Carlisle Companies Inc Q4 FY2024 Earnings Call

Good afternoon. My name is Constantine, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Carlisle Company's Fourth Quarter 2024 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. Mehul Patel, Carlisle's Vice President of Investor Relations. Mehul, please go ahead.

Thank you and good afternoon everyone. Welcome to Carlisle's fourth quarter 2024 earnings call. I'm Mehul Patel, Vice President of Investor Relations for Carlisle. We released our fourth 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, who will provide key highlights on our fourth quarter and full year 2024 results and some commentary on 2025. Kevin will follow Chris and provide an overview of our Q4 and full year 2024 financial performance and give an update on our outlook for 2025. 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 2024 fourth quarter earnings call. Turning to Slide 3 of the presentation, I would like to start by extending my sincere appreciation to all our Carlisle team members for delivering a very productive start to our Vision 2030 initiatives in 2024, exceeding $20 of adjusted EPS this past year, and for completing our pivot in 2024 from a general industrial portfolio of businesses to a pure-play building products company. We're very proud of several key accomplishments the company made over the last year. To start, 2024 was a historic year for Carlisle as we completed our strategic pivot to a pure-play building products company with the $2 billion sale of CIT in the second quarter. Our focus on building products has clarified and refined our mission for our employees and investors, highlighted the best-in-class financial performance that our Building Products businesses have delivered for years, and provided a clear path to $40 of adjusted EPS in 2030 by adding innovation and a strong M&A playbook to our already well-established and successful pillars of Vision 2025. Carlisle delivered record adjusted EPS of $20.20 in 2024, representing a significant 30% year-over-year increase, driven in part by our growing and recurring revenue stream from reroofing, which was up mid-single digits throughout the year. We also benefited from the return to more normalized inventory levels and buying patterns within our channels to the contractor. Our margin performance was also strong this year with adjusted EBITDA margins expanding 150 basis points to a record 26.6%. This is even more impressive when we are reminded of two important factors; first, CWT's margin was substantially impacted by the significant negative trends in the residential markets we serve. And second, CCM worked through the well-forecasted, but nonetheless negative impact of a low single-digit price decline in commercial markets. We also continued to strengthen our market position in the building envelope space by deploying nearly $700 million of capital into two synergistic acquisitions that added to existing businesses within Carlisle. First, the acquisition of MTL expanded our architectural metal capabilities with the addition of commercial roofing's leading authority on perimeter edge metal. MTL enables us to offer a wide range of prefabricated solutions such as edge metal, fascia, coping, and composite panels and systems for the building envelope. As the year progressed, we validated the superb fit of MTL's leadership team with Carlisle. And through our superior integration playbook, we exceeded our expectations on the synergy front and now expect synergies to increase from our initial estimate of $13 million to now well over $20 million. This acquisition of MTL also further positions Carlisle as an industry leader in the $4 billion architectural metal category. Second, our recent acquisition of Plasti-Fab advances our position as the leading vertically integrated manufacturer of expanded polystyrene insulation for the building products market across North America. Plasti-Fab drives innovation in expanded polystyrene products for commercial, residential, and infrastructure construction applications. Plasti-Fab's customers seek energy efficiency, and contractors and building professionals seek comprehensive solutions. As the only vertically integrated expanded polystyrene company in North America, Plasti-Fab meets those needs. And as with MTL, we expect a superb fit with our existing EPS business and significant synergies currently estimated at $14 million, which we expect to increase as we move through 2025. Yesterday, we completed the previously announced acquisition of Texas-based expanded polystyrene insulation manufacturer, ThermoFoam, which builds on the recently completed acquisition of Plasti-Fab and leverages Carlisle's vertically integrated expanded polystyrene capabilities while adding geographic coverage in Texas and the South Central United States. Looking at the fourth quarter 2024 performance on Slide 4, Carlisle continued to experience broad market headwinds more heavily weighted to the residential new and R&R markets and the commercial new construction markets. These headwinds included higher interest rates, restricting lending conditions, and unfavorable weather patterns. These factors negatively impacted sales, and the results were below our midyear 2024 outlook. Despite this challenging environment, Carlisle's consolidated Q4 revenues of $1.1 billion remained essentially flat year-over-year, and adjusted EPS grew by 7% to a fourth quarter record of $4.47. We were pleased to see continued EPS growth as we remain confident in our Vision 2030 journey to $40 of adjusted EPS per share. We remain committed to the same principles our stakeholders know well: disciplined capital allocation, a focus on ROIC, and growing our businesses both organically and through robust M&A. Carlisle is well positioned to benefit from widely understood macro trends, including growing commercial re-roofing demand, an ongoing housing shortage, and our ability to provide innovative, energy-efficient, and labor-saving solutions and systems in the years ahead. Looking ahead to 2025, our Vision 2030 strategy guides our path forward through four key elements. First, we are accelerating innovation focused on energy efficiency and labor-saving solutions. Nothing exemplifies our commitment to innovation more than our $45 million-plus investment in our new state-of-the-art innovation center in Carlisle, PA. This expansion will provide additional capabilities and resources necessary to accelerate our development of innovative, energy-efficient, labor-saving solutions and integrated systems, supporting our goal of generating 25% of revenues from new products introduced within the past five years. Second, we will seek to continue to expand our best-in-class margins by pricing our innovative products and solutions for the value we provide by delivering those innovative products and solutions through the value-enhancing Carlisle experience and by driving operational excellence through the Carlisle Operating System. Third, we will strategically expand our market positions in the building envelope with a best-in-class M&A process to complement our strong organic growth efforts. Our well-defined M&A playbook will continue to drive significant returns on deals and provide a strategic competitive advantage for Carlisle, as exemplified by our successful acquisitions and integrations of Henry, MTL, and now Plasti-Fab. Leveraging our M&A playbook, Carlisle aims to maximize value creation by employing a disciplined integration process and ensuring acquisition targets align strategically. We achieved this by adhering to four key investment criteria in our selection process. As a reminder, those four criteria are: one, a solid organic growth story already underway in the target company; two, a talent management team; three, identified meaningful hard cost synergies; and lastly, the ability to add value through executing the integration with our proven Carlisle M&A playbook. As a reminder, using our M&A playbook, we have identified over $20 million of synergies through the acquisition of MTL, and we expect more than $14 million of hard cost synergies through the acquisition of Plasti-Fab. In 2025, we expect to add approximately $1 of EPS through these recent acquisitions. And fourth, we remain committed to delivering superior results through disciplined capital deployment, balancing growth investments with shareholder returns. Carlisle deployed nearly $700 million this year into strategic acquisitions and returned $1.8 billion to shareholders in 2024 through share buybacks and increased dividends. Now let's turn to 2025. We expect the market challenges we experienced during the fourth quarter to continue through the first half of 2025. We are also continuing to digest the recent actions taken by the new administration on tariffs in recent days. With over 90% of our sales in the US and less than 10% of our raw materials sourced outside of the US, we expect little direct impact from the tariffs. However, we are concerned about how the tariffs may impact consumers in the residential space who are already under pressure and the potential impact the tariffs may have on interest rates in all our served markets. That said, recent indicators make us cautiously optimistic that 2025 will be another record year, and we expect that positive trend to continue into 2026 and 2027, given Carlisle's ability to deliver solutions that address the significant housing and labor shortages, necessary energy efficiency improvements in buildings, and an increasingly volatile environmental backdrop. Our latest Carlisle market survey of over 500 market participants conducted in early January indicated positive 2025 volume expectations for commercial roofing driven more by reroofing than new construction. Based on the results of our survey, we expect a slow start to the year with Q1 flat when excluding any negative impact from weather. And then we expect growth to build through the rest of the year to deliver an overall low single-digit increase in volume for 2025. Consistent with our September 2024 market survey, contractors still expect low single-digit price increases beginning in the second quarter. Additionally, inventory in the channel is lower by historical comparisons due to higher carrying costs. A pickup in inventory stocking should be expected as the channel leans into the summer construction season in mid to late Q2. On the residential side, the Carlisle market survey indicates flat to low single-digit volume growth for 2025 with the first half down low single-digits and the second half up low to mid-single digits as residential markets rebound. In addition, while some indicators are mixed, we expect conditions to stabilize as we progress through the year and obtain a better understanding of the impact of tariffs on anticipated Federal Reserve interest rate cuts and the impact of the new administration's actions on US consumers. In addition to the negative impact, the tariffs and rising prices could have on the outlook for the Federal Reserve's interest rate cuts in 2025, we are also monitoring how the new administration's potential policies may impact labor. Currently, builders are already contending with a labor shortage that could potentially get worse with the administration's proposed actions related to undocumented immigrants. We've seen estimates of about 30% of construction workers are immigrants, a significant number of whom may be undocumented. As we look into 2025 and beyond, Carlisle will continue to focus our efforts on the factors that are in our control, maintain resiliency in our businesses through advancements in new product introductions, cross-selling, and market penetration into CWT and our Architectural Metals businesses. We will combine these share gain initiatives with our increased focus on innovation and our second decade of utilizing the Carlisle Operating System to drive productivity and efficiencies to support our margins. Overall, the underlying fundamentals supporting our long-term growth remain strong, anchored by the pillars of Vision 2030, which include our commitment to innovation, exceptional service provided through the Carlisle experience, operational excellence achieved through the Carlisle operating system, and strategic accretive M&A. Combined with our strong balance sheet and clear strategic vision, we are well positioned to drive sustained growth and create value for all our stakeholders as we progress towards our Vision 2030 goals. And with that, I'll turn it over to Kevin to provide additional financial details and color on our outlook for 2025.

Thank you, Chris. We are extremely pleased with our results for the full year 2024, where we achieved record adjusted EPS of $20.20, up 30% from 2023, revenue growth of 9%, including organic growth of 7%. Record adjusted EBITDA margin of 26.6%, up 150 basis points from the prior year, strong free cash flow margin of 18.8%, and solid ROIC of 28.5%. Our 2024 results demonstrate strong early progress towards our Vision 2030 goals. The 30% growth and adjusted EPS puts us firmly on track toward our adjusted EPS target of $40. The 150 basis point expansion in adjusted EBITDA margin reflects the success of our pricing discipline and operational efficiency initiatives through the Carlisle Operating System. Our free cash flow margin of 18.8% also aligns with our Vision 2030 goals, providing us with continued flexibility to invest in growth while returning capital to shareholders. Moving to slides 7 through 9. Fourth quarter consolidated revenues of $1.1 billion were essentially flat year-over-year. CCM revenues grew 2%, driven by the acquisition of MTL, which more than offset challenging new construction activity. CWT's markets were negatively impacted by higher interest rates, housing affordability, and unfavorable weather conditions. CWT's revenues were down 7% in the quarter, primarily as a result of the softer residential end markets and price. Fourth quarter adjusted EBITDA margin was 25.1%, a 130 basis points year-over-year decline due to lower volumes, negative price cost in the quarter, and unfavorable mix. CCM's adjusted EBITDA margin was 29.4%, while CWT delivered an 18.3% adjusted EBITDA margin. For your reference, slides 10 and 11 provide the year-over-year fourth quarter and full year adjusted EPS bridges. Moving to slides 12 through 14. Our balance sheet remains strong with $754 million in cash, $1 billion available under our revolving credit facility, and a net debt-to-EBITDA ratio of 0.8 times. During 2024, we produced free cash flow of $938 million, deployed nearly $700 million towards acquisitions, repurchased $1.6 billion of shares, and paid $172 million in dividends, while maintaining strategic flexibility for continued M&A activity. We have 3.5 million shares available for repurchase under our share repurchase program. Now moving to our 2025 financial outlook on slide 15. For CCM, we expect mid-single-digit revenue growth driven by continued strength in reroofing activity and the full year benefit from the MTL acquisition. We expect to expand margins via price increases, volume leverage, and operational efficiencies. For CWT, we expect high single-digit revenue growth driven by the full year impact of the acquisitions of Plasti-Fab and ThermaFoam. We expect margin improvement from acquisition synergies and leveraging the Carlisle Operating System, including automation in our factories. We expect consolidated revenues to grow mid-single digits weighted towards the back half of the year, driven by solid reroofing demand, price increases, and the full year contribution from our recent acquisitions. Additionally, continued focus on COS, operational efficiencies, and acquisition synergies are expected to drive approximately 50 basis points of adjusted EBITDA margin expansion. This also factors in an expected 50% year-over-year increase in R&D expense to support an increasing pipeline of innovative new products. Overall, this outlook puts us on track to achieve double-digit EPS growth and another record year on our way to achieving our Vision 2030 goals. In summary, 2024 was a record year for Carlisle, with $20.20 of adjusted EPS and adjusted EBITDA margin of 26.6%. As we entered 2025, uncertainty in the broader economy, including the broader economic impact from recently announced tariffs and the timing of potential interest rate cuts, has our customers taking a wait-and-see approach to projects. However, we have solid plans in place and are focusing on the initiatives that are in our control to drive above-market growth through innovative products, synergistic acquisitions, and the Carlisle experience. We aim to expand margins by leveraging the Carlisle Operating System.

Thank you, Kevin. In conclusion, while we faced headwinds in the fourth quarter of 2024, our full year 2024 record performance demonstrates the resilience of the Carlisle business model and the success of our strategic pivot to a leading pure-play building products company. As we enter 2025, we remain confident in our ability to drive sustainable growth through our Vision 2030 initiatives, focusing on innovation, operational excellence, organic growth, and strategic acquisitions. I would once again like to take this opportunity to thank all of our Carlisle employees for their exceptional efforts and perseverance throughout 2024. Your dedication has been instrumental in achieving our strong results and positioning us for further success in the years ahead. Thank you all as well for your continued support and interest in Carlisle. 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. Your first question comes from the line of Tim Wojs from Baird. Please go ahead.

Hey everybody. Good afternoon. Thanks for the call. My first question is about pricing in CCM. You mentioned earlier that it was down low single digits in 2024. Did it improve in the fourth quarter? I'm asking because it seems necessary to have some price increases this year to achieve margin expansion and counteract raw material inflation. Could you discuss how pricing has progressed and what makes you confident that we might see positive prices this year?

Yes, for sure. Kevin can get into greater detail, but it improved through the year. And I think that says it all, right? It got better and better as we went through the year. And I think you are second and that’s point 4. And then your second comment about we needed in '25, it should be helpful and I think when we look at our market survey that we did here in the middle of January, we were pleased to see that, while we probably wouldn't get any in Q1 just because of the timing of the announced price increases in December and then how they get quoted, it would likely hit more in the March-April timeframe that there was still expectation that there will be traction on the price hikes as demand recovered as we got later into Q2. So I think that's another thing that when you look at how the year plays out, obviously, as we get into the construction season, if demand is there. Inventories are still what we'd say probably historically light, and so as we go into the year, if demand is there, light inventory situation, maybe some stock in helps out with that pricing. So that's kind of how we see the year playing out.

Yeah. And Tim, as far as our guide for the first quarter, we're expecting pricing to be down just from the carryover that pricing would be down in the first quarter, 1%. And then as Chris said, as we get the price increases into the season, really that's where it flattens in the second quarter and then starts seeing a benefit from the price increases in the second half of the year.

Okay. So we should also kind of assume that you're probably somewhat price-cost negative in the first half of the year as well. And then that builds as organic growth gets better in price fix?

Right. We start to definitely negative in the first quarter and then the second quarter starting to flatten and then, yes, benefit in the second half of the year.

Yeah, Tim, on the raws thing, when you think about you just maybe address it right now as far as where raws are, we're thinking neutral for 2025 overall. We've got some things that you're probably well aware of, we've got this ATO flame return in PVC that already is experiencing price increases in the industry just because of the raw material increases that come due to China restricting imports in that. We've got some other fire returns in polyester, but then we've got other areas where we're seeing flat to declines. And so across the board, I think our outlook for raws is pretty stable with all the puts and takes pretty stable for the year.

Okay. So regarding price and cost, it seems that raw material prices should remain stable, and in fact, price and cost could potentially be favorable. Is that what you're indicating?

Yeah. I would say, yeah, and I would say we're heavily weighted to the second half.

Okay. Okay. Got you. And then just the last one, just what's built in for capital deployment and guidance, I guess, in the 10%-plus EPS growth comment, what's in there for buybacks? And have you marked anything for M&A in that number?

Yeah, I think we'd like to see something similar to 2024 on M&A. At least to summarize acquisitions, on CapEx, I think we're thinking around $150 million, could be a little bit more than that. It depends on how quickly R&D accelerates. And then I would say on buybacks, we probably target around $800 million in buybacks for the year.

I mean, for those buybacks, probably it will be more half loaded on the share buybacks. The part of the acquisitions is preset at similar levels to what we're looking at. That's obviously not in our guide that we put out for the full year revenue guidance. But overall, we're looking to do similar types of acquisitions in 2025.

Okay. So the $1 million of buybacks is in, and M&A would be incremental?

Correct.

Got you.

Okay.

Sound good. I'll hop back in the queue. Thank you.

Thanks, Tim.

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

Thank you. Good afternoon, guys.

Hey, good afternoon, Bryan.

So let's focus a bit on CCM volume trends. Maybe you can offer a little more detail on how monthly revenues are out in Q4. Our checks kind of suggested a lot of volatility, incremental project deferrals, specifically in November. Just curious if that was reflected in your order cadence? And then more importantly, what you're seeing or what you saw through December and into January, and if there's any variance versus that kind of flattish Q1 volume expectation that you said?

Yes, as we reviewed the quarter, we became increasingly optimistic, which may contrast with your observations. While I can't provide specific order trends, after November and the election, there seemed to be more certainty, contributing to a more positive outlook as the year closed. Looking ahead to the first quarter, Kevin mentioned that we don't anticipate high volume. There are still several factors at play. The macroeconomic conditions, as you noted, impacted our optimism after the second quarter when we were expecting rate cuts. We've experienced some delays, which affected inventory levels. However, our Carlisle market survey indicates that the reroofing segment, which accounts for 70% of our commercial business, remains strong and resilient. As we progress into the year, we hope to see more stability stimulate growth. The situation with Henry is different. New construction, influenced by interest rates and housing prices, isn't improving as quickly as we hoped. Consumer spending also appears to be lagging, as seen across various products in the retail chain. Interestingly, Mehul, who has extensive experience at Henry, can elaborate on the impact of dry weather on the West Coast, which affected our roof coatings business. Overall, the outlook for reroofing and CCM seems more positive compared to the CWT segment as we concluded the year.

Yes. I appreciate the detail there. You've offered helpful color on your top line dynamics for your price-cost cadence. Did I hear you correctly that the base case assumptions that you've built in for the full year, understanding first versus second half of that now, is that price-cost is about neutral? Is that the case? And then to ask directly on the segments, within the 50 basis point consolidated margin expansion. How should we think about the CCM versus CWT in that bridge?

I believe for the first question that we're seeing a bit of positive pricing and neutral raw material costs, which makes the outlook for the full year more favorable in terms of pricing compared to raw costs. Much of that, as you mentioned, is expected to appear in the second half. Now, Kevin can address the second question.

Yes. For between the two segments, it's pretty much the exact same story on both the price-cost looking at it for first half, second half, and also being positive overall price-cost in both segments for 2025.

Understood. Thanks.

You bet. Thank you.

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

Hi. Thanks for taking the question. Just building on the margin improvement commentary there, I believe you have some headwinds from the acquisition. So maybe just what you're seeing from an underlying margin improvement story, excluding the dilutive impact of acquisitions?

Yes, we are aiming to increase volume while utilizing the Carlisle Operating System, which will be beneficial, along with the price costs we've discussed. Although the MTL acquisitions account for 25%, which is a positive number and EBITDA is also 25%, it does dilute the overall performance of the CCM segment. Nevertheless, it remains an attractive figure. Overall, we expect to see a 50 basis points improvement in both the CCM and CWT segments.

And then just to clarify, sorry, this was just confusing on my end, but within your guidance for mid single-digit growth for the full year and then flat sale first quarter. Could you help us understand the top line impact from acquisitions versus underlying demand or volume for the first quarter and then for the full year as well?

That's a good question, Saree. For the full year, regarding CCM, it will have a larger impact in the first half due to our acquisition of MTL in May. There will be no impact in the second half for CCM from acquisitions, with about $25 million in the first quarter and an additional $20 million in the second quarter. For CWT, we anticipate just over $100 million for the full year from mergers and acquisitions, with the typical trend showing that the second and third quarters usually perform better than the first and fourth quarters.

Thanks. That's very helpful. Appreciate it.

Thanks, Saree.

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

Hi. Thanks.

Hi, Garik.

Hi. Good afternoon. Just wondering if you on CWC, I'm just hoping you can go into a little bit more detail on your assumptions regarding volume and price in 2025. And if I remember correctly, I think installation pricing had been a bit of a headwind for the last several quarters, specifically to that; has that started to stabilize the dollar? Do you continue to see pressure in the fourth quarter?

Mehul can provide more details, but regarding the polyurethane spray foam insulation, I would say that in 2024 we experienced a low teens decline. We recently appointed a new leader and have adopted a different strategy for handling distribution, including potentially increasing direct sales to contractors. The industry remains in good condition, and our product is a strong solution with significant market growth. The challenge has been our growth market strategy and the emphasis on the technological differences between Carlisle and other products. I anticipate improvements in that segment, which should benefit us in 2025. Mehul, would you like to add something?

Yes. Regarding CWT, we expect high single-digit growth. The primary factor driving this is mergers and acquisitions for both Plasti-Fab and ThermaFoam, which should provide a full year impact, resulting in high single-digit growth. However, we anticipate that the negative macro conditions we've noticed in the second half of this year will carry over into the first half of next year. That said, based on our market data and insights from contractors, there is more optimism for the second half of the next year. Overall, we expect the markets to remain flat. Additionally, similar to CCM, we have announced some price increases for CWT, which will contribute an estimated 50 to 100 basis points.

Okay. That's very helpful. And then just on a follow-up from an earlier comment you made, Chris, just with respect to some of the near term, maybe the bidding activity or the outlook got a little bit better as the fourth quarter progressed here. Wondering if you can go into a little bit more detail there. Is it certain verticals? Or is it more on the reroofing side versus new construction and maybe just your thoughts on what should we expect in 2025, kind of a continuation of strength on reroofing and softness in new construction? Or would you expect new construction to start to show some growth as you go through the year?

Yes. Kevin and I have spoken with many contractors and distributors, and we've gathered a lot of information over the last six months, including insights from our Carlisle market survey. I believe people were somewhat surprised last fall by changes in interest rates. As we progressed through the fall and saw more stability in the political landscape, particularly without a presidential election looming, it became clearer that things might not be as dire as some had anticipated. On the reroofing side, activity has been steady. I feel that people focused a lot on the challenges but realized the situation may not be as critical as they first thought. There are significant drivers for growth in reroofing, while new construction, especially in residential sectors, will likely start off slow before picking up. Delays have become less noticeable, particularly due to tight labor conditions. If projects face delays and labor is reassigned, it can be difficult to bring back those resources. Once you're fully committed to a project, it’s necessary to see it through to completion. There’s a substantial backlog; our survey indicates that it has remained stable at around eight to nine months. Additionally, there are increasing demands for reroofing due to routes established in the late '90s and 2000s. Overall, while people might have negative perceptions for a couple of quarters, there are positive underlying trends, and we need to get back to work. I hope that answers your question adequately.

No. I appreciate your thought there and I guess I’ll pass it on. Best of luck.

All right. Thanks, Garik.

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

Thank you. Good afternoon, everyone.

Good afternoon.

Hi. Good afternoon. I want to start with talking about the assumption in your guide that we do get some lift in housing in the back half of the year. If that doesn't happen, can you talk about your ability to outpace the market organically given some of the new products and the share gains that you are seeing in the business?

Yes. I think definitely, and that's a great comment around what we're doing because you're right, we don't still got a lot of innovation going on, specifically on the R&R and I would say the new construction front, a couple of new products that I could highlight just to show you that and then I can speak to some other areas. But on the sales side, we've just launched a new organic cotton-based insulation in Home Depot. I think it's out there now and will be in 300 stores on the West Coast, it's being received really well by both consumers and contractors. It has some great similarities to the fiberglass installations out there in 2019 but without any of the issues, you don't need to wear a mask, you don't need to worry about itching. There's no fiberglass in it, it's all cotton. And so something like that, that gets penetration in. And by the way, I would say its price point is higher than traditional fiberglass installations. So as we always point out, we're going to price to value, and we think there's value there. So that's one. Another one is our Blueskin vapor barrier continues to be really well received, gaining momentum. Frank Randy and the team that developed that. It's just high value. And again, not a cheap product and a good margin product for us as well. So as we specify those and as we get those continue to roll out, I think that has a positive impact. Margins, we've continued with automation projects. Two years ago, we started doing automated filling, automated blending in three of our factories now that operation is going to come online that new system. And so we'll be taking a lot of labor out of the process. We'll be getting better efficiency through the process and less wasteless scrap. Obviously, that improves margins for us as well. So just a couple of examples that we're doing both on the innovation side, within our factories, we still continue to deploy COS, and Kevin mentioned that with MTL as well that we bought the business, obviously, the mid-20s margin is good. We're certainly aspirational to be over 30 on that. And so things like the Carlisle Operating System, the purchasing leverage, you can see in how we upped our synergies from over $20 million from the original deal model, we continue to focus on being a low-cost producer as well there. So those are the kind of things that will help us mitigate, I think, any slowdown in demand or on the new construction side or failure to have a recovery as quickly as we'd like.

Okay. That's great color. And maybe building on that, one of the comments that you made is that you plan to double the R&D spend this year. Can you talk about what that means in terms of the multiyear pipeline for products and the ability to continue to price for value?

Yes, we all understand that while we want new products to be developed more quickly, innovation takes time and will grow gradually. We have invested in our R&D center in Carlisle, and we may expand that space as the demand for more testing increases. By bringing more testing in-house, like fire ratings, we can expedite the product development process. We plan to implement pilot lines that will operate independently from our main factory lines, allowing us to test products without causing shutdowns. Additionally, we've been running an accelerator program for the past two years, currently in its third cohort, collaborating with nearly 10 companies on new products. These innovations include advancements in insulation technology aimed at significantly improving insulation performance and coatings that can cure in wet conditions. This capability allows contractors to work efficiently, reducing their project timelines and increasing our charging potential. In three years, you will notice more of our R&D efforts being done in-house, which is why we're investing in the Carlisle campus and staffing it with engineers and chemists. We are also seeking emerging technologies through the accelerator program and exploring R&D opportunities through acquisitions. For instance, Plasti-Fab has brought innovative ideas around EPSP due to their vertical integration. By enhancing the quality of our bead, we will improve our EPS boards, communicate these benefits clearly, and anticipate receiving appropriate compensation for those improvements.

That’s great color. Chris, thank you for briefing, and good luck.

Okay. Thanks so much, Sue.

Your next question is from the line of David MacGregor from Longbow Research. Please go ahead.

Yes. Good afternoon, everyone, and thanks for taking my questions. Chris, I was wondering if you could just talk about the M&A market and what you're seeing right now? Or are sellers looking perhaps a little more motivated by what's happening in the macro, and all the uncertainty you seeing any meaningful change in multiple expectations? Just give us a little bit of color on that, that would be helpful?

I would say that our multiples have remained relatively stable. We haven't observed significant changes in the deals we've examined. Expectations are still higher than they were five to eight years ago. We are noticing a slight increase in the number of deals we consider. However, due to our four specific criteria, many of these deals do not meet our standards and therefore do not proceed. Nonetheless, we are seeing a greater volume of deals. For instance, we've been active on the MTL Plasti-Fab front and completed a deal like ThermaFoam, which allows us to establish a significant geographic presence. We are also pursuing mid-sized acquisitions like Plasti-Fab MTL that provide access to new markets and technology, including activities in Canada. Additionally, there are still potential deals like the Henry side that may emerge as the year progresses, which I see as a positive development.

Interesting. Thanks for that. And then I guess second question, just more on a strategic level here. It seems like we're really on the cusp of more consolidation in the distribution function in your business. And I'm just wondering if you could comment on your thoughts regarding how consequential consolidation in distribution channels might be. In the event you think it's not consequential, perhaps you could explain why?

I believe we will continue to see consolidation in distribution and in the contractor space, with several roll-ups occurring. Our major distribution partners have consolidated over the past several years, and I anticipate this trend will persist. Additionally, manufacturer consolidation will also continue, as evidenced by our acquisitions of MTL and Plasti-Fab. When distribution consolidates, it inevitably has implications, as we have observed with companies like QX and Beacon. There are insights to be gained regarding how Beacon might interact with contractors and suppliers like us in the future. We've noticed shifts in the distribution landscape, including instances where distribution has not delivered the same benefits as before, leading to changes in contractor sizes or capabilities. As a result, our direct sales to contractors have risen significantly. Ten years ago, less than 5% of our sales were direct to contractors; now, that number is around the mid-teens. Carlisle is well-positioned for this change, supported by a strong logistics and freight team, and while we mostly sell through distribution, we deliver nearly 70% of our sales directly to job sites. This experience with logistics allows us to effectively service both distribution and direct customers with the same high level of customer service.

No, that was a good answer. Thanks, Chris, and good luck.

Yes, you bet. Thank you.

Your last question comes from the line of Adam Baumgarten from Zelman. Please go ahead.

Hey everyone, thanks for taking my question. Just on the price increases in CCM, I believe they weren't effective a few weeks ago. And I know you're not building in much for Q1 just given the timing, but just curious on the receptivity so far and what gives you confidence that those will go through as we move into the kind of more active part of the spring season?

We initiated the Carlisle market surveys a couple of years ago to manage our information to some extent. Looking back to September, it seemed like people were already anticipating some price changes in the coming months. Earlier in 2024, GAF attempted to implement a price increase, but it didn’t seem effective. However, we have noticed price changes in December, and I believe many organizations have raised their prices. We have some confidence in the market as our survey indicates that people expect these changes, particularly in the second quarter, linked to improving demand. This expectation is also related to the start of the construction season, alongside the current stable raw material situation. The impact of tariffs, especially regarding ATO from China, has contributed to price increases in the PVC market, which will affect pricing. Overall, we see a combination of demand, seasonality, and tariff action leading people to prepare for price increases, which our surveys indicate are anticipated to materialize by late second quarter or early 2025.

Okay. Got it. That's helpful. And then just on weather and it was mentioned as a headwind in the fourth quarter. A couple of questions, one, the idea of the impact to, do you think you'll get those sales back in the first quarter? And then just January has had some weather also in the South that I know is fairly disruptive. Anything to be aware of there as it relates to our business?

In the fourth quarter, we experienced an impact of about $10 million to $15 million. The situation at Henry differs from that at Carlisle; Henry has had a presence for 19 years and is mainly focused on the Western United States. The lack of rain during this period meant that the demand we expected through the retail channel didn't materialize. As for whether we will recover those sales in the first quarter, I would say probably not, as it doesn’t seem like we will have significant wet weather soon. However, if it rains in the second quarter, any roofs that might develop leaks will eventually show those issues. This has been a consistent theme for Henry over the years, and ultimately, the effects balance out over time, with impacts fluctuating from quarter to quarter.

Yeah, that's exactly right. So it's high correlation with rain events. When you do see rain events, you see spikes of 2x, 3x, POS cells at Home Depot directly to the rain events. And as you know, this year, we had nine or eight months with zero rain, so that's going to have a direct impact on demand for roof coatings.

And the only other thing I'd point out is, I think last year in the first quarter, I think, Kevin can confirm it that we had a couple of days of impact, right? And so that may have a little bit of impact in the first quarter as well.

Right. We mentioned on our call last year in the first quarter, that we had a benefit of maybe three days of positive weather to our numbers. So obviously, that's a tougher comp this year versus last year, assuming we don't have that same benefit.

Got it. Thank you.

Thank you.

There are no further questions at this time. I would like to hand the call back to Chris Koch for closing remarks. Sir, please go ahead.

Well. Thanks. I want to thank everybody for joining us on this fourth quarter earnings call. I look forward to speaking with you at our next earnings call, which will be at the end of the first quarter. Thanks. And have a good evening, everyone.

This concludes today's conference call. Thank you very much for your participation. You may now disconnect.