Oct 22, 2013
Executives
David A. Roberts - Chairman, Chief Executive Officer and President Steven J.
Ford - Chief Financial Officer, General Counsel, Vice President and Secretary
Analysts
Peter Lisnic - Robert W. Baird & Co.
Incorporated, Research Division Matthew W. McConnell - Citigroup Inc, Research Division Ivan M.
Marcuse - KeyBanc Capital Markets Inc., Research Division Neil Frohnapple - Longbow Research LLC James Kawai - SunTrust Robinson Humphrey, Inc., Research Division Joel Gifford Tiss - BMO Capital Markets U.S. Glenn Wortman - Sidoti & Company, LLC Ajay Kejriwal - FBR Capital Markets & Co., Research Division
Operator
Good morning. My name is Alicia, and I will be your conference operator today.
At this time, I would like to welcome everyone to the Carlisle Third Quarter Earnings Conference Call. [Operator Instructions] Mr.
Roberts, you may begin.
David A. Roberts
Thank you. Good morning, and welcome to Carlisle's Third Quarter 2013 Conference Call.
On the phone with me is our CFO, Steven Ford; our Chief Accounting Officer, Kevin Zdimal; and our Treasurer, Julie Chandler. Before I get started with the details of the third quarter, there are 4 prevalent themes that I want to review with you before I discuss the financial performance of our business segments.
First, we entered an agreement to sell our Transportation Products segment to AIP this past weekend. From the announcement we made during the second quarter conference call that we would seek strategic alternatives for CTP to this weekend's signed agreement, the process moved much more quickly than we anticipated.
Following our second quarter announcement, we had a number of inquiries and offers for parts of the business, as well as the entire business. After comparing other offers to AIP's $375 million offer, along with their commitment to move quickly, we felt it was our best interest of our shareholders to sell the business as a whole to AIP.
After reviewing a fairness opinion prepared by SunTrust Robinson Humphrey last Friday, our board approved the sale. We are now seeking regulatory approval for sale in each of the countries where we have operations.
I anticipate we will receive those approvals and will close some time in the fourth -- first quarter of 2014. The second theme in the third quarter was our first quarter in 2013 that we've seen both sales and earnings growth.
In the first half of the year, most of our markets were weak due to weather or customer demand. In the third quarter, we saw sales and/or earnings growth coming from Construction Materials, Interconnect Technology, Transportation Products and FoodService.
While FoodService's sales didn't grow, profitability continued to improve like it has in each of the first 2 quarters. Third, we generated superb cash flow in the quarter.
Our free cash flow was $168 million, a 23.5% increase over the third quarter in 2012. We currently have $332 million on hand, with another potentially strong cash flow quarter in front of us.
Following the fourth quarter and the closing of the sale of CTP, we could have between $750 million and $800 million in cash, along with an untapped $600 million revolver. I recently had a portfolio manager, whose opinion I respect, tell me that money causes people to do stupid things.
Well, I'm here to tell you that we're not going to do stupid things with our available cash. We've laid out a 4-pronged approach to use that cash to create shareholder value.
We will continue to invest in organic growth opportunities like factories, process improvements and new product development. We will repurchase shares of our stock.
We will seek acquisitions in our 3 core businesses, those being Construction Materials, Interconnect Technologies and braking. And we will seek an acquisition to replace CTP's earnings.
While this is not our top priority, we think there are opportunities out there that will present limited risk and a great opportunity if added to our portfolio. Fourth, we'll continue to see weak sales in our braking business, and we have to further streamline the cost structure.
Last week, we announced the closing of our Akron stamping plant. It is a small facility that is not fully utilized today.
The processes currently being done at Akron will be moved to our existing facility in Tulsa. In preparation for closing Akron, we will be rebuilding some existing manufacturing equipment to upgrade its capability, along with purchasing a few pieces of new equipment.
While the equipment is being upgraded and the new equipment is being installed at our Tulsa facility, we will be tapering production at Akron, targeting to fully close by midyear 2014. The decision to close a factory is always difficult, but in a braking market that has been declining for over a year and doesn't appear to have any signs of life in the first half of 2014, we have very little choice but to reduce our footprint.
With the additional capacity being added at Tulsa, we will be well positioned to handle any growth in the market that will be presented to us in the future. I'm sure you'll have questions concerning these 4 themes.
Steve and I will be happy to answer them for you during the question-and-answer segment, following our review of the third quarter financial performance. Before we begin the review of third quarter financial performance, please turn to Slide 2 and review our forward-looking statements.
I strongly suggest that you read and review our documents that have been filed with the SEC as they detail the risk associated with investing in Carlisle Companies. Also on Slide 2 is our comment about CTP moving into discontinued operations.
Being with the fourth -- beginning with the fourth quarter, the results of CTP will be reported in discontinued operations, and all prior periods will be restated to exclude CTP. Let's now turn to Slide 3.
This slide is a summary of our performance in the third quarter. Total company sales increased 6.4% to $969 million.
We experienced strong sales growth in Construction Materials, Interconnect Technologies and Transportation Products, while Brake & Friction's and FoodService's sales declined in the quarter. EBIT increased 11.6%, and we earned $123 million, yielding an operating margin of 12.7%.
Margins were up on a year-to-year basis by 50 basis points. We saw strong performance at CIT with 16.8% margins, at CCM with 16.4% margins, improving margins at CFS at 11.9%, good margins at CTP at 8.1% and challenging margins at CBF at 6.1%.
Free cash flow for the quarter was outstanding. It increased 23.5% over 2012, while we generated $167.7 million of free cash flow.
At the end of the third quarter, we had $322 million on hand. Turn to Slide 4, which is our sales bridge.
As you review this slide, you will see that price had a negative impact on sales of 2.2%, driven mainly by pricing pressure at Construction Materials and Brake & Friction. We had volume growth of 5.9%; acquired growth, all at CIT, of 2.6%; while FX had very little impact on sales.
Organically, Construction Materials grew 11%, Interconnect Technologies at 8%, Transportation Products at 4%, while Brake & Friction declined 23% and FoodService declined 7%. Slide 5 details our margin bridge.
Our operating earnings in the quarter increased $12.8 million or 11.6%. Price negatively impacted profitability by 1%.
Volume positively impacted margin by 0.3%. COS had a 0.5% positive impact.
Acquisitions added 1% (sic) [0.1%] while the other category added 0.6% of margin. Included in the other category was the $6.9 million FoodService restructuring charges that we took in 2012.
Slide 6 begins the review of the individual businesses segments, starting with Construction Materials. CCM sales increased a very healthy 11% despite pressure being under -- beside pricing being under pressure in the quarter.
Pricing was negative 3% while volume was up 14%. We also experienced very healthy growth in Europe, where sales were up 11%.
Both new construction and reroofing drove sales growth in the quarter. These trends should continue into the fourth quarter and into 2014.
EBIT was up 4.3% as we earned $83 million compared to 76 point -- $79.6 million in 2012. Our margins, while down 100 basis points compared to last year due to pricing, higher raw material costs and new plant startup costs, were a healthy 16.4%.
The new polyiso plants in Washington State and New York State are up and running. We had $3.4 million of startup costs at Montgomery, New York as startup scrap was higher than anticipated and the cost to prepare to return the leased Kingston facility back to its owner was higher than originally planned.
The $5.5 million new plant startup costs we originally forecast will now be $7 million for the full year, which includes $1.5 million in the fourth quarter for the startup of the Illinois PVC plant. The PVC plant will be online midyear 2014.
Construction of the new Carlisle, Pennsylvania TPO plant has begun, and the plant will be producing product for the 2015 construction season. We will have 2014 startup costs yet to be determined for the startup of the PVC plant and the TPO plant.
We will be able to share these with you during our fourth quarter conference call. Turning to Slide 7.
You'll see the detail of CIT's performance in the third quarter. Interconnect Technologies grew 29%, with 21% of that growth coming from the Thermax acquisition.
Organic growth was 7.8%, with aerospace up 10% and test & measurement up 97%. Continued to decline was our military business, which was off 11% and our industrial business, which declined 21%.
Our business continues to be heavily skewed to commercial aerospace, so while military and industrial sales declined double digits, the impact on our overall sales was modest. EBIT growth for the quarter was 33% as we earned $24.8 million compared to $18.7 million last year.
The Thermax acquisition contributed $4 million, with margins of 16.9%. Margin was also up 50 basis points on higher sales offset slightly by mix changes.
CIT's working capital improved from 24.9% of sales in 2012 to 21.6% this year. Most of that improvement came from inventory reductions that were made while maintaining on-time deliveries to our customers.
Slide 8 details the performance of our braking business. We continue to suffer from lower sales as our customers worldwide sell off their finished goods inventory.
Sales were down 23% in the quarter. By market, heavy construction equipment was down 28% and mining equipment was down 46%.
Our Ag business grew 12%, most of which came from our European operations. In the quarter, EBIT was down 73% as we earned $5.2 million compared to $18.9 million last year.
Reduced volume and negative pricing impacted margin again this quarter and also contributed to a sequential margin decline. We are taking steps to continue to streamline our manufacturing footprint with the announcement of the closing of our Akron stamping plant.
It has been 12 months since this business began to slow, and despite repeated forecasts from our customers that suggested the business would improve shortly, we do not see any significant recovery over the next 6 months. Therefore, we decided to take advantage of the slow sales cycle to close our Akron stamping facility and move that production to our Tulsa, Oklahoma factory.
We will be taking an estimated $1 million charge for shutdown costs in the fourth quarter and another $2 million charge in the first half of 2014, of which $1.2 million of that is noncash. On Slide 9, you see that FoodService's revenue declined 7.3% in the quarter.
Selling prices and allowances negatively impacted sales by 2%. Sales of FoodService Products declined 11% while the sale of healthcare products declined 7%.
Our Jan/San category grew 13% in the quarter. A small part of the revenue decline in FoodService category was self-inflicted as we reduced inventory.
While attempting to make inroads in achieving our working capital goals, we cut too deeply in a few critical product categories, causing us to lose orders in the process. We are rebuilding inventory in these -- of these critical items to correct the situation.
EBIT was up nearly sevenfold as management team continues to make operational improvements in the business. We earned $6.9 million in the quarter and generated margins of 11.9%.
As a reminder, we took a $6.9 million restructuring charge in the third quarter of 2012 to start the march to higher margins. The result of that restructuring has had a positive impact on the margin improvement this year.
For us to continue to see margin improvements, we will need to increase our sales volume. Slide 10 details the performance in our Transportation Products segment, where sales were up 4%, with volume up 5% and price down 1%.
Outdoor power equipment volume was up 18%, power transmission belts up 12%, high-speed trailer up 5%, Ag and construction equipment was flat while power sports was down 12%. Transportation Products EBIT was up 88% on higher sales volume, lower raw material cost and COS savings.
We earned $13.9 million compared to 4 -- or $7.4 million in 2012. As I mentioned earlier, because of our decision to sell CTP, the results will be moved into discontinued operations starting in the fourth quarter.
This will be the last time I'll review CTP's performance with you during a conference call. This concludes my review of the business segments.
I now want to turn the meeting over to Steve Ford, who will review our balance sheet, cash flow and working capital slides. Steve?
Steven J. Ford
Thanks, Dave. Good morning.
Please turn to Slide 11 of the presentation. As Dave stated, we generated $168 million of free cash flow in the quarter.
We currently have $332 million of cash on hand as compared to $168 million at June 30. We expect to receive $375 million of proceeds from the sale of CTP in the first quarter 2014.
We also have $600 million of availability under our credit facility. Our balance sheet remains strong, with a net-debt-to-capital ratio of 18% and a net-debt-to-EBIT ratio of 0.8x.
We are very well positioned for future growth and expect to be more active with share repurchases. Turning to Slide 12.
Our cash flow from operations for the quarter was $196 million, a $27.1 million increase from the third quarter 2012. Again, we generated $168 million of free cash flow in the quarter compared to $136 million last year.
The improvement is due to higher earnings, lower CapEx spending and year-over-year working capital improvement. Turning to Slide 13.
Our average working capital as a percentage of sales for the quarter was 20.7%, a 140-basis-point improvement over the 22.1% we reported for the third quarter 2012 as inventory turns have improved. We remain committed to improving our management of working capital and achieving our long-term goal of 15% of sales.
And with those remarks, I'll turn the call back over to Dave.
David A. Roberts
Thanks, Steve. Alicia, would you open the call for questions, please?
Operator
[Operator Instructions] Your first question comes from the line of Peter Lisnic of Robert W. Baird.
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
First question, just a quick one. The -- is it safe to assume the net proceeds from the CTP sale are -- that $375 million, in other words, limited tax hit from it?
Steven J. Ford
That's right, Pete. There will be very limited tax leakage.
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
Okay, perfect. And then if my math is right, that's going to put you at a net-debt-to-cap position of basically 0 by the end of the year.
So can you maybe talk about buyback versus acquisitions? And what -- give us a little bit of color on the pipeline and just how you think about re-levering the balance sheet.
David A. Roberts
Sure. As we look at the acquisition pipeline, there isn't a lot out there right now.
We have seen some activity increase, so we think there are some things that will be coming. But as you look out over, certainly, the fourth quarter, I don't see us in a position that we'll be announcing any acquisitions.
So obviously, we're going to be sitting with a lot of cash, and as we look at alternatives for it, certainly, share repurchases is one that will be a high priority, I guess, is the way to put it.
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
Okay, understood. And then as I look at the businesses, in the roofing business, the pricing, it looks like it decelerated from 100 basis points of impact last quarter to about 3 this quarter.
So just wondering, what's driving that deterioration in price. And is it something that can reverse course a bit here in the fourth quarter or as you kind of move through 2014?
David A. Roberts
Pete, I think that what you see is an environment that will probably be relatively stable from this point forward. It really is being driven by polyiso insulation and some in the TPO area.
I think what's happened is that there has been capacity that's brought onstream in the iso insulation product -- or area, and that is -- caused some pricing pressure. I think it's short term.
I think with what we're seeing for new construction and reroofing, I think that capacity will be consumed very quickly, and I think there'll be additional pricing power at that point.
Peter Lisnic - Robert W. Baird & Co. Incorporated, Research Division
Okay. And can you give us a feel for maybe what industry capacity utilization is on the polyiso side right now?
David A. Roberts
Well, I just don't have a good idea what the industry is. I just -- I don't have a feel for it at this point.
Operator
Your next question comes from the line of Matt McConnell of Citi.
Matthew W. McConnell - Citigroup Inc, Research Division
So I'd like to start on Brake & Friction, where the revenue decline probably wasn't a huge surprise, just given what your customers have been saying. But the margins really stepped down sequentially.
So if demand kind of remains at this run rate, are these the margins that we should be thinking about for Brake & Friction until you see a pickup later in 2014?
David A. Roberts
Matt, I think they'll get a little better. We're going to take some additional costs out, as we talked about with Akron.
There were certain product mixes that were less favorable on the margin side in the quarter than they traditionally are. We think that will improve a bit, certainly, as we get closer to the end of the year and into the next year.
But I think the margins, we were at 6% basically, I think they should be running maybe a couple hundred basis points higher than that as we look out to the future. But yes, revenue, I think, is going to be relatively flat from where it is.
Now keep in mind, the fourth quarter is generally a slow revenue month for -- or quarter for us anyway. So -- but yes, margin should be anywhere from 6% to 8% and probably trending to 8%, more so than 6%.
Matthew W. McConnell - Citigroup Inc, Research Division
Okay, great. And then even before the Akron plant, I guess a lot of capacity had come out of this business.
So how would you say the capacity changed? I mean, when you do see an uptick, maybe it's later in 2014, maybe 2015, how much capacity would need to go back into Brake & Friction at this point?
David A. Roberts
Matt, really, we didn't take any hard assets out. We've got basically the same footprint that we had in the past.
And toward the start of the downturn, we also added capacity to our European plant. So as capacity picks up, we certainly have -- or as demand picks up, we certainly have capacity to handle any demand requirement.
Certainly, for the next 2 years or 3 years, I don't see us having to add any facilities. I think we'll have -- what we'd do is end up bringing people back, obviously, but there will be no need for a hard asset or brick-and-mortar.
Matthew W. McConnell - Citigroup Inc, Research Division
Okay, great. And finally, on the Construction Materials capacity that you have coming online over the next couple of years, what's your demand forecast for Construction Materials?
I mean, do you -- can the industry absorb that capacity? I mean, you've seen some pricing headwinds now and more capacity is coming online.
So what demand picture are you anticipating with those new facilities?
David A. Roberts
Yes. I think that as new construction picks up, I think you'll see that be consumed very quickly.
I would think we might have a little bit of a situation perhaps in 2014 that may have some pricing impact. But keep in mind, we're still running at 16.5% margins.
So it's a highly profitable business, well-run business. I think it may be short term, as we look into 2014, for continual pricing pressure, but I think that capacity is going to get consumed very quickly.
Operator
Your next question comes from the line of Ivan Marcuse of KeyBanc Capital.
Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division
If you look at your new construction sales in Construction Materials, how much were they up?
David A. Roberts
They were up, again, about 10% or 11%, Ivan, like they have been over the last couple of quarters.
Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division
Okay. So that same year-over-year increase is maintained?
David A. Roberts
Yes.
Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division
And then, if you look at your new PVC plant that's going to come out in '14, how much will that add to sales?
David A. Roberts
Well, capacity -- keep in mind that we're now buying that product on the outside and reselling it. Capacity in this facility, I think, is $100 million, and the business continues to grow.
I think we'll have plenty of capacity in that facility to be able to take over what we're outsourcing today in the business to continue to grow going forward for a couple of years.
Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division
Okay. And then in the asset sale, if -- will there be any stranded costs that you'll have to take out over the next year?
Or is pretty much all the costs with the business associated going with it?
Steven J. Ford
Yes. Ivan, the costs will be going with the business, and we're not anticipating any stranded cost.
Ivan M. Marcuse - KeyBanc Capital Markets Inc., Research Division
Great. And then my last question is on your buyback program, which has been pretty much nil for the past several years, how do you sort of envision it going forward?
Do you expect it to be stronger upfront since you don't have a lot of acquisitions? Or would you be more of -- be in the market as sort of a steady average consistent buyer over time?
David A. Roberts
Yes. I think we'll be an average consistent buyer.
We'll buy as we can or as we do, and I don't see us going out and buying a big slug of shares just immediately. We'll just buy it as we go.
Operator
Your next question comes from the line of Neil Frohnapple of Longbow Research.
Neil Frohnapple - Longbow Research LLC
Just a quick follow-up to Ivan's question. So will you wait to start the buybacks until after the Transportation Products segment sale is complete?
Or will you commence immediately?
David A. Roberts
Well, I don't think we'll do anything immediately. We want to make sure that the sale goes through and I don't see anything that would prevent it from doing that.
And then, we'll -- obviously, we'll have to observe any blackout periods and so on. But we'll be in the market, certainly, by the end of the year, I think, buying back some shares.
Neil Frohnapple - Longbow Research LLC
Okay. And then just switching back to Brake & Friction here.
What gives you guys confidence that things won't get worse and orders have stabilized? Is there a notable improvement in channel inventory that you guys can point to?
Or anything else that gives you confidence?
David A. Roberts
Yes. Well, if you look at our customers' inventory, it is being depleted, and they're going to have to start replacing it some time.
I think the biggest unknown right now is mining. I think construction looks like it will come back, certainly, much more quickly than what mining will, and I'm not sure when mining will come back.
We're anticipating maybe midyear for construction equipment to come back and then some time after that for mining.
Neil Frohnapple - Longbow Research LLC
Okay. And then understanding we're only 3 weeks into the fourth quarter, can you provide any initial thoughts on what you're seeing in any of the businesses that would be helpful there?
David A. Roberts
Just the trends that we saw coming out of the third quarter, I think, are continuing into the fourth quarter. So in other words, Construction Materials is doing okay.
Keep in mind, we're going into winter. CIT, we've ramped up to 787s.
We continue to get additional business at Airbus. The 78 is going to 10 early next year.
So we've got real good momentum both in Construction Materials and CIT. That's about all I can say.
Operator
Your next question comes from the line of James Kawai of SunTrust.
James Kawai - SunTrust Robinson Humphrey, Inc., Research Division
My question is on the Transportation Products divestiture. It looks like it gets you there in terms of your longer-term margin and return on invested capital targets.
It looks like 13.5% margins on a pro forma basis and the ROIC may bump up to 13.5%, 14%, if you assume some modest share repurchases. I just want to confirm that, that's kind of what you're looking at.
And then as a follow-on, Brake & Friction, obviously, we have a new margin profile there. Can you kind of give us your thinking in terms of how that business fits in the context of your longer-term goals?
And do you view the margins as kind of impaired at this point? Or is there a path to back up to 15%?
David A. Roberts
Those would be 20%. As soon as the volume comes back in this business, if you think about the cost structure of the business, it's like anything, you'll add it back very slowly.
I think you'll see incremental margins at a very high rate. They're probably 35% or maybe even 40% as volume picks back up.
This business is our highest-margin business. It's just going through -- it's been a year, of basically negative volume increases.
Now this business is a good business. It's just dependent upon the volume coming back.
And we think that will start to happen sometime midyear next year.
James Kawai - SunTrust Robinson Humphrey, Inc., Research Division
Okay, got it. And as a follow-on, on the Brake & Friction side, it seems like, if you look at it sequentially, a lot of that was -- must have been pricing.
And I just want to, a, kind of confirm that. And b, I was just kind of curious if you got any volume in exchange for that or any other kind of assurances from your customers?
David A. Roberts
Well, I mean, there was some pricing that came out, but that wasn't the vast majority of the reason the sales were down. Yes, we've been beaten up by our customers over pricing.
There have been concessions given, and we've gotten something for that going forward, long-term commitments with new product. So I think we feel comfortable in the fact that this business will continue to be highly profitable.
Again, it's just a matter of when the volume comes back.
Operator
Your next question comes from the line of Joel Tiss of BMO Capital Markets.
Joel Gifford Tiss - BMO Capital Markets U.S.
There was just one little inconsistency in the construction. In transportation it was flat, and then it was down obviously in Brake & Friction.
So I just wondered what the discrepancy was there between the segments?
David A. Roberts
I mean, CIT and Construction Materials were up.
Steven J. Ford
No, he's saying that construction...
Joel Gifford Tiss - BMO Capital Markets U.S.
But the construction business in your transportation was flat, and it was down like 30% in the -- in your Brake & Friction business.
David A. Roberts
The only thing I can think of offhand, Joel, would be the fact that light equipment is actually growing, where heavy equipment is actually still not growing, and I think that would be the difference that you're looking at. When you look at Ag and construction on the tire business, keep in mind that's a heavy replacement cycle.
We don't do -- we do very little with new equipment, so the vast majority is replacement, and the vast majority of Ag/construction is Ag.
Joel Gifford Tiss - BMO Capital Markets U.S.
Okay. And then everyone is kind of dancing around what are you going to do to offset the potential dilution from the sale of the tire business.
So can you just be a little more direct? Do you think we'll see dilution in 2014?
Or do you think that there's other -- you may step up your share repurchase or there's other things that can offset most of that?
David A. Roberts
Yes. I think it's a combination of the 2.
I think you'll probably see some acquisitions and I think you will see share repurchases. We certainly intend to dilute the dilution, I guess.
Joel Gifford Tiss - BMO Capital Markets U.S.
Okay. So we may see a little bit of it, but it's just more of a timing issue?
David A. Roberts
Yes. I think it'll take us into probably mid next year, where you'll really start to see the impact of what we're doing, the positive impact.
Joel Gifford Tiss - BMO Capital Markets U.S.
And then just a quick one for Steve. The receivables are up 19%.
Is there anything in there that's notable?
Steven J. Ford
The receivables -- where, company-wide?
Joel Gifford Tiss - BMO Capital Markets U.S.
Yes. They're up almost $100 million.
Steven J. Ford
No. I think maybe that's -- the Thermax acquisition is contributing a little bit to that.
On a sort of apples-to-apples basis, if you exclude anything from Thermax, our receivables are slightly down year-over-year, and our DSOs are improving. And that's all contributing to the working capital improvement.
Operator
Your next question comes from the line of Glenn Wortman of Sidoti & Company.
Glenn Wortman - Sidoti & Company, LLC
On Interconnect Technologies, the margins were up significantly on a sequential basis on just a minimal improvement on the top line. Can you just help us understand what happened there?
And is this a good base to use going forward?
David A. Roberts
Yes. I think it's just mix.
And I think that what you're seeing is that, yes, the margins are trending in the direction that we thought they would. I don't see reason that the margins should go down, unless the mix would change dramatically.
We're at 16.8%. We've said all along, this is probably a 16% to 17% margin business, and I think we're just performing at that level.
Glenn Wortman - Sidoti & Company, LLC
Okay. And then in FoodService Products, if you get, I guess, some of the volume coming back heading into 2014, you said we can approach a 14%, maybe 15% operating margin.
Is that right?
David A. Roberts
Yes, Glenn. I think that's very doable.
I think it's somewhat dependent upon margin -- or on volume, though. They continue to make margin improvements.
I think we'll see a slight bit of improvement in the fourth quarter, and then, as volume comes back, I think you'll see the vast majority of the improvement dependent upon volume.
Operator
[Operator Instructions] We have a question from Ajay Kejriwal of FBR Capital Markets.
Ajay Kejriwal - FBR Capital Markets & Co., Research Division
So Dave, maybe just to follow up on that earlier topic of wanting to replace CTP earnings. So on the topic of replacing CTP earnings, could you maybe talk a little bit about how to think about leverage?
And the reason I ask is, CTP being sold at, say, a mid-single EBITDA multiple and the acquisition, that I know there's not much out there, but then to the extent you're looking in the core areas, those multiples are, say, high single, maybe even double digit. So as you seek to replace those lost earnings, are you thinking you have to lever up?
Or are you baking in an improvement once you do those acquisitions in the earnings dynamic?
David A. Roberts
Well, I think that you can look historically. You're right, they're selling -- if they're in the core businesses, particularly in CIT, you're going to take 10x or maybe it's slightly more than 10.
And we have improved the margins in each one of the businesses that we bought, but we wouldn't have to lever up to make any acquisitions. I don't see us making any very large acquisitions that will require any leverage.
I mean, we're going to end up with $750 million to $800 million, plus the revolver of $600 million. I can't imagine having to go to the debt markets to get any capital to make an acquisition.
Steven J. Ford
Yes. So Ajay, to that point, we, in all likelihood, would not even need to tap the revolver based on our forecasted cash position and the types of acquisitions that we're looking at.
So just to emphasize Dave's point, I don't think we would have to sort of lever up the balance sheet to replace these lost earnings.
Ajay Kejriwal - FBR Capital Markets & Co., Research Division
Got it. So we'd see something similar to what you did with Hawk, you buy a business and then improve margins and that kind of helps replace earnings?
David A. Roberts
Yes.
Ajay Kejriwal - FBR Capital Markets & Co., Research Division
So that's helpful. Maybe one on Construction Materials, so nice volume growth, 14%.
Maybe some color on what you're seeing in the market. Is this just a reflection of the market?
Or did you gain share? And then, what's your expectation into next year?
David A. Roberts
Well, I think that what you're seeing now is the trend that you will probably see carrying us into 2014. The markets, both new construction and reroofing, remain very strong.
Keep in mind, in the first half of this year, they were weak because of the weather. We just couldn't get on the roofs, and I think we're enjoying some of that.
But despite that, the demand remains very strong in both categories. I would expect that to carry us into next year.
There really are -- I mean, there might be minor market share gains, but nothing significant. I think it's just the strength of the market and everybody in the marketplace.
Ajay Kejriwal - FBR Capital Markets & Co., Research Division
Got it. So the volume is strong, pricing a little bit laggard, but that's just new capacity coming in, you're not seeing any kind of aggressive pricing behavior or share grab going on in the marketplace, right?
David A. Roberts
Right, right.
Steven J. Ford
That's very true.
David A. Roberts
Ajay, I want to go back to the replacement of the earnings. I think what we're missing here is the fact that Construction Materials continues to grow at double digits.
That's a 15% to 16% margin business. That's going to generate additional profitability for us.
CIT continues to grow. It's a 16% to 17% margin business.
That's going to generate additional volume -- or revenue -- or I'm sorry, earnings for us. And we do expect braking to come back.
We think we can replace the vast majority of what we lose in CI -- or CTP earnings just through organic growth on our existing businesses. So I don't want to leave anybody with the impression that we're going to end up with a $50 million earnings hole here and not be replaced by some organic activity.
Ajay Kejriwal - FBR Capital Markets & Co., Research Division
Got it. So part of that hole will be replaced by growth in the other 3 businesses and then the balance through share buybacks and acquisitions?
David A. Roberts
You bet, yes.
Operator
Your final question comes from the line of Joel Tiss of BMO Capital Markets.
Joel Gifford Tiss - BMO Capital Markets U.S.
But just can you talk about the sustainability of the operating margins in the food business and maybe a little bit of what you're seeing, what you're hearing from your customers for -- going forward?
David A. Roberts
Yes. I think, first of all, the markets are growing at about GDP.
So they're growing at 1% to 2%. I would expect that, that would -- that's what we will see over the next couple of years.
I think the sustainability of the margins are certainly doable. Just because we went from very low-single digits last year to 12% this year, we see no reason that, that would go backwards.
We only see upside in the margin profile of the business. I think they're -- a little bit will come still from operational improvements, and the remainder will come from volume.
Operator
And Mr. Roberts, do you have any closing remarks?
David A. Roberts
Yes. As the conference call draws to a close, if you all turn to Slide 15.
Total sales for the year, including CTP, will grow at low-single digits -- or I'm sorry, excluding CTP, will grow at low-single digits, reflecting lower sales at our braking business. Our 2 largest businesses, Construction Materials and Interconnect Technologies, continue to see strength in their markets.
Both businesses will likely growth at rates similar to what they did in the third quarter. I think margins will modestly be lower primarily due to the volume decline at braking.
Corporate expenses will be $48 million, and interest expense will remain at $34 million, as we projected in the second quarter conference call. D&A is now forecasted to be $94 million, and the tax rate is projected to be 31%, which is a change from the second quarter call.
And that's all driven by the fact that CTP is being moved into discontinued operations. Our cash conversion rate will be approximately 100%, and capital expenditures for the year will be approximately $108 million, down from the $116 million that we estimated at the end of the second quarter.
As we head into the fourth quarter, I expect CCM's reroofing and new construction markets to remain strong. I think 2014 looks like a very good year in Construction Materials, certainly if the 2 trends continue.
The 787 has ramped to 7 planes a month and is targeted to go to 10 early in 2014. We also are gaining new business at Airbus.
CIT should continue to perform well in the fourth quarter and into 2014. FoodService will continue to see profitability improvements, but we need volume to get to and run consistently at 15% operating margins.
Our revenues suffered a bit in the third quarter as our focus on working capital caused us to reduce inventory further than we probably should have in some critical product categories and we lost a small amount of market share. We're now increasing inventory in those categories, and we'll aggressively pursue to gain back that share that we lost.
The braking business continues to be in a deep recession. Mining trucks and heavy construction equipment sales continue to be off mid-double digits, and we see no signs for recovery, certainly, in the next 6 months.
The closing of Akron will help reduce our cost structure, but we need volume to get back to where this business will, once again, be our highest margin contributor. We should have excellent cash generation in the fourth quarter, and as I said earlier, we should have $750 million to $800 million in cash early in 2014.
Last quarter, I mentioned that we'll continue to make strides in the pursuit of our strategic financial goals. This quarter, we took another step toward achieving the 15s when we negotiated the pending sale of CTP and continued to improve the profitability of FoodService.
Each step puts us closer to achieving 15% operating margins, 15% working capital as a percent of sales and 15% return on invested capital. Once we complete the sale of CTP, our time frame to reach the $5 billion sales goal will have to be extended.
We're losing approximately $780 million of sales, and while we'd like to replace CTP's operating earnings with a higher-margin global business, which has a rate of growth greater than GDP, there's nothing on the near-term horizon. Our Construction Materials and Interconnect Technology businesses have excellent long-term growth prospects, and coupled with the inevitable return of sales to our braking business and a few bolt-on acquisitions, we will be back on the road to $5 billion in sales.
Our 3 core businesses, plus FoodService and potentially, the addition of another business, will put us on track to achieve our sales goal, but that's going to be a few years down the road. In closing, I want to say that we have no intent to sit on the cash.
Our objective is to create shareholder value by reinvesting it. With that, I'd like to thank everyone for attending today's call.
And operator, you may now end the call.
Operator
This concludes today's conference call. You may now disconnect.