Q1 2022 Carlisle Companies Inc Earnings Call
Good afternoon. My name is Selena and I will be your conference operator today at this time I would like to welcome everyone to the Carlisle companies first quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After.
The speaker's remarks, we will conduct a question and answer session.
Like to turn the call over to Mr. Jim Geometer Rose Carlyle's, Vice President of Investor Relations. Kim. Please go ahead. Thank.
Thank you Celina, good afternoon, everyone and welcome to Carlyle's first quarter 2022 earnings conference call.
We released our first quarter financial results. After the market closed today and you can find both our press release and earnings call Slide presentation, and the Investor Relations section of our website Carlisle dotcom.
On the call with me today are Chris Koch, Chairman, President and Chief Executive Officer, and Kevan Simmel, our Chief Financial Officer.
Today's call will begin with Chris updating our progress towards achieving our strategic plan vision 2025 highlights of our record first quarter and a discussion of current trends.
Kevin will discuss the financial details and updated outlook for 2022.
Following Chris in Kevin'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 today will include forward looking statements based on current expectations.
Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filings.
Carlisle provides non-GAAP financial information you can find reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website.
With that I will turn the call over to Chris.
Thank you Jim Good afternoon, everyone and thank you for joining us on our first quarter 2022 earnings call before we begin as we mentioned in the press release, we are saddened by the ongoing conflict in the Ukraine and the impact it is having on so many individuals and families around the world. We hope a quick resolution will come to the situation.
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Turning to our quarterly results I am pleased to announce Carlisle companies delivered outstanding performance in what continues to be a very challenging environment.
Before reviewing the performance in more detail I'd like to thank our teams for their extraordinary efforts that drove our record operating results.
Their commitment and significant efforts to minimize disruptions for our customers contractors and distributor partners.
<unk> to be a competitive advantage for Carlyle.
It's helping to drive our business results director levels.
All of this despite significant issues within the supply chain ongoing labor constraints and rising prices for raw materials labor and services.
Our goal at Carlyle is to drive continuous improvement and excellence throughout the organization and ultimately to deliver on the promise of the Carlisle experience to our customers a record performance in the first quarter reflected our team's remarkable dedication to Carlisle and to delivering vision 2025.
Please turn to slide three.
Our record results continued to demonstrate the vision 2025, which has provided the clarity and consistency of mission to guide our efforts since its launch in 2018 was the right path for carlyle's future.
In addition to our World class team and proven business model, we rely on our strong balance sheet and excellent cash flow generation to provide both financial and strategic flexibility.
Execute on our vision 2025 roadmap to drive earnings in excess of $15 per share by 2025 a.
A significant portion of our success has been driven by the multi year process of reshaping our portfolio to a diversified building products focus, placing our emphasis on our highest performing businesses when setting Carlisle up for accelerated and sustainable future value creation.
Allow me to update you on the drivers of our vision 2025 strategy.
These include.
Drive, 5% plus organic growth with operational leverage in the first quarter, we delivered 45% organic revenue growth and adjusted EBITDA growth of over 150%.
Utilize the Carlisle operating system to consistently drive efficiencies and operating leverage by targeting cost savings of 1% to 2% of sales annually. We delivered approximately 1% in the first quarter in line with our targeted range.
Build scale with synergistic acquisitions, we have streamlined and optimize our portfolio through acquisitions and divestitures to build scale in our highest returning building products businesses.
Our recently announced segment structure, including construction materials and weather proofing technologies reinforced this objective.
Continue to invest in and develop exceptional talent in 2021, we deployed the Carlisle leadership system, a holistic approach to talent management that incorporates mutually reinforcing processes and tools for the selection and development of high caliber talent.
And deploy over $3 billion into capital expenditures share repurchases and dividends with the addition of first quarter capital investments of over $30 million into our businesses share repurchases totaling $125 million dividends paid of $29 million. We have now deployed over 2.6.
Billion dollars since the launch of vision 2025.
Now, let's return to the first quarter and look at the drivers of our record performance. Please turn to slide four.
First sustainable non discretionary re roofing demand continues to be a driver at CCM. The number of low sloped roofs, requiring re roofing with more energy efficient solutions over the next decade underpins our confidence in sustainable above market organic growth for the CCM segment.
We expect CCM should continue to benefit from strong re roofing demand.
Solid new construction demand and a growing push to install energy efficient solutions.
In the near term, we expect continued mid to high single digit annual volume growth boosted by pent up demand created by COVID-19, shutdowns supply chain disruptions and continued labor shortages in the construction sector.
Second we continue to demonstrate price leadership under the Guy to vision 2025, we began to focus on earning price in the marketplace by delivering on the Carlisle experience, which means reliably providing our contractors distributors and other channel partners with energy efficient building solutions are the best quality at the right play.
This at the right time.
We wouldn't be able to provide the carlisle experience or industry, leading products without significant investment in employees facilities equipment, and R&D, including over $1 billion of capital invested in our businesses over the past decade.
Earning price for the value we create in the marketplace is contributing to the healthy profitability improvement we generated in the first quarter and we expect continued contribution over the balance of the year.
Third we continue to seek synergistic and accretive acquisitions.
Our newest segment Carlisle weather Proofing technologies was created soon after our acquisition of the Henry Company in September of 2021 .
Henry enhances Cwt's total building envelope solutions value proposition.
And with a balanced exposure to new construction and restoration, we've increased the size of our served markets and potential sales specifically.
Specifically cwt's expanded portfolio is now more relevant end users looking for increased energy efficiency with approximately 70% of segment revenue driven by sustainable solutions added to our solid home center retail business.
C. W. T is another avenue for growth.
As we've upgraded our talent and processes around integrating acquired businesses into Carlyle over the last three years I am pleased to share with you that Henry's integration continues to go very well, notably we anticipate synergy capture beyond our initial $30 million target by 2025, and reiterate Henry's accretion estimate of a dollar.
50 cents of EPS for 2022.
Fourth since launching vision 2025, we remain focused on being a disciplined and superior capital allocator, our strong operating cash flow enables carlisle to remain financially and strategically flexible in order to drive value through a balanced approach.
This approach includes investing heavily in organic growth returning capital to shareholders in the form of dividends opportunistic share repurchases and as I just mentioned continuing to seek accretive M&A.
As a reminder, 2022 will be our 46th consecutive year of paying dividends and increasing dividends.
And we remain on track to deploy $175 million in capital expenditures. This year with a large share dedicated to funding growth projects in our building products segment.
Fifth we remain firmly committed to sustainability and ESG, Please turn to slide five.
We are proud that our business model is squarely in the middle of global ESG trends as our products enable a more efficient use of energy in buildings.
More energy efficient buildings, lower greenhouse gas emissions on a large scale as evidenced by the fact that over 30% of G. H G emissions annually are attributed to the operation of buildings.
Approximately $2.5 billion of our sales last year were from lead qualified products.
When we estimate over 150 million megawatt hours of energy will be saved over the lifetime of those products in their buildings.
As a further example in the last 20 years carlyle's installation products have saved our customers nearly 290 million megawatt hours of energy or more than enough power to power every household in California for a year.
With our pivot to building products and related sales expected to grow this year and beyond Carlos contribution to creating a more sustainable planet will only accelerate.
And to that end, we continue to make significant progress towards our goal of delivering a net zero commitment in 2022.
I would now ask you to turn to slide six where we highlight our performance in the first quarter of 2022.
Revenue increased 59% year over year with organic revenue up 45%.
All segments contributed to this growth adjusted diluted EPS increased 209% year over year to $4.26 as higher volumes price and cost discipline more than offset inflation and operational disruptions our teams faced during the quarter.
For segment highlights please turn to slide seven.
CCM delivered an outstanding quarter, despite the severe challenges across its supply chain and the impact of labor and raw material constraints.
CCM experienced solid topline growth due to continued strong demand product mix, new product sales and capturing price earned by delivering on the Carlisle experience.
Contractor backlogs are quite healthy when bid activity remains very strong.
Our contractors continue to note that material supply is their biggest challenge currently and according to industry information source associated builders and contractors more than 75% of contractors are indicating that they have recently suffered some setback and delivering construction services with supply issues more challenging.
And labor.
Given our investment in and focus on sourcing materials and being held accountable to convert and ship our products with reliable delivery dates CCM continues to be the market leader for our customers.
Moving to slide eight.
Sales were very strong in our newly created segment Carlisle weather proofing technologies.
Up approximately 30% year over year on a pro forma basis, driven by growth across all segments despite supply shortages.
We continue to drive the Carlisle experience through CWT and its organization, especially at Henry which gives us confidence that we will as in CCM earned the value of our products and services display.
Despite raw material supply and tight labor market challenges order volumes remain exceptionally strong, which we expect will leverage nicely in 2022.
As we called out in the earnings release, we are very pleased with the integration and contribution of Henry to our results and remain excited about the future of CWT under Frank ready and our new leadership team.
Moving to slide nine.
<unk> revenue increased 18.7% year over year in the first quarter of 'twenty, two with balanced growth in its commercial aerospace and medical technologies platforms.
<unk> continues to grow across the major parts of C. I T and now stands higher than pre pandemic levels.
We are encouraged by the recertification and accelerating deliveries of the 737, Max and impending resumption of 787 deliveries later in the year.
As we approached the summer travel season trends are also positive for international travel this would be a welcome change for the past few years and longer term should support a resumption in wide body production.
On the CFT on slide 10-C.
CFT generated revenue growth of eight 1% year over year, we continue to be pleased by the progress CFT has made over the last year, plus including increased introduction of new products improved operational efficiencies price realization and an improved customer experience.
We are confident combining these actions with growing backlog will deliver strong revenue growth and incremental margins in the mid 40% range. This year.
And we continue to make progress towards our goal of 50% plus incremental margins, commonly seen in our competitors and with that I'll turn it over to Kevin to discuss some additional financial details and our updated outlook for the remainder of 2022 Kevin.
Thank you, Chris Chris covered revenue growth in his comments, so I will move to the EPS bridge on slide 12 I.
I would highlight that our adjusted EPS growth in the quarter was driven primarily by volume price and mix more than offsetting the negative impact of materials and labor inflation.
Additionally, the Henry acquisition contributed 32 cents of accretion in the quarter.
Moving to slides 13 and 14.
Carlisle ended the first quarter of 2022 with $292 million of cash on hand, with cash generated from continuing operations totaling $45 million capital expenditures of $31 million and share repurchases of $125 million during the quarter we.
Currently have 4.5 million shares remaining from our last share repurchase authorization of 5 million shares in 2021 our net debt to EBITDA is 2.5 times down from three times at the end of 2021 given our expected EBIT dollar growth for the balance of this year.
And our anticipated repayments of our $350 million senior notes in the second half of 'twenty 'twenty. Two we expect to work net debt to EBITDA down to below two times by the end of the year.
On slide 15, we have our updated 2022 financial outlook.
At CCM as Chris mentioned, we're seeing strong re roofing and new construction demand as well as increasing interest in our energy efficient solutions. We expect total revenue growth at CCM to be approximately 30% in 2022.
Notably, we don't expect CCM to experienced typical seasonality as our teams are sourcing manufacturing and selling all they can in this supply constrained environment. Additionally, we are not entering the spring with inventory levels. We typically would have built in the winter months.
At CWT, we expect revenue to grow approximately 55% to 60% year over year, including high teens organically.
Henry continues to contend with supply constraints, but as Chris mentioned earlier is navigating that well with integration efforts tracking above our original plan, we reiterate our accretion target of $1.50 for 2022 at C. A T. We are encouraged by growing backlogs.
And both our aerospace and medical businesses, and thus increasing our revenue guidance to low double digit growth in 2022 .
At CFT with orders coming in as expected, we maintain our expectation for approximately 10% revenue growth in 2022.
Finally, adding the pieces together for Carlisle as a whole we expect to deliver revenue growth of over 30% in 2020 to give.
Given the strong fundamentals across our businesses staying ahead of inflation with proactive pricing actions and driving strong leverage through C. O S. We expect total Carlisle adjusted EBITA margins to expand approximately 500 basis points and full year 2022.
You can see most of the other items on slide 15 are unchanged with cap ex the exception, we now expect to spend $175 million on capital expenditures up from our previous estimate of $150 million as we accelerate certain projects in our building products segment.
With that I turn it over to Chris for closing remarks, Chris.
Thanks, Kevin in closing, we continue to deal with a complex uncertain and evolving global marketplace complicated by the onset of the global pandemic in early 2020.
Since then we've experienced significant changes in the political environment incredible demand fluctuations that had serious implications for labor markets and raw materials.
And then since February of this year and ongoing and deadly conflict in eastern Europe .
All of these things have made the workplace more challenging for our employees and on behalf of Carlisle would like to thank them for their resilience incredibly positive attitudes and for living our culture of continuous improvement.
While our businesses continue to navigate significant supply chain and inflationary challenges solid demand fundamentals for all of our businesses remain intact.
With all of our segments trending positively and our team is executing extremely well I'm proud to disclose with our record first quarter results.
And our outlook for the remainder of 2022 that should revert markets remained stable and no further deterioration of the global economy occur our expectation is that we will exceed our vision 2025 goal of $15 of GAAP earnings per share this year.
With that we conclude our formal comments and operator, we are now ready for questions.
Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by two again to.
To ask a question Chris Star one.
Wonder if you are using a speaker phone. Please remember to pick up your handset before asking your question. We will pause here briefly ask questions are registered.
Okay.
The first question comes from Tim <unk> with Baird. Please proceed.
Hey, guys good afternoon nice job.
Thank you Tim good afternoon. Thank you.
Maybe just two to start off here.
When you think about you know just the volume growth.
Relative to the price growth that youre seeing kind of in the in the CCM business and the CWT business is there any way to kind of give us a flavor what what you kind of saw the on the volume side in the quarters, and then kind of what's built into the respective guidance ranges for the year.
Yeah, Tim so on the price volume as we talked about in the last quarter that were really not going to break that out now for competitive reasons, but we are trying to be more clear in different areas with CCM and CWT, where we've broken that out in the two different segments as well.
It's starting to give you that full outlook.
Both the revenue side and the margin side, that's where we added the 500.
Basis points of margin expansion for the full year.
Okay.
Okay.
And I guess when you when you think about just on the CCM side and maybe even waterproofing just.
Could you just give us some color on the orders and bidding and kind of the backlog activity and just kind of where you're seeing things extend to cause.
It does seem like you're actually maybe even building backlog at this point, even though you're kind of delivering these types of numbers. So just kind of a little bit of an update on kind of what you're seeing there.
Yes, Tim Chris here.
So the backlog you know I forget, let's think about it a little bit of a different way because we went to a new allocation process.
We're.
Really looking at about five months I think in terms of our orders and what we're seeing that's what the team is dealing with in order to allocate.
And make sure.
Our distributors and contractors have.
Good access to supply so they can get the immediate jobs done then we look at the broader industry.
We touch on the trends in our re roofing that we've talked about you and certainly is for.
A few years now and re roofing and how they just continue to build and then we add that new construction element in which I would say in the first quarter, new construction remained healthy added to it.
And then we've got the constrains on supply in that and labor. So when we look out at that.
2022 I think we'd said before that we pretty much have visibility into the fact that there is as much as can be produced can be sold within 2022 and that as we've gone through the year has moved into 2023. So hopefully that gives you some color that that demand backdrop in backlog are.
Drawn for a few quarters out.
Okay. Okay. Good and then just just last one I had just on waterproofing technologies itself.
Where do you see kind of the long term margin opportunity within that segment now that you're kind of breaking it out.
Well you know I think our goals there are gonna be we'd obviously like it to be the same as our core CCM business and I think.
Yeah.
The team that's there and some refinement of the portfolio I think continuing there.
As well as some additional investment.
And in new technology, and new products I think we can start approaching.
That 20% margin range plus that we've.
We've targeted in CCM in the past.
Okay, Okay, great I'll hop back in queue congratulations guys.
Thank you.
Next question comes from Adam Baumgarten with Zelman. Please proceed.
Hi, This is Mario section before Adam. Thank you for taking my question just wanted to go back to the guidance.
For CCM, obviously had stayed at 30% and last quarter. It was also a 30% but last quarter. You think also included CWT, so which doubled.
As of this quarter. So I was just wondering if there was any change in the CCM guidance, just looking sort of like like for like of expectations. There.
Yeah, a lot of that is just the mix and the scale of the businesses. When you look at CWT. The big piece. They didn't have Henry for we acquired that in September . So that's when that came in so it's a little bit messy. The comparison from that standpoint for when we reported in the first quarter we had.
Les talk you know the businesses combined but now when we split them out myths definitely a pick up at both businesses that are improving especially on the margin side.
So it's safe to say that.
Growth for CCM last quarter was below 30%.
I guess, what you were expecting.
Right. So it was slightly below that and now we're up to about 30%.
Got it and then more of a sort of like historical background, and then kind of like longer term question can you give us some insight into the.
The pricing dynamics for CWT.
And how that compares versus CCM instead of like how how is that are there differences in how that industry is structured compared to CCM and.
Have there been changes in the last few years, and where do you see it going from.
From here. Thank you.
Hey, this is Jim I'll take that one as far as Henry.
A nice chunk of the CW Tammy you could think about it the way we talked about it in the at.
At the end of last year that Henry's pricing disciplined mirrored hours. They really stepped it up in 2017 2018, just like we did and so the pricing philosophy and trying to stay ahead of raw material inflation et cetera.
Mirrors that of our of our base CCM.
Okay. Thank you.
Thank you. The next question comes from Bryan Blair with Oppenheimer. Please proceed.
Hey, good afternoon, guys, great start to the year.
Thanks, Brian and good afternoon.
A couple of quick clarification points I first wanted to ask Chris you did say GAAP ETS.
And just in terms of you know 15, plus for 2022 is that correct.
Correct.
That's impressive.
Other clarification point, Kevin that 500 basis points margin expansion for the year that that's a consolidated figure right.
Correct.
Okay and can you break that out.
Or provide us the insight into CCM and CWT margin expansion expectations.
The CCM is on the higher end between the two of those we're not going to go in and give exact margins by segment, but certainly CCM is a bigger driver there.
Okay, that's fair.
And Chris you said that overtime CWT, you should close the gap to them.
And of course, CCM kind of profitability as we think of as the.
The scaling of the platform over time organically inorganically.
Oh, what kind of Incrementals should be there, we've always thought of CCM and <unk>.
Save a pretty aggressive growth investments routine is adding drop through of 25, 30% more recently Martin and the 30% range is that the right way to think about CWT going forward or are there other levers that can be pulled to.
To bring that a bit higher.
Yeah, we think it's in that 30% plus maybe a little bit to that but very similar from the CCM side, yes.
Yes, Brian and when we get into that I think we've got a.
Just to add some color to it I think theres a significant opportunity for new products around this energy efficiency play with with Henry They had already started in.
I mean, obviously in there of course, there are Pat down there.
That way before we bought them, but there are.
Significant opportunities for new product development that hopefully will.
Create higher value in the marketplace and that translates hopefully to higher margins as well as are we.
We really have not.
You know gun.
We haven't completed even what I would say the first 20% of our Pos implementation in.
Henry because we just bought them and they are still working through that so there is some nice operational efficiencies to be gained there and I think some some other opportunities with the application of capex into automation and things like that so we really are excited about the pathway forward for both sales growth and then up margin expansion there.
Okay, great to hear.
That's again.
Alright, thank you.
Thank you. The next question comes from Garik <unk> with loop capital. Please proceed.
Oh, hi, Thanks, Scott Congrats on the great results.
First of all I wanted to ask if you could provide some more color on the cost basket, particularly for CCM, what you saw in the quarter.
Outlook is.
Okay.
Yes, Eric Good question and you know last year, we were so pleased that we had substantial increases in in raws and it got upset but if you just look at that cost basket.
From a raw materials perspective, it definitely increase substantially those trends have continued when we talked I think.
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In our last call. We had hoped that we would start to see some.
Relief as we got through into the third quarter on that front and unfortunately, I think supply chain.
Pressures in raw material pressures are going to continue into the third and fourth quarter for this year. So I don't think we're going to see.
Early on that side and then you know labor you see it in the papers every day that wages continue to increase our people are aware of inflation and so theres wage pressure out there too. So I think that cost basket continues the trends that we saw.
No kind of post COVID-19 there in 2021.
Okay. Thanks.
Follow up question is related to CCM EBITDA margins just given there.
Really impressive results in the quarter, but also given to how youre not expecting season.
Seasonality to it could be quite how it normally is during the year.
But you could speak to the sustainability.
This new EBITDA margin level for CCM.
That would be helpful.
Yeah I think this is what in a lot of ways, we have talked about over the a P.
Past few years around the Carlisle experience and value creation and the new products that we've introduced the efficiencies we're putting in the 16 foot wide T. P. Align is coming out we're investing in a new.
Lead facility down to six in Missouri for Poly. So we continue to invest in our people I mean, you know the story R&D and so I think you know.
We are earning commensurate with the value we provided in the marketplace and I think that is going to be sustainable based upon our investments in R&D.
The trends, we see in ESG building efficiency.
And really.
The re roofing.
Picture, that's been there to hold up demand so I think we're.
We like where we are.
And we think it's a reflection of all the investments and the hard work that the team has done over the last 10 years.
And to expand it.
Kevin.
I was just going to add on that that there has been some inflation on the raw materials. So some of that will hit us in the second half of the year as well, but the goal is always to increase margins longer term, so there'll be a little bit of a balance there as we go through the year.
Okay got it.
Last question, if I can sneak one more in just on the CW and the exposure to residential construction gets given the.
Concerned with rising rates, just curious if you're seeing any impact on your order book there.
You know not really I mean, we continue to see strong demand for housing I think we've seen some reports out from some of the builders that despite rates interest rates rising.
There may be an increase in the monthly payment, but that there's still significant demand and houses are.
Being snapped up pretty quickly I think we know and you probably are well aware of this that we don't have enough housing stock in the in the country.
And so right now we're not seeing any impact on our demand going forward.
Got it thanks again.
You bet Eric.
Thank you. The next question comes from Dan Oppenheim with Credit Suisse. Please proceed.
Great. Thanks, very much I think most of them answered, but just in terms of CCM in terms of the cost pressure into the thoughts on margins.
As you think about the working through the course of this year and some of the inflationary pressures that have come more recently are you thinking in terms of just challenges in terms of challenges in terms of implementing pricing as we go through sort of second quarter, then to improving over the remainder of the year. How do you think about sort of trajectory of margins there in CCM.
Yes, maybe I.
I'll, let Kevin add onto this too, but I, if I start with things like the pricing you mentioned that first I think we are seeing a continued pressure on.
Classes. So obviously the the pricing actions will have to be there and I think.
You might be aware that pricing action has been taken here since diversity year and likely will continue if that persists. So on that side I think you know well.
We will be covered there.
As we get to the third and fourth quarter as I said I don't really see a lot of relief on this cost side. So we will see what happens I mean again.
We haven't talked about China, much in or trucking and things like that but there are.
Capacity issues with getting labor back, but there are also things just around the transportation side that might affect us. So we do get some raw materials.
That need to be transported.
Significant lengths and that can impact us as well so on price, but Kevin you want to add to that yeah. The only other piece of the first quarter. We did have some favorable mix so that could have a bit of an impact in the second half of the year as well, but not overly significant.
Great. Thanks very much.
Sure.
Thank you. The next question comes from David Macgregor with Longbow Research. Please proceed.
Yes, good afternoon, and congratulations on these wonderful results.
I wanted to ask about incremental profitability and if you've addressed this I apologize because I didn't get off the call for a few minutes, but.
You talked about the 500 basis points of margin for.
For 2022, which is helpful guidance, we appreciate that.
I'm just wondering if you could talk about incremental profitability off the CCM, 30% are off the 55 to 60 CWT. So we just triangulate against that.
Yeah. So as we talked we were talking CWT previously nisgul, but a little bit more than 30% right in that 30 range in CCM would be a little bit higher than that in the current rates in this environment.
Okay, Alright, thank you for that.
And then.
We've talked a lot here about CCM CW team, maybe I could ask you about it for a moment.
It seems as though you're getting incrementally more optimistic about how the commercial aerospace side of that business plays out.
Through the second half of this year and into 2023.
Are you seeing actual orders coming through right now or is this just kind of talk about the build rate and the orders will come but I'm just trying to get a sense of just how tangible.
Sort of your sense of optimism might be.
Yeah, David we are seeing orders, it's happening and I think the nice thing is that.
When we talked earlier on even when this started that we still felt that 'twenty four 'twenty five timeframe things would come back John and the team did a lot of work on restructuring.
<unk>.
Taking costs out of the organization.
So as these orders are coming back we're expecting that while there may be bumps I mean, when the 77 gets exactly certified I don't know, but if you have that north star of 2025 is a return on this we think it's kind of walking just like we thought it would it was good to see 31 737, Max has sort of been flying again in productions backup so that all.
Obviously, we will have an impact on demand. So yeah. It is real orders and the team I know as excited about continuing to see air travel pickup in profitability return to airlines and reinvestment in things like new aircraft, but also in things like retrofits around.
Aric 791, and satellite Internet access and things like that that we invested in before.
That's great and if I could just maybe squeeze one more in.
Again on C. A T.
There has been talk that once we got past the pandemic you'd see a return of discretionary surgical procedures that would be good for the medical business are you seeing order flow off that as well.
Yes in both cases, we're seeing actual orders and.
The team has more projects underway now and so I think again, that's playing out just like most people would think obviously COVID-19 put a huge a huge impact on it.
Hospitals, and the medical profession, and a lot of different ways and so it's nice to see that there's been some relief there and people are back to <unk>.
Working on new products, which you know, that's where our where we want to be targeted.
In the medical space.
Thanks, Chris.
Yep.
Thank you. The next question comes from Kevin Hocevar with Northcoast Research. Please proceed.
Hey, good afternoon, everybody and nice.
Nice quarter.
Maybe I'll start I know you are not breaking out.
Volumes and pricing in CCM.
But I'm curious.
You know what your volumes did you know what the market did at least you know what every single ply. So curious if you believe you're gaining share in this space just given how strong your results were there.
Yeah, Kevin Theres been so much over the last that's gonna Youre, probably not going to.
Like this answer but theres been so much.
Flux in demand and supply chain issues and that I would say that my personal feeling is that in the over the longer term.
Our market share has remained pretty constant amongst all the players.
We get some ebbs and flows a lot of that based on availability or certain areas, where someone might have a higher market share in a product line, but overall I'd say you know we look back two three years the margin.
Margins or margins excuse me the market share is relatively consistent.
Mhm.
And you mentioned.
An inability to just given how strong demand is an inability to build the normal level of inventories.
You normally would in the first quarter as you head into the spring so it's.
It sounds like you were.
Selling everything you could make in the quarter. So you've got $881 million of sales in construction materials is is that kind of what you can do quarterly is there no seasonality or would there still be some level of sequential pickup.
At least in pricing because I know you have another price increase out there maybe that's the only thing, but this volume pickup sequentially to I guess I'm just trying to understand.
Seasonality is the normal seasonality out the window, but there is there any seasonality, where we see some level of uplift.
From first quarter levels in that business.
Well again I think you said as we went through the quarter I mean, I think as is if we can get it really depends on raw materials to me, if we can get raw materials.
We obviously have the capacity to make more product and then it's the contractors can get more product and provided they can get more labor than they can get these jobs are backlog completed. So there is some opportunity to there's still grow we're all just constrained by this.
Labor and I would say raw material.
Situation that we've had so definitely more to come if if the things line up and there could be then.
Increased sales in the season, but as it stands now I mean, you've got our forecast in I'd say, we're being conservative on our outlook towards.
<unk> materials getting a lot better in the second quarter and again like I said, it's probably more of a.
Q3, Q4 thing and obviously, we'll keep you updated.
Yeah.
Maybe last thing.
I know that now on commercial I mean, theres not as much inventory that is held in the channel from.
From distributors on.
Fair to state residential roofing, but curious if you believe that kind of what youre selling is getting put.
Put on roofs quickly or is there any inventory out there in the channel.
Just curious your take there.
Yes, I think Theres inventory I think if you went out I think part of the inventory is people may have an order and they're waiting on a component or something like that so they may have a little bit built up or they're anticipating some work that needs to be done and they've been able to get access to certain products that they want to inventory. So I think there is in certain cases inventory built are being built up but what I.
I would say is that.
That inventory is allocated I mean, it's got a job at home to go to and again, that's why I say, if we can get some more access to raws in that we can.
We can get the flow moving there.
Yeah, Okay, all right. Thank you very much.
You bet.
Thank you.
The next question comes from John Joyner with BMO. Please proceed.
Hey, How's it going thank you for taking my questions.
Uh huh.
I think you might've broken my model.
And Chris.
Just following up on your comment of exceeding $15 of EPS. This year I'll give you the award for understatement of the day on that one.
But thank you anyway.
First question I guess is.
You know versus your internal assumptions I mean, what surprised you. The most in the quarter I mean was it just being able to get more product ship, but.
Because obviously the top line exceeded expectations in the CCM business and such and then the margins.
Wildly exceeded expectations, but what what surprised you.
Yeah. This is Kevin.
There wasn't one thing and think it's sort of across the board is just everything was very favorable from getting more raw material than we expected led to the higher production and then we were very efficient on that production through the Carlisle operating system. So efficiencies were very positive the raw material inflation.
Led to the pricing and that definitely helped to the pricing realization that we're able to get throughout the quarter and then as I mentioned with some of that positive mix as well. So when you put all those things together that led to the superior b as well as the full year.
The increase in outlook.
Okay. Thank you and then I guess just kind of following up on that and I know we've talked about this before but when you look at the commercial roofing market overall right and.
Just how the industry continues to stay rational I mean, if I look at oil futures at 105 Bucks.
Historically carlyle would be much more affected by that and I get that the industry is rationale you're getting pricing but.
So with demand being so robust it's understandable, but on the other side of this how do you see this holding off.
I can probably answer it for you because I think I know, what you would say, but how do you see it holding up do you see the industry discontinuing to stay rational and just any kind of comments overall on like.
Kind of structural changes you know say over the past five years.
Yeah, I think probably unintentional, but you know when we look back over a 10 year timeframe and we look at you know where capacity was added the the you know.
Say CAGR for we look for maybe a you know 2014 to 2021, I mean, I think when we look at the industry.
Probably you know really targeted in that mid to high single digits, you know 678%.
And when you look at our capacity was added from.
From that time on them.
You know it takes a long time to put one of these plants in and get approval and do all of that and I think people have done a good job of adding just the right amount of capacity to grow with the business I mean, we used to think that one.
Building or factory, what it would contribute about 5% obviously the industry has grown that's probably getting to be less may be three and a half something like that.
But.
I think it has been rational and I think it's because there is very good.
Information and data on.
Roofing and building starts and things like that I think people have some pretty good intelligence around seeing what the industry capacity can be what demand is going to be and you know as we've said we can track that re roofing pretty closely and gyms put out a model on that so.
Rationale is one thing and I think it's more it's more rational around what the future holds now a couple of things that are happening.
Now our new products around ESG that are going to change things and may increase the CAGR from at least a dollar value as these things become less of a commodity product that are put on and now begin to contribute to systems around energy efficiency and more value is created that'll probably encourage more R&D investment.
And so I think you know I think the trends continue I would like to re roofing.
Trajectory that's out there and the fact that we've got visibility to 10 years or so of strong demand I mean, new construction as long as it stays positive I think is a real contributor.
I think there is opportunities around ESG as I talked about it and then we've got a lot of opportunities on the margin side around.
C O S. But also in factory automation Internet of things connectivity in the plants and things like that so you know we keep doing what we said we were going to do in vision 2025, keeping good capital allocators invest in R&D invest in talent and I think we've just got a really good marketplace. It continues to evolve in a positive direction. So sorry for that long answer John .
But.
No that's great.
I appreciate it so yes, that's all it did takes Joel by the way and he said.
I'll put it in those terms I thought it was a misprint.
[laughter] alright.
Okay. Thanks, a lot appreciate it alright.
Alright, thank you.
Thank you. The next question comes from Benny Wong with Aaron Berg. Please proceed.
Hey, Thanks for taking my question.
Most of my questions have been answered so I only got one for you guys, but is there an update on what the free cash flow conversion might look like this year I think you guys had about 100% as expectation last quarter Bud.
In the prepared remarks.
Yes.
Means our expectation speak right around 100% for cash conversion.
Alright, perfect. Thank you.
You bet.
Thank you.
That concludes the Q&A session I would like to pass the conference back to chairman and CEO of Carlisle companies, Chris Koch for closing remarks.
Thanks, Selena and thanks, everyone. This concludes our first quarter 2022 earnings call and thanks for your participation and the questions. We look forward to speaking with you at.
At the next earnings call Goodbye.
That concludes our Carlisle companies' first quarter 2022 earnings conference call. Thank you for your participation you may now disconnect your line.
Yeah.
Yeah.
Yes.