated brand structure. These improvements help to drive year-over-year revenue growth in the third quarter and year to date. Architectural Metals was a bright spot in the quarter, delivering relatively flat sales in a challenging environment. Architectural Metals margins continue to improve with solid progress on integration initiatives, and in Europe, the small to medium-sized roofing market remains steady, supporting overall year-over-year growth in the quarter and year to date. Profitability in Europe continues to improve as well. We continue to believe that Europe provides an opportunity for meaningful expansion for CCM, and we are committed to taking the necessary steps to ensure that growth potential is realized despite the headwinds of COVID.
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 has been well publicized and as you are all aware, 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 has been 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 on taking actions that will position CIT Aerospace to support the strong recovery we anticipate will occur as global air travel returns in the coming years.
Despite aggressive action to minimize 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. In support of this, TSA passenger screenings have increased dramatically since March, and we believe 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 are also encouraged by the global efforts and progress towards the development of a COVID-19 vaccine, which once deployed should drive passenger confidence in safe travel and accelerate a return to higher levels of passenger miles, and additionally, on a bright note, Boeing's 737 MAX 8 has been approved for a return to flight by European regulatory bodies and is moving closer to FAA approval. Transitioning to our medical platform within CIT, we entered medical technologies several years ago through the acquisition of LHI, with the concept of leveraging our core wire and cable expertise into the medtech markets. The acquisitions of MicroConnex, Red Group, and Providien over the last two 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, continued to perform well, and integration is on track. In addition, product rationalization actions taken in legacy medical product lines in 2018 and 2019 have improved CIT Medical Technologies' margin profile. Our long-term bullishness on medtech remains intact, and we see CIT revenues trending toward a better balance 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%. While 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're also encouraged by our latest strategic acquisitions in sealants and adhesives within CFT, including Ecco, Shinhang, and IDS. This combination of market leaders and 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 delivery improvements in all our global locations. We are beginning to see positive signs in CFT and markets, particularly in Asia and Europe, and we are optimistic we are past the worst of the COVID-19 impact for our industrial customers.
We remain committed to our original long-term margin goal of 20-plus% for CFT and are confident the multifaceted plans we put in place, including developing and introducing innovative new products, capturing the value of these products and 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.
An especially impactful COVID-related contributing factor to CBF's results was, similar to CIT, its 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 to 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 2020 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, and as we've discussed in the past, 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, and 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 a cost-savings program, providing the tools, the training, and the 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 (CFO)
Thanks, Chris. Please turn to the revenue bridge on slide five 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 for the quarter. FX was about a 40 basis point tailwind. Turning to the margin bridge on slide six, Q3 operating margin declined 110 basis points. Pricing and volume headwinds combined for minus 360 basis points, and acquisitions were minus 60 basis points. Offsetting these, freight, labor, and raw material and other operating costs netted to a 230 basis point improvement, and COS added 100 basis points. Net restructuring or isolation costs were an additional 20 basis point headwind.
On slide seven, 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 $1.04 year-over-year decrease, while tax and interest combined for a $0.13 headwind. Restructuring was another $0.04 headwind.
Partially offsetting these, raw material, freight, and labor costs netted to a $0.29 benefit. Share repurchases contributed $0.09, and COS contributed an additional $0.18. 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 eight 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 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. Partially offsetting this were volume declines in wage inflation.
CCM executed well in delivering approximately $25 million of net price-cost realization in the quarter, and we now anticipate full-year net price-cost realization of approximately $70 million for 2020. Turn now to slide nine 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 offset partially 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% for the quarter. Despite the sales decline and related deleverage, operating income at CFT increased 5% year-over-year, with operating margin improving 70 basis points to 6.8%.
This 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 offsetting this with COS efficiencies. On slide 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, and additionally, we increased our dividend in the third quarter, 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-$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%. And with that, I will now turn the call back over to Chris.
Chris Koch (Chairman, President and CEO)
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 it 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.
And 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 (participant)
In order to ask a question, you will need to press star one on your telephone.
Your first question comes from the line of Adam Baumgarten from Credit Suisse. Your line is open.
Adam Baumgarten (Director of Homebuilding and Building Products Equity Research)
Hey, good afternoon, everyone.
Chris Koch (Chairman, President and CEO)
Good afternoon.
Adam Baumgarten (Director of Homebuilding and Building Products Equity Research)
Question on freight cost spike pretty 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 kind of more contracted rates?
Chris Koch (Chairman, President and CEO)
Yeah. Most are freight at CCM, and a lot of that is contracted. It is flatbed from our factories out to the job sites. So we do not really play that much in the contracted market, and it takes time for our contracted folks to get up as quick as the others do. So we are not seeing a ton of inflation quite yet, but we expect it to come a little bit next year.
And then we'll, of course, as usual, we pass that on in price when we see it go up too much.
Adam Baumgarten (Director of Homebuilding and Building Products Equity Research)
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 for how that's kind of trended into October and maybe that informing your forward guidance?
Chris Koch (Chairman, President and CEO)
Yeah. I think you're right on there. I think we saw things build in the third quarter. September, obviously, was good considering everything that's been going on, and we see that carrying into October. Great.
Adam Baumgarten (Director of Homebuilding and Building Products Equity Research)
Thanks, guys.
Chris Koch (Chairman, President and CEO)
Yep. Bye.
Operator (participant)
And your next question comes from the line of Saree Boroditsky from Jefferies. Your line is open.
Saree Boroditsky (SVP)
Thanks for taking my question. So CCM has not really seen any benefit yet from pent-up demand.
So 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 CEO)
Yeah. It's a good question, Saree. I think it's one of the great tensions that's been out there that's helped us for the last, really, 10 years drive some big, almost close to 10% CAGR in our sales. Obviously, that includes acquisition.
But we're really running up against the big stress on the contractor base that we were before, which is there are just so many contractors out there that are trained and qualified. And I know prior to COVID, that was in 2019, that was still a big push. It was around having these jobs and any delays with weather and anything else that was occurring. How do you get them done, and can it create extra demand?
And really, the constraint is around that contractor base. And now I would say we're adding into it the whole idea of getting business permit or getting construction permits and things like that through the government agencies that may be adding time by working from home. So it does continue to build. Obviously, you're going to continue to try to do what you can to get by, but I think that there's some pressure on getting these things done, obviously, before the winter season comes in the north and then in the spring season with rain in the south and in the east.
So I think they'll be trying everything they can do to get it done and work as much overtime as possible, but that demand just will build until we see a break there on construction workers and get more trained, which I think had some delay here with COVID. So hopefully, they'll get through it quickly, and we'll see people want to return to work.
Saree Boroditsky (SVP)
Thanks. And then can you talk about the outlook for aerospace and how we think about your growth as the max production volumes pick up if maybe there's some headwinds from wide-body production?
Chris Koch (Chairman, President and CEO)
Yeah. Bob can talk about the production levels. I'll just talk about our forecast. We're still very. I'd say we're cautiously optimistic.
I saw the CEO of Delta on TV today talking about the need to be a connected world, and the people's natural tendencies are to want to return to business travel, to be connected, to do things in person, to visit family and friends. And I mean, we buy into all that, and we believe it. We have seen, as I said in the script there, TSA checkpoint traffic increasing. And I'd say we're optimistic that some of the news we've seen recently is going to reinforce the fact that airline travel is very safe. I think I saw something today that the air is changed in the plane every six minutes through HEPA filters and other types of filtration devices.
So I think it's just a question of passengers getting comfortable. And once we get over that tipping point, it should pick up pretty rapidly.
And I think also there have been some interesting deals that have been done with different airlines maybe in Europe where regulations around being a much greener airline have occurred or having energy efficiency. And we think the new planes that are out there will likely displace some of the old planes and have them be retired. So again, we're optimistic about what's going to start to occur in 2021 and beyond. And then, Bob, you want to talk about production rates on?
Bob Roche (CFO)
Yeah. I mean, from everything we're seeing and hearing from the two big OEMs, Q4 of 2020 is going to be the lowest build rate period that we've seen in a long time. And then they're all projected growing from there, including wide-bodies.
The question comes, how quickly does the MAX airplanes that are grounded get put into production, and then they need to refill those and continue to produce them? And we got a keen eye on that and seeing when that starts coming through and the build rates for the MAX start up again.
Saree Boroditsky (SVP)
Perfect. Thanks for taking my questions.
Chris Koch (Chairman, President and CEO)
Thank you.
Bob Roche (CFO)
Thanks, Siri. Thank you.
Operator (participant)
Your next question comes from the line of Tim Wojs from Baird. The line is open.
Tim Wojs (Senior Research Analyst)
Hey. Hey, gentlemen. Good afternoon.
Chris Koch (Chairman, President and CEO)
Hey. Good afternoon.
Tim Wojs (Senior Research Analyst)
Maybe just on price, how should we think about the potential and, I guess, your confidence around realizing price next year? And volumes here have kind of turned up a little bit. We don't really have capacity coming on, and we are starting to see some cost inflation kind of run through the system.
Chris Koch (Chairman, President and CEO)
So I mean, do you think that's enough for the industry to meaningfully realize price as you look into 2021?
Well, I think as we look into the fourth quarter, Tim, I think everything you said is absolutely correct. And we've seen with the actions of our competitors and ourselves that the prices are going up. And I think that's actually the organization's getting a little bit ahead of where they would have been usually on price. So that makes me believe we might be flat on price in the fourth quarter. And then I think if demand continues to pick up and we see some increases in costs and ROS like we anticipate, then I would anticipate there could be, at least it sets the stage for what could be a positive price environment in 2021.
Tim Wojs (Senior Research Analyst)
Okay. Okay. So it's really relying on kind of where volumes trend as you go through the year, is kind of.
Chris Koch (Chairman, President and CEO)
Yeah. I think so. And I think it depends on, yeah, absolutely volumes. And as I said, Siri, that whole idea of contractor availability. And obviously, for us, and it's a little bit different maybe for others, but for us, the value proposition, the Carlisle Experience is a premium service people pay for. And when demand is high and volumes are high and they need to get it at the right place, right product, right time, obviously gives us more pricing ability than it does when volumes are down.
Tim Wojs (Senior Research Analyst)
Okay. Okay. And then the non-res roofing market, the $5-$6 billion kind of growing to $8 billion over the intermediate term.
I mean, how would you think about the composition there between kind of a re-roofing kind of cycle and new construction? I'm just trying to kind of think about how much of that kind of, call it $2 billion-$3 billion improvement is really just replacing stuff that's already in the ground?
Chris Koch (Chairman, President and CEO)
Well, I think it's all based on that. If you look at the square footage charts that Bob has put up, where we continue to see square footage rising, I think it's out there. If anybody needs it, we can get it to him. So you couple that. I think you lead the structure the same way with the percentage of new construction related to the re-roofing part. So re-roofing is really growing. New construction, we do think will pick up a little bit from where it is.
Then there's a little bit of price in there as well that we think there will be modest inflation as we go forward over that period. Maybe somewhere price out of that might be somewhere in the 1%-1.5%, something like that.
Bob Roche (CFO)
Yeah. Tim, and that was largely around all reroofing that we were commenting on. That's the annuity that Chris always talked about around the reroofing cycle that's coming forward. And that chart that's in our Vision 2025 that shows the next 10 years and the, I'll call it, bubble from the early 2000 build cycle that's going to come through at 2.5%-3% growth over the next 10 years.
Tim Wojs (Senior Research Analyst)
Okay. Okay. Well, appreciate the help, guys. Good luck on the rest of you here. Thanks, guys.
Operator (participant)
Your next question comes from the line of Bryan Blair from Oppenheimer. Your line is open.
Bryan Blair (Managing Director and Senior Analyst)
Hi. Good afternoon, guys.
Chris Koch (Chairman, President and CEO)
Hey. Good afternoon, Bryan.
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. Absolutely. A lot remains fluid in terms of the pandemic and its impact, but assuming we don't have a crippling second wave, following up on some of the other questions here, is it fair to assume that CCM volume kind of snaps back next year? That seems to be the setup to me.
Yeah. I think that's somewhat fair to say. I mean, as Chris pointed out, there's building demand due to the, at least in the second quarter, the inability to get on the roofs and some confusion there over what the health practices were.
And then government offices shut down and remote working. So I would say that we set up nicely to pick up some of that if we can. And again, I always say it, but really for us, the constraint is not us supplying the materials. It's the ability for people to get on the roof and put it on. And that's why weather and these governmental delays around building permits and things like that are so impactful for the people out there in the field. They're really the ones that set the pace of the work.
Bryan Blair (Managing Director and Senior Analyst)
Understood. And then to confirm my simple math, Bob, you're expecting about $10 million in price cost benefit in the fourth quarter. Is that correct?
Bob Roche (CFO)
Yep. Yeah. Yeah. And you got to remember, volumes are a little lower, and we are seeing some cost pressure that's well publicized in the oil and MDI markets.
Bryan Blair (Managing Director and Senior Analyst)
Got it. And given current visibility, you walked through some of the moving parts here, the offsets. It sounds like a reasonable expectation for early 2021 would be kind of neutral price cost. Is that fair, or am I not appropriately?
Chris Koch (Chairman, President and CEO)
I think early 2021. I mean, we probably won't want to project out further than that. But I think, yeah, as far as we're looking here at first Q 2021 from what we can see. I think that's fair.
Bob Roche (CFO)
Yeah. Everybody announced the price increases and the costs we have. So yeah, as close as we can see.
Bryan Blair (Managing Director and Senior Analyst)
Okay. That's fair.
And then thinking about CIT conservatively, if we were to assume that third quarter run rate volumes were the aerospace volumes for the go-forward for the foreseeable future, given the restructuring that's ongoing, when you get to the back end of that, what kind of margins could CIT aerospace generate?
Bob Roche (CFO)
Tell you what, let me defer that, and we'll get that answer for you. I don't know that we want to take a quick swing at that. That's an impactful meeting.
Chris Koch (Chairman, President and CEO)
Yeah. Brian, we've been looking at it in total business rather than the pieces. And clearly, when aerospace even comes back a little, this thing's going to accelerate because of the cost we took out and the leverage you get off of the sales. But I don't have it broken out in front of me.
Bryan Blair (Managing Director and Senior Analyst)
Okay. Got it.
Then last one, can you walk through CFT's monthly order or sales rate? The third quarter result was certainly better than what I was modeling and the reads that I had early in the quarter. So I'm guessing there was some acceleration, but then there seems to not be as much of a seasonal lift as has been there in the past going into the fourth quarter.
Chris Koch (Chairman, President and CEO)
Yeah. I think you're reading it the right way. I'm not going to break down, yeah, I'm not going to break down each month in the third quarter, but I think you've got the thing right that as you got out of the summer, and just like at CCM, as you went into September, you saw things starting to come together from a sales perspective.
And I don't think that's unrealistic for anybody considering we were emerging out of this terrible second quarter with a lot of uncertainty and things like that. And I think people started to jump back into CapEx purchases and things like that. And then going into the fourth quarter, yeah, I mean, last year we had a really robust fourth quarter project-driven. And so those projects, as you can imagine, with COVID and that, they do take some time to put together and to get organized, and they just haven't materialized in the fourth quarter. And that's really where the impact is as we go into the fourth quarter.
Bryan Blair (Managing Director and Senior Analyst)
Okay. Appreciate all the color.
Chris Koch (Chairman, President and CEO)
You bet. Thanks, Brian.
Operator (participant)
Your next question comes from the line of Garik Shmois from Loop Capital. Your line is open.
Garik Shmois (Managing Director)
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 (CFO)
Yeah. We are assuming some price or some cost headwinds going into there from, like I said, the well-publicized increases that have taken.
Garik Shmois (Managing Director)
Okay. Got it. And then just on the SG&A savings that you called out as helping on CCM, is it possible to quantify how much G&A's have been and how much is permanent versus how much could come back when demand improves more materially?
Bob Roche (CFO)
Yeah. Yeah. And I think we talked about this a little bit on prior calls. In CCM, while the volumes were down in the second quarter, it was almost all temporary. We didn't adjust any kind of structural cost in that business.
And it goes to the variable cost of that business. The sales force is variable. A lot of the costs we can get out quickly, but then when volumes come back, you got to put them back. So I don't think there's been any structural adjustment to the cost of the business
Chris Koch (Chairman, President and CEO)
other than what Bob would say would be the ongoing COS efficiency gains and raw material purchasing gains and things that we do on a normal basis.
Bob Roche (CFO)
Yeah.
Garik Shmois (Managing Director)
Okay. And then just lastly, just on CIT, just looking at it sequentially, just with the revenue drop of about $15 million from the second quarter to the third quarter, but EBIT was only down about $2 million. So pretty good sequential profit control.
I'm just wondering how to think of that moving into the fourth quarter, not to get too granular, but how should we think about margins in CIT just given the projected revenue drop again in Q4?
Chris Koch (Chairman, President and CEO)
Yeah. Garik, we got to remember that there was $3 million less restructuring in Q4 than Q3. So the gap drop, if you factor that in, was bigger than that due to the volume drop through. But also the cost management's coming in, and we expect that to continue. And we announced the factory closures and things like that, and those take some time, especially the Washington one to come through. So I mean, again, I don't think it's going to change drastically, and the normal drop-through margins will be there on the decline. And then when it comes back, it'll come back quickly.
Garik Shmois (Managing Director)
Okay. Thanks.
And as soon as I pass, we just touch on restructuring. I know it's early, but just given the pace of restructuring that you pulled forward here in 2020, any way to handicap the amount of restructuring we might be looking at in 2021?
Bob Roche (CFO)
Yeah. I mean, I've been saying for years it's probably around $15 million a year, $15 million-$20 million. And we do have the tenth carryover. And as you know from prior discussions, it takes a long time to close down an aerospace factory because of the approvals of both the FAA and the OEM. So it takes a while to move these things. So that will carry into 2021. So we'd expect a carryover. But somewhere in the $15 million-$20 million range is what we think today.
Garik Shmois (Managing Director)
Okay. Helpful. Thank you very much.
Operator (participant)
Your next question comes from the line of Joel Tiss from BMO. Your line is open.
Joel Tiss (Managing Director)
Hey. How's it going?
Chris Koch (Chairman, President and CEO)
Hey, Joel. Good. You?
Joel Tiss (Managing Director)
All right. You seem a little more sort of a tone in your voice sound a little more positive on European CFT. I wonder if we can just take a minute and get a sense of what's going on there because everything else we hear from Europe is a little more muted.
Chris Koch (Chairman, President and CEO)
Yeah. It's been surprising. I've been in touch with the CFT teams there. Although they're a smaller business, our group in Europe has been somewhat positive on what's happened. Maybe that's a reflection of coming out of the bad Q2 and what was going on there with the people in Italy and their homes. The Spanish impact from COVID was tough.
So maybe it's just that they're out of that and restaurants are reopened and things like that. But they were upbeat. And then with CCM, we've had good sales, which, as I said, the underlying demand there has been really good, which has been a little bit of a surprise but positive. And then we also have made some leadership changes over there that we think are going to really get us onto more of a track that we've been in the United States where we're looking at filling in some of the niche markets, filling out the portfolio products we offer to the market, and perhaps getting more active in the acquisition space within Europe. So no, I think you're right to pick that up, Joel. And thanks. And I think we've always seen Europe as that frontier that was a little bit untapped for Carlisle.
And given some of the initiatives we've done on energy savings and green and things like that, we've been a little bit late getting to that market where I really think our message will be well received. And I think we can build on the good demand we've got going on right now.
Joel Tiss (Managing Director)
That's really good. And then can you talk a little bit about the competitive environment? It sounds like your competitors in CCM are raising prices a little bit. And any sense, I know you can never know what everyone else is going to do, but any sense that kind of environment is going to stay favorable through 2021?
Chris Koch (Chairman, President and CEO)
Well, for sure, for us to see a relatively quick and uniform response to the raw material price increases by all competitors coming out with their price increases really quickly as a group kind of independent, not thinking that it was a reaction to what others were doing, that's really heartening. And then I do think the pressures on raw materials are going to bolster their resolve to go into 2021, protecting their margins and things like that.
And I think that's understandable because, obviously, we look over the resi side and the shingle market is on back order and people are seeing great demand in resi. And I think non-resi when it picks up is going to have some of the same pricing pressures on labor and things like that too. So I think I do have some confidence that we'll get some good pricing traction going into 2021.
Operator (participant)
Your next question comes from the line of David MacGregor from Longbow Research. Your line is open.
David MacGregor (President and Senior Analyst)
Yeah. Thanks. Good afternoon, everyone. Just to go back to an earlier couple of questions around just the deferral of business from 2020 into 2021, what's your best estimate of the 2020 value of volume that's been pushed out into 2021?
Chris Koch (Chairman, President and CEO)
Boy, David, I know this is going to be a cop-out. I really don't have an idea because we were really. I mean, we had a strong 2019. I went into first quarter of, or we went into first quarter of 2020 thinking it might be another record year. And so when you look at how quickly that dropped off and the impact in Q2, I don't know that I have an estimate for you.
I think that on the reroofing side, you can look at Bob's projections and maybe parse one of those years out. But maybe, I mean, just big picture, $200 million-$300 million maybe. But I mean, that's a guess.
David MacGregor (President and Senior Analyst)
Yeah. No, that's helpful. Thank you. And then I wanted to get to talk about what you're seeing in distribution right now in terms of inventory levels and out-the-door sales patterns.
Chris Koch (Chairman, President and CEO)
Well, we have seen some rays of hope with, and I won't get specific, but with a few distributors having some confidence to put some inventory back in. We did talk in the second quarter at the end of the second quarter call about the destocking that had occurred there.
So I do think there's a little bit of demand left there that if we went into 2021 with some confidence, we'd see distribution maybe back in the spring, usual stocking season, it'll go back to normal, and that'll certainly help 2021. But we haven't seen a lot of stock go back into distribution right now. And I think people are, obviously, you're through most of the heavy season here when you start to get into October, and I don't know anybody that wants to put a lot of inventory in going into Q4 in the winter months. So again, I think we look to the spring and then look to get back on a more normal schedule and add in that inventory that needs to be there.
Bob Roche (CFO)
Yeah. And as you know, most of our products go from our factories to the roof, even if they're sold through distribution. So they're not holding a lot of product for us.
David MacGregor (President and Senior Analyst)
Okay. And then what can you say about out-the-door sales patterns right now? What kind of confidence are you seeing there?
Chris Koch (Chairman, President and CEO)
At distribution?
David MacGregor (President and Senior Analyst)
Yes.
Chris Koch (Chairman, President and CEO)
Yeah. We don't really measure that. I mean, to be honest with you, I suppose you wanted to talk to our CCM reps. They might have some idea of that, but we don't track that at our level. Apologize.
Bob Roche (CFO)
No. From our perspective, though, we're focused on the slight growth in September and then our few percent growth in Q4, which is consistent with what the market's taking, so.
Chris Koch (Chairman, President and CEO)
And I think if you think that there's no inventory in the channel and sales were up or a little bit up in September, that implies then that the pass-through and the out-the-door sales are higher.
David MacGregor (President and Senior Analyst)
Right. Right. Okay. Thanks very much.
Chris Koch (Chairman, President and CEO)
Yeah. You're welcome.
Operator (participant)
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 CEO)
Well, thanks, Rob. That concludes our third quarter 2020 earnings call. Again, we really appreciate everyone being on the call and your participation. We thank you for all the questions. We hope everybody stays safe and healthy as they journey through this fourth quarter, and we'll look forward to speaking with you at our next earnings call. Thank you.
Operator (participant)
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.