Carlisle Companies Inc Q1 FY2022 Earnings Call

Good afternoon. My name is Selena, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Companies First Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' 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. Jim, please go ahead.

Thank you, Selena. Good afternoon, everyone, and welcome to Carlisle's first quarter 2022 earnings conference call. We released our first quarter financial results after the market closed today, and you can find both our press release and earnings call slide presentation in the Investor Relations section of our website, carlisle.com. On the call with me today are Chris Koch, Chairman, President, and Chief Executive Officer; and Kevin Zdimal, our Chief Financial Officer. Today's call will begin with Chris updating our progress towards achieving our strategic plan, Vision 2025, highlights of our record first quarter, and a discussion of current trends. Kevin will discuss the financial details and updated outlook for 2022. Following Chris and Kevin's remarks, we will open up the line for questions. Before we begin, please refer to Slide 2 of our presentation, where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings. Carlisle provides non-GAAP financial information. You can find reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Chris.

Thank you, Jim. Good afternoon, everyone, and thank you for joining us on our first quarter 2022 earnings call. Before we begin, as we mentioned in the press release, we are saddened by the ongoing conflict in Ukraine and the impact it is having on so many individuals and families around the world. We hope a quick resolution will come to the situation. Turning to our quarterly results, I'm pleased to announce Carlisle Companies delivered outstanding performance in what continues to be a very challenging environment. Before reviewing the performance in more detail, I'd like to thank our teams for their extraordinary efforts that drove our record operating results. Their commitment and significant efforts to minimize disruptions for our customers, contractors, and distributor partners continue to be a competitive advantage for Carlisle and is helping to drive our business results to record levels. All of this despite significant issues within the supply chain, ongoing labor constraints, and rising prices for raw materials, labor, and services. Our goal at Carlisle is to drive continuous improvement and excellence throughout the organization and ultimately deliver on the promise of the Carlisle experience to our customers. Our record performance in the first quarter reflected our teams' remarkable dedication to Carlisle and to delivering Vision 2025. Please turn to Slide 3. Our record results continue to demonstrate the Vision 2025, which has provided the clarity and consistency of mission to guide our efforts since its launch in 2018 with the right path for Carlisle's future. In addition to our world-class team and proven business model, we relied on a strong balance sheet and excellent cash flow generation to provide both financial and strategic flexibility to execute on our Vision 2025 roadmap to drive earnings in excess of $15 per share by 2025. A significant portion of our success has been driven by the multi-year process of reshaping our portfolio to a diversified building products focus, placing our emphasis on our highest-performing businesses when setting Carlisle up for accelerated and sustainable future value creation. Allow me to update you on the drivers of our Vision 2025 strategy. These include driving 5% plus organic growth with operational leverage. In the first quarter, we delivered 45% organic revenue growth and adjusted EBITDA growth of over 150%; utilize the Carlisle operating system to consistently drive efficiencies and operational leverage by targeting cost savings of 1% to 2% of sales annually. We delivered approximately 1% in the first quarter in line with our targeted range, build scale with synergistic acquisitions. We have streamlined and optimized our portfolio through acquisitions and divestitures to build scale in our highest returning building products businesses. Our recently announced segment structure, including Construction Materials and Weather Proofing Technologies, reinforces this objective, continue to invest in and develop exceptional talent. In 2021, we deployed the Carlisle leadership system, a holistic approach to talent management that incorporates mutually reinforcing processes and tools for the selection and development of high-caliber talent. And deploy over $3 billion into capital expenditures, share repurchases, and dividends. With the addition of first-quarter capital investments of over $30 million into our businesses, share repurchases totaling $125 million, and dividends paid of $29 million. We have now deployed over $2.6 billion since the launch of Vision 2025. Now let's return to the first quarter and look at the drivers of our record performance. Please turn to Slide 4. First, sustainable nondiscretionary reroofing demand continues to be a driver at CCM. The number of low slope groups requiring reroofing with more energy-efficient solutions over the next decade underpins our confidence and sustainable above-market organic growth for the CCM segment. We expect CCM should continue to benefit from strong reroofing demand, solid new construction demand, and a growing push to install energy-efficient solutions. In the near-term, we expect continued mid-to-high single-digit annual volume growth boosted by pent-up demand created by COVID-19 shutdowns, supply chain disruptions, and continued labor shortages in the construction sector. Second, we continue to demonstrate price leadership. Under the guidance of Vision 2025, we began to focus on earning price in the marketplace by delivering on the Carlisle experience, which means reliably providing our contractors, distributors, and other channel partners with energy-efficient building solutions of the best quality at the right place, at the right time. We wouldn't be able to provide the Carlisle experience or industry-leading products without significant investment in employees, facilities, equipment, and R&D, including over $1 billion of capital invested in our businesses over the past decade. Earning price for the value we create in the marketplace is contributing to the healthy profitability improvement we generated in the first quarter, and we expect continued contribution over the balance of the year. Third, we continue to seek synergistic and accretive acquisitions. Our newest segment, Carlisle Weatherproofing Technologies, was created soon after the acquisition of the Henry company in September 2021. Henry enhances CWT's total building envelope solutions value proposition. And with a balanced exposure to new construction and restoration, we've increased the size of our served markets and potential sales. Specifically, CWT's expanded portfolio is now more relevant to end users looking for increased energy efficiency, with approximately 70% of segment revenue driven by sustainable solutions; added to a solid home center retail business. CWT has another avenue for growth. As we've upgraded our talent and processes around integrating acquired businesses into Carlisle over the last 3 years, I'm pleased to share with you that Henry's integration continues to go very well. Notably, we anticipate synergy capture beyond our initial $30 million target by 2025 and reiterate Henry's accretion estimate of $1.50 of EPS for 2022. Fourth, since launching Vision 2025, we've remained focused on being a disciplined and superior capital allocator. Our strong operating cash flow enables Carlisle to remain financially and strategically flexible in order to drive value through a balanced approach. This approach includes investing heavily in organic growth, returning capital to shareholders in the form of dividends, opportunistic share repurchases, and, as I just mentioned, continuing to seek accretive M&A. As a reminder, 2022 will be our 46th consecutive year of paying dividends and increasing dividends. And we remain on track to deploy $175 million in capital expenditures this year, with a large share dedicated to funding growth projects in our Building Products segment. Since we remain firmly committed to sustainability and ESG, please turn to slide 5. We are proud that our business model is squarely in the middle of global ESG trends as our products enable a more efficient use of energy in buildings. More energy-efficient buildings lower greenhouse gas emissions on a large scale, as evidenced by the fact that over 30% of GHG emissions annually are attributed to the operation of buildings. Approximately $2.5 billion of our sales last year were from LEED qualified products. And we estimate over 150 million megawatt hours of energy will be saved over the lifetime of those products in their buildings. As a further example, in the last 20 years, Carlisle's insulation products have saved our customers nearly 290 million megawatt hours of energy or more than enough power to power every household in California for a year. With our pivot to building products and related sales expected to grow this year and beyond, Carlisle's contribution to creating a more sustainable planet will only accelerate. And to that end, we continue to make significant progress towards our goal of delivering a net-zero commitment in 2022. I will now ask you to turn to Slide 6 where we highlight our performance in the first quarter of 2022. Revenue increased 59% year-over-year with organic revenue up 45%. All segments contributed to this growth. Adjusted diluted EPS increased 209% year-over-year to $4.26. As higher volumes, price, and cost discipline more than offset inflation and operational disruptions our teams faced during the quarter. For segment highlights, please turn to Slide 7. CCM delivered an outstanding quarter despite the severe challenges across its supply chain and the impact of labor and raw material constraints. CCM experienced solid top-line growth due to continued strong demand, product mix, new product sales, and capturing price earned by delivering on the Carlisle experience. Contractor backlogs are quite healthy, and that activity remains very strong. Our contractors continue to note that material supply is their biggest challenge currently. And according to industry information source Associated Builders and Contractors, more than 75% of contractors are indicating that they have recently suffered some setback in delivering construction services, with supply issues more challenging than labor. Given our investment and focus on sourcing materials and being held accountable to convert and ship our products with reliable delivery dates, CCM continues to be the market leader for our customers. Moving to Slide 8, sales were very strong in our newly created segment, Carlisle Weatherproofing Technologies, up approximately 30% year-over-year on a pro forma basis, driven by growth across all segments despite supply shortages. We continue to drive the Carlisle experience through CWT and its organization, especially at Henry, which gives us confidence that we will as a CCM earn the value of our products and services. Despite raw material supply and tight labor market challenges, order volumes remain exceptionally strong, which we expect will average nicely in 2022. As we called out in the earnings release, we are very pleased with the integration and contribution of Henry to our results and remain excited about the future of CWT under Frank Reddy and our new leadership team. Moving to Slide 9, CIT revenue increased 18.7% year-over-year in the first quarter of '22, with balanced growth in its commercial aerospace and medical technologies platforms. Backlog continues to grow across the major parts of CIT and now stands higher than pre-pandemic levels. We are encouraged by the recertification and accelerating deliveries of the 737 MAX and impending resumption of 787 deliveries later in the year. As we approach the summer travel season, trends are also positive for international travel. This would be a welcome change for the past few years and, longer term, should support a resumption in wide-body production. On to CFT. On Slide 10, CFT generated revenue growth of 8.1% year-over-year. We continue to be pleased by the progress CFT has made over the last year, including increased introduction of new products, improved operational efficiencies, price realization, and an improved customer experience. We are confident combining these actions with growing backlog will deliver strong revenue growth and incremental margins in the mid-40% range this year, and we continue to make progress towards our goal of 50% plus incremental margins commonly seen in our competitors. And with that, I'll turn it over to Kevin to discuss some additional financial details and our updated outlook for the remainder of 2022. Kevin?

Thank you, Chris. Chris has covered revenue growth in his comments, so I will move to the EPS bridge on Slide 12. I would highlight that our adjusted EPS growth in the quarter was driven primarily by volume, price, and mix more than offsetting the negative impact of materials and labor inflation. Additionally, the Henry acquisition contributed $0.32 of accretion in the quarter. Moving to Slide 13 and 14. Carlisle ended the first quarter of 2022 with $292 million of cash on hand, with cash generated from continuing operations, totaling $45 million. Capital expenditures of $31 million and share repurchases of $125 million during the quarter. We currently have 4.5 million shares remaining from our last share repurchase authorization of 5 million shares in 2021. Our net debt to EBITDA is 2.5x, down from 3x at the end of 2021, given our expected EBITDA growth for the balance of this year and our anticipated prepayments of our $350 senior notes in the second half of 2022. We expect to work net debt to EBITDA down to below 2x by the end of the year. On Slide 15, we have our updated 2022 financial outlook. At CCM, as Chris mentioned, we're seeing strong reroofing and new construction demand, as well as increasing interest in our energy-efficient solutions. We expect total revenue growth at CCM to be approximately 30% in 2022. Notably, we don't expect CCM to experience typical seasonality as our teams are sourcing, manufacturing, and selling all they can in this supply-constrained environment. Additionally, we are not entering the spring with inventory levels we typically would have built in the winter months. At CWT, we expect revenue to grow approximately 55% to 60% year-over-year, including high teens organically. Henry continues to contend with supply constraints. But as Chris mentioned earlier, is navigating that well. With integration efforts tracking above our original plan, we reiterate our accretion target of $1.50 for 2022. At CIT, we are encouraged by growing backlogs in both our aerospace and medical businesses, and thus increasing our revenue guidance to low double-digit growth in 2022. At CFT, with orders coming in as expected, we maintain our expectation for approximately 10% revenue growth in 2022. Finally, adding the pieces together for Carlisle as a whole, we expect to deliver revenue growth of over 30% in 2022.

Given the strong fundamentals across our businesses, staying ahead of inflation with proactive pricing actions and driving strong leverage through COS. We expect total Carlisle adjusted EBITDA margins to expand approximately 500 basis points in full year 2022. You can see most of the other items on Slide 15 are unchanged, with CapEx the exception. We now expect to spend $175 million on capital expenditures, up from our previous estimate of $150 million as we accelerate certain projects in our Building Product segments. With that, I turn it over to Chris for closing remarks. Chris?

Thanks, Kevin. In closing, we continue to deal with a complex, uncertain, and evolving global marketplace complicated by the onset of the global pandemic in early 2020. Since then, we've experienced significant changes in the political environment and credible demand fluctuations that had serious implications for labor markets and raw materials. And since February of this year, an ongoing and deadly conflict in Eastern Europe. All of these things have made the workplace more challenging for our employees. And on behalf of Carlisle, I would like to thank them for their resilience, incredibly positive attitudes, and for living our culture of continuous improvement. While our businesses continue to navigate significant supply chain and inflationary challenges, solid demand fundamentals for all of our businesses remain intact. With all of our segments trending positively and our teams executing extremely well, I am proud to disclose that with our record first quarter results and our outlook for the remainder of 2022. That should markets remain stable and no further deterioration of the global economy occur, our expectation is that we will exceed our Vision 2025 goal of $15 of GAAP earnings per share this year. With that, we conclude our formal comments. And operator, we are now ready for questions.

The first question comes from Tim Wojs with Baird. Please proceed.

Hey, guys. Good afternoon. Nice job.

Hey, Tim. Good afternoon.

Thank you. Maybe just to start off here. When you think about just the volume growth relative to the price growth that you're seeing kind of in the CCM business and the CWT business. Is there any way to kind of give us a flavor of what you kind of saw on the volume side in the quarters and then kind of what's built into the respective guidance ranges for the year?

Yes, Tim. So, on the price volume, as we talked about in the last quarter that we're really not going to break that out now for competitive reasons. But we're trying to be more clear in different areas with CCM and CWT where we've broken that out into two different segments as well as trying to give you that full outlook on both the revenue side and the margin side. That's where we added the 500 basis points of margin expansion for the full year.

Can you provide some details about the orders, bidding, and backlog activity on the TTM side, especially in Waterproofing? It seems like you might be building backlog at this point even while delivering these numbers. I'd appreciate an update on what you're observing in that area.

Yes, Tim. Chris here. To discuss the backlog, I want to approach it a bit differently. We've implemented a new allocation process over the last five months. Regarding our orders and what we observe, the team is focused on ensuring that our distributors and contractors have adequate access to supplies to complete immediate jobs. Additionally, we've seen ongoing trends in reroofing that we've discussed frequently over the past few years, which continue to grow. New construction is also holding strong in the first quarter. However, we still face supply and labor constraints. Looking ahead to 2022, we previously mentioned that we have visibility into the fact that everything that can be produced can be sold this year. As we transition into 2023, the demand backdrop and backlog remain robust for the upcoming quarters.

Okay. Okay, good. And then just last one I had just on Waterproofing technology itself, where do you see kind of the long-term margin opportunity within that segment? Now they're kind of breaking it out?

Well, I think our goals there are going to be we have to be the same as our core CCM business. And I think, with a team that's there and some refinement of the portfolio, I think, continuing there as well as some additional investment in new technology and new products. I think we can start approaching that 20% margin range plus that we've targeted in CCM in the past.

Okay. Okay, good. I will hop back in queue. Congratulations, guys.

Thank you. The next question comes from Adam Baumgarten with Zelman. Please proceed.

Hi. This is Marius actually for Adam. Thank you for taking my question. Just want to go back to the guidance for CCM. Obviously, it stayed at 30%, and last quarter, it was also at 30%. The last quarter, I think, also included CWT, so which doubled as of this quarter. So, I was just wondering if there was any change in the CCM guidance, just looking sort of like-for-like expectations there?

Yes. A lot of that is just the mix and the scale of the businesses. When you look at CWT, it's a big piece. They didn't have Henry for. We acquired that in September. So, that's when that came in. So, a little bit messy the comparison from that standpoint for when we reported in the first quarter. we had only talked the businesses combined. But now when we split them out, I mean, it's definitely a pickup at both businesses that are improving, especially on the margin side.

So, it's safe to say that the growth for CCM last quarter was below 30% is what you were expecting?

Right. So, it was slightly below that, and now we are up to about 30%.

Got it. Can you provide some insight into the pricing dynamics for CWT and how it compares to CCM? Are there differences in how the industry is structured compared to CCM? Have there been changes in the last few years, and where do you see it heading from here? Thank you.

Hey, this is Jim. I'll take that one. Regarding Henry, who is a significant part of the CW team, we discussed previously how their pricing discipline has been aligned with ours. They really improved their approach in 2017 and 2018, just as we did. Therefore, their pricing strategy, aimed at staying ahead of raw material inflation and other factors, aligns with that of our core CCM.

Thank you. The next question comes from Bryan Blair with Oppenheimer. Please proceed.

Hey, good afternoon, guys. Great start to the year.

Thanks, Bryan. Good afternoon.

Couple of quick clarification points. I first want to ask, Chris, you did say GAAP EPS in terms of 15 plus for 2022, is that correct?

Correct.

That's impressive. The other clarification point, Kevin, the 500 basis points margin expansion for the year, that’s a consolidated figure, right?

Correct.

Okay. And can you break that out or provide us with insight into CCM and CWT margin expansion expectations?

The CCM is on the higher end between the two of those, and we are not going to go in and give exact margins by segment, but certainly, CCM is a bigger driver there?

Okay. That's fair. And Chris, you said that over time, CWT should close the gap to core CCM kind of profitability. As we think of the scaling of the platform over time organically, inorganically. What kind of incremental should be there? We've always thought of CCM inclusive of pretty aggressive growth investments we are seeing as having drop-through of 25%, 30% and more recently more in the 30% range. Is that the right way to think about CWT going forward? Or are there other levers that can be pulled to bring that a bit higher?

Yes. We think it's in that 30% plus maybe a little bit to that, but very similar from the CCM side.

Yes, Brian, I believe there is a significant opportunity for new products related to energy efficiency with Henry. They had already begun working on this before we acquired them. There are substantial opportunities for developing new products that we hope will generate greater value in the market, which could lead to higher margins. We have only completed about 20% of the COS implementation with Henry since our acquisition, and they are still navigating that process. There are operational efficiencies to be gained, as well as additional opportunities through capital expenditure and automation. We are genuinely excited about the potential for sales growth and operational margin improvement in this area.

Okay. All great to hear. Congrats again.

All right. Thank you.

Thank you. The next question comes from Garik Shmois with Loop Capital. Please proceed.

Hi. Thanks. Congrats on the great results. First of all, I wanted to ask if you could provide some more color on the cost basket, particularly for CCM, what you saw in the quarter and what the outlook is on the cost side?

Yes, Garik, good question. And last year, we were so pleased that we had substantial increases in raws, and it got offset. But if you just look at that cost basket from a raw materials perspective, it definitely increased substantially. Those trends have continued. When we talked, I think in our last call, we had hoped that we would start to see some relief as we got through into the third quarter on that front. And unfortunately, I think supply chain pressures and raw material prices are going to continue into the third and fourth quarter for this year. So, I don't think we're going to see relief on that side. And then labor, you see it in the papers every day that wages continue to increase. People are aware of inflation. And so, there's wage pressure out there too. So, I think that cost basket continues the trends that we saw kind of post-COVID there in 2021.

Okay, thanks. Follow-up question is related to CCM EBITDA margins. Just given really impressive results in the quarter, but also given how you're not expecting seasonality to be quite how it normally is during the year. To the extent that you could speak to the sustainability of this new EBITDA margin level for CCM. That would be helpful.

Yes. In many ways, we've been discussing the Carlisle experience and value creation over the past few years, along with the new products we've launched and the efficiencies we've implemented. The 16-foot wide TPL line is about to be operational, and we are investing in a new lead facility in Missouri for polyiso. We continue to focus on our team, especially in research and development. I believe we are earning in line with the value we provide in the marketplace, and this is likely to be sustainable due to our investments in R&D, the trends in ESG building efficiency, and the ongoing reroofing activity that supports demand. We feel confident about our current position, which reflects the investments and hard work of our team over the past decade.

To add to that, there has been some inflation on raw materials, which will impact us in the second half of the year. However, our goal is to consistently increase margins over the long term. This means we will need to find a balance as the year progresses.

Okay, got it. Last question, if I can sneak one more in. Just on CWT and the exposure to it for residential construction, just given the concern with rising rates. Just curious if you're seeing any impact on your order book there?

Not really. We continue to see strong demand for housing. Some builders have reported that even with rising interest rates, there may be an increase in monthly payments, but significant demand remains and houses are being sold quickly. We are aware that there isn't enough housing stock in the country, and currently, we're not seeing any impact on our demand going forward.

Got it. Thanks again.

Thank you. The next question comes from Dan Oppenheim with Credit Suisse. Please proceed.

Great. Thanks very much. I think most questions have been answered. However, regarding CCM and the cost pressures impacting margins, are you facing challenges in implementing pricing as we move into the second quarter and beyond? How do you view the trajectory of margins and CCM for the rest of the year?

Yes. Maybe I'll let Kevin add on to this, too. But if I start with things like the pricing, you mentioned that first. I think we are seeing continued pressure on cost. And so obviously, the pricing actions will have to be there. And I think you might be aware that pricing action has been taken here since the first of the year and likely will continue if that persists. So, on that side, I think will be covered there. As we get to the third and fourth quarter, I said, I don't really see a lot of relief on this cost side. So, we'll see what happens. I mean, again, we haven't talked about China much or trucking and things like that, but there are capacity issues with getting labor back, but there are also things just around the transportation side that might affect us as well. So, we do get some raw materials that need to be transported and significant lengths and that can impact us as well. So, on price. But Kevin, do you want to add to that?

Yes, the only other piece of the first quarter, we did have some favorable mix. So that could have a bit of an impact on the second half of the year as well, but not overly significant.

Great. Thanks very much.

Thank you. The next question comes from David McGregor with Longbow Research. Please proceed.

Yes, good afternoon and congratulations on these wonderful results. I want to ask about incremental profitability. And if you've addressed this, I apologize because I had to get off the call for a few minutes. But you're talking about the 500 basis points of margin for 2022, which is helpful guidance. So we appreciate that. I'm just wondering if you can talk about incremental profitability of the CCM 30% or off the 55 to 60 CWT. So, we just triangulate against that.

Yes, as we mentioned earlier, we expect CWT to be slightly more than 30%, in that range, while CCM is projected to be a bit higher than that in the current environment.

Okay. All right. Thank you for that. And then we talked a lot here about CCM, CWT. Maybe I could ask about CIT for a moment. And it seems as though you're getting incrementally more optimistic about how the commercial aerospace side of that business plays out through the second half of this year. And into 2023, are you seeing actual orders coming through right now? Or is this just kind of talk about the build rate and the orders will come. I'm just trying to get a sense of just how tangible your sensitive optimism might be?

Yes. David, we are seeing orders. It's happening. And I think the nice thing is that when we talked earlier on, even when this started that we still felt that '24, '25 timeframe, things would come back. John and the team did a lot of work on restructuring and taking cost out of the organization. And so, as these orders are coming back, we're expecting that while there may be bumps, I mean when the 787 gets exactly certified, I don't know. But if you have that North Star of 2025 as a return on this. We think it's kind of walking just like we thought it would. It was good to see 31 737 MAXs. It's up and flying again and production is back up. So that obviously will have an impact on demand. So yes, it is real orders and the team, I know is excited about continuing to see air travel pickup and profitability return to airlines and reinvestment in things like new aircraft, but also in things like retrofits around ARINC 791 and satellite Internet access and things like that that we invested in before.

That's great. And if I could just maybe squeeze 1 more in. Again, on CIT, there had been talk that once we got past the pandemic, you'd see a return of discretionary surgical procedures that would be good for the medical business. Are you seeing order flow off that as well?

Yes. In both cases, we are seeing actual orders, and the team has more projects in progress now. I think this is unfolding just as many would expect. Clearly, the pandemic had a significant impact on hospitals and the medical field in various ways. It's encouraging to see some relief and that people are returning to the development of new products, which aligns with our focus in the medical sector.

Thanks, Chris.

Thank you. The next question comes from Kevin Hocevar with Northcoast Research. Please proceed.

Good afternoon, everyone, and great quarter. I'll start by saying I'm aware that you're not disclosing volumes and prices in CCM, but I'm interested in knowing how your volumes performed and what happened in the market, especially regarding single ply. I'm curious if you think you're gaining market share based on how strong your results were.

Yes, Kevin, there's been a lot of changes in demand and supply chain issues recently. My personal view is that over the long term, our market share has remained fairly stable among all competitors. We experience some variations, often influenced by availability or specific markets where some companies may have a stronger presence in certain product lines. However, looking back over the past 2 to 3 years, market share has remained relatively consistent.

You mentioned that due to strong demand, you were unable to build the typical inventory levels usually seen in the first quarter as you move into spring. It seems like you sold everything you were able to produce in that quarter, achieving $881 million in sales in Construction Materials. Can you maintain this level of sales each quarter? Is there no seasonality involved, or is there potential for sequential pricing increases since you have another price hike planned? Also, is there any possibility of volume increasing sequentially? I'm trying to grasp whether normal seasonality is completely absent, or if we might see some uplift from first quarter performance in that business.

Well, again, I think you saw it as we went through the quarter. It really depends on raw materials for me. If we can secure raw materials, we obviously have the capacity to produce more product. Then, if the contractors can acquire more product and have sufficient labor, they can complete the jobs that are in backlog. So, there is still an opportunity for growth. We are all just limited by the labor and raw material issues we have experienced. There could definitely be more to come if everything aligns, which might lead to increased sales in the season. However, as it stands now, we have a forecast, and I would say we are being conservative about our expectations for raw materials improving significantly in the second quarter. Again, as I mentioned, it’s probably more of a third quarter and fourth quarter situation, and we will keep you updated.

Yes. I know that there isn't as much inventory held in the channel from distributors for commercial roofing compared to residential roofing. I'm curious if you think that the products you're selling are being installed on roofs quickly or if there's any inventory still available in the channel.

Yes, I believe there is some inventory. Part of it might be tied up with orders pending certain components. So, there could be some accumulation or anticipation for upcoming work, and they have managed to access specific products for their inventory. In some situations, there is indeed inventory being built up. However, I want to emphasize that this inventory is allocated and is designated for specific jobs. If we can gain more access to raw materials, we can help facilitate the flow.

Yes. Okay. Thank you very much.

You bet.

Thank you. The next question comes from John Joyner with BMO. Please proceed.

Hey, how is going. Thank you for taking my questions.

Hi, John.

I think you might have broken my model. And Chris, just following up on your comment of exceeding $15 of EPS this year. I will give you the award for understatement of the day on that one.

Thank you.

But anyway, my first question, I guess, is versus your internal assumptions, I mean, what surprised you the most in the quarter? I mean, was it just being able to get more product shipped, but because obviously, the top line exceeded expectations in the CCM business and such, and then the margins widely exceeded expectations. But what surprised you?

Yes, it's Kevin. There wasn't one thing. I think it's across the board. It's just everything was very favorable from getting more raw material than we expected, led to the higher production, and then we were very efficient on that production through the Carlisle operating system. So efficiencies were very positive. The raw material inflation led to the pricing, and that definitely helped the pricing realization that we're able to get throughout the quarter. And then as I mentioned, with some of that positive mix as well. So, when you put all those things together, that led to the superior beat as well as the full-year increase in outlook.

Thank you. Following up on that, when you consider the commercial roofing market overall, the industry remains rational. Historically, with oil futures at $105, Carlisle would typically be more impacted. The demand appears robust, making the pricing understandable. However, how do you see this situation holding up? I could probably anticipate your answer, but how do you view the industry's continued rationality? Additionally, could you share any insights on structural changes that have occurred over the past five years?

Yes, I believe it may have been unintentional, but when we examine the past decade and consider where capacity was added, the compound annual growth rate from 2014 to 2021 appears to target mid to high single digits, around 6%, 7%, or 8%. Reflecting on our capacity additions since that period, it is important to note that establishing a new plant and receiving the necessary approvals is a lengthy process. The industry has managed to add an appropriate amount of capacity to align with business growth. Previously, we estimated that one building or factory would contribute about 5%, but as the industry has evolved, that figure has likely decreased to around 3.5%. However, the additions have been rational. There is access to excellent data and insights regarding roofing and building starts, allowing stakeholders to better understand industry capacity and demand. We can accurately monitor reroofing trends, and Jim has developed a model for that. The current landscape is rational and suggests a more positive outlook for the future. Additionally, new ESG-related products are emerging that may alter the dynamics and potentially increase the dollar value growth as these solutions evolve from being mere commodities to contributing significantly to energy efficiency and creating additional value, thus encouraging more investment in research and development. I am optimistic about the reroofing momentum and the forecast for strong demand over the next decade. As long as new construction remains consistent, it will continue to be a significant factor. There are also promising opportunities related to ESG, as well as on the margin side regarding cost of sales and improving factory automation and connectivity through the Internet of Things. We will proceed with our Vision 2025 strategy, focusing on prudent capital allocation, investing in R&D, and nurturing talent. Overall, we have a market that is poised for positive evolution. Thank you for your patience with my lengthy response.

No, that's great. I appreciate it. So yes, that's all. I did take Joe, by the way, and he said he would put it in Joel's terms. I thought it was a misprint. All right. Thanks a lot. I appreciate it.

All right. Thank you.

Thank you. The next question comes from Daniel Wang with Berenberg. Please proceed.

Hey, thanks for taking my question. Most of my questions have been answered, so I only got one for you guys. But is there an update on what the free cash flow conversion might look like this year? I think you guys had about 100% as our expectation last quarter, but I mean I missed in the prepared remarks.

Yes, that remains our expectation to be, right around 100% for cash conversion.

Thank you. That concludes the Q&A session. I would like to pass the conference back to Chairman and CEO of Carlisle Companies, Chris Koch, for closing remarks.

Thanks, Selina, and thanks, everyone. This concludes our first quarter 2022 earnings call. And thanks for your participation and the questions. We look forward to speaking with you at the next earnings call. Goodbye.

That concludes the Carlisle Companies first quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect your lines.