Carlisle Companies Inc Q2 FY2024 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Carlisle Companies Second Quarter 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on the 24th of July 2024. I would now like to turn the conference over to Mehul Patel, Carlisle's Vice President of Investor Relations.

Thank you, and good afternoon, everyone. Welcome to Carlisle's second quarter 2024 earnings call. I'm Mehul Patel, Head of Investor Relations for Carlisle. We released our second quarter 2024 financial results today and you can find both our press release and the presentation for today's call in the Investor Relations section of our website. On the call with me today are Chris Koch, our Board Chair, President and CEO; along with Kevin Zdimal, our CFO. Today's call will begin with Chris. He will provide highlights of our second quarter results and accomplishments, followed by Kevin, who will provide an overview on our financial performance and an update on our outlook for the remainder of 2024. Following our prepared remarks, we will open up the line for questions. But 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. As Carlisle provides non-GAAP financial information, we provided 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, Mehul. Good afternoon, everyone, and thank you for joining us for Carlisle's second quarter 2024 earnings call. To start, I'd like to direct your attention to Slide 3 of the presentation. We are pleased to report another quarter of outstanding performance, reflecting the continued success of the Carlisle story. The underlying attributes of this story have been bolstered by the completion of our pivot to a pure-play building products company this year and reinforces underlying themes and strategies we outlined in our Vision 2030 strategy launched this past December. We are pleased to see that the transformation of Carlisle since the introduction of Vision 2025 continues with success and confirms the path we've been on remains the right one for all our stakeholders. In the second quarter, we delivered sales of $1.5 billion, representing double-digit growth, up 11% on a year-over-year basis. The CCM and CWT businesses continued to build on their first quarter performance of driving improved profitability, supported by pent-up re-roofing demand, continued discipline on price, and delivering on operational efficiencies gained through the Carlisle operating system. The combination of these key drivers translated into a record bottom line performance for Carlisle with adjusted EPS up 33% to $6.24 and adjusted EBITDA margin expanding 220 basis points year-over-year to a record 28.8%. CCM delivered an impressive quarter with 15% revenue growth and 220 basis points of adjusted EBITDA margin expansion, driven by strong re-roofing demand, which I previously mentioned, solid contractor backlogs, and the benefit of inventory normalization in the channel. As we had discussed when we entered 2024, we expected to see a year-over-year benefit of approximately $125 million of sales improvement from inventory normalization in the second quarter, and that estimate was on the mark. As a reminder, inventory normalization also positively affected our first quarter of 2024 by $200 million and we project that inventory normalization will impact the third quarter positively by $50 million. CWT also performed well, showcasing its building earnings power. CWT delivered a 22.5% adjusted EBITDA margin on organic sales that were down approximately 1% as integration synergies and benefits from COS helped offset investments in growth initiatives and more difficult residential end markets. We are very pleased to see that CWT continues to have its sights set on the delivering of their aspirational goal of 30% EBITDA returns by 2030. During the quarter, we continued to make excellent progress on our Vision 2030 goals. A key milestone was the completion of our sale of CIT to Amphenol Corporation for approximately $2 billion. This sale marks the successful culmination of our strategic pivot to a pure-play building products company, which allows us to continue to focus on delivering superior capital returns, keeps our management attention on a more focused portfolio, and provides a clearer picture of how value is created for our shareholders. We also completed our acquisition of MTL in May. As a reminder, MTL is a Wisconsin-based specialty manufacturer of high-performance metal edge and wall systems. This acquisition positions Carlisle as an industry leader in the $4 billion architectural metal category of 2024. We are extremely pleased that in addition to a great acquisition in MTL, we were also able to strengthen our architectural metals platform through consolidating the team under Tony Mallinger, MTL's President. We look forward to supporting Tony and the team as they continue to drive success in our architectural metals business. Continuing with the theme of driving future growth, we recently announced plans for a $45 million investment in a state-of-the-art research and innovation center in Carlisle, PA. This expansion will provide additional resources necessary for the next stage of our innovation journey. The investment will support our Vision 2030 objective to accelerate our innovation in areas of energy efficiency, labor-saving solutions, and integrated systems. Expanding our R&D center in Carlisle is a key initiative to help us achieve our goal of generating 25% of revenues from new products introduced within five years by 2030. Furthermore, we maintained our focus on returning capital to shareholders through dividends and share buybacks in quarter two. During the quarter, we executed $550 million of share repurchases. This is consistent with our planned goal of $1.4 billion of share repurchases for 2024. We also distributed over $40 million in dividends. These actions reflect our ongoing commitment to returning capital to our shareholders and our confidence in Carlisle's future growth prospects. Turning to CWT. In the residential markets, homebuyer demand continues to experience affordability headwinds. Higher interest rates have kept buyers on the sidelines and changes in consumer spending are negatively affecting repair and remodel. However, with our focus on enhancing the Carlisle experience, bringing new products to market, and especially in our retail home center channel by continuing to drive COS through our business and by implementing price-to-value approach, we expect to continue to grow CWT EBITDA margins towards our goal of 30%. To close out Slide 3, I would like to announce that we are raising our full year 2024 outlook by coupling our strong first half results with our previous projections for the second half of 2024 and the addition of MTL as of May 2024. We have strong confidence that the remainder of the 2024 construction season will continue the trends we have experienced in the first and second quarters of this year. We now expect revenue to grow approximately 12%, up from approximately 10% previously and adjusted EBITDA margin to expand approximately 150 basis points, up from over 100 basis points previously. Now please turn to Slide 4 as I discuss our Vision 2030 value creation drivers and targets. Under Vision 2030, we are creating value for our shareholders through our portfolio of high-performing building envelope businesses that offer innovative, energy-efficient, and labor-saving solutions for our customers, coupled with our goals of driving above-market growth, delivering consistent price and cost leadership, and operating with a relentless focus on customer service and flawless execution through COS. As a reminder, Vision 2030 focuses on six key pillars. The first is the Carlisle Operating System. Under Vision 2030, we will continue to drive our continuous improvement culture through the consistent application of COS across every function in the enterprise with the goal to drive savings of 1% to 2% of sales annually through operational efficiencies. Second is the Carlisle Experience. The Carlisle Experience has established us as a premium brand with a recognized value proposition backed by high-quality products and exceptional service. Our commitment to our customers is to ensure we deliver the right products at the right place and at the right time. We understand that we win with customers through exceptional service and labor-savings efficiencies. Third is Innovation. We plan to increase our spend on R&D to 3% of sales by 2030 to accelerate the creation of new products and solutions that add value to our customers through advancements in sustainability, energy savings, and labor efficiency. Fourth is M&A. We will expand in existing and adjacent categories that allow us to enhance our building envelope portfolio. As a reminder, our three criteria for acquisitions are, one, an embedded organic growth story; two, hard cost synergies; and three, a talented management team. When completed with our Carlisle integration playbook, we believe we have a competitive advantage in M&A. Fifth is a disciplined approach to capital allocation. Ultimately, we work for our shareholders and in line with our track record, we will continue to invest our cash responsibly into the highest ROIC opportunities. And lastly and perhaps most importantly, our sixth goal is attracting and retaining top performers to ensure that we have the best talent to execute our strategic initiatives and drive above-market growth. The execution of Vision 2030 aims to drive superior shareholder returns and position Carlisle as a premier investment in the building product sector. We expect by 2030 to deliver $40 of EPS, deliver over 25% ROIC, and generate free cash flow margins in excess of 15%. Turning to Slide 5, let me spend a few minutes discussing our latest acquisition, MTL. We were pleased to close on our acquisition of MTL during the second quarter, adding a tremendous set of assets that provide innovative high-performance metal edge and wall systems. This addition of MTL aligns perfectly with our Vision 2030 strategy and meets our acquisition criteria. By deploying our Carlisle integration playbook at MTL, we are on track to exceed the $13 million of synergies we announced in May. We now expect to deliver $20 million of annual synergies in year three. Another example of the effectiveness of Carlisle's integration playbook was in the Henry acquisition, where we delivered over $50 million of synergies in year three compared to the $30 million of synergies initially announced. Now please turn to Slide 6. And I'll highlight a few examples of innovation and work at Carlisle. As I've mentioned, our Vision 2030 strategy includes new key initiatives such as an increased emphasis on innovation to further unlock the full potential of our pure-play building products portfolio. By investing in R&D and accelerating new product development, we aim to expand our competitive moat, deliver additional value to our customers, and augment our financial results with enhancements to our products at higher price points. Our goal is to increase our R&D spend to 3% of sales and grow the contribution from new products introduced in the last five years to 25% of sales, which represents a significant potential revenue lift. Over the last 18 months, we've launched over 25 new products, including several recent introductions to capture the market opportunities presented by the energy-efficient labor-savings and integrated solutions trends highlighted in our Vision 2030 strategy. One such product is our new Ready Flash technology, which allows commercial roofing applicators to maintain optimal productivity in various temperature conditions by adjusting the adhesive setup time using either the light or dark facer side of the rigid insulation board. Our customer trials have demonstrated that the Dark Ready Flash facer can provide up to four times faster adhesive flash-off than a standard light facer with no sacrifice in performance. Another example is Carlisle's patented SeamShield Technology for our Sure-Weld TPO membranes in the commercial roofing market. This innovative feature provides an easy-to-remove protective film on the top and bottom seam areas, reducing cleaning time by 70%, while increasing weld strength by 10%. Additionally, we recently introduced Henry Blueskin VPTech, an integrated panel that includes a weather-resistive barrier, continuous insulation and a seamed ceiling in a single panel. In trials with independent contractors, Blueskin VPTech installed 30% faster compared to traditional methods, saving both time and labor cost. It also improves a building's energy efficiency by reducing air leakage and enhancing thermal performance. These three products are patented or patent-pending, and together with our other new product launches represent a significant incremental sales opportunity at higher margins. As we continue to execute our Vision 2030 strategy, we remain committed to investing in R&D and accelerating the introduction of innovative products that drive energy efficiency, labor savings, and superior performance for our customers. Please turn to Slide 7. Before I hand it over to Kevin, I wanted to quickly highlight that we recently released Carlisle's 2023 Sustainability Report. The report contains detailed information, including clear examples of how our products reduce carbon footprint in buildings, how we reduce emissions in our operations, and how we plan to reduce waste to landfills. It will also give the reader our latest progress on GHG emission reductions and our progress towards zero emissions by 2050. In conclusion, I'm extremely proud of our team's performance in the first half of 2024. Our ability to produce strong results in a dynamic environment demonstrates the resilience of our business model, our strategic market positioning, and the disciplined execution of our Vision 2030 strategy. As we move forward with Vision 2030, we are well-positioned to capitalize on the positive fundamentals in our businesses and deliver profitable long-term growth. And with that, I'll turn it over to Kevin to provide additional financial details.

Thank you, Chris. Our second quarter financial results continue to demonstrate Carlisle's strength and the effective execution on our strategic initiatives. As shown on Slide 8, we delivered a strong second quarter on both the top and bottom lines. We grew sales to $1.5 billion, up 11% year-over-year, driven by the normalization of inventory levels in our channels, a solid start to the construction season, and robust re-roofing activity. We leveraged our top-line performance to expand adjusted EBITDA margin by 220 basis points to a record 28.8%. Furthermore, we grew adjusted EPS by 33% to $6.24, reflecting the strong operating results, margin expansion, and the benefit of our ongoing share repurchase program. Looking at our segment highlights, starting with CCM on Slide 9. CCM delivered second quarter revenues of $1.1 billion, up 15% year-over-year, reflecting strong re-roofing activity, the benefit of inventory normalization, and the acquisition of MTL. Organic revenue increased 13%. CCM's adjusted EBITDA increased 23% year-over-year to $364 million and adjusted EBITDA margin expanded an impressive 220 basis points to 33.4%, reflecting volume leverage on the strong sales growth, favorable raw materials, and continued operational improvements driven by COS. Moving to Slide 10. Revenues at CWT were up 1% year-over-year to $362 million, driven by higher volumes and the benefit from the acquisition of Polar Industries, partially offset by lower pricing. CWT's adjusted EBITDA increased approximately 1% year-over-year to $81 million. Adjusted EBITDA margin was stable year-over-year at 22.5% as benefits from the Henry integration and operating efficiencies helped offset ongoing growth investments. For your reference, Slide 11 provides a year-over-year second quarter adjusted EPS bridge. Moving to Slides 12 through 14, operating cash flow from continuing operations for the six months of 2024 was $333 million, up $61 million year-over-year, reflecting our earnings growth and disciplined working capital management. We invested $45 million in capital expenditures. Free cash flow was $288 million, up $73 million year-over-year. We remain on pace for a free cash flow margin of over 15% for the full year 2024. We ended the quarter with $1.7 billion of cash on hand and $1 billion of availability under our revolving credit facility. The strong liquidity position provides us with ample flexibility to continue investing in our businesses while also returning capital to shareholders. We ended the quarter with a net leverage ratio of 0.4 times, which was positively impacted by the cash proceeds we received from the sale of CIT. We are already making significant progress against the capital allocation goals outlined in our Vision 2030 strategy. We are doing so by reinvesting in our high ROIC building product businesses through continued investment and growth CapEx evidenced by our recent announcement for a $45 million investment into our state-of-the-art research and innovation center. We continue to demonstrate our conviction in our strategy and commitment to returning capital to shareholders through dividends, including $40 million in dividends paid and repurchasing $550 million of shares during the second quarter of 2024. Since the inception of our program, we have repurchased over 20 million of our shares, reducing our diluted share count by more than 26%. We are also making synergistic acquisitions that will deliver significant opportunities for value creation such as our recently closed acquisition of MTL. These actions are collectively aligned with our disciplined capital allocation framework, which forms an integral part of our goals to deliver ROIC in excess of 25% and ultimately reaching $40 plus of adjusted EPS by 2030. Following the repurchase of $550 million of shares during the second quarter, we have 5.6 million shares remaining under our share repurchase program. Our financial strength is built upon a firm foundation, a pristine balance sheet, and a disciplined approach to managing leverage. This thoughtful capital structure empowers us to strategically deploy resources with a returns-oriented mindset. With a significant liquidity position of nearly $2.7 billion, now including the CIT proceeds, we are ready to seize meaningful opportunities as they emerge, unlocking further value for our stakeholders in both the near and long-term. Overall, we are confident in our ability to drive sustainable growth and significant value creation for our shareholders for years to come. Now moving to our full year financial outlook on Slide 15. As Chris previously noted, we are raising our full-year 2024 outlook for revenue to grow approximately 12% over the prior year. This increase in outlook is driven by a combination of our solid second quarter results via acquisition of MTL and maintaining our previous outlook for the second half of 2024. Leveraging the additional revenue through the Carlisle Operating System, we now expect adjusted EBITDA margins to expand by approximately 150 basis points as compared to our previous guidance of expanding margins by at least 100 basis points. As such, we continue to expect double-digit EPS growth in 2024. Additionally, we maintain our expectation to deliver free cash flow margins of at least 15% and ROIC in excess of 25%. This is directly aligned with the objectives outlined in our Vision 2030 strategy and we are experiencing an excellent start towards our 2030 goal of $40 plus of adjusted EPS. Looking at the components of the outlook. For CCM, we now expect year-over-year revenue to grow approximately 15% in 2024. The drivers for the 15% growth are tailwinds from the return to normalization and order patterns that were absent during 2023 due to destocking, solid end market demand driven by pent-up re-roofing activity, and the acquisition of MTL more than offsetting a slight decline in year-over-year pricing. For CWT, we now expect revenue to grow approximately 3% in 2024 from strong sales execution on key growth initiatives as well as modest end market growth more than offsetting any declines in year-over-year pricing. In summary, second quarter revenue was up 11% and adjusted EBITDA was up 220 basis points to a record 28.8%. Based on the strong second quarter results and the successful start to the MTL acquisition, we are raising our full-year outlook to revenue of approximately 12% and approximately 150 basis points expansion of EBITDA margins. With that I turn it over to Chris for closing remarks.

Thank you, Kevin. In conclusion, we are extremely pleased with our performance in the first half of 2024. As we look towards the second half, we believe the significant positive trends exhibited in the second quarter will carry over into the third quarter and that belief is embedded in our raising of expectations for 2024. In addition, I want to emphasize our unwavering dedication to Carlisle's strategic trajectory under Vision 2030. As we progress towards 2030, our focus on innovative, energy-efficient, and labor-saving systems and solutions, the Carlisle Experience and flawless execution within our businesses positions us to outpace market growth and consequently deliver outstanding outcomes for all stakeholders. The pivot of our company to a building products portfolio in tandem with our robust free cash flow generation and significant investment in innovation sets the stage for us to unlock significant additional value for our shareholders as we move forward. I would be remiss if I didn't take a moment to convey my appreciation to each and every member of the Carlisle team. The remarkable achievements we've witnessed this quarter and the momentum we've built for 2024 are a testament to the dedication and skill of our talented employees. With Vision 2030 serving as the roadmap for our success, I remain incredibly optimistic about Carlisle's future. Thank you once again for your support. That concludes our formal comments. Operator, we are now ready for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. One moment please for your first question. Your first question comes from the line of Tim Wojs from Baird. Please go ahead, sir.

Hey, guys. Good afternoon. Nice job.

Good afternoon. Thank you.

To start, Chris, it seems you are dealing with some destocking from last year. I'm trying to gauge the underlying market for perhaps the second quarter and the latter half of the year, which might be up around 3% to 4%. So, is that what you're observing? Furthermore, as we look toward the latter half of the year, what gives you confidence, whether from discussions with contractors or order rates, that this growth rate can be sustained?

Tim, I believe you're correct about the first half, which closely aligned with our predictions. Kevin and the team did an excellent job defining the impact of the restocking event, especially considering the absence of destocking, and that was on point. We also conducted our own independent analysis, which provided insights we were lacking two years ago. We've previously mentioned how our independent work following unexpected destocking a few quarters back was beneficial. In the third quarter, we're noticing trends similar to those from the second quarter, with CCM showing slight improvement. At the end of the second quarter, the drivers were related to product mix. We experienced a better operating environment and integrated MTL into that positive momentum. Regarding CWT, while sales may not have met everyone's expectations, considering the current residential market conditions and the effects on repair and remodeling, the results were in line with our forecasts. I'm particularly pleased that in our retail channel, CWT and the Henry team launched several new products that performed very well. We're continuously rolling out new products, and we achieved a record quarter for margins on COS. Our focus remains on operational efficiency, raw material supply, and overall demand. Looking ahead to Q3, we anticipate that unless there’s a significant weather event or economic downturn, the trends should persist into the third quarter. We'll then assess the fourth quarter based on weather conditions as we approach the end of the year and determine how many good roofing days we have in November.

Okay. That's helpful. And then just on the re-roofing piece, when you guys talk about pent-up demand, are you really referring to kind of the EchoBoom from like the late '90s and the mid-2000s in terms of like that kind of pent-up demand for re-roofing or is it kind of a couple of years ago where the industry just had to reprioritize or prioritize the new construction market and that kind of pushed re-roofing demand kind of to the right and that's kind of hitting now? I guess I'm just trying to get a sense for what visibility you have to that backlog?

Yeah. And it's something we talked about before how, and I know this chart isn't great. We've had it out there for a while where increasing new construction 20 years ago is really laying in that foundation of re-roofing that's going to occur. So as you say and we've talked about this for a while, the constrained labor markets, obviously, that's a big factor in driving our innovation is that we forecast continued constrained labor markets. And so I think you accurately set it up, which is really new construction if it's better, then you're going to be allocating labor to that and re-roofing might have a little bit of a lag. And then when we had COVID and we had some time where roofs weren't being probably addressed as quickly as they could have been, again, it just gets into that backlog. And so that's really what is supporting that. I think you referenced actually in your report you issued today on commercial around architectural firm backlog, still healthy at about 6.4 months and AIA highlighted that, and I think that's kind of consistent with what we're seeing.

Okay. And if I could sneak one last one in. Just it's hard for us to tell from the outside, but I guess, how big is the data center market for Carlisle? I mean, obviously, they're putting roofs on just like any other building. And do you get a content benefit from a data center relative to a kind of run-of-the-mill type building? I'm just thinking with all the heating and cooling that needs to happen in data centers, if there's any sort of like additional polyiso or anything like that you need.

We have noticed an increase in data centers due to rising data consumption. This segment of our overall sales is small but growing, and we're experiencing increased interest in it, not just in places like Phoenix, which has seen considerable data center construction, but also across the country. Our team is focused on this area, and it aligns with the point you've made about its significance. While it's not a major part of our business, it adds value because a secure building envelope and energy efficiency are crucial, along with moisture control and other factors. These requirements make it one of the most sophisticated roofs we install, which translates well into product content for Carlisle.

Okay, great. Thank you for the time and we look on the back half.

All right. Thanks, Tim.

Our next question comes from the line of Susan Maklari from Goldman Sachs. Please go ahead.

Thank you. Good afternoon, everyone.

Hi, Susan.

Hi, everyone. My first question is maybe going back to roofing for a bit. It sounds like the channel inventories are still fairly lean as we think about the second half of this year. Can you talk a bit about how you are positioning the business relative to that? And anything that you're doing to sort of ensure that you can maintain service levels and market share, all those key dynamics to Vision 2030 as you think about the potential for a restock or a change in the demand over the next couple of quarters?

I believe last quarter we mentioned that inventory could be on the lighter side historically, and that's still the case. We haven't had a significant load this year, and many people have had issues with excess inventory in the past, which led us to destock. We are past that now. Coming into this year, we didn't anticipate a large influx of inventory, and we made sure to prepare by building a little more in the first quarter to meet customer needs without depleting our inventory levels. I don't foresee inventory increasing as we enter the third quarter since we've passed the peak of the construction season. Typically, companies don't stock up at this time; they manage their inventory more cautiously in the latter half of the year. As we look toward 2025, we will assess our inventory strategy, traditionally building up during the winter months to prepare for spring demands. We also had a record customer order satisfaction quarter in the second quarter, which reflects our operational efficiency. We continue to invest in capital and automation, and we are rolling out AI for various functions like supply and demand planning to enhance our responsiveness to inventory fluctuations. Thus far, we've managed the year effectively, and I think our inventory and production are well-positioned for the third quarter. If we encounter favorable weather in the fourth quarter, we will be ready to meet that demand. Overall, I feel confident about our position for this year and into 2025.

Okay. That's great color, Chris. Thank you. And then you mentioned the $45 million investment that you're making in Carlisle, Pennsylvania. Can you talk a bit more about how we should think about those costs coming through over time as you think about ramping up that R&D spend towards that 3% target that you have? And what that could mean in terms of mix shift as we start to think about perhaps '25 and the forward years in there, how that perhaps could move and what that will mean to result?

The cost side, the $45 million investment, that's going to be over a two-year period and will be more back end loaded on it as we're getting permits and getting everything in place and then getting the building going and putting the labs in. And then as far as, yeah, the outcome of that project, obviously, we'll be a little bit further out on when the new products come in. But certainly, we have a full pipeline of products that we're currently working on. We have the three different buckets that we work on in our R&D and the first one is the maintenance where we're making improvements. It's really taking costs out of our products and that's going very well, a lot in that pipeline. Then the evolutionary products, some of that Chris pointed out on in his remarks on this call and that's a part that we're going to see the immediate impact where we start seeing some of that right now into '25, '26 just continue to ramp. So that's really the focus on our current new products, the new R&D center, that's going to be when we start seeing some more of the transformational R&D that we've been working on. And that's more in the three to five-year bucket.

Okay. That's helpful color. Thank you both and good luck with everything.

Thanks, Susan.

Thank you.

Our next question comes from the line of Garik Shmois from Loop Capital. Please go ahead.

Hi. Thank you. I was hoping you could provide an update on price cost. I think you're looking for it to be positive $20 million for the year. That was raised after the first quarter. Is that still a good assumption and maybe also talk to how that looked in the second quarter as well?

Yes, certainly, as we came into the year, we were expecting about really flat for the year. And then in the first quarter call, as you mentioned, we took that up to a $20 million positive. And then as we've moved on through the year, we've seen an uptick in MDI that's hitting raw materials a little bit. And then CWT has given up a little bit of price in one of their segments. And so those are bringing us back to looking at pretty much flat for the year is what we're looking at. If you looked at it by segment, the CCM is pretty much flat throughout all four quarters. So no real impact. Last quarter, we talked about CWP being a positive $10 million in the first quarter. Second quarter for CWT was flat and then the third and fourth quarter will probably be both down about $5 million on the price-cost side at CWT.

Great. That's helpful. I wanted to follow up on the pricing comment. You did implement a price increase in the second quarter in CCM. I'm just wondering how that was accepted by your customers and maybe just a little bit more color on how pricing moved sequentially in the second quarter.

Hey, Garik, I'll take part of it; Kevin can talk about the sequential stuff. When we entered the year and even I think when we saw that pricing announcement from one of our competitors and again, we were happy they were attempting to show their price to value there. And they also thought I think my sense was that raw materials were rising. So a good call there because as Kevin just mentioned, MDI is getting a little higher, labor costs were going up. We said that, that wasn't really going to have much of an impact in '24 for us, maybe a little bit, I think in the fourth quarter, if I'm right, Kevin can correct me if I'm wrong. So what we saw through the quarter is we did actually see places where we had implemented that pricing increase and we were getting some traction. I would say overall though the response in the broader markets was not to have a lot of conviction over that and just to continue to extend, I wouldn't say it was a reduction, it was just an extension of current terms further into the year. And ultimately, when you keep extending a price increase implementation date, you run out of room on the year and its ability to be effective. So I think overall, not only for us, but as we projected, it wouldn't have much impact. I think in the industry, it won't have much impact all. So it will be something that I think how to labor costs, how to supply chain costs, things like that go into the third and fourth quarter, and then do you see some ability by the industry to build a firmer as we enter 2025.

Got it. No, I appreciate the color. I guess my last question is just on the MTL acquisition. You raised the EPS accretion guidance just a couple of months into ownership. Just wondering what you're seeing so early on that gave you the confidence to do that.

Well, when we come in, we have this projection that we do; we try to be good about it. We don't get as much insight as we do after we own the company. But I think just like with Henry, we've got a great leadership team. Frank Ready was the Henry leader that really embraced our integration playbook. And that's a key thing is how does the team embrace the integration playbook because some of that the synergies identified and the actual identification of new synergies comes as the team gets together and they pursue these things either passionately or not passionately. In both cases, Henry and MTL leadership has just hit the ground running, fully bought into COS, fully bought into the integration playbook. And as a result, we've accelerated, I think some of the things we thought were there. And then we've also identified some new opportunities for synergy. And I think it's worthwhile to say most of the stuff that we take action on initially are cost synergies. And then as you start to get the groups together, you start thinking about sales synergies and how you can bring things together. So I think it's going really well. That management team and the teams at Drexel and at Petersen are just doing a great job. And that's why we feel confident in raising the synergies, the accretion. And I actually think there's even upside to the $20 million we put out as our new target for synergies. So more of that as we get through the year.

All right. Sounds good. Thanks again and best of luck.

You bet. Thank you, Garik.

The next question comes from the line of Bryan Blair from Oppenheimer. Please go ahead.

Thank you. Good afternoon, guys.

Hey, Bryan.

Sorry if I missed some of this detail, just to level set on revised sales guidance. What's now baked-in price and volume respectively for CCM and CWT? It seems like overall organic outlook is largely unchanged. CCM a bit better, CWT dials back, et cetera. Just curious about the moving parts.

You summarized it well. As we consider the full year going into this quarter, we initially projected low double digits for CCM, around 12%. We have now increased that estimate to about 15%. Of this increase, 2% is attributed to the MTL acquisition, while 1% is due to the additional volume we gained in the second quarter. We have not made any adjustments to our expectations for the second half of the year and are maintaining the outlook provided in the previous earnings call.

Understood. Appreciate the clarification. And to follow up on MTL, maybe offer a little more detail on the MTL profile, synergistic fit with Drexel and Petersen and how your team is thinking about longer-term margin potential? And it sounds like the step-up to $20 million in deal synergies is going to ramp profitability pretty quickly there.

I think that MTL of longer-term, Bryan, is along the lines of CCM. I mean, we'd for sure be disappointed if we didn't see over the next few years getting into the mid-30s. And I think we're going to be aspirational to somewhere closer to 40. So I know that's a big game for the team, but I really do think we finally have the right approach. We've got the right volume, we've got the right platform across the profiles, edge metals, the fabrication, the residential, the non-residential building panels, things like that to really start to get some leverage out of this entire platform that we didn't have before. So, yeah, I would think it would continue to grow. Again, let's target mid-30s and see if we can get to 40.

Very impressive. And one last one, if I may, sticking with M&A. Any color you can offer on your current deal pipeline and potential or likelihood of other strategic deals in the foreseeable future. MTL is seemingly a home run tons of dry powder. We know that your team is always aggressive in terms of share repurchases. Curious on the M&A side of things.

The M&A pipeline looks promising. However, there's an ongoing discussion in the market regarding strategic and private equity firms seeking exits. There's some tension as sellers might be inclined to wait for higher valuations, anticipating that potential rate cuts in 2025 could improve their sale price. Conversely, buyers are cautious due to prevailing uncertainties and expect to be compensated for that risk. While the pipeline is strong, it seems that the disparity in valuations is causing a slight slowdown. Nevertheless, we have valuable assets, clear ambitions, and a well-defined strategy for potential acquisitions. The main challenge now is finalizing these deals. Both Kevin and I believe that M&A will remain an essential aspect of Carlisle's growth strategy, so we are optimistic about our position.

All sounds good. Thanks again.

Thanks, Bryan.

The next question comes from the line of Saree Boroditsky from Jefferies. Please go ahead.

Hi. Good evening. Thanks for bringing us in. You've highlighted some share gain initiatives within CWT. Can you just talk more through those opportunities? And then what those add to growth, especially as we think of the second half of this year and into 2025?

Yeah. Saree, I'll take that one. It's Mehul here. So on CWT, we talked in prior calls a lot about cross-selling opportunities. We talked about Home Depot. So if you just look at the Home Depot example with the new product categories that we added into that channel, that itself is going home by roughly double-digits. In addition to that, we also have some pretty nice synergies around new products in waterproofing, which is gaining traction. And then Frank is putting a lot of focus on system selling across the full portfolio, which is also gaining some traction. So when you roll it all together, overall for CWT, that's adding somewhere between 3% to 4% of growth in the second half.

That's super helpful. A little bit earlier in the call, you highlighted some survey work that you've done internally. Maybe just give us some color on what you've learned from those surveys and how it gives you confidence in your outlook?

I think we discussed this before, perhaps right after the inventory destocking in the third quarter. We were disappointed, as were other investors, by the lack of visibility and clarity in the channel, both at the contractor and distributor levels. We collaborated with a firm to develop a survey that examined numerous contractor data points across different geographies and sizes of contractors and distributors. We asked questions about inventory levels, growth forecasts, and market observations, then consolidated the responses. This has proven to be an effective tool for us. Additionally, it has provided greater insights into how the market perceives us, particularly regarding the Carlisle Experience, which focuses on delivery and quality. We've used this feedback to enhance our customer experience efforts. While it may seem like something we were already doing, this formal process is more statistically valid and adds to our information-gathering methods.

I appreciate the color. Thanks.

You bet, Saree.

The next question comes from the line of David MacGregor from Longbow Research. Please go ahead.

Yeah. Good afternoon, everyone, and thanks for taking the questions. Chris, congratulations on a great quarter.

Thanks.

I guess I wanted to, sure, I guess I wanted to see if you could drill down into CWT a little further and just help us understand kind of the flat organic growth, and it looks like you're guiding 3% for the year, but based on some comments just made, it sounds like most of that's idiosyncratic internal programs. Can you just sort of open up the residential versus the commercial side of that and talk about what's happening on each side of that and just how that plays out into the second half of the year?

Certainly. The end markets for CWT are relatively balanced, with about 25% in residential maintenance and repair, commercial new, and commercial maintenance and repair. On the residential side, we are taking a conservative stance, particularly in the single-family sector, which we expect to grow in the low double-digit range. However, the multifamily sector is experiencing a significant decline, estimated at around 30%. In terms of commercial new construction, CWT is focusing more on the institutional side, which is seeing low single-digit growth. Conversely, the maintenance and repair side is down by roughly 4%. Factors such as affordability issues and fewer transactions between sellers and buyers in the residential market are leading to reduced maintenance and repair activity. Overall, we anticipate the market to be flat or to grow slightly, around 1% or 2%. We also discussed various initiatives and a small acquisition made by CWT in late Q4, which is expected to contribute about one percentage point to growth. Additionally, as Kevin noted, certain categories, particularly insulation, have witnessed a price decline in the second half, approximately 3%. When all these factors are combined, we anticipate reaching a total growth of plus 3%.

Right. Are you confident that you're holding your share in CWT?

Yeah. Overall, we talked about share gains around some of the cross-selling themes through Home Depot as well as the waterproofing side. So we feel pretty good there. And on the insulation side, I think there's something that's going on in the channel where we see some softness outside of the overall end market trends?

Great. Okay. And just as a quick follow-up. For CCM, how much of a revenue impediment was weather in the quarter if at all?

Yeah, weather was minimal. And, yeah, it was very minimal. We had some puts and takes there, but overall, no impact.

A little bit of flooding at one facility I think other than that.

Okay, great. Thanks very much. Congratulations.

You bet. Thanks, David.

Our next question comes from the line of Adam Baumgarten from Zelman. Please go ahead.

Hey, guys. A quick question on CCM pricing. I think last quarter you talked about that being down about 1% from down 2% to 3% in terms of your initial outlook for the year. Is that maybe now back to that down 2% to 3% or is that down 1% still a good number to use?

Yeah, that's what we were approximate one before and 1% to 2% somewhere in that range, but no higher than that.

Okay, got it. And then just within your CCM business, maybe if you could give us some color on the verticals, whether it's office, retail, warehouse, kind of what you're seeing. I'm sure there's some puts and takes, but what's been strong, what's been weak?

When we look at the warehousing sector, it's seen a significant downturn compared to the more than 20 percent increases we experienced in 2022. Currently, it's probably less than that, maybe even the opposite. The education sector has remained stable and is still performing well. Office buildings continue to struggle and are slightly negative, which reflects the ongoing work-from-home trend. On the other hand, our retail stores are doing well, and healthcare has also performed positively. Notably, reshoring in manufacturing has contributed positively to new construction this year. Overall, it's a mixed landscape that aligns with our expectations based on market trends.

Got it. Thank you.

You bet.

There are no further questions at this time. I'd like to turn the call back over to Chris Koch for final closing remarks. Please go ahead.

Thank you. This then concludes the second quarter earnings call. Appreciate everybody being on the call and good questions. Look forward to speaking with all of you at our next earnings call. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.