Q3 2021 Carlisle Companies Inc Earnings Call
Good afternoon.
My name is Bethany and I'll be your conference operator today at this time I would like to welcome everyone to the Carlisle companies third quarter 2021 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will conduct a question and answer session I would like to turn the call over to Mr. Jim Deanna gross Carla <unk>, Vice President of Investor Relations. Jim. Please go ahead.
Thank you Bethany.
Good afternoon, everyone and welcome to Carlyle's third quarter 2021 earnings Conference call.
We released our third quarter financial results. After the market closed today and you can find our press release and earnings call Slide presentation in the Investor Relations section of our website Carlisle Dot com.
On the call with me today are Chris Koch Chairman.
<unk>, President and Chief Executive Officer, and Bob Roche our CFO.
Today's call will begin with a business update from Chris highlighting third quarter results current trends.
In context around our continued progress towards achieving our strategic plan vision 2025.
Bob will discuss the financial details of Carlyle.
<unk> third quarter performance and current financial position.
Following Chris and Bob's remarks, we will open up the line for questions.
Before we begin please refer to slide two of our presentation, where we note that comments made on this call may include forward looking statements based on current expectations of future events and their potential effect on carlyle's operation.
Operating and financial performance that involve risks and uncertainties.
Could cause actual results to be materially different.
A discussion of some of these risks and uncertainties as provided in our press release and in our SEC filings.
Those considering investing in Carlisle should read these statements carefully and review reports, we filed with the SEC.
Before making any investment decision.
Todays presentation also contains certain non-GAAP financial measures. We've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financials in our press release and in the appendix of our presentation materials with that I introduce Chris Koch Chairman President and.
With Carlyle.
Alright, Thanks, Jim Good afternoon, everyone and thank you for joining us on our third quarter 2021 earnings call.
To start by saying I hope all of you your families coworkers and friends or returning to some semblance of your pre pandemic lives while remaining safe.
Safe and healthy.
As you.
You all know very well the challenging and uncertain environment that we have experienced since the pandemic began in early 2020 continued through the third quarter of 2021. This year has truly been a story of two halves as we entered 2021 global prospects remained highly uncertain.
The virus mutations were occurring and we were slowly and unevenly.
<unk> emerging from Lockdowns.
Entering the second quarter, the rollout of vaccine started to gain momentum as access to vaccines became widespread in the extraordinary stimulus being injected into the global markets took hold.
We began to turn a corner and slowly returned to our pre pandemic activity, which in turn drove increased economic growth in the world that was woefully unprepared.
To absorb the rates of gain.
During factory shutdowns stress labor markets and lack of supply manifested themselves in increased deflation.
A major challenges to normal business operations. These dynamics, coupled with the delta various spiking in the summer months and the effects of hurricane item made the third quarter, even more challenging.
Thankfully as we exited September we seem to be past the delta outbreak peak and were optimistic that recently enacted remedies to ensure stability and labor markets and easing of constrained conditions in our supply chains.
I'll take home a whole carlyle's team leveraged our continuous improvement culture, exhibiting grit and determination to deliver deliver on the <unk>.
<unk>, which I'm happy to report drove outstanding performance, including record third quarter revenue.
Simply put we have asked a lot of our employees over the past year and a half and the team has risen to the occasion every time, especially in the third quarter.
There is no doubt everyone at Carlisle was working on solutions and innovative approaches.
<unk> to help alleviate the pressures and deliver for our stakeholders as strong order trends across our businesses suggest demand will remain strong as we closed out 2021 and continue through 2022 that said, we do expect supply chain issues to ease slightly in the fourth quarter.
And gain more traction early next year with a better buy.
Balance being achieved perhaps by mid 2022.
Please turn to slide three.
Over the last several years and in particular through the pandemic vision 2025 has ensured clarity of mission and consistent direction for our entire organization in the third quarter. We successfully delivered on our key pillars of vision 2020.
25, including driving organic growth in excess of 5% in the third quarter, we delivered over 19% organic growth for the company.
We rebound off the COVID-19 induced lows of last year and look forward to the prospects for growth across our business segments. We remain very confident in our ability to generate targeted mid single digit.
Organic growth CAGR through 2025.
An important component of organic growth as demonstrated price leadership.
We've always focused on earning price in the marketplace by delivering on the Carlisle experience, which means providing our distributors contractors and other channel partners with innovative products of the.
The best quality at the right place at the right time and as efficiently as possible, we couldnt do that without diligent planning and collaboration with our suppliers to ensure a steady flow of our necessary inputs.
While extremely challenging in the third quarter. This collaboration proved particularly valuable in this uncertain environment.
Our ability to anticipate these challenges, especially this year and maintain a proactive posture on pricing has enabled us to provide a high level of service to our channel and our end user contractor base.
Through a disciplined and proactive approach we are successfully navigating the current inflationary environment in the third quarter, we more than offset.
<unk> to get raw material and freight cost increases experienced in CCM with pricing and notably are on track to be price cost neutral for the full calendar year 2021.
Another important pillar of vision 2025 is to build scale in our higher returning businesses through acquisitions since the inception of vision 2025.
The significant we've expanded into polyurethane with the 2017 acquisition or a seller.
We've moved into architectural metals with the 2018 to 2019 acquisitions of Drexel and Pietersen, respectively.
And most recently expanded into whether vapor air and energy barrier systems with the acquisition of Henry company in the.
<unk> quarter.
Henry not only clearly demonstrates our strategy of expanding further into the building envelope, but also highlights our drive to increase the content of energy efficient products in our portfolio.
As a reminder, buildings account for approximately 30% to 40% of annual global greenhouse gas emissions.
Henry's.
Third clear vapor air and energy barrier systems contribute to the reduction of these emissions.
One example of this is Henry zero vapor barrier product called Blue skin loose can prevent uncontrolled air leakage and can yield up to 30% savings on heating and cooling costs with accelerating demand for energy efficient products made.
Whether a sustainable buildings in the future. We will continue to emphasize the development of products that help reduce the carbon emissions of buildings positively impacting the environment.
Finally in the third quarter. We also continued to execute on our vision 2025 capital deployment strategy. Despite closing on Henry which was the largest acquisition in carlyle's history.
From what we continue to repurchase shares spending $25 million during the third quarter.
And bringing our total repurchases year to date to $291 million.
As a reminder, since 2016, we have had over $1 $8 billion and share repurchases.
We also anticipate continuing along.
History of consistently raising our dividend, which we did again in August marking the 45th consecutive year of increases.
We are very proud of the near half century of stability in our business model that affords us the ability to consistently return capital.
To shareholders.
Turning to slide four and transitioning to our ESG.
History routes.
As we close out 2021, we continue to make steady progress on performing audits to establish baseline data at our manufacturing facilities identify opportunities for energy waste water and greenhouse gas reduction and establish achievable reduction targets for the future based on real measure.
<unk> and impactful actions with.
With the Carlisle operating system core to our culture as a key driver of our success.
<unk> improvement applies to our ESG efforts as well, we're utilizing the Carlisle operating system toolkit and processes to establish ESG goals and targets, which among many benefits will result in meaningful.
<unk> and our emissions and energy consumption, we will set and publish these targets in the coming year.
Citing a few notable ESG projects with impactful results that progressed in the third quarter.
We started recycling production materials made of paper such as Facer cardboard office wastepaper from our Carlisle.
Your campus back into our polyol insulation products in mid 2020 throughout 2021, we've expanded this program to three more CCM manufacturing sites around the U S and through the third quarter, we have recycled nearly 1 million pounds of what would've been waste.
Back into our insulation products.
Another effort has been upgrade our.
Pennsylvania's with more efficient led lighting.
Throughout 2021, we have added Leds emotion controls at many factories saving more than $3 5 million kilowatt hours of electricity.
Which translates into a reduction of close to 3500 metric tons of greenhouse gases.
And an exciting new program, we plan to upgrade our expanded <unk>.
Our factoring facility in Dixon, California to enable production using 100% recycled materials.
By the end of next year, we will have the ability to recycle as much as 150 tons of our production and customer scrap annually, which avoids significant ways from entering landfills. Subsequent expansion of the facility will provide for the recycling any EPS.
Please stop product away from any source I was index in this fall.
Beginning this fall and was really pleased with what the team was doing and the fact that this initiative was driven by the folks in the facility there and we're proud to see ESG moving through our entire company with such momentum.
Turning to slide five our performance in the third quarter of 2000.
<unk> evidenced as solid execution revenue increased 25% year over year with organic revenue up over 19% all segments contributed to this growth adjusted EPS increased 27% year over year to $2.99 as higher volumes and price and cost discipline more than.
Offset inflation during the quarter.
Now let me provide some additional divisional highlights starting with CCM, our construction materials business delivered an outstanding quarter. Despite the severe challenges across its supply chain.
<unk> organic growth in the third quarter was over 23% year over year, and notably organic sales were close to 14% higher.
Then the third quarter of 2019, CCM continues to benefit from our growing backlog fueled by the strong re roofing cycle in the U S, which we estimate will grow from a market size of $6 billion to.
To $8 billion in the next decade with an ever increasing emphasis on the energy efficiency of buildings are proactive pricing.
Actions and our investments in expanding our presence.
And the building envelope.
We believe CCM third quarter results on top of their performance through the pandemic support our view that replacing a Ruth Ruth can only be postponed for so on ensuring that the underlying demand trends are very much intact.
On slide six you can see how.
<unk> continuing into and expanding the building envelope, providing solutions from the ground up our increasing focus on the building envelope as exemplified by our recent acquisition of Henry which delivered excellent results in its first months with carlile, nor the integration thus far has been very smooth.
The integration has progressed, we've really become.
We are appreciative of Henry's season management team.
Is executing on all fronts on all fronts and already proving to be a great addition to Carlyle.
With similar cultures around innovation pricing the value focus on customers and continuous improvement and strong results out of the gate, we are increasingly confident in henry's ability to exceed our preliminary.
Some more cost of $1 25.
And adjusted EPS accretion in 2022.
We're also pleased with our other growing platforms that represent our initial expansion efforts into the building envelope. Please turn to slide seven.
Architectural metals and polyurethane were both up over 35% in the quarter and continued.
The fortress well on profitability improvements.
Regarding our presence and our expansion geographically, our new CCM European leadership team continues to make.
Really good progress growing the core business, improving their profitability and driving new energy efficient product introductions, and our recent investments to expand our capacity and our Walter.
Germany facility will only serve to support that growth.
Lastly, on CCM drivers given our history of price leadership proactive approach to pricing coming into 2021 and actions taken year to date, we're very pleased that pricing more than offset raw material and freight cost inflation in the quarter.
Our multiyear focus on price began in two.
The progress <unk> gained traction in 2017 and continued to evolve. This evolution has resulted in a more robust and comprehensive pricing management philosophy and execution at CCM, which demonstrated its power during the inflationary environment in 2021 and five.
Finally, I'd like to take a moment to note that our results could not have.
<unk> thousand or <unk> without the stellar work of our sourcing team at CCM Theyre doing an excellent job ensuring CCM is able to produce all can especially as demand across product lines is showing no signs of slowing.
Ultimately, they're hard work contributed significantly to our ability to deliver the Carlisle experience.
Moving to slide eight it's Cit's third quarter revenue grew 6% year over year evidence of continued progress in both Cit's commercial aerospace and medical technology platforms and commercial aerospace backlog has now reached levels not seen since may of 2020, which is a significant milestone we're encouraged by the growing demand.
Aided to narrow body production driven by a steady rebound in air travel domestically.
And longer term when demand for wide body production return city is well positioned to capture and leverage that growth.
Over the last several quarters city has taken significant restructuring actions such as closing our facility in Kent, Washington.
To drive improved profitability the impact of these actions has shown over the past several quarters driving cit's profitability on an adjusted EBIT basis to swing positive during the quarter.
And on the medical side record revenue supported Cit's sequential and year over year revenue growth. This hospital capital spending has resumed.
Mandrill their term is our medical business gains momentum and adds to its record backlog. We believe the platform is well positioned to drive and leverage mid to high single digit annual growth going forward.
On CFT, given its re-energized commitment to new products improved operational efficiencies price realization from earning the value of innovation.
Logging and improved customer experience.
CFT generated revenue growth of 9% year over year, and adjusted EBIT growth of 16% year over year in the third quarter.
CFT has benefited benefiting from increasing industrial capital expenditures across its end markets. Despite supply chain issues in the automotive markets. It's also making solid.
Address integrating and growing its newer platforms of sealants and adhesives foam and powder.
With a focus on innovation, our leaner cost structure and a push it automation, we are optimistic about cft's ability to generate sustainable value creation by driving and leveraging solid growth at healthy incremental margins.
We.
Solid property team to continue executing on its vision 2025 growth strategy and to deliver continued improvement in the fourth quarter, and certainly next year and beyond and with that now.
I'll turn it over to Bob to discuss our financial performance in greater detail Bob.
As Chris mentioned earlier, we had a strong third quarter.
There are some items.
We expect several items that I'm, especially pleased with <unk>.
<unk> ability to offset challenging operating cost conditions by focusing on delivering Carlisle experience.
Growing backlog at CIT and CFT.
Our successful senior notes issuance, our disciplined approach to capital deployment in the form of share repurchases.
Items.
Continued investment in our high ROIC businesses to drive organic growth.
And finally, our portfolio optimization actions, including divesting CBF and the acquisition of Henry Company.
Please turn to the revenue bridge on slide nine of the presentation.
Revenue was up 25%.
And then the third quarter.
Driven by volume growth at all of our businesses price and the acquisition of Henry.
Organic revenue was up 19% driven by CCM, which delivered 23, 3% organic growth.
Acquisitions contributed four 8% of sales growth for the quarter and FX.
Percent, a 30 basis point tailwind.
On slide 10, we have provided an adjusted EPS bridge, we can see third quarter. Adjusted EPS was $2 99, which compares to $2 35 last year.
Volume price and mix combined accounted for $2 15 of the year over year increase.
<unk> was raw material.
Freight and labor costs were a $1 75 year over year headwind.
Acquisitions contributed 15.
Interest and tax together, where a <unk> <unk> tailwind.
Share repurchases contributed <unk> <unk>.
<unk> contributed <unk> <unk> and higher.
<unk> was an <unk> 11 headwind year over year.
Now, let's turn to slide 11 to review the third quarter performance by segment more detail.
At CCM the team again delivered outstanding results with revenues, increasing 29% driven by volume price contributions from Henry.
Along with a 10 basis point foreign currency translation tailwind.
All of Ccm's product lines delivered double digit percentage growth.
CCM effectively manage raw material inflation headwinds experienced in the quarter with disciplined pricing.
Our active sourcing and allocating.
Any strategic customers.
Adjusted EBITDA margin at CCM was 22, 6% in the third quarter of 240 basis point decline from last year, driven by higher raw material prices labor inflation.
And a return to more normalized SG&A spending.
Partially offset.
By volume price and cost savings.
We continue to anticipate net neutral price cost for the full year.
Adjusted EBITDA grew 16, 6% to $245 million again, demonstrating the earnings power of our CCM business.
Please turn to slide 12.
<unk> results.
<unk> revenue increased six 1% in the third quarter as we expected CIP returned to growth and prominently returned to profitability on an adjusted basis.
Commercial aerospace backlog has consistently grown in 2020.
One and that has now surpassed second quarter of 2020 levels.
Three <unk>.
Cit's medical platform continues to build a robust pipeline of revenue generating products with increasing backlog.
The team delivered record sales in this business in the third quarter.
Continue to expect sequential improvement from pent up demand as the impact of Covid on hospital.
Capex and postponed elective surgery.
<unk>.
Cit's adjusted EBITDA margin improved year over year at 13% driven.
Driven by commercial aerospace and medical volume recovery along with CLS.
Partially offset by raw material and labor inflation.
Given the positive indicators and actions undertaken in 2020 in 2021.
The size of the business, we are optimistic that city is positioned to leverage our return to growth over the coming quarters and years.
While mix influences and timing of channel inventory depletion are our biggest watch items, we remain confident in <unk> ability to manage through these ensuring greater leverage to recovery in the coming quarters and years.
To write with a line of sight to profitability exceeding pre pandemic levels as demand returns.
Turning to slide 13.
CFT sales grew nine 4% year over year organic revenue improved six 3%.
Additionally, acquisitions added <unk>, 9% in the quarter and FX contribute.
Two 2%.
CFT is well positioned to accelerate through the recovery due to continued stabilization in end markets driven by an improved industrial capital spending outlook, coupled with new product introductions, which has included $12 $4 million of incremental new product sales in 2021 year to date.
With pricing.
Resolved.
Adjusted EBITDA margins of 15, 3% or 40 basis point decline year over year. This decline was driven by labor inflation and higher operating costs, partially offset by volume price and mix.
On slides 14, and 15, we show selected balance sheet metrics our balance.
<unk> remains strong we ended the quarter with $296 million of cash on hand, and $1 billion of availability under our revolving credit facility.
We continue to approach capital deployment in a balanced and disciplined manner investing in organic growth through capital expenditures.
And Opportunistically.
Balance sheet shares while also actively seeking strategic and synergistic acquisitions.
In the quarter.
We repurchased 124000 shares for $25 million, bringing our 2021 year to date total to $1 7 million shares for $291 million.
We.
<unk> $28 million in dividends in the third quarter, bringing our 'twenty one 'twenty one total to $84 million, we invested $34 million of Capex into our high returning businesses to drive organic growth, bringing our 2021 total to $89 million.
Finally, we had a successful debt.
We paid of $850 million of senior notes at a weighted average coupon of one 6%, which lowered carlyle's cost of debt from 335% to two 5%.
In addition, as has been noted we completed the purchase of Henry Company for one $5 75 billion.
Henry.
At issue is expected to deliver approximately $100 million in free cash flow on our first full year of ownership, we expect meaningful cost synergies of $30 million annually by 2025 vine.
Finally, we expect Henry to be immediately accretive to carlyle's EBITDA margin, adding over a $1 25 of EPS in 2020.
<unk>.
Free cash flow for the quarter was $82 million or 55% decline year over year due to increased working capital usage related to our 25% revenue growth in the quarter.
Turning to slide 16, you can see the outlook for 2021 and corporate items.
Corporate expense.
Henry is now expected to be approximately in the $120 million to $122 million range slightly lower than our previous estimate of $125 million.
We expect depreciation depreciation and amortization expense to be approximately $230 million, which now reflects the Henry acquisition.
We expect free cash.
Is not conversion to be in the 105% to 110% range slightly lower than our previous estimate primarily due to high cost raw materials that we are holding in inventory.
We now expect capital expenditures of approximately $125 million lower than previous estimates, mostly due to timing net.
Net interest.
<unk> is now expected to be approximately $94 million for the year higher than previous guidance due to our management in the quarter.
We continue to expect our tax rate to be approximately 25% for the year and finally, we expect restructuring expense.
To be approximately $15 million to $20 million in 2021.
And with that I'll turn the call back over.
Thanks, Bob entering the third quarter, we continue to be optimistic about the remainder of 2021 in the first half of 2022.
There are numerous reasons for this optimism, including record backlogs at CCM supportive trends in Cit's aerospace markets growing strength that CFT improvements in our supply chain the impact.
<unk> positive and proactive pricing actions and significant traction on our ESG journey, all the while leveraging Pos in the Carlisle experience to deliver innovative products to our customers for these reasons. We are confident in our continued ability to deliver results for all Carlyle stakeholders.
For full year 2021, we anticipate the following.
At CCM, the underlying re roofing trends that it provided a solid foundation for growth over the past decade picked up in the second half of 2021 after a pause in 2020.
Through the pandemic, we continue to invest in CCM in order to ensure we would be ready when demand returns. In addition, our expansion further into the building envelope the.
The increasing importance of energy efficient products.
Contributions from Henry and our proactive pricing actions have positioned CCM well for continued growth over the coming quarters. Considering this momentum we are increasing our anticipated revenue growth to mid 20% in 2021.
At CIT, we are encouraged.
By the recovery of narrow body commercial aircraft. While this first step to recovery is encouraging demand for wide body aircraft driven by international travel remains muted in 2021, we anticipate this demand will return to previous levels as Covid concern subside and countries relax their travel restrictions. In addition, cit's medical business has built a record.
<unk> backlog taken together and coupled with significant restructuring at Citi over the past 18 months City is now positioned to take advantage of the ongoing recovery. We continue to expect sequential improvements and now expect CIP revenue will only declined in the mid single digit range and full year 2021.
CFT within.
<unk> Bakken strengthening due to increasing industrial capital expenditures.
And improvements in the teams execution of our key strategies, including new product introductions accelerating growth in our new platforms and price discipline. We continue to expect mid teens revenue growth in 2021.
Finally for Carlisle as a whole we are now increasing our expectations.
Within we're high teens revenue growth in 2021.
As we progress through the final quarter of 2021, we are tracking to deliver a record year. Despite one of the most challenging time periods in our history. We remain committed to our vision 2025 goals of $8 billion in revenues, 20% operating income and 15% ROIC.
To deliver all driving to exceed $15 of earnings per share by 2025.
Despite the continued uncertainties around COVID-19 stress supply chains raw material shortages labor inflation and winter weather Carlyle's resilient employees have adhered to our Covid protocols shown respect for each other in the workplace focused on safety most.
Most.
<unk> remained focused on delivering results for all our Carlisle stakeholders.
With that we'll conclude our formal comments Bethany were now ready for questions.
We will now begin the question and answer session. If you would like to ask a question. Please press star followed.
<unk> one on your Touchtone keypad.
Nathan you would like to remove that question. Please press star followed by team again to ask a question. Please press star one.
A reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question, we will pause briefly to allow questions.
To generate in Q.
The first question comes from the line of Bryan Blair with Oppenheimer. You May proceed.
Thanks, Good afternoon, guys solid quarter.
Hey, Brian it's Brian.
Yes.
Rob I'll dig in a little more on CCM is underlying demand trends and outlook last quarter, you had cited orders close to.
<unk> normalized levels, how did <unk> trend compare to that and what kind of momentum do you have.
<unk> you understanding that's a seasonally lighter.
<unk>, we're now in and how.
Does your team is thinking about the disconnect that we've had at least over the recent past in terms of order rates versus revenue.
On that front is there any further clarity on and the percentage of firm orders, adding to pent up demand and backlog entering 2022 versus the double ordering windows there in response to.
Why construction.
Well, Brian let me first dress and Bob can jump in I think the demand is just continued you know we've seen more.
Traction.
As we progress into Q3, and as we enter Q4, and we've seen backlogs increase and we've seen orders push out I think.
To the second quarter of 2022, something that in the past that length of.
Ordering or at least that time period to delivery has not really been seen before in a large scale.
So.
Yes, the demand continues.
And I think fourth quarter will be at.
We are normal fourth quarter in the sense that yes, we have been seasonally affected in the fourth quarter, usually but I think with the backlog it will be as much as we can get shipped and as much really importantly, as roofers can put down I mean, obviously they have work that needs to get done and we're going to be constrained or theyre going to be constrained by two things I think.
<unk> availability and then weather so stay tuned, but I think should we have a good fall and good early winter and by that I mean open days on the roof I think things will continue in a positive direction.
Then on the double booking and that I think our team's done something very interesting, which.
They've put in some and I'm not going to go into details, but they've put in some mechanisms that have really taken out that double booking in our in our bookings and even with doing that things remain strong and lead times continue to extend Bob you want to add anything and covered Krishna.
All good.
And you're obviously, putting through a lot of price encouraging to see price cost back into positive territory.
Prices continued decline have you sensed any pushback in the channel are there are there concerns about demand destruction with potentially shifting project economics going forward.
No I don't really think so.
I see.
Link people understand.
But it's in it very inflationary time I think the key thing now is can you get product I think he gets passed on early in the year I would say there was more pushback in the first quarter, where the demand and picked up yet, but as things have accelerated I think people are focused on getting jobs done.
I think also I'll give a tip of that to the guys at Greg go today, and David Loew, who made a nice comment that people.
People do a fair job of recapturing the costs right.
But we still have to make sense to what the end user customer is doing at the decision point of sale and I think our CCM team has done a really good job of that of balancing.
That idea that it's not like we made big gains in price over raws were saying were neutral. So we're attempting to secure raw materials. So they can complete their jobs.
Not trying to take advantage of the situation. So again, they've been making decisions that come to Carlisle consistently and we haven't seen any degradation in jobs or a movement of jobs.
<unk> is due to price.
Understood.
On your commentary on early stage Henry integration was it was very positive sign and any other color you can offer there and specifically what drives your confidence in.
Our increasing confidence in exceeding the $1 25 and.
And.
Year, one and specifically does that contemplate any price cost tailwind.
Alrighty over what is your commentary independent of that letter.
Yes, I would say that first of all our confidence in this as we've gotten.
We've had a lot of confidence going in as we did our due diligence and looked at with the Henry team has done over at least the last.
Six years, when we talked about that.
On the call after we purchased them and Bob talked about and Jim I know us too.
We've gotten to know the team better I can tell you that and we are very impressed with Frank ready and the team that he's assembled.
Stayed on post acquisition Theyre doing a great job. They continue to operate there hasnt been any delay.
We've had a really good job by our corporate integration team.
Supporting the CCM and Henry folks.
And things have gone really smooth so it's the tip of that to both teams and how quickly they've come together and really focused on growth in that in terms of the pricing in that I would say that Henry as a premium brand it's wall recognize.
<unk> by their end users that's demanded by their end users and I think they've had the same success as CCM has had and going to their channel partners and saying, we're seeing escalating raw material costs, we're seeing availability struggles that we need to pay more to get that product, but we can get it to you and they are fulfilling but they're having to fill at a higher cost and I think.
The the channel partners and end users have have understood that and we've just seen good execution. There. So I think you know in general Great team continued execution on what they were doing anyway.
And really good integration is just increasing our optimism for 2022.
Understood. Thanks again.
Yeah.
Thank you Mr. Blaine.
The next question comes from the line of sorry.
Or did ski with Jefferies. You May proceed.
Hi, Thanks for taking my question.
Thomas your increase in guidance for CCM sales to be up mid 20% how should we think about the contribution from Henry in your assumptions on price versus volume and then any color on the carryover of pricing actions into 2022.
And maybe I'll take the first one on the carryover and Bob can.
Emily previously you know.
The pricing actions again, we talked about being neutral we do think those pricing actions will carry through.
As long as.
Demand holds up which it is and I think we will see if there is any continued increase in either labor.
Or freight or raw materials or any of that we will obviously take actions to offset that but I don't see any issue with that carrying through and I think it will probably carry through at least till the first half of 2022.
So that that you know that it's pretty much just what we've been doing and been pretty consistent through the year on pricing and why we are driving pricing.
And I think it's been clearly communicated to the channel as well into it and everyone understands and Bob you might want to address that.
<unk> Com and a series yeah sorry.
Sure.
Im going to say the guidance for base CCM continues to be the high teens.
And then we're adding in Henry.
<unk>.
To the tune of five or 6%.
Understood and then you made a comment about orders going out second quarter lately too.
Two how does that work from a price cost perspective do these orders go out the prior pricing levels. So there should be more of a lag in realized.
Is pricing than is typical.
No in factory, what's really happened recently has been at a lot of these orders are being priced at the time of shipment. So we will see that those those orders are really they're placed but they are not being given pricing that we're going to have to recognize.
Later.
If there's escalation we'll price to that escalation.
Great. Thanks for taking my questions. Congratulations you better okay. Thanks Harry.
Thank you Ms <unk>.
The next question comes from the line of Garik <unk> with loop capital.
C.
Great. Thanks for taking my question today, you cited weather as a headwind and there will be so was that mostly on the supply side with the storms in.
The Gulf Coast was there a cost impact so and also did you see any.
You may push out of demand given some of the weather headwinds that you might have experienced in <unk>.
I guess, what I'm ultimately getting at is it possible at all to quantify how much the weather impacted the margin side.
Yes, it's interesting garik if it was a normal quarter, we probably would've been able to quantify we would've said something like two or three.
Days off the roof, but we did I think with everything else going on and all the puts and takes.
It obviously impacted demand if there's a hurricane coming through the central part of the United States. Obviously, we're not going to have people on roofs, theyre going to be taking care to be.
Safe and other things like that I would say, though it probably impacted.
It is a supply chain that was already under stress even more than it did demand and so yeah. The demand gets pushed out as we said you know if you're going to reroute for roof or if you're going to do a job you're going to have to do it and if you can't get it done that day, you got to do it in the future and then on the supply chain I think it's just as I said it aggravated the situation more probably put a little bit.
Greater upward pricing pressure on either supply availability or pricing or maybe both.
I was wondering if you could maybe provide a little bit more color on what youre seeing on the supply chain.
Your degree of confidence that it will return to some sort of normalization in 2022 would be helpful.
Alright, well I think from a base.
Premises, if we look back at 2020.
When you look at the cost that we had on unit costs across MDI Tpa polyol bpd on those things.
And those were those are split at a certain level.
Certain capacity, there and really the only thing that happened was we had COVID-19 hit and people had.
More restricted work days, they shut things down and things like that and prices escalated when we look at the pricing escalation.
Most of it was done between the latter part of Q2, I would say probably June and then into Q3 and accelerated a bit into Q4.
They had to hire you can see the rising cost of labor you have to start at factories you have increased shipping.
Shipping costs I think we saw that this doesn't affect us necessarily directly but freight from containers from.
China had gone from let's say 45000 to 25000 in the spot market I think so you see this happening and I think our thought is that these things will get worked out we know in the port of long Beach, I think they've gone to seven day a week.
Per day work Theyre going to see some.
Production in the backlog there over time, it will take time to do it and we think that plays out in the rest of the economy and by the time, we get to Q1 those same trends were there in 2019 and the capacity and everything else comes back and really we haven't seen.
The growth that would tell you that we've exceeded some of those capacities and so I think we go back to kind of 19, and we we see some stabilization and reduction in at least in.
And the lack of availability and hopefully some pricing as well.
Okay. Thanks, and then just my last question.
For CCM, just given the momentum in your backlog.
And this do you think is just underlying demand and just kind of a natural.
The commercial roofing cycle that we're in versus your ability to continue to take market share just given your capacity and service levels.
Yes, I wouldn't read too much into market share and in the June through current date timeframe. I think we we don't have a lot of really concrete data is that.
That we've gained share I think what we've seen anecdotally is that we've had more people that previously were with competitors come and ask us.
For products, So that would tell me that we're maybe in a little bit of a better position than others, but I can't back that up with anything on numbers. So you know I look back to the way. It was like I said in 19 before Covid hit and I don't think with the competitors are there that the markets have changed that much so that going forward, we will see significant changes in market.
Sure. So I think it's really been demand has accelerated because last year went down in <unk>.
Projects were delayed and projects were.
<unk> aside and projects were postponed and then we came back as we said in the first quarter. We thought things were going to be strong. This year, we built inventory we raise prices because we.
It is the vaccine so cold and as reopening has occurred that demand would pick up and as we've always said with 70% of our business being in and re roofing that these things have to get done and it would have to pick up some time and so I think a lot of this demand is spread evenly across our.
All of our competitors and ourselves and it's just a response to the 2020 downturn.
And that that great mid single digit underlying trend that was there you know post 2010.
Just continues.
Great I appreciate the help.
Thank you.
Thank you so much Mr Schmidt.
The next question comes from the line of Tim <unk> with Baird. You May proceed.
Hey, guys good afternoon.
Hey, Tim.
I'm good I'm good thanks, maybe.
Maybe just sticking on supply a little bit.
More on availability.
Have you had any meaningful challenges actually getting supply.
Commodities.
Yes, I would say yes.
We are definitely not going to point out which ones, but yeah. There have been some instances and that's why we pointed to our sourcing team they've done a heck of a job.
Scouring the globe trying to find stuff to make sure we can meet our customer demand.
Okay. Okay. I mean is that is that what the easing is as you think about Q3 Q4, it's actually the availability.
Yes, I think that's the first I think that absolutely.
Okay, Okay and then.
I.
Yes, just in the off season, I mean historically.
You guys have used it at the time to build more inventory and I'm just trying to think about as you prepare for next season, particularly in the membrane part of the business, how youre thinking about kind of that preseason inventory build to support next season.
If you.
Well, a normal a normal build I guess or be able to do normal bill.
And I would think it would be disingenuous to say, we're going to have a normal build I think as we talk about getting everything we can out to keep people working and to keep these job sites.
And living up to our Carlisle experience right, we made a big commitment with.
We'll expect it.
As long as that demand holds like I said in the weather is good in the fourth quarter and the first quarter, we're going to be shipping things out to put on roofs and support our contractors now.
If there are days, where we have a long weather periods of snow or that we will use that opportunity to build inventory, we're not going to slow down.
That I think if I think there'll be some opportunity just because of the way. The winter is in most of the United States.
But I also think if theres any opportunity for people to catch up they're going to do it. So I think we'll have more information as we get kind of further into the quarter see how things go but I think it's going to be tough to build any real meaningful inventory.
But Q4 and Q1 like we usually do.
Okay. Okay, and then could you just remind us when the GPO and polyol capacity comes on next year.
At least preliminarily.
Yes, <unk> is going to be the first quarter.
And we're going to be making the normal 12 foot sheets on it and then go into 2016 later in the year as the as they unless they stabilized the production process and get it dialed in and then the <unk> is going to be.
Late 'twenty two early 'twenty three.
Okay. Okay. Good.
Alright, guys keep up the good work thanks.
Extensive.
Thank you Mr. Ross.
The next question comes from the line of David Macgregor with Longbow Research you May proceed.
Yes, good afternoon, everyone.
Good quarter.
Chris I wanted to ask you about a comment you made earlier with respect to the.
Potential limitations you might face.
One of them being installation labor.
And I guess to what extent do you think of installation labor availability as it governance for 2022 growth.
What can you do.
About that is there anything do you have any options do you have any levers you can pull.
Sure.
Around those potential constraints.
Yeah, well I think you're right to say that it is true I mean, we actually are constrained we're happy to.
Most times to be able to deliver everything our customers can apply to our roof, but we're constrained by their ability.
I get it down.
So that's a real issue I don't know how much we can do to alleviate that but what we can do and what our team is doing is making products to take labor off the roof and Bob just mentioned the new 16 foot GPO sheets that are going to be made in Carlisle.
We had a chance.
<unk>.
See the progress on that line earlier this year and it's really remarkable what an entering feed it is but more remarkable is the fact that that's going to get a roof put down faster and allow our contractors to get off the roof quicker. We also have work we've done with Caf grip one of our adhesives and other things we just keep.
To put trying to make the installation as.
Quick as possible, obviously still holding all of the quality and technical specifications, we need making sure. All the product is there you know this is a big one if you think about that idea that we say getting the product the right place at the right time right in the right quantity and all that we pride ourselves.
Elves on that and it makes a huge difference because as we know unless you have all the products there.
You're going to have labor standing around in that doesn't benefit anybody and then even on cleanup. We've talked about are outside a product called appeal that we've talked about for a couple of years I thought it was an extraordinary product. So thin sheet that goes on that as opposed to having to wash through.
Keep faster installation and clean it and bringing power washers up and that stuff you simply Peel this membrane off and you're on your way. So I think the CCM team is doing a heck of a job focusing their new product efforts.
Doing two things one is really that whole ESG.
The roof thing and making sure that we're making our buildings more energy efficient and people are able to use our products to do that and then the other one is just to deal with this labor component it take labor out of the process.
Okay got it.
Second question was really kind of I guess, the much higher level.
I'm, just wondering to what extent.
S G.
Any change in building codes.
Would it be.
There anything at all that might bode well for your business over the next couple of years, we're building codes relatively static at this point not an area, where you're seeing much revision.
No I think building codes are definitely moving we've had some incidents that have been positive this year and others that.
We know about that have been negative for everything from concrete too.
Cladding and things like this globally that I know are are building code people and our engineers and architects spent a lot of time trying to make these buildings safe as energy efficient as they can because there is greg.
Great returns and they want their buildings to be the best buildings that.
They are out there and look in our business one of the biggest ones that happened was a few years ago. When we started in CCM.
Going out and talking about the idea of having two layers of poly ISO and it was increasing the value for a very reasonable price and we used to have.
Calculator on iPad that would take the local rebates and things into that and allow building owners to see what adding.
Another layer of insulation would do what we found was it soon that became codified in over the last few years I think some of the big driver in our increased polyol sales has been around the codification.
<unk> of that trend to double installation and build it into the building code because increasing that are valued just had a great return for everyone. So we will see that with some of the Henry products, We mentioned blue skin once people start to see that our new product can help with the energy efficiency of a building it gets.
Through the architects, we do a lot of training trainer contractors on it and then we can drive that through and I think that type of product once people get to use it and see the results then it can move into that code stage, but to have the codes.
Our modified and improved as a pretty elaborate process and they have to.
To make sure they are doing the right thing and testing everything so it happens it just happens over time, but but yes, we're seeing that.
Okay. Thanks very much.
Yeah, you bet.
Thank you Mr Macgregor.
There are no additional questions waiting at this time I would like to pass the conference back over to Chris for any addition.
Additional remarks.
Alright, well. Thanks Bethany. This concludes our third quarter 2021 earnings call I want to thank everybody for their participation and we look forward to speaking you with you again at our next earnings call. Thanks very much.
This concludes the Carlisle companies' third quarter 2021 earnings.
Earnings Conference call I Hope you all enjoy the rest of your day.
Okay.