Earnings Call
Carlisle Companies Inc (CSL)
Earnings Call Transcript - CSL Q2 2025
Operator, Operator
Good afternoon. My name is Andrew, and I will be your conference call operator today. At this time, I would like to welcome everyone to the Carlisle Companies Second Quarter 2025 Earnings Conference Call. I would like to turn the call over to Mr. Mehul Patel, Carlisle's Vice President of Investor Relations. Mehul, please go ahead.
Mehul S. Patel, Vice President of Investor Relations
Thank you, and good afternoon, everyone. Welcome to Carlisle's Second Quarter 2025 Earnings Call. I'm Mehul Patel, Vice President of Investor Relations for Carlisle. We released our second quarter 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, he's our Board Chair, President and CEO; along with Kevin Zdimal, who's our CFO. Today's call will begin with Chris providing key highlights of the second quarter. Kevin will follow Chris and provide an overview of our Q2 financial performance and our outlook for the full year of 2025. Following our prepared 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. 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.
D. Christian Koch, President and CEO
Thank you, Mehul. Good afternoon, everyone, and thank you for joining us for Carlisle's Second Quarter 2025 Earnings Call. To start, I'd like to direct your attention to Slide 3 of the presentation. Carlisle was pleased to announce another quarter of solid performance and deliver a message of thanks to our outstanding Carlisle team for achieving a record adjusted EPS of $6.27 amidst the dynamic and evolving U.S. building products landscape in the second quarter. Carlisle revenues, while less than we had planned for in Q2, held steady at $1.4 billion year-over-year, and we continue to drive margins above our Vision 2030 targets, showcasing the resilience and strength of our focused pure-play building products model. Our second quarter performance underscores the enduring strength of our reroofing business at CCM, backed by a substantial multiyear backlog, enabling us to achieve top-tier industry margins despite challenges in new construction. The commercial reroofing market continues to align with our long-term growth expectations, reinforcing its role as a reliable and recurring revenue stream, accounting for approximately 70% of CCM's commercial roofing business. This momentum is driven by the aging commercial building stock, energy efficiency mandates and the trust our customers place in the Carlisle experience and our premium solutions. While CCM's performance remains strong, we faced some challenges at CWT due to well-known factors such as higher interest rates and negative builder sentiment, impacting new and remodeled residential markets. Nevertheless, we have continued to prioritize our capital allocation strategies, returning $343 million to shareholders through dividends and share repurchases, investing in innovation, and strategically acquiring Bonded Logic to enhance our position in the sizable and growing market for insulation. As we approach the end of the second quarter, building product markets and new construction failed to gain the momentum we had anticipated, including an anticipated return to a more historically normal inventory load-in by distribution to prepare for the construction season. We have previously outlined the risks to our full year outlook that were present and emerging in April, such as tariffs, interest rate cuts and builder sentiment. Despite those risks, we maintained our confidence that improved conditions would materialize in the second half of the year. Our optimism was supported by positive contractor sentiment, anticipated policy resolutions and strong backlogs, promising robust activity aligned with historic norms. Although some of the external risks materialized and influenced market activity, our teams diligently addressed the challenges and focused on factors within our control. They also remain committed to our key strategic actions to deliver on our goal of $40 of adjusted EPS by 2030. We remain optimistic about our strong reroofing performance, balancing the macroeconomic pressures in new construction. We remain confident in the fact that many of the headwinds are merely delays as repair and remodel and new construction continued to have strong underlying drivers of long-term growth as has been exhibited by our reroofing business in CCM. Carlisle is committed to Vision 2030 and continues to invest in initiatives that will ensure our long-term success. On Slide 4, the July Carlisle market survey results showcase the continued resilience of the commercial reroofing market, with full year mid-single-digit growth expectations remaining robust. Our commitment to leadership in the reroofing sector is supported by our comprehensive product portfolio, strong specifications, full warranties, superb contractor training programs, cutting-edge product innovations and unparalleled service capabilities. In the residential segment, while repair and remodel activity is showing signs of stabilization, expectations have shifted slightly from previous growth projections for 2025. Nevertheless, we continue to see substantial opportunity for increased sales and profitability when residential markets rebound. Our focus now is squarely on our efforts and strategies to enhance our manufacturing cost position, strengthen our innovation and launch of new products and enhance our product portfolio to continue to drive to complete building envelope solutions. The new construction market has softened somewhat for both commercial and residential segments since our April Carlisle market survey. On the residential front, although the survey indicates a mid-single-digit decline in new construction activity, our resilient approach and adaptable strategies prepare us to navigate these changes effectively. Despite recent headlines noting challenges such as record high home prices and elevated mortgage rates; we remain optimistic about our strategic pathways to growth. In new commercial construction, while expectations have adjusted to low single-digit decline, it's important to note the potential positive impact of recent political developments such as the reinstatement of the 100% bonus depreciation and a renaissance of U.S. manufacturing, which could invigorate demand. This is especially true in burgeoning sectors like data centers and manufacturing facilities, where Carlisle is strategically positioned to capitalize on growth opportunities. Our readiness to capture investments in these areas remains strong, and we are optimistic about the future. Moving to Slide 5. I'm excited to highlight our recent strategic acquisition of Bonded Logic, which perfectly embodies our commitment to innovation and strategic acquisitions as growth drivers. Bonded Logic, based in Phoenix, Arizona, brings to Carlisle and the Henry brand, an innovative approach to energy efficiency with its recycled denim insulation technology through the UltraTouch brand. This acquisition strengthens our commitment to comprehensive building envelope solutions and aligns seamlessly with our sustainability goals and Vision 2030 objective of generating 25% of revenue from new products introduced within the past five years. Though currently generating approximately $35 million in revenue, Bonded Logic operates in an estimated market for insulation of $14 billion and specifically within the rapidly growing segment focused on sustainable insulation products. We see tremendous potential for double-digit revenue CAGR in the insulation market as we integrate Bonded Logic's unique material platform with Henry's extensive retail distribution network and customer relationships. We anticipate this acquisition to reach run rate EBITDA margins that support our Vision 2030 objectives. From a market expansion standpoint, we are uniquely poised to leverage the benefits of denim insulation to penetrate the large fiberglass and mineral wall markets. Market feedback and our retail success have been exceedingly positive. Currently, Henry UltraTouch Insulation is available at over 400 Home Depot stores, with Home Depot serving as our exclusive big-box retail distributor. We are thrilled to announce that Henry has been selected as a finalist for the Home Depot's 2025 Merchandising Innovation Award for the Henry UltraTouch product. This prestigious award recognizes products that have significantly transformed the home improvement landscape. This recognition also underscores and validates our commitment to innovation as a key driver of Vision 2030 and highlights the significant growth opportunities that Bonded Logic offers through their cutting-edge denim insulation capabilities. Now turning to Slide 6. Innovation is at the heart of our Vision 2030 goals and serves as a key differentiator for Carlisle. Our robust pipeline of new products is focused on delivering energy savings, labor efficiencies and integrated building envelope solutions. Our unwavering commitment to innovation is evident in the significant strides we've made in 2024 and 2025, including the refinement and implementation of our advanced stage gate and voice of the customer processes. These initiatives ensure our teams deliver straightforward innovations that meet the evolving needs of building owners, contractors, architects and other stakeholders. We aim for our products to offer measurable outcomes, such as a solid return on investment, providing value to users and allowing us to price based on the value created ultimately, creating the opportunity for substantial returns for Carlisle shareholders. This quarter, we've advanced several product development initiatives aimed at capturing emerging market opportunities, enhancing labor savings and improving energy efficiency for our customers. As previously mentioned, our acquisition of Bonded Logic brings revolutionary denim insulation technology to tap into a vast addressable market. Organically, products like the new Dual Tank Flexible FAST Adhesive, our expanding Blueskin portfolio with innovations such as ZeroFlash and VP Tech, along with larger 12-inch InsulBase Flat Polyiso panels positions us to meet the increasing demand for integrated building envelope solutions. These solutions enable contractors to work more efficiently while delivering superior building performance. Looking to the second half of the year, we are proactively addressing market headwinds by implementing measures such as reducing CWT's footprint and gaining efficiencies through automation. We anticipate our COS initiatives, combined with acquisition synergies to generate over $30 million in savings, contributing to more than 200 basis points of margin improvement for CWT. While some benefits will take time to fully materialize, we are confident in our ability to drive significant margin expansion over the Vision 2030 time frame. Looking ahead, we remain optimistic about our long-term strategic positioning. The key drivers of our businesses, including aging building stock, energy efficiency requirements and infrastructure investment needs continue to be strong. In residential markets, the ongoing housing shortage supports longer-term growth opportunities. Our strong balance sheet provides the flexibility for continued strategic investments while we maintain our commitment to returning capital to our shareholders. And with that, I'll turn it over to Kevin to provide additional financial details and color on our outlook for 2025. Kevin?
Kevin P. Zdimal, CFO
Thank you, Chris. Moving on to Slide 7. I'll review our second quarter financial results. During the quarter, we achieved revenue of $1.4 billion, essentially flat compared to the second quarter of 2024. The acquisitions of MTL, Plasti-Fab and ThermaFoam contributed $39 million of revenue in the second quarter. While strong reroofing activity provided some stability, we experienced lower volumes resulting from slower new construction across both residential and commercial segments, lower residential repair and remodel and an increase in weather-related disruptions. Adjusted EBITDA for the quarter came in at $389 million with a margin of 26.9%, a decline of 190 basis points from last year. This decline was mainly due to volume deleverage and softer market conditions at CWT, higher operating costs related to preparing for a strong construction season and the load-in that Chris mentioned at CCM, and our ongoing strategic investments in innovation and enhancements to the Carlisle experience. Adjusted EPS had a record $6.27, up from $6.24 in the prior year. Share repurchases and accretive acquisitions more than offset lower organic earnings which faced pressures from the previously mentioned end market challenges. Now let's turn to our segment performance beginning with CCM on Slide 8. The Construction Materials segment reported second quarter revenues of $1.1 billion, growing approximately 1% year-over-year, with the increase coming from the positive contribution from the MTL acquisition. Organic revenue was effectively flat in the quarter with reroofing growth offset by a decline from new construction headwinds and unfavorable weather. Also, as a reminder, CCM's second quarter revenue was negatively impacted by approximately $15 million as Canadian customers accelerated purchases in the first quarter of 2025 in anticipation of tariff-related price increases. Adjusted EBITDA for CCM was $346 million, down 5% compared to last year with a margin of 31.6%. Adjusted EBITDA margin declined by 180 basis points to the previously mentioned higher operating costs as we anticipated stronger second half volumes and investments in innovation and enhancements to the Carlisle experience. Pricing and raw materials were flat on a year-over-year basis in the quarter. The MTL acquisition continues to exceed expectations, creating substantial value through additional content per square foot in our broader warranty system offering and strategic account expansions, offering comprehensive building envelope solutions. Turning to Slide 9. Our CWT segment reported second quarter revenues of $354 million, a 2% decline from the prior year, with organic revenue down 10%, largely due to softer residential end markets, roof coatings demand and new commercial construction. CWT's adjusted EBITDA was $71 million, a 13% year-over-year decline with an adjusted EBITDA margin of 19.9%, a decrease of 260 basis points. This margin compression was primarily due to volume deleverage. However, we are encouraged by the investments we are making in automation and COS initiatives which we expect to yield an incremental $12 million of annualized EBITDA. Integration of our recent acquisitions, including MTL, Plasti-Fab and ThermaFoam are ahead of plan, and we expect year 3 synergies to exceed $34 million annually. We are leveraging our broader building envelope systems approach to drive cross-selling opportunities, illustrating the effectiveness of our M&A playbook. Moving to Slide 11. Our balance sheet remains strong with $68 million in cash and a net debt-to-EBITDA ratio of 1.4x. We have $1 billion available under our revolving credit facility, offering significant flexibility for strategic investments. As shown on Slide 12, during the quarter, we generated free cash flow of $258 million, maintaining a balanced approach to capital deployment. We repurchased 800,000 shares for $300 million, bringing our year-to-date share repurchases to $700 million, in line with our 2025 share repurchase target of $1 billion. We expect to generate approximately $1 billion of free cash flow in 2025, which would be our fourth consecutive year of delivering over $1 billion in operating cash flow. The strong, consistent cash generation provides us with the financial flexibility to facilitate continued investment in capital expenditures, innovation, synergistic acquisitions, share buybacks and dividends, and drive to our $40 of adjusted EPS goal. Turning to Slide 13. Our updated outlook for the full year of 2025 reflects low single-digit revenue growth at both CCM and CWT as we expect contributions from recent acquisitions will be substantially offset by persistent end market challenges related to interest rate pressures, housing affordability and lack of buyer confidence. We expect commercial reroofing demand will remain strong. However, we reduced our expectations for commercial and residential new construction and residential repair and remodel. We also expect second half pricing to be flat year-over-year at both CCM and CWT. As a result, we now anticipate a 150 basis point decline in our full year adjusted EBITDA margin due to the lower volume expectations and limited traction on the price increases announced earlier this year. We continue to expect our free cash flow margin to exceed 15% for the year. In conclusion, while we navigate these challenging end markets, our strong fundamentals support long-term growth. We remain focused on executing our Vision 2030 initiatives and delivering our Vision 2030 financial goals.
D. Christian Koch, President and CEO
Thank you, Kevin. Turning to Slide 14, I am pleased to highlight the team's proactive approach, focusing on the factors within our control positioning Carlisle for an even stronger future margin profile while staying true to our strategic priorities outlined in our Vision 2030 plans. In our CCM business, we are maintaining our market leadership and have robust margin recovery strategies in place. Despite current market challenges, our business model remains strong and resilient. We anticipate margin expansion through volume leverage, ongoing MTL synergy realization, operational improvements via our Carlisle Operating System, disciplined pricing through the Carlisle experience and the adoption of emerging AI technologies. Our innovation pipeline is strong, featuring products like Flex FAST solutions, which offer customers premium labor savings and energy efficiency enhancements. For CWT, our self-help initiatives are pivotal during this period and are set to drive higher margins in 2026, leading to significant long-term margin expansion towards our Vision 2030 goal of achieving 30% adjusted EBITDA margins for CWT. We're harnessing automation benefits optimizing our facility footprint and capitalizing on synergies from our Plasti-Fab and ThermaFoam acquisitions. Additionally, we are fostering growth through our innovative new products like UltraTouch and expanding our Home Depot relationship to include single-ply roofing, insulation, flashing and air barriers. Company-wide, we're focused on seamlessly integrating our strategic acquisitions while accelerating innovation through new product development. Our Vision 2030 targets remain firmly on track despite near-term challenges. We are committed to more than doubling adjusted EPS to over $40 by 2030, maintaining industry-leading ROIC of 25% and achieving free cash flow margins exceeding 15%. With the target organic revenue CAGR of over 5% and anticipated cumulative free cash flow exceeding $6 billion, we have multiple pathways to achieve our $40 of adjusted EPS as committed to in Vision 2030. The actions we're taking today, ranging from operational improvements and strategic acquisitions to innovation investments, position Carlisle to bridge current performance to these long-term objectives, all the while maintaining a disciplined approach to capital allocation. In conclusion, the second quarter showcased the robust strength of our business model and strategic positioning. Our emphasis on the recurring reroofing revenue stream, strategic investments in innovation and disciplined capital deployment are driving solid performance. I extend my gratitude to our Carlisle employees for their unwavering dedication. Their commitment to excellence is the foundation of our success and will continue to propel our outperformance. That concludes our formal comments. Operator, we are now ready for questions.
Operator, Operator
Your first question is from Garik Shmois from Loop Capital.
Garik Simha Shmois, Analyst
Just starting off, I was wondering if you could provide a little bit more color on how we should be thinking about EBITDA margins by segment in the second half of the year given the new outlook.
Kevin P. Zdimal, CFO
Yes. Garik, this is Kevin. And yes, as we look at the margins, overall, as we look from Q2 to Q3, I'll start with CCM, that the revenue in Q3 is lower than Q2. So some of that volume carries over that. Well, a challenge to margin a little bit, so we expect to be around 31% in Q3. And then Q4, as you know, that's the lighter quarter for us overall, and we have CCM down around 29% in Q4. And then as you look at CWT, we would expect to be both the Q3 and Q4 right around 20%. Some of that improvement because they have a lighter revenue as well in Q4, but that's when some of the synergies are kicking in from the Plasti-Fab acquisition as well as some of the automation that we've done in the factories.
Garik Simha Shmois, Analyst
Great. That's helpful. My follow-up question is just if you can speak in a little bit more detail on some of the actions you're taking in CWT, the footprint rationalization, the automation, how to think of the timing of some of these cost savings. And I think you mentioned two figures in the prepared remarks, I think there was $12 million and $30 million, just wanted to be clear on these amounts. So these run rate figures, are these the expected savings or you're anticipating in the second half? Just a little bit more handholding on the actions you're taking there. And then maybe also if there's any plans for CCM, just given the weaker demand environment.
Mehul S. Patel, Vice President of Investor Relations
Garik, I'll take the breakdown on CWT. So overall, to your point on the earnings call, Chris and Kevin mentioned there's $12 million of total synergies in CWT from automation projects that we implemented for Fernley and Kingman. There are also some additional plants that we're looking at to implement automation. And in addition to that, with those automation projects, the next phase is looking at some footprint consolidation. So you add those together, that's $12 million, and those are annualized savings. So we'll get a portion of that in the second half of '25, and then we'll get the remaining amount in '26. So we'll continue to see margin expansion there going into next year. And then lastly, on the synergies from the Plasti-Fab and ThermaFoam acquisitions, there's a total of roughly $14 million of synergy. So you have those together, that's how you get to the roughly $30 million of opportunities for CWT.
Kevin P. Zdimal, CFO
On the CCM side, we had some expenses in the second quarter that we will not see again in the third and fourth quarters. These were costs associated with preparations for what we anticipated to be a strong season, which ultimately did not happen. Those costs will be eliminated. Additionally, we are also focusing on improving costs at CCM, where there are opportunities to enhance margins.
Operator, Operator
Your next question is from Bryan Blair from Oppenheimer.
Bryan Francis Blair, Analyst
I was hoping you could offer a little more detail on monthly order and revenue phasing through Q2 by segment and what you're seeing in the month of July relative to the Q2 run rates and how that perhaps influences the guide.
D. Christian Koch, President and CEO
Yes. Bryan, similar to how we exited, I don't see a lot of change from June to July. Of course, July has the holiday and some other things in it. So usually, it's not a terribly robust month or what we have high expectations for. But as we went through the first quarter, obviously, when we were at the end of April, we did our Carlisle market survey, and we looked at where we were on what I'll call our political macro front, I think we are more optimistic. And as we got through the quarter, I think more anxiety crept in, which really, we saw Powell today say that the housing market was still weak on his report. And from the commercial side for us, I think a few contractors that I talked to, about a week ago, characterize it as healthy activity. But the activity has changed and that a reduction in bids to a certain degree, especially on the new side. And then something that was interesting was this idea that there were a lot of pending but yet be awarded or decisions were just not being made. It wasn't that it wasn't going to happen, but the interest rate environment and the economic outlook and the anxiety over tariffs and that were causing people to have a more difficult time making decisions. So I think that progressed through the quarter. And that was a definite tone for maybe where we were more optimistic in April. And I think that tone is still here, and you heard some of the questions that the Fed chair got today around even some conflict on the Fed Board there, I think, to the centers about where we are. So I think that's causing some anxiety, which are making people delay things. It doesn't mean that we're not having activity. It doesn't mean that activity isn't planned, or the economy isn't going well. It's just creating more anxiety. So that's kind of where we sit. And then in June, I think we also saw in some regions some weather impact about a day or two that had an impact there as well. So kind of a little bit of more degradation, I would say, throughout the quarter. And then from June to July, as you asked, pretty consistent with each other.
Bryan Francis Blair, Analyst
Okay. That's very helpful. And maybe offer a little more, I guess, big picture color on how your team is thinking about the impact or catalysts of One Big Beautiful Bill on construction markets going forward and how tax incentives may influence your own investment planning. You've obviously never been shy of investing in the business, there's incentive to do more.
D. Christian Koch, President and CEO
Yes. First, I'll address the Beautiful Bill, and Kevin can discuss the investing aspect. I want to emphasize that we are still generating a significant amount of cash flow, around $1 billion a year over the past few years. We've always been committed to investing in innovation and upgrading our manufacturing facilities to maintain our position as a low-cost producer in the industry, and we will continue to do so. We're also seeing increased investment in areas like AI, which we didn't have five years ago, but there are new opportunities that Kevin can elaborate on. Regarding the Big Beautiful Bill and its potential revenue generation beyond taxes, the most significant aspect for us is the possibility of bringing manufacturing back to the U.S. and what that means for reinvestment domestically. When we examine the manufacturing sectors, recent data shows a decrease of 1.5% in '23, a decline of 23.4% in '24, and an even steeper drop of 19% in '25. If this bill promotes a reinvestment in America and helps drive some manufacturing back due to tariffs, it would be very beneficial for us. Additionally, our cost per square foot for new construction and reroofing is now higher than it was 5, 10, or 15 years ago, driven by increased demand for energy efficiency and labor savings. This positions us well as we move forward. Kevin, please discuss how taxes will impact Carlisle's investment strategies.
Kevin P. Zdimal, CFO
Yes. The first thing we look at for on a capital investment is going to be ROIC. So certainly, having depreciation in year 1 versus over multiple years. That helps the return, so higher ROIC, and that only impacts manufacturing facilities, R&D, new facilities. So I don't think it will be the #1 driver for us adding anything with new facilities, but certainly, it will have a positive impact on ROIC as we're looking at those projects.
Bryan Francis Blair, Analyst
All makes sense. A quick level setting question on Bonded Logic. You had mentioned run rate sales and that EBITDA margins will be supportive of Vision 2030. What should we think about as normalized growth for the asset? And where are margins currently? And what kind of profitability are you targeting over time?
D. Christian Koch, President and CEO
We would ideally like to see gross margins exceeding 50% over time. This is important for new products because we aim to reflect the value we add through pricing. Gross margin serves as a strong indicator of both pricing and value in the market, as well as our production efficiency. From a broader perspective, that's the growth we envision for Bonded Logic.
Kevin P. Zdimal, CFO
Yes. And it's a new product, that's really what we're looking at is almost picking up, buying a new product and the CAGR is going to be very high from a revenue standpoint, and it's going to be, I mean, well into the double digits. As far as what we're looking at, it will take a year or two before it really starts ramping. But even in those initial years, that's what we're looking at. And yes, I would agree with Chris on the gross margins and EBITDA margins above or even where we stand today.
Operator, Operator
Your next question is from Susan Maklari from Goldman Sachs.
Susan Marie Maklari, Analyst
My first question is speaking about the opportunities that you do see in a more challenging environment. You talked in your prepared remarks about investing in innovations and the Carlisle experience. Can you help us understand how you can further those initiatives to perhaps even gain market share or maintain market share in this kind of situation and what you're seeing in terms of the competition out there and what that could perhaps mean for Carlisle in the upcoming quarters?
D. Christian Koch, President and CEO
Sue, I believe that enhancing the Carlisle experience is crucial for us. One aspect we are exploring is utilizing AI to improve efficiency and leveraging mobile devices for faster information access. A significant topic I've discussed with several contractors is related to trucking. One contractor pointed out that trucking has been a major issue for them; it's not about the availability of trucks, but rather their reliability. For instance, if a truck is scheduled to arrive at 8 a.m., it's common to receive a call at noon saying it will be delayed until the next day. This illustrates the importance of applying technology to provide better real-time information, enhance tracking, and improve coordination with trucking companies. We might also consider investing in certain assets to address this challenge, ultimately aiming for improved labor efficiency. Even for contractors, if a crew is on-site at 8 a.m. but can't start working, that's just wasted time. Investing in the Carlisle experience also relates to our specifications and inspections. Currently, our inspections typically take about 30 days before we can issue a warranty or process contract payments. We're looking for ways to reduce this time, potentially allowing contractors to conduct their own inspections using technology like video or AI. All these efforts are focused on making contractors' lives easier and more profitable. We're also investing in innovations that merge products into solutions for quicker job execution. This could lead to increased market share and profitability as we share the benefits of labor efficiency, making contractors more profitable and more inclined to work with us. Moreover, these initiatives will help establish closer ties with contractors, making our solutions more appealing and increasing their commitment. As we implement improvements in trucking and product offerings, our customers will prefer to keep using our services. We also emphasize training, providing robust support in locations like Carlisle, PA, and through distributors to train in the field, which enhances our competitive advantage. Regarding competition, while there are conversations about foreign competitors and others, the changes in our U.S. market with companies like Amrize, Elevate, and GAF have been constructive. The industry's focus on professionalism and innovation has made it tougher for new entrants to compete against well-established organizations like ours with solid manufacturing roots and strong contractor relationships. Thus, there hasn’t been a significant shift in competitive dynamics over the last six months.
Susan Marie Maklari, Analyst
Okay. That's very helpful color. And then can you talk a bit about what you're seeing in terms of the M&A environment given the macro and the housing backdrop that we're in? And I guess if there are any changes in that M&A pipeline, how are you thinking about capital allocation in this environment and your willingness to perhaps do more on the buybacks or other forms of shareholder return?
D. Christian Koch, President and CEO
Yes. The M&A pipeline has been good and robust, as we've discussed. There are deals that are trying to be finalized. However, there's a noticeable gap in valuation between sellers and buyers. This highlights the growing anxiety in the markets, with many hesitant to make moves due to uncertainty. We encountered a situation recently where the process failed because the valuation gap was too wide, affecting all bidders involved, not just us. This illustrates our current situation: when two parties can come to a reasonable agreement, a transaction is likely. We successfully closed deals like Bonded Logic and Plasti-Fab, but many others never reach that point. That's the current state of our capital allocation strategy, Kevin, and I'll pass that on to you.
Kevin P. Zdimal, CFO
Yes. In terms of capital allocation, we have been fortunate to generate substantial cash, allowing us to choose our investment opportunities. We evaluate each option—M&A, buybacks, dividends, and CapEx—individually, applying specific return thresholds for each. For M&A, as Chris mentioned, we will remain disciplined, seeking bolt-on acquisitions that complement our existing product line or expand our geography, but we will ensure the costs are appropriate. Similarly, for buybacks, we assess our intrinsic value to inform our buyback decisions. We will maintain this approach moving forward.
Operator, Operator
Your next question is from Timothy Wojs from Baird.
Timothy Ronald Wojs, Analyst
Maybe just the first question, just on the lack of pricing traction. As you kind of step back and think about that, is it just the weaker volume environment? It doesn't sound competitive, but maybe there's some of that. Is it just lower raw materials and kind of lower raw material basket? Just how do you kind of frame up just that kind of lack of pricing traction and the drivers of that?
D. Christian Koch, President and CEO
I believe the pricing environment is quite favorable. While we may not have seen significant success with the recent price increases, pricing has remained stable. Regarding the bidding environment, the decrease in new projects has led competitors to focus on reroofing opportunities. Our reroofing contractors are doing well, which reflects positively in our results. With fewer new projects, we're seeing an increase in bids for the available jobs. Overall, I am satisfied with our pricing situation, which has been rational, especially since raw material costs have remained stable. Ultimately, I would attribute the dynamics to volume changes.
Timothy Ronald Wojs, Analyst
Okay. Regarding the delays in some bidding activities, is this limited to new construction? Is it affecting the entire building? Clearly, if a building is being constructed, a roof is necessary. So is it primarily the new construction market that is impacting you, or has this also affected discretionary reroofing activities?
D. Christian Koch, President and CEO
No, it doesn't seem to have shifted into reroofing. Reroofing has remained strong and continues to be robust, which we've highlighted. This situation actually illustrates some concerns we've had, not from our end but from the market's perspective, regarding whether reroofing will hold up during a downturn. Is there sufficient backlog? This quarter demonstrated that reroofing remained resilient. Labor has been dedicated to it, pricing has been favorable, and we saw solid performance in reroofing, which is closely tied to new construction. This trend appears to be consistent nationwide, whether in Seattle or Los Angeles. While I've noted declines in the manufacturing sector, that situation persists, and warehousing has been down for three years. Data centers, however, are thriving, experiencing year-over-year growth of about 30% to 40%. As for retail, it has faced some challenges this year after experiencing solid growth in the previous year, with increases in the high single digits. Currently, it's pretty stable. This ties back to the notion of pending projects that are yet to be awarded. It suggests that there are opportunities available, but people might prefer to wait for 30 days to assess the situation. There could be changes in interest rates that might influence decisions. Overall, the market seems a bit uncertain, making it difficult for individuals to feel confident in their choices, which adds a level of anxiety. This uncertainty is generally marginal.
Timothy Ronald Wojs, Analyst
Okay, I have one last question. It's a broader, open-ended inquiry, but it feels relevant to the current situation. How should we view Carlisle in light of the changing market? Two of your larger roofing distributors have been acquired by different companies, and there’s been significant M&A activity in the sector. We’re also noticing some merger activity among contractors. How do all these developments connect, and what is Carlisle's position as these changes unfold?
D. Christian Koch, President and CEO
Yes, Tim. When I joined 17 years ago, I never imagined that roofing and building products would become such an intriguing sector. There have clearly been distribution changes, which may have influenced our performance in the second quarter as we navigate ongoing integrations from recent transactions. We've seen active interest from private equity firms acquiring contractors. Contractors have shared with me that there’s significant activity, and they're being approached about consolidating that part of the industry. Additionally, more manufacturers are looking to enter this business. It’s an evolving environment, but on the commercial roofing front, we believe we hold a leading position. We have substantial competitive advantages in commercial roofing and building envelope solutions, backed by strong scale. Our margins and cash flow generation empower us to invest in various initiatives, such as our own stock, AI, customer excellence, and innovation while also reducing costs through automation. These factors position Carlisle well for future investments and to maintain our leadership. R&D and innovation will be critical. Our goal is to be the preferred choice for contractors, achieved through exceptional customer service, innovation, and operational excellence. If we focus on these areas, I believe we will succeed. While changes may happen around us, I want Carlisle to be the reliable option that consistently delivers high-quality products at a fair price along with excellent customer service. Our teams are experienced, and we’ve made significant investments over the years. Considering our growth strategy, including M&A, and expanding our product offerings in the building envelope sector, I’m optimistic about where we will end up.
Operator, Operator
The next question is from Tomohiko Sano from JPMorgan.
Tomohiko Sano, Analyst
This is Tomo. My first question is, I like to have more color on pricing. And has stable commercial reroofing allowed you to sustain pricing power through innovation and the Carlisle experience compared to softer demand in other end markets and pricing competition? So that's my first question.
Kevin P. Zdimal, CFO
Yes. As we look at innovation, that's where we look to price for the value that we bring to whether it's a contractor or a building owner. If we can bring them opportunities to reduce labor for their costs, then we deserve a higher price for our product. We share some of that savings to the contractor. Similar for a building owner, if its energy efficiency plays and the building owner is going to save money on energy, then we look to price our product higher there and share that savings with the building owner. So overall, we have pricing this year, it's more about the volume that Chris talked about into the second half of the year, and we're looking at pricing being stable, both in the third and fourth quarters.
D. Christian Koch, President and CEO
Yes. Tomo, I would say that pricing is a reflection of how well we're delivering on our value proposition to the customers. So it also helps us preserve price because they can clearly see that if we deliver on time with the right product, if they don't have callbacks for warranty, if they have a smooth warranty inspection process, if their questions are answered quickly, if they have good training, then they can see the value in that, and then that helps us maintain pricing even in an environment where there may be more competition or new construction may be slowing.
Timothy Ronald Wojs, Analyst
And my last question is EPS forecast. And you mentioned record EPS for 2025 but compared to the prior comment of 10% plus growth, so the tone this time seems slightly more tempered. But should we interpret your EPS outlook, including strong capital returns as flat to slightly up year-over-year right now?
Kevin P. Zdimal, CFO
Yes. Yes. We definitely, with our revised guidance, see it lower than what we talked about at the double-digit number, but we're still looking in the growth rate on our EPS. We don't do EPS specific guidance. But yes, if you put the factors in, I think you should come up with something that's going to be, again, a record EPS year for us in 2025.
Operator, Operator
Your next question is from David MacGregor from Longbow Research.
Joseph Nolan, Analyst
This is Joe Nolan on for David. On the CCM side, can you just talk about channel inventory levels for TPO, EPDM and polyiso and just how you expect those to develop into the second half of the year?
D. Christian Koch, President and CEO
Yes. We didn’t achieve the loading we anticipated. Inventory levels have remained fairly consistent with what they were in the fall, and as we progress through the spring, they are slightly lower than we expected, especially considering that the season could have been stronger with new construction. However, I don't notice a significant change in inventory levels at Carlisle. We definitely have enough supply to maintain our on-time delivery and meet demand. There may be minor variations at the distribution level due to integrations and acquisitions, which could cause some delays and lighter inventory in certain areas, but nothing substantial has caught my attention. Kevin?
Kevin P. Zdimal, CFO
I would agree with that analysis as well, nothing to add.
Joseph Nolan, Analyst
Okay. And then just a follow on the pricing questions. We heard that some manufacturers have announced a polyiso increase. Could you just talk about your confidence in that increase given the softer traction on the earlier increases?
D. Christian Koch, President and CEO
Yes. I think that we've embodied that in our projection for really a flat second half on pricing. And as we mentioned, we didn't see a lot of traction occurring on those polyiso price increases. And I wouldn't anticipate without some change in demand on the new construction side, I wouldn't see that or the one other variable that would have happened or could happen is if there was some major action from a supplier of MDI that might related to tariffs or otherwise, it might create some price issue there. But our forecast for that is no traction on those price increases and flat for the year.
Joseph Nolan, Analyst
Okay. Got it. And then if I could sneak one last one in. In the prepared remarks, you talked about a $20 million impact to volumes from weather in the second quarter. Should we expect that to be fully made up in the second half? And was there any incremental storm demand created from those? Or were these maybe too moderate storms to create that demand?
D. Christian Koch, President and CEO
I can't really comment on the storms. I think the storms have been getting worse. I know on the residential side; they talk about that a lot on the shingles. On the commercial construction side, our roofs are very robust. And I would say that any storms we had, they do impact future demand because obviously, where leaking occurs or some damage that creates future demand. Will the demand that we saw from the weather show up in the third quarter? I imagine some of it. But remember, we think we're at a pretty full employment of contractor labor situation. So likely that rolls into the backlog or pushes something else into the backlog while they repair that. So we're still a little bit constrained and it probably goes without saying that certain immigration actions and things like that have also been affected or contracts have been affected by that. So I wouldn't say there's surplus labor that can address that kind of weather-related demand and make it up in one quarter.
Operator, Operator
Your next question is from Keith Hughes from Truist.
Keith Brian Hughes, Analyst
Question on some inputs, particularly MDI. We've seen some acceleration in that first half of the year. Are you expecting that to kind of flatten out as we get to the second half given this kind of flattish price environment you're talking about here in your end-use products?
D. Christian Koch, President and CEO
Yes, indeed. A little bit in '25 here in a rise from Q1 to Q2, a couple of percent, but then flattening out through Q3 and Q4, Keith.
Keith Brian Hughes, Analyst
Okay. Is that expected to still show inflation in the second half?
Mehul S. Patel, Vice President of Investor Relations
Yes. So overall, Keith, this is Mehul here, for CWT, pricing is stable year-over-year, and it's pretty much across all the different segments. In spray foam, Keith, just I know last year, there was pricing pressure in that specific category. So that's bottomed out. Earlier this year, there was some price increase announcements. But I think given the challenges in residential, it's going to remain stable versus going up.
Operator, Operator
There are no further questions at this time. Please proceed with closing remarks.
D. Christian Koch, President and CEO
Well, thank you, Andrew. This concludes our second quarter earnings call for 2025. I want to thank everybody for your participation. And as usual, we look forward to speaking with you at the next earnings call. Thank you.
Operator, Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.