Apr 22, 2008
Executives
David Roberts - Chairman, President and CEO Carol Lowe - VP and CFO
Analysts
Wendy Caplan - Wachovia Securities Saul Ludwig - KeyBanc Capital Markets Deane Dray - Goldman Sachs Peter Lisnic - Robert W. Baird
Operator
At this time, I would like to welcome everyone to the Carlisle Companies' first quarter earnings conference call. (Operator Instructions) Thank you, Mr.
David Roberts, Chairman and CEO of Carlisle Companies, you may begin your conference.
David Roberts
Thank you. Good morning, everyone.
Before I ask Carol to go through the first quarter, I want to comment on our strategic progress during the quarter. We took the next steps in the implementation of our plan with the movement of Motion Control, our on-highway braking business and Power Transmission into discontinued operations.
We also made the acquisition of Dinex in Carlisle for our Applied Technologies Group. Speaking about Motion Control and Power Transmission, these are two businesses that don't fit our strategic direction.
If you recall, we are looking for four core segments that have a minimum of $500 million in sales and are generating operating margins in the mid to high teens. We think they are just a better natural owner of these businesses outside Carlisle.
While the movement of these two businesses into discontinued ops generated $90 million loss in the quarter, this was a non-cash loss. And we are confident that it will be cash-positive over the next 12 months, we think, generating in excess of about $100 million in cash.
That cash will be used to continue invest in businesses like Dinex and Carlisle. We also had our challenges in the quarter when it came to raw material costs.
As you saw in the press release, these cost increases had a negative impact, primarily in our Construction Materials business on earnings during the quarter. Carol will be going through this in some detail in her comments, and then I'll add some color during our question-and-answer period.
With that, Carol, if you take us through the quarter please?
Carol Lowe
Thank you, Dave, and good morning, everyone. Before we review the financial results for the quarter, I would like to note that we have revised our financial reporting segment to match the new operating management structure Dave introduced during the fourth quarter '07 earnings call on February the 11th.
We have posted the quarterly results for '07 and '06 for the new segmentation on the Carlisle internet under the Investor Relations tab. Just select the segment data and the dropdown box, and you will see those revised numbers.
As noted in this morning's release, sales grew 13% in the first quarter as compared with '07. Organic sales growth of 4% was largely attributable to higher sales volume by Construction Materials and to a lesser extent increased volumes for Power Transmission belt business and our Specialty wire and cable business.
Sales growth from the Insulfoam and Dinex acquisitions contributed approximately $49 million or 8% of the sales growth. Operating income, which excludes other income and expense, was $44 million for the first quarter of '08 versus $51 million for '07.
Operating margin of 6.2% in 2008 declined to 190 basis points from 8.1% in 2007. The year-over-year margin comparison was impacted largely by increased raw material costs, operating inefficiencies at several tire and wheel plant, and increased SG&A expenses.
On absolute dollars, SG&A increased 16.8%. As a percent of sales, SG&A was 11.4% for the first quarter 2008 versus 11% for the first quarter 2007.
The increase is largely due to SG&A and our recent acquisitions, Insulfoam and Dinex. Excluding Insulfoam and Dinex, SG&A would have been 11% of net sales for the first quarter of '08 comparable to '07.
Insulfoam has historical run at higher SG&A than our Construction Materials business. Dinex also currently operates at a much higher SG&A level than our FoodService business.
First quarter 2008 includes integration costs for both Insulfoam and Dinex, including converting Insulfoam to Construction Materials' ERP system. Once fully integrated, we expect SG&A for both of these businesses to be more in line with Carlisle's historical levels as a percent of revenue.
SG&A for the first quarter '08 also included $2 million in pretax expense for an increase in customer reserves for a Florida Construction Materials distributor that just filed for bankruptcy. We believe this bad debt experience is specific and isolated to this customer, as we have had no other significant customer credit issue.
We have summarized for you in this morning's release the decision that was recently made to sell the Power Transmission belt business and the on-highway brake business, which are both currently presented in the Specialty Products segment. The decision to sell these businesses within the next 24 months triggered a fair value analysis based on anticipated market valuation versus a fair value based on ongoing operating results.
The market valuation analysis resulted in a pretax impairment charge of $124 million. The after-tax impairment of $90 million that Dave referenced reflects the tax benefit of 28%, as a portion of the goodwill write-off is not deductible for tax purposes.
The decision to sell was made in April, but this is a type-1 subsequent event, which requires that the impairment loss be recorded in the first quarter 2008. Unfortunately, the accounting rules do not allow reclassification as operating results and impairment charges from continuing operations to discontinued operations.
This will occur in the second quarter. We reported a loss from continuing operation for the first quarter 2008 of $61.7 million or $1.01 per share, which included the impairment loss.
Our Construction Materials group reported sales growth of 25% in the first quarter. Organic sales growth of 10% was all volume driven, and we realized increased sales on EPDM, TPO, insulation and Coatings & Waterproofing.
Insulfoam contributed $33 million or 15% sales growth. Operating margin declined from 8.6% for the first quarter 2007 to 5.3% for the first quarter 2008.
As we have discussed in prior calls, approximately 40% of Insulfoam's products currently serve the residential construction market. Continued softness in residential construction negatively impacted operating margins as did the $2 million bad debt expense.
Operating margin was also impacted by increased raw material costs as many of Construction Materials raw materials are derived on old date feedstock. As you are aware, year-over-year crude oil has increased 80%; natural gas is up 22%; carbon black oil has increased 74%; propylene is up 36%; and ethylene has increased 51%.
Construction Materials ability to manage these significant increases in light of unfavorable competitive pressures in the TPO market is a testament for the street that the management team and the strength of the Carlisle brand. We are receiving very favorable indications of market support for the GM price increases that have been announced.
The price increases average 5% to 6% across all product categories. Sales for the Transportation Products segment were basically flat year-over-year, a decreased tire and wheel sales for the outdoor power equipment market and the lower construction trailer sales, also sales growth in agricultural tires and specialized trailers.
Operating margin declined 11.6% in 2007 to 9.9% in 2008. Reduced plant utilization related to the softness in the outdoor power equipment market, production inefficiencies at several tire and wheel plants and the increased raw material costs similar to those in packing construction materials negatively impacted operating margins year-over-year.
Price increases have been and will continue to be implemented, but we are not relying on price increases alone to improve the performance of our tire and wheel business, meaning operating initiatives are underway. Recent management changes are expected to produce meaningful profit improvement within 18 to 24 months.
Applied Technologies segment realized organic growth of 5% for the first quarter '08 compared with 2007, primarily related to sales of high-performance cable and wire for the aerospace market. A decrease in core foodservice product sales and sharp restaurant traffic decline was offset by growth in our jan/san products.
The January 25th acquisition of Dinex contributed $16 million or 22% of the sales growth for the segment. The Dinex acquisition has received overwhelming customer support, and current performance is meeting our expectation.
Segment operating margin grew 28% and operating margin improved from 10.7% for the first quarter 2007 to 10.9% for the first quarter of 2008. Sales increased slightly for our Specialty Products segment as our power transmission belt business grew itself 13% on strong agricultural market demand.
However, this sales growth was offset by sales decline for our on-highway brake business and our refrigerated truck body business. On-highway brake business sales to the OEM declined 37% year-over-year as the market remains depressed following the 2007 emission pre-buy.
Sales for our off-highway brake business were flat year-over-year. Operating income and operating margin for the segment exclude the impairment charges previously discussed as these are reflected in consolidated impairment-related charges, which is a separate line item on our P&L.
Operating margin declined from 5.2% for the first quarter '07 to 3.8% for the first quarter '08, primarily on the results of the off-highway brake business. Operating income for our off-highway brake business increased 5%.
Sales and operating income for Johnson truck bodies are expected to improve during the remainder of 2008 on orders that have been booked and are anticipated for the balance of the year. Cash provided by operating activities of $7 million for the first quarter 2008 compares with cash use for operating activities of $7 million for the first quarter 2007, excluding the $70 million of proceeds in '07 related to the securitization program.
We reduced the cash yields for working capital in 2008 by 29% as compared with 2007 as we continue to refocus on improving cash flow. We repurchased $4.8 million or 122,000 shares in Carlisle stock during the first quarter 2008 under the current repurchase program.
We want to continue to carefully balance the company's ability to pursue strategic acquisitions such as Dinex and Carlisle with opportunistic share repurchases. Net debt-to-capital is currently 26%, but that amount will increase near term to approximately 35% at the close of the $200 million purchase of Carlisle.
I'll now turn the call back to Dave.
David Roberts
Thanks, Carol. Let's go ahead and open the floor for questions, operator?
Operator
(Operator Instructions) Your first question comes from the line of Wendy Caplan with Wachovia Securities.
Wendy Caplan - Wachovia Securities
Good morning.
David Roberts
Good morning, Wendy.
Wendy Caplan - Wachovia Securities
First a question on roofing. You mentioned in your release and commented on, Carol, that price increases had been put into effect.
A couple of questions on those price increases at June 1st. How much do you expect to stick with that?
And if that 5% to 6% that you referenced were to stick, would that at this point, given where your material costs are, cover those additional costs?
David Roberts
Wendy, I'll answer that. The 5% to 6% actually are looking pretty good right now.
We've seen favorable reaction from our competitors. So we think that we're going to be able to keep the vast majority of that price increase that we're putting through.
Now, what it does is help us offset some of the material cost increases we have. At the same time, we're planning another increase very similar to that in the August-September timeframe, which will get us effectively neutral when it comes to raw material cost increases.
There are also a number of cost reductions that are underway related to different types of materials so on and so forth that will help us, we think, still have earnings growth in the year in Construction Materials.
Wendy Caplan - Wachovia Securities
And on the demand side, where kind of it's been at this point, can you give us some idea of what you're seeing relative to demand for the products?
David Roberts
Sure. Actually, we're still seeing very good demand.
We had a bit of a wet winter up in the North, East and Midwest. So, we had, as our guys referred to, a fewer roofing days in the quarter, but there is still terrific demand for all products.
And we see that continuing throughout the year.
Wendy Caplan - Wachovia Securities
Okay. And the tire and wheel comment about production inefficiencies, was that just lower volume or was there something else going on there?
David Roberts
Wendy, it's a combination of a couple of things. Lower volume has, I think, exposed some of the inefficiencies that was have had in those factories over the past couple of years.
And we've got two tire plants and one wheel plant that frankly we have some issues in, but over the next 12 months or so, we'll see improvement occur in those. Long-term, I don't see it being an issue, but I think over the certainly for the remainder of this year, we will have some pressure because of the inefficiencies in those plants.
Primarily, it puts the price variances, labor variances that are flowing to those factories.
Wendy Caplan - Wachovia Securities
And again, you expect that that will last through the year. Is that what I heard you say?
David Roberts
Yes, I think that it will be challenge for us. I think we will get better as we go through the year, but I think it will be a challenge in this year in those three plants.
And the three plants are our Buji plant in China, our Bowdon plant down in Georgia and then our Aiken wheel plant in South Carolina.
Wendy Caplan - Wachovia Securities
Okay. And finally three months ago, you said that you felt the operating margin in '08 would exceed '07's to 9.4%.
It has to post well over 10% for the next three quarters. Is that a realistic comment at this point given what we did in Q1 or should we kind of lower our expectations relative to the margin for '08?
David Roberts
Wendy, we are still going to take down the call that we think earnings are going to grow about the same rate at what sales are going to grow. We've got a number of cost improvement programs and initiatives that we are putting in place.
We are frankly still optimistic that we can grow sales probably 5% to 6%, and we think earnings will be close to that growth. I had said I think in our first quarter call or the earning call that we said that we thought we'd get leverage.
I don't think we will get leverage today primarily based on what we saw in the first quarter, but I do think we will see earnings growth certainly in the second half of the year.
Wendy Caplan - Wachovia Securities
Okay. Thanks so much.
David Roberts
You're welcome.
Operator
Your next question comes from the line of Saul Ludwig with KeyBanc Capital Markets.
Saul Ludwig - KeyBanc Capital Markets
Good morning, Dave and Carol.
David Roberts
Good morning, Saul.
Carol Lowe
Hi, Saul.
Saul Ludwig - KeyBanc Capital Markets
I am encouraged by your commentary, particularly roofing materials that you would expect to have higher earnings for the year. And when you look at where you are starting out down $10 million to $12 million and the expectation that non-res is going to start to weaken as we move to the end of the year and the pressure on raw materials only getting more intense with oil pushing at $125, I wonder if you could give us a little more color as to how you would expect to overcome the $12 million shortfall here in the first quarter and the other pressures that I have discussed.
David Roberts
Right.
Saul Ludwig - KeyBanc Capital Markets
And to have up earnings in that segment, it sounds like a giant leap.
David Roberts
Well, I think it is a giant leap, but I think that if I look at just the cost reduction programs that we have that will be implemented throughout the year, we are looking at yield, Saul, of slightly more than what that $10 million shortfall we had in the first quarter. Now, there is a variety of things in there.
To go through all of them, I think, would be just too time consuming at this point. But there are definite plans in place that we are going to generate earnings we feel very comfortable or savings very comfortable at the 10% or $10 million range.
And we think this maybe even more as we implement these. As far as non-res construction slowing, I haven't seen that, and we haven't seen it in our business.
We are still optimistic for this year. Now, as we had talked in the past, 2009, I don't know what the heck is going to happen.
But '08 I think is still going to be a good year revenue-wise.
Saul Ludwig - KeyBanc Capital Markets
On this cost reduction program, have you decided like one or two of the more significant things that you can implement, here it is, April 22nd, that's going to help you save 10 million bucks between now and the end of the year?
David Roberts
Well, there are a couple of things. There is a new TPO compounding line that's coming online that's over $1 million.
There are some accessories that are coming online. They are worth a million bucks to us.
There is a material changes worth $2.5 million to us. There are a variety of things that we are going to do.
Saul Ludwig - KeyBanc Capital Markets
Okay, great. And second question, if we look at Tire and Wheel and you talk about the plan inefficiencies, which it's encouraging to hear you've got a management change and you're going to deal with those.
We're not going to see much help this year. Isn't the pressure from steel raw materials, your FIFO for accounting, so you probably got to hit a little bit with the steel impact here in the first quarter?
What's going to happen to the steel impact as we move through the year? And how do you see that sector performing going for the balance of this year?
Carol Lowe
Saul, with respect to the steel, you're right that we are on FIFO. But our raw materials do turn quicker in the first half of the year as we're producing inventory for the spring and summer seasons, especially on the outdoor power equipment.
And the team has actually been fairly successful where allowed under contract to pass along price increases, and they are very focused on production efficiencies. So, we do believe that we'll have to manage through the impact, but we think we'll able to handle it.
David Roberts
Yes, Saul, speaking of price increases and it varies by category within that business, but we are seeing price increases anywhere from 2.5% to almost 9% in different categories that we have been successful in implementing. As Carol said, the OEs are more difficult for us to do just because of contractual obligation, but we have seen some very aggressive price increases that we have put in place.
Saul Ludwig - KeyBanc Capital Markets
Are you saying that that as you plan it out in Construction Materials, you think you are going to overcome the first quarter hiccup? Actually, it was only $5 million, not $12 million as I said earlier?
You are down 4 million bucks in Transportation Products. Do you think you'll end the year there on the plus side of last year or the negative side of last year?
David Roberts
Saul, I think transportation would be the more difficult of the two. I think that our goal is to get to where we were last year.
When I think we have got plans in place to do that, I don't think we will see growth in transportation, in primarily tire and wheel. I mean the trailer business is still doing very well, and it's primarily tire, wheel and transportation.
Saul Ludwig - KeyBanc Capital Markets
Great. Thank you very much.
David Roberts
You are welcome.
Operator
Your next question comes from the line of Deane Dray with Goldman Sachs.
Deane Dray - Goldman Sachs
Thank you. Good morning.
David Roberts
Good morning, Deane.
Deane Dray - Goldman Sachs
First question and to go back to Construction Materials, if we could. And you see core revenue growth on topline looks pretty healthy, and we understand the issues with raw material costs, can see it in the headlines, but can you talk a bit about mix in the quarter?
David Roberts
Sure.
Deane Dray - Goldman Sachs
I know insulations are higher percent of your revenues in that segment. That's a lower margin.
So, just first, address what mix is doing on margins.
David Roberts
Well, I mean obliviously it is having a negative impact. If you look at our business today and let me give you rough numbers, 50% of our sales are insulation.
Insulation is a lower operating margin and gross margin business than the other businesses. TPO continues to grow.
We had great growth in TPO, but we also have very good growth in EPDM in the first quarter. Those now represent roughly 25% each of our total overall revenue and then you throw in the accessories and so on.
There has been a mixed change that would suggest that operating margins are going to be a challenge going forward just because of the mix of the product. But like I said, there are a number of cost initiatives that are being put in place by John and his team that I think will allow us to offset that.
But there is definitely a mixed change in the business.
Deane Dray - Goldman Sachs
Right, that's helpful. And then, how about some context about this price increase?
If we look back a year ago, you put a similar price increase in, but come third quarter, it looked as though you only got a portion of it. How is this price increase different and what do you think will be the competitive response, because you've really got more competitors and despite we not seeing a slowing in commercial construction, lots of data points look for a slowing there?
So how do you get a price increase with more competition and potentially slackening demand?
David Roberts
Yes, I think the whole issue revolves around all seeing the same material cost increases that we are. I think they were less aggressive last year, as we put price increases and they've been the competitors.
I think what we are seeing today is that they are being more aggressive in their price increase, primarily because their margin has to be hurting as much as ours is based on raw materials. They have no advantage over us in purchasing raw material.
And I think that they are now following what we are doing in price increase.
Deane Dray - Goldman Sachs
Okay. And then anything with them, the competitive environment, you've got more competitors in TPO.
You get additional capacity that's come on. And so we're trying to calibrate here how competitive dynamics have changed in this cycle versus previous cycle?
So what does it look like in terms of competitive behavior? How that's affecting pricing and what kinds of jobs that you're able to bid on and so forth?
David Roberts
Well, I think over the last 6 to 12 months, there hasn't been much change in the landscape in the competitive environment, particularly in TPO. The other businesses obviously are different.
But TPO, we still got the three main competitors, the Firestone, Johns Manville and GAF. Honestly, the capacity has come on or it's just in the point of coming on stream.
And I don't really see the dynamics changing much from what they have been over the last year or so. Again, back to the commercial slowdown, we haven't seen at anywhere in our business that suggests the slowdown in '08.
Now, I know all the data you read so on and so forth would suggest that there is going to be a slowdown. But I think the thing that we also lose track of is the fact that there is more of a replacement component of our business today than it was two, three, four years ago.
The other thing that helps us in this business is the fact that the asphaltic materials are actually going up at a rate as fast as, or if not, even faster than what our materials are going up. And that gives us the competitive advantage, not against our traditional competitors in TPO or EPDM, but also the asphaltic manufacturers.
Deane Dray - Goldman Sachs
Good. And then what about in terms of your visibility?
So, you don't see a slowdown, you don't typically build much backlog, and so it ends up being more of a short-cycle business anyway. So when you talk about you don't see a sign of slowdown, you're only looking ahead one quarter?
David Roberts
No, we are looking ahead a couple of quarters at least. And if you look at our business and we spend a lot of time in the field taking to contractors, to architects, so on and so forth.
There are still jobs that we did this year. The concern is as we look out over the next, certainly 2009, we are reading the same thing you are.
And we would anticipate a slowing in the commercial business next year. And the visibility we have, we just are not seeing it today.
Deane Dray - Goldman Sachs
Got it. And what percent is roofing today?
David Roberts
We think it's 45% to may be even moving up towards 50%, but it's certainly clearly about 45%.
Deane Dray - Goldman Sachs
Great. And then away from roofing, the acquisition in the Tensolite business, can you comment about what the opportunity there is in the Carlisle business?
David Roberts
I really appreciate you asking a question, because this is going to be a great acquisition. What it gives us is entrée into Airbus along with the retrofit business at Boeing.
The Tensolite business today is primarily based military, obliviously aerospace, in test and measure, which are really driven by new aircraft build or new projects that are coming on stream. The Carlisle business is really a retrofit business with some entrée into the new aircraft business.
And what we were seeing is that on the 737s, the 777s and the 767s for the international fleets, not so much US fleet, international fleets are being retrofit for in-flight entertainment systems of which Carlisle, not us, the other Carlisle, has a great presence in that market. They also give us now a presence on the 330 Airbus and the 380 Airbus that we didn't have in the past.
So, we see this business basically being a great add to our existing business. The other good thing about Carlisle, and I am sure the question is going to come up about the slowing of the 787 rollout.
Carlisle, in our projection, we put no revenue in the model for any 787 rollout, primarily because they generally are on the tail end of the cycle. So, we are really, frankly very excited about this acquisition.
We think it's going to be a great add to that business.
Deane Dray - Goldman Sachs
So, we have sense of what the revenues are? How about the margins?
Where the upside is? Where are they today?
What's the upside in this Carlisle with a 'Y' is, as what we'll call it?
David Roberts
Right. The margins are slightly better than ours, and we think there are some SG&A costs that are duplicate between the two businesses.
Like I said, we are very positive on this acquisition, both on the sales line and also on the earnings line.
Deane Dray - Goldman Sachs
Okay. And then just in terms of portfolio management, the potential divestitures, there is no surprise when you said Specialty Products that those were non-core businesses and the moves today, there should be no surprise.
But maybe a couple of questions on why you've not done similar moves with Johnson Truck Body and off-highway if they are sitting there as non-core?
David Roberts
First of all off-highway is a core business for us. We originally talked about putting in a Transportation Products back where we originated this segment.
The only reason we didn't do that was a fact that Kevin Foster who is running it today used to run CIBF back in the old days, I guess. That business is our highest operating margin business.
We are pushing operating margins 20% or higher this year. And that business is not for sale, and it will not be for sale.
That is an outstanding business going forward. It's also our most global business.
More than 50% of our sales are outside the U.S. So that is a business that's staying.
Johnson Truck Bodies, I think the jury is still out on that business. It's small.
The question is can they get larger to fit our parameters, probably not. We have not made the decision to sell it at this time.
And if we do, Deane, there is not going to be a major impairment charge as a result of that. The book value in that business is probably equal to or less than what we can get for it if we were to sell it.
And we want to get through Power Transmission and Motion Control first, and then we'll take a look at Johnson Truck Body.
Deane Dray - Goldman Sachs
Okay. And just last question on the businesses that went into discontinued, you've given yourself 12 months?
David Roberts
Correct.
Deane Dray - Goldman Sachs
We're still very early in the process. I know you actually put a number on more than $100 million net, but --?
David Roberts
Yes, we're earlier in the process on one and later, not later, but still a little less early in the other.
Deane Dray - Goldman Sachs
Okay. Thank you.
David Roberts
You're welcome.
Operator
(Operator Instructions) Your next question comes from the line of Peter Lisnic with Robert W. Baird.
Peter Lisnic - Robert W. Baird
Good morning, Dave. Good morning, Carol.
David Roberts
Good morning, Pete.
Carol Lowe
Good morning, Pete.
Peter Lisnic - Robert W. Baird
I was wondering if you could possibly give us a sense as to what Power Transmission and the on-highway business did in the first quarter.
David Roberts
Sure.
Carol Lowe
Help me.
David Roberts
Well, Carol is looking at it. I'll give you just a general feel.
Power transmission, the sales growth was about 13% positive earnings. Motion Control was a decline of 37% revenue loss.
And I'm not quite sure. Do you have the numbers to show?
Carol Lowe
Yes, the power transmission sales, about $40 million running at an operating margin of 6%. And the Motion Control, the on-highway braking business, first quarter revenue is about $16 million, but they were operating at a loss of approximately $3.8 million.
Peter Lisnic - Robert W. Baird
Okay. Thanks for that.
And then if you look at, Dave, I guess the kind of mid single-digit EPS growth forecast that you are talking about, does that include or exclude the Motion Control and Power Transmission for last and this year?
David Roberts
It excludes it.
Peter Lisnic - Robert W. Baird
Okay, all right. Fair enough.
And then if I think about what you said last quarter, I think we are targeting something on the order of 7% organic revenue growth and now were a down a little bit 100 to 200 basis points however you want to look at it. What are the sorts of the puts and takes relative to the previous organic growth forecast?
David Roberts
Yes, I think that if I look at the Tire & Wheel business, we've seen a slowing in the basic lawn and garden tractor business, both consumer and commercial. So, for the OEs, we've seen that business started to slow.
That is one of the negatives that we have. The other businesses, FoodService has declined slightly from what we thought it was going to be.
It's still positive based on new programs that we have introduced, the new products that we've introduced. But the casual dining establishments, obliviously there are fewer people going to own, they are doing less as far as remodels and less as far as building goes.
So, we have seen some decline there. So, if you look at those two businesses, I think they really are the ones that have been our biggest, again not surprised, but our most negative impact on our sales line.
Peter Lisnic - Robert W. Baird
Okay. Thank you for that.
On the Construction Materials side, is there a way that you can actually breakout what the raw material impact was just on that business?
Carol Lowe
Pete, we prefer not to do it business-by-business because of competitive reasons.
Peter Lisnic - Robert W. Baird
Okay.
David Roberts
Significant, Pete.
Carol Lowe
Yes, it is significant.
Peter Lisnic - Robert W. Baird
Let me ask another question that you probably won't answer. Did you make money in all the product lines in the roofing business?
David Roberts
Yes.
Peter Lisnic - Robert W. Baird
Okay? All had positive operating income?
David Roberts
Well, let me go off at it. If you look at overall, yes, in each of the segments or each of the businesses.
Now Insulfoam, because of the integration, was basically a breakeven or to a slight loss in the quarter. But what we've done is, Carol mentioned the SG&A is higher in Insulfoam today or then it will be eventually.
And also we were in the process of implementing the SAP software system in Insulfoam. So, while we were breakeven basically in the quarter, we are confident that that will be positive going forward.
Peter Lisnic - Robert W. Baird
Yes. That was actually one of my next questions.
What the ERP costs were relative to the Insulfoam implementation?
Carol Lowe
I don't have that detail, Pete, in terms of specifics. I mean it was spread throughout the year, but they met lines on SAP in the first quarter.
So, there were higher implementation costs. The other thing we would like to note is that John Altmeyer has made some significant management changes within Insulfoam.
There is any person running that business who is a long-term Carlisle employee and has a better understanding of what good operating margins are. And so, we think we will see significant improvements in that business as we move forward.
Peter Lisnic - Robert W. Baird
Okay. And it sounds like your relative confidence that business can get to a kind of a teens operating margin, assuming the resi cycle ever comes back.
It's still pretty good. Correct?
David Roberts
Yes, I think certainly today, over the next nine months or so, it would be a struggle to get it to double digits primarily because of 40% dependency on the residential market. But, yes, long-term, we think it's a double-digit operating margin business.
Peter Lisnic - Robert W. Baird
Okay. And then any share buybacks in the quarter?
Carol Lowe
Pete, I mentioned that at the conclusion of my comment. We did purchase approximately $4.7 million worth of shares, 122,000 shares.
It was not significant. We had a lot going on the quarter and had blackout period.
But again, we also were working on the Carlisle acquisition, closed Dinex for the purchase price of $95 million. Carlisle cost $200 million.
We are a very conservative company, and we want to carefully manage our debt balances.
David Roberts
Pete, what we'll do is we work out debt. We'll start looking at repurchases again.
We just want to make sure that we've got cash on hand to execute the acquisitions that we're looking at. And not knowing what exactly is going to happen with the economy, I'd rather be a little conservative at this point on cash than more aggressive in the share repurchases.
Peter Lisnic - Robert W. Baird
Okay. I totally understand.
And then in terms of the cash generation or conversion that you're seeing in the first quarter, are you looking at that as a positive, negative? Are you where you want to be or more room for improvement?
How are you thinking about that?
Carol Lowe
Well, obviously, we're happy that the working capital is down almost 30% first quarter of 2007. We definitely have a much higher focus on our prudent working capital management.
And again, we fully expect to be able to have an operating cash conversion in excess of 100%. We are aiming for a free cash flow conversion of 120% or greater.
We don't think we'll be able to achieve 120% free cash flow conversion in 2008, but we certainly should be able to maintain cash flow levels on an operating basis consistent with 2007 and hope for even better improvement.
Peter Lisnic - Robert W. Baird
Okay, great. Thank you for the color.
David Roberts
You are welcome.
Operator
You have a follow-up question from the line of Saul Ludwig with KeyBanc Capital Markets.
Saul Ludwig - KeyBanc Capital Markets
Carol, what do you think interest expense is going to be in second, third, fourth quarters?
Carol Lowe
I am not going to break it out by quarter. But for the full year, we expect it to be approximately $26 million, and that includes the $200 million in acquisition cost for Carlisle.
Saul Ludwig - KeyBanc Capital Markets
And it excludes getting anything this year for the sale of assets?
Carol Lowe
That's correct.
Saul Ludwig - KeyBanc Capital Markets
Okay.
Carol Lowe
And also, Saul, usually I have probably hadn't said, obliviously our effective tax rate was higher for the quarter, because certain portions of the impairment charges are not currently deductible for the tax purposes, but once those impairment charges in the results for Motion Control, on-highway as well as Power Transmission are discontinued operations, we expect the effective tax rate for 2008 for continuing operation to be 32% to 33%.
Saul Ludwig - KeyBanc Capital Markets
So, we're going to see another restatement of these quarters in the second quarter when you reclassify these businesses to be discontinued?
Carol Lowe
That's correct. And we will post it on the internet website.
Hopefully, we will get that done with in the next two to three weeks to reflect the discontinued operations. But the board has officially approved the disposition and that approval was granted in April.
Saul Ludwig - KeyBanc Capital Markets
Yes. So, then we will see on the balance sheet asset for sale or discontinued assets?
Carol Lowe
Yes.
Saul Ludwig - KeyBanc Capital Markets
Got you. Dave, you said in Tensolite, you didn't have $1 of sales this year built into your budget for sales to 787?
I mean aren't they building planes this year?
David Roberts
No, Saul, in Carlisle, in the acquisition. We put the model together for the acquisition.
We valued it. We didn't have a dollar forecasting Carlisle for 787.
We do have 787, obviously forecast in Tensolite, primarily because we are supplying them product. The slowdown, we don't think it's going to be significant.
If it could be and this is purely speculation at this point, because we haven't seen anything, maybe $3 million to $4 million in sales and then figure the operating margin on that. So, we don't think it's going to be significant in Tensolite either.
Saul Ludwig - KeyBanc Capital Markets
And how many dollars of sales to 787 from Tensolite you think there might be to the 787 this year?
David Roberts
Saul, I don't have that number. I just don't know offhand.
Saul Ludwig - KeyBanc Capital Markets
Okay. And next question was on trailer tires.
You know the whole thing with China, you were going to build radial trailer tires. They were going to make them cheaper than you are buying for resale.
This was going to be the quarter in which we were going to start to see some benefit on a margin standpoint, because you were selling trailer tires that you were making rather than you were buying. Where do we stand in that transformation?
David Roberts
We are making trailer tires today. They are coming out of the Meizhou plant.
I am not ready to step up and tell you how much we are saving at this point, because we are still on initial throws of reducing that product line, but we are manufacturing our own trailer tires today.
Saul Ludwig - KeyBanc Capital Markets
Thank you. And that's plus or minus at this stage of the game versus where you were before?
David Roberts
I think we'll definitely be net plus on the tires, just because we are manufacturing in our own plant. And we are not marking it up or taking somebody's product and marking it up.
The other thing that we are encouraged about is better quality.
Saul Ludwig - KeyBanc Capital Markets
You brought in one of your former associates to head up Asia. China seems to have been a real challenge for Carlisle.
In other words, entire plants are coming on a little slower. The belt operations didn't really go quite as good as you thought.
I know he is really relatively new on board, but once he reported back here what he has seen and what he thinks the problem has been?
David Roberts
No, he is not responsible for the factory, Saul. He is the sales and marketing person in Asia.
Saul Ludwig - KeyBanc Capital Markets
Okay.
David Roberts
Right. The operation still reports through the businesses where the Meizhou plant and the Buji plant will report through Fred Sutter.
And the other plants report through the other business heads. So, Chris Koch, he is our sales and marketing guy basically.
Saul Ludwig - KeyBanc Capital Markets
Got you. But this whole thing with China investments thus far are not really playing out quite the way the script called for.
Is there anything that you've observed? And also the whole issue with costs rising in China, currency strengthening in China, wages going up in China, tax credits being reduced in China, how do you feel about this whole investment in China?
David Roberts
Well, I think that on retrospect, it's always easy to look at investments and say was it good or bad. I think we have too much tire capacity in China, but I think we'll fill it.
We've got some plans there as far as what we do with those two plants, the tire plants. And until we get those finalized, I'm not going to tell you what they are on the conference call.
But on retrospect, if you were asking me today would I buy the Meizhou plant, my answer will probably be yes. But we probably would have gone about it differently as far as what product we're going to produce in there.
Saul Ludwig - KeyBanc Capital Markets
Okay, great. Thanks a lot, Dave.
David Roberts
You're welcome.
Operator
We have no further questions
David Roberts
Great thank you. Well, just real quickly closing comments, I guess.
Obviously, raw materials are going to continue to be a challenge for us as we go forward. As an example, last night, we learned out of our on or off-road braking business, but still castings are now going up in the 15% over the next month.
Now, that business we can pass that along, but we are seeing the types of increases that I haven't seen in my career. Let's just put it that way.
We are implementing increases to offset these. That's only a part of the equation.
We talked about the cost reduction programs, and I think we focused more the Construction Materials, but there are cost improvement initiatives in every one of our business that will get us to a point where we are earnings-positive this year as compared to last year. We talked about our biggest challenge being in the Tire & Wheel business.
We covered that. I still think that while 2008 will be challenging year that we will see revenue and earnings growth in that mid to single-digit margin area.
Thank you all for attending. This concludes our call for the first quarter.