Q1 2023 Carlisle Companies Inc Earnings Call
Good afternoon, My name is Frances and I will be your conference operator today.
At this time I would like to welcome everyone to the Carlisle companies first quarter 2023 earnings conference call all.
All lines have been placed on mute to prevent any background noise.
The speaker's remarks, we will conduct a question and answer session.
I would now like to turn the call over to Mr. Jim John a chorus, Carlyle's, Vice President and Investor Relations. Jim. Please go ahead.
Thank you good luck.
Good evening, everyone and welcome to Carlyle's first quarter 2023 earnings conference call.
We released our first quarter financial results after the market closed today and.
And you can find both 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 Chair, President and Chief Executive Officer.
And Kevin <unk>, our Chief Financial Officer.
Today's call will begin with Chris providing highlights of our first quarter results and a discussion of our current business outlook and Kevin will discuss additional financial details and update you on our outlook for 2023.
Following our prepared remarks, we will open up the line for questions, but 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.
As Carlisle provides non-GAAP financial information, we've provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website.
With that I will turn the call over to Chris.
Thank you Jim and good afternoon, everyone and thank you for joining us on our first quarter 2023 earnings call. Please turn to slide three.
Let me begin my commentary by complementing the global Carlyle team on their effort and hard work during a challenging first quarter and their commitment to our continuous improvement culture.
Steadfast dedication to delivering the Carlisle experience to our customers or some of our greatest assets and positions Carlyle extremely well in our efforts to continue to create significant value for all of our stakeholders.
On our year end 2022 call. We noted that the first quarter would be a challenge due to tough year over year comparisons for CCM.
The normalization of buying patterns in the channel significant inventory of both distribution and contractors and potential weather disruptions occurring in much of the country.
Our financial performance as a company in the first quarter of 2023 reflected these challenges that we're faced in fact of the entire U S building products industry. The U S building products industry is normalization of buying patterns and Destocking that began in Q3 of 2022 has taken longer than anticipated and we now expect it to be substantially resolved in Q2.
Of this year.
This return to normalization of buying patterns will have distributors and contractors with increased inventory positions driven by supply chain constraints that were experienced for much of 2021, and 2022 supply constraints across the building products industry, where for the most part resolved in the third quarter of 2022.
During Q4 of 2022 in Q1 of this year. We saw continued strong demand at the contractor level as well known positive market trends continued.
However, we did see distributors and contractors adjust their orders to carlyle, reflecting their higher than normal inventory levels.
The efforts to effectively work down that excess inventory during the quarter have had a substantial impact on what remains in the channel and much progress has been made during the last two quarters. Despite the negative effects of cold weather and greater precipitation prolonging the process.
The unusual and impactful weather experienced in the first quarter continued well into March.
At Q2, we see weather patterns, becoming more favorable for contractors demand continuing to improve as the season picks up in orders for our products increasing substantially over Q1 levels.
These factors are what gives us confidence and destocking effectively coming to an end in the second quarter for the remainder of 2023 and longer term, we continue to see strong underlying demand in the nonresidential and residential construction markets with secular positives such as growing demand for energy efficient solutions for buildings.
Our robust pipeline of new products coming to market driven by our increased investment in R&D.
Our multi year backlog of re roofing projects supporting a healthy baseline of activity, resulting in a very positive outlook for improved sales and profitability.
With that said, we are mindful of the potential for further headwinds such as increased tightening in the financial markets, even higher interest rates and related sentiment around anticipated deteriorating economic conditions, and we will continue to be vigilant and anticipating any negative impacts that could be forthcoming.
We are also aware of the constrained labor markets continue to limit contractor's ability to effectively address 100% of their potential demand an impediment, we do not see being resolved anytime soon and as an aside as a significant driver of our new technology focus to reduce time on the roof for installation.
Turning to our results, we delivered consolidated sales of $1 $2 billion in the quarter adjusted EBITDA of $214 million and adjusted EPS of $2 57.
While our results reflect the short term disruption to our earnings growth expectations, particularly when compared against very difficult year over year comparisons. We do not believe recent trends heavily influenced by temporary destocking impacted by inclement weather will impact our intermediate or long term financial results.
Instead, we are focused on benefiting from several tail wins for our building products segments.
Please turn to slide four.
First building codes are becoming more eco conscious resulting in increased demand for energy efficient building products at the core of this is the thought that installation is perhaps the best source of energy savings across the building envelope and a way to reduce expected pressure on the nation's electrical grid, which we know is they need a substantial investment.
Our polyol sales have grown 40% faster than traditional membrane growth and we expect that to continue for the foreseeable future as roofing our value requirements continue to increase.
Notably we have made investments in poly ice over the past few years to be able to service this growing demand, including investment in our new state of the art manufacturing facility in <unk>, Missouri, which begins production. This summer are excited and facility is also on track to achieve LEED platinum certification, a reflection of our commitment to being a more sustainable company.
Second we continue to innovate around two significant pain points for our industry sustainability and labor efficiency since Carlisle transformed the commercial roofing industry with the introduction of its sure seal <unk> single ply membrane decades ago, we remain committed to innovation that addresses contractor labor constraints there.
Pressures their ability to service demand effectively and cost efficiently and by addressing those constraints, we improved contract profitability.
And helping our contractors become more profitable as a key way Carlyle can demonstrate the value of our products and services exam.
Examples of recent product introductions that help our contractors become more profitable. It can be found on slide five and include our 16 foot tpa align where fewer seems reduce labor hours on the roof and deliver a faster installation.
Already flash coated glass spacer, which reduces adhesion time, allowing work to be completed more quickly.
And our Ci class, a plus wall installation product that provides better fire resistance and competitive pricing.
We look forward to introducing many more innovative products in the coming months and years, leveraging our growing investment in R&D.
Third given our commitment to our increasingly complex industry, we continue to invest in our training and education Center in Carlisle, Pennsylvania, helping construction professional specifying install more challenging systems every day.
Offer innovative world class hands on training opportunities focusing on the installation of Carlisle warranted roofing systems and related products and the best field practices, all to help solidify and enhance our contractor relationships.
We aim to be the contractors manufacturer of choice competing on and earning a fair price for the value. We create and we are excited about our new product launches. This year that will again demonstrate our commitment to helping facilitate ease of installation for contractors.
Our fourth tailwind supporting our positive outlook in building products is sustainability.
Long term opportunities continue to build with a large push to reduce the energy intensity of buildings and our products are squarely positioned within the solution set available to building owners today.
We also believe the concept of circularity as an essential part of our product future and we're working hard to introduce recyclable products and increasingly recycled content into new products.
Italy, while still in the early innings, we expect that the inflation reduction ex tax benefit for building efficiency upgrades incentivize this commercial and residential building owners to invest in energy efficient renovations and retrofits are supportive tailwind for the next decade.
And lastly, non discretionary re roofing and the corresponding well defined backlog of roofs to be re roofed in the next decade should continue to support the steady demand backdrop for CCM take.
Taken together with all of our tailwind as outlined we believe Carlyle is truly a best in class differentiated building products company with a clear sustainable growth and value creation runway in our portfolio pivot to building products reflects our confidence in this.
Moving to Carlisle weather proofing technologies with balanced exposures between residential and commercial and repair and replace versus new construction results in the first quarter came in slightly better than expected for our Carlisle weather Proofing technology segment.
CWT team continues to integrate Henry ahead of our original deal model plans obtain the projected deal synergies and is executing very well on consolidating opportunities across business lines and geographies.
The team is also driving greater efficiencies in our plants and managing price cost effectively given this we expect cwt's EBITDA remained stable year over year. Despite the organic revenue declines we currently model for 2023 at.
<unk> backlog continues to grow driven by increased airframe production and more importantly, CIT continues to leverage their growth capitalizing on the significant hard work done during the last few years in restructuring the business.
These actions taken while in the Covid pandemic help CIT emerged from this downturn stronger than before and are now paying off.
With both wide and narrow body aircraft production continuing to ramp we should see reliable growth tailwind in aerospace for the next several years at CIT.
We're also very pleased and proud that CIT was recognized recently as Airbus is electrical standard parts supplier of the year for 2023 <unk> received this recognition from Airbus for its robust commercial performance high level of collaboration strong project, followed by new product introductions operational performance.
Willingness to go the extra mile.
<unk> was chosen as this year's recipient out of 35 competing suppliers.
And as another example of customers benefiting and recognizing carlyle's commitment innovation and the Carlisle experience across all platforms.
Now on to CFT Carlisle fluid technologies continues to be an improving story with significant profitability gains this quarter backlogs at CFT also continued to grow with strong incoming order rates for standard products contributing to this growth CFT remains focused on new product launches operational efficiencies and proactively managing pricing.
Mix, all of which are contributing to attractive leverage on strong revenue growth in 2023.
Please turn to slide six our.
Our results continue to demonstrate the vision 2025 has been the right strategy for Carlyle and addition to our world class teams and proven business model, we benefited from a strong balance sheet and excellent cash flow generation to provide both financial and strategic flexibility to execute and achieve our ambitious goals.
A significant portion of our success has been driven by the multi year process of reshaping our portfolio to pivot from a diversified industrial products company to a higher returning building products portfolio of businesses, demonstrating our desire to be superior capital Allocators. This transformation sets the stage for a more focused higher returning.
And better understood path for future sustainable value creation at Carlisle.
The pillars of vision 2025 are well established and remain core to carlyle's strategy going forward.
Over the last few years, despite the multiple challenges our teams have faced we continued to be guided by the clarity of mission as outlined by our strategic vision first announced in 2018 vision 2025.
As we approach the completion of many of the milestones and goals of vision 2025 in the last year. We were simultaneously working on a successor Division 2025, our new strategic plan that will be introduced formerly later this year vision 2030 will be a plan committed to many of the same principles and pillars, we used to establish vision 2020.
Five and with it will come new levels of performance and expectations that will represent our culture of continuous improvement.
As a reminder, the foundational pillars for sustained value creation at Carlisle under vision 2025 include drive mid single digit organic revenue growth utilize the Carlisle operating system or C. O S to drive continuous improvement and build greater efficiency in our operations.
Build scale with synergistic accretive acquisitions.
Maintain our returns focused capital allocation strategy, including organic investment to drive growth a disciplined approach to our aforementioned M&A strategy and returning capital to shareholders.
Notably thus far in 2023, we've returned nearly $90 million to shareholders with share repurchases of $50 million and $39 million paid in dividends.
And of course, none of this could be possible without them continuing to invest in and develop exceptional talent.
Through the execution of vision 2025, Carlyle has built a solid foundation leveraging a diversified workplace decentralized management style entrepreneurial spirit and a culture of continuous improvement, which will continue to guide our value creation journey in 2023, and beyond and we will absolutely be core to our vision 2030 strategic plan.
<unk>.
Turning to slide seven.
I mentioned, our commitment to sustainable innovation, but I'd like to highlight some of our recent steps taking towards our net zero pledge Carla.
Carlyle has had a century long legacy of responsible stewardship and stakeholder focus all driven by our core cultural value of continuous improvement.
We believe that creating a more sustainable environment is also productive for our shareholders.
As an organization Carlyle is committed to being a responsible environmental stakeholder with our three pillars of environmental sustainability.
First develop energy efficient products and solutions to reduce the greenhouse gas or <unk> emissions from building operations and help lower operating costs for our customers.
Second reduce material waste going into landfills or history of recycling began in the 19 twenties when we incorporated scrap rubber into our inner tube production. We continue that tradition today and third focus on lowering the GHT emissions of our operations and manufacturing processes with the implementation of enhanced energy conservation measures.
Several months into our journey after announcing our commitment to achieve net zero GHT emissions across our entire value chain by 2050, we continue to take important steps towards achieving this ambitious goal. For example, we've committed to purchasing several million pounds of bio MDI in biopolymers to test and develop bio based raw materials into.
Production. We've also replaced approximately 25% of our sourced prime carbon black and certain products with recycled material.
Lastly, we're piloting end of life management of tariff <unk> roofs, where we collect and process it into consumer rubber products.
These steps all further our progress towards our sustainability mission and we're just getting going and with that I'll turn it over to Kevin to provide additional financial details as well as our updated 2023 outlook Kevin.
Thank you Chris for segment highlights please turn to slide eight.
CCM delivered first quarter revenues of $576 million down 35% from the prior year.
The decline was due to the reasons, Chris previously mentioned, including tough comps Destocking in the channel and project delays due to severe weather across the U S.
These were partially offset by positive price adjust.
Adjusted EBITDA margin of 24% was negatively impacted by lower year over year volumes and lower cost absorption, partially offset by price realization and savings from COF.
Moving to slide nine sales of CWT decreased 12% due to continued softness in residential demand, partially offset by strength in our retail businesses and price realization.
<unk> EBITDA margin was 17%, notably down to 60 basis points from the first quarter of 2022. The team continues to focus on the integration of Henry realizing that $30 million of stated synergies from the acquisition and rolling out Pos and significant investment.
In operations throughout CWT to drive greater efficiencies in our business.
Moving to slide 10.
Revenue increased 15% in the first quarter of 2023, reflecting strength, primarily in our commercial aerospace platforms. As we continue to see orders ramp up and momentum build as global passenger demand continues to approach pre pandemic levels.
Adjusted EBITDA margin expanded more than 400 basis points to 14% driven by favorable volume price realization leverage on restructuring activities and efficiencies gained from COF.
Turning to CFT on slide 11, CFT generated growth of two 3% driven by positive pricing and favorable volume, partially offset by a 4% year over year headwind from FX.
Adjusted EBITDA margin expanded more than 700 basis points to 22% driven by favorable volume price and efficiencies gained from COF.
Slide 12 provides a year over year bridge items to first quarter adjusted EPS moving to slides 13, and 14 Carlyle ended the first quarter of 2023 with $424 million of cash on hand, and $1 billion of availability under our revolving credit facility.
We generated cash flow from continuing operations of $147 million and invested $40 million in capital expenditures.
We deployed $50 million towards share repurchases and paid $39 million in dividends.
As of the end of the first quarter, we have three 2 million shares available for repurchase under our share repurchase program.
Turning to slide 15, we have provided our updated 2023 financial outlook.
As a result of our challenging first quarter and Destocking persisting into the second quarter at CCM. We now expect consolidated revenue to decline mid single digits for the full year 2023, the change in our revenue outlook is entirely in our Ccs segment as our revenue outlook for CWT.
And CFT remain unchanged.
As a result of the revenue decline, we now expect margins to decline by approximately 100 basis points for the full year 2023, we remain focused on disciplined pricing operational efficiencies managing cost through our continuous improvement efforts.
As a result of the revenue decline, we now expect margins to decline by approximately 100 basis points for the full year 2023.
We remain focused on disciplined pricing operational efficiencies and managing costs through our continuous improvement efforts. We also continue to invest in our businesses with expanding our R&D operations, improving the Carlisle experience that provide our customers with best in class customer service and cutting edge.
Information systems.
Despite the deeper and longer period of Destocking occurring in the first half of 2023, we're seeing momentum in the business with April order, showing very strong sequential improvement over the first quarter levels.
This gives us confidence that the inventory in the channel will be level set by this summer and our shipments in the second half will better mirrored the strong end market demand with that I turn it over to Chris for closing remarks.
Thanks, Kevin in closing I would once again like to express my thanks and appreciation for the excellent work by all of her allows employees, especially over the last few years from the onset in 2020 of the Covid pandemic to the fast and furious recovery in 2021, and 2022 to the recent challenges accompanying the destocking and returned to normal buying patterns.
Carlisle employees have shown incredible resilience, a remarkable flexibility and a deep concern for one another.
Those characteristics contributed in no small way to the accomplishments. The team has achieved since the launch of vision 2025.
As we move deeper into the year and with vision 2025 objectives, well ingrained throughout Carlyle I remain extremely optimistic for the long term success of Carlyle as we leveraged the flexibility afforded us by an incredible brand and reputation our strong capital position and superb cash flow generating capabilities.
Despite near term and potentially growing economic challenges, we will continue to drive a culture of continuous improvement and entrepreneurial mindset and commitment to superior capital allocation, we will take the necessary actions to navigate this complex operating environment continue to deliver the Carlisle experience to our customers and create value for all stakeholders of the car.
And that concludes our formal comments operator, we're now ready for questions.
Okay.
Thank you. Thank you would like to ask a question. Please press star followed by one on your telephone keypad.
Or any reason you'd like to remove a question. Please press star followed by Kim.
Remainder if you're using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from the line of Bryan Blair with Oppenheimer. Please go ahead Brian .
Thank you good afternoon guys.
Hey, good afternoon, Brian .
I was hoping you can offer.
One more.
Color to frame the challenging start to the year and then the timelines is normalized CCM.
Order patterns is there any way to quantify the impact is.
Destocking and whether respectively in the first quarter and perhaps offer a little more detail on <unk>.
Order trends relative to normalized seasonality.
Understandable that there is an inflection relative to a weak Q1.
Relative to a normalized seasonal path for the year, what are you seeing and what are you hearing from the channel.
Early construction season.
Sure.
Things will take them one by one.
When do you attribute the most of the volume decline as.
Destocking with some weather I mean, if we put 70 30 80 20 somewhere in there with the bulk being destocking.
When you look at when it's going to be completed we look at.
Out the door sales for our distributors will get contractor activity in fact over the last.
Probably 253 months, we've taken out a new initiative, where we're actually doing our own I know you guys do the surveys were doing our own survey as we've kind of talked about.
450 different endpoints across the company country excuse me because we have.
Regional differences and what we're seeing is that at the distributor out the door level and a lot of cases, we're at 90 plus percent of what they were.
In.
2022 last year, so when we look at that and we look at what's happening where their incoming bookings from distribution.
And other sources, we're seeing real positive momentum building right up from February through March and into April .
Good positive trajectory.
And so we believe that that will take.
Take care of that Destocking, and Thats, where we make our comment that it should be done.
Tapering up by the end of the second quarter, and then we'll be back to that normal cadence with.
CCM.
That's very helpful.
And then kind of natural follow on in terms of the revised CCM sales guide how should we think about Q2 and back half growth rates and what's contemplated for volume and price along the way.
Yes, I think price.
Breaking out price as much from volume, but for the most part flattish on price and then so its mostly revenue.
And as far as second quarter and throughout the year.
You'll see the second quarter, we still have about $100 million of destock, So thats going to hit the second quarter third quarter will be back.
More equal to last year's level, and then fourth quarter last year were easy comp. So you should see double digit improvement in the fourth quarter for CCM.
Okay and with the.
Inflection to growth in the back half stability Q3.
Re down relative to a weak Q.
Q4.
Yes, Ken CCM drives consolidated earnings growth.
Turn to EPS growth during the back half with that setup.
In the second half of the year certainly as we look at the full year.
We will come up little below our 30% EBIT.
From last year, so we might be below that our new targets for CCM long term are 30% plus EBITDA margins, we expect to be back there in 2024.
Okay, great. Thanks.
Thanks, guys.
Thanks, Brian .
Thank you for your question.
The next question comes from Tim <unk> with Baird. Please go ahead Ken.
Hey, good afternoon guys.
Okay.
Maybe maybe just going back on price.
Obviously, just given the challenges we've seen over the last.
A couple of quarters of Destocking and weather and things I mean.
How has the industry kind of reacted to that relative to the kind of price.
Have you have you.
One of your competitors put through an incremental price increase for July .
But I guess how are.
How is the market on the price side and have you seen anything get more competitive with the volume decline.
Tim maybe taken a couple of sections I think first of all that so that price increase and indeed, we at all where we had price increases in the fourth quarter. We had hoped to implement in 2008 2023, and I would say those are probably not getting the traction that we would have hoped you do your work as well and I think.
We're seeing that.
In general, though what I would say is that certainly pricing out of distribution and that for the bulk of the industry is pretty good and as Kevin mentioned, we think it's going to be flat.
For the year.
That goes back to some of the improvements we've made over the last five six years on as being a market price leader.
Price discipline, bringing value pricing and talking about how we create value and you heard in my comments about that and new products and the interesting thing is with the changes in some of the leadership at other at our other competitors I think we're also seeing a real desire to drive value and to.
Get the value for that so.
Are there some deviations in price from time to time, yes, they've happened and we hear about them I think on the whole, though that the market.
Layers are remaining pretty disciplined and from time to time people will.
Cut deals or maybe they might go direct to a contractor offer special deal or something like that we obviously try not to do that and have a price leadership position, but there are those who do that but for the most part I think those things go on in pricing I've been pleased with where pricing is.
Through April that people have been holding in there theres been good price discipline.
Okay. Okay, and then just maybe from a from a mix perspective, I mean have you seen any variance in.
Kind of the roofing systems that at your selling between like <unk> or <unk> and I'm just trying to think if one of the membrane to the higher install costs versus for.
Since the other one have you seen any sort of like share shift or mix shift.
Kind of happen within within your portfolio.
Where and Kevin and Jim can talk about this too, but where I saw the biggest shift I think was actually last year and maybe some of its blood over here with quotes that it happened last year, but when.
<unk> as you know.
Was constrained at least for us where we're sold out right through the year I do think there are some shifts and some players that sell PVC in greater amounts benefited from that so there might've been some shift in Q4, maybe Q1 and fulfilling orders, where PVC replace GPO, but thats kind of come back as the supplies.
Constraints came off we had some issues.
Two years all of us as an industry with fasteners, a metal fasteners. They were at a premium and people may have substituted.
<unk> are different we do have a velcro, we use and that might have seen some gains there, but I think on the margin those are pretty minimal and then when we look at <unk>. Our oldest brand things have remained relatively stable. There we don't see much market shifts there. So I think as we get through the year things will go back and they'll normalize to that that same type of.
The mix around TBO PVC PVM polyol, so EPS those things in and really all of that disruption over the last years it gets sorted out.
Okay, and then just maybe last one just how is the cost basket kind of performing relative to your kind of initial expectations and whats the expectation now for the year.
Yes, so costs.
We're not seeing as much on the raw materials that we thought we'd see entering the year and that certainly is factored into our change and margin guidance for the full year.
We're still seeing.
Probably 40% to $60 million of benefit this year versus where we were higher than that going into the year.
Okay.
Hey, I'm sorry go ahead Tim.
Thanks, Ed.
Most of that I would be I think the second half.
Okay, Okay got it thank.
Thank you.
Yes.
Thank you for your questions.
The next question comes from Saree <unk> with Jefferies. Please go ahead.
Hi, Thanks for taking my question.
Hi, Jack your backlogs remain strong, but there appears to be a lot of skepticism right now and that Rajiv So could you help frame.
The downside scenario for us like maybe well at CCM look like today in 2009 type scenario.
Yes, I am.
Appreciate the question I completely understand and agree with you is a lot of anxiety and concern and I think.
Part of it is this destocking occurring in Q4 Q1, but those are the lowest.
Much of the year for roofing for Us in North America, and I think as we look into 2023 with what we see at the contractor and the backlog they have.
And what's happening out there.
I just can't see at 2019 as scenario occurring in 2023, I can't forecast, obviously on to 'twenty, four but where backlog.
There isn't enough labor again, I mentioned that in the commentary.
So when we have these days off the roof due to weather.
That just adds to the backlog and contractors need to get that work done too. So again theres a lot of angles. We can go on how we are helping them with that but I just don't see.
That type of downside it would have to be something pretty dramatic that would occur in the second half and as Kevin mentioned things improve from a comps perspective as well as we get into Q4, but to answer. Your question Carlyle has always performed well on an EBITDA margin basis in the downturn as you can look at the data in 2020 and then we can go.
Back to nine and we've in fact.
You had great EBITDA margins and improve so.
I would say that while I don't see it happening if it did occur we'd still be producing.
Good cash flow and good EBITDA margins through that.
Okay I appreciate it and then maybe skip into another segment CWT margins, how that Sean given the organic growth decline how are you thinking about margin performance there.
Thanks.
Yes, we look at year over year, we think there's definitely benefit in pick up were going to get in the second half of the year, we could see a couple 100 basis point full year year over year improvement for CWT.
Sounds good thanks for taking my questions.
Thanks Terry.
Thank you.
The next question comes from Garik <unk> with loop capital. Please go ahead.
Hi, Thanks for taking my questions I wanted to ask.
On the demand side for CCM.
Just given.
A lot of distortions.
Inventory destocking.
Manufacturers and distributors I was wondering do you have a sense just given your comments around.
Strong contractor backlogs.
<unk> market demand this year.
For contractors.
Okay.
Patients and has that changed at all since the beginning of the year.
I think Gary there.
Whether it actually a practices change I don't know obviously, one of the things thats out there or interest rates in the banking and and that is.
In effect I think the reservoir a bit.
I don't think thats actually affected the <unk>.
<unk> in the quarter.
But certainly it creates concern and again destocking again creates more anxiety in that when we look at.
The places I'd say throughout the market that are strong if we got down to specific verticals I think <unk> seen some.
Decrease in warehouses have probably been a little bit under last year, and we think that's going to continue its probably about where we thought it was.
The educational side that we look at it might be a little bit.
A lower number than we had thought at the beginning of year not much percentage point or two.
I think stores again, maybe some impact there, but maybe thats more driven to by some of the move to online purchasing and doing the internet sales thing.
Health care has been good, but probably better than we thought.
So when we look at it and even one other segment I would just say is even kind of the residential buildings that we deal in the bigger multifamily in that.
Pretty much in line with what we had so I think when we look at where we were even out of last year I think if you take all that together, we're probably flat right now.
And I would say.
Where we are for this year I don't see that being affected as we get again into 24, there's a lot of things happening out there a lot of moving parts that could affect it but obviously well to call at the end of the second quarter will be well into the season and I think that that call will be mortality in our first quarter call well with the Destocking that and then with the Sis.
And picking up.
Okay. Thanks for that I wanted to follow up just on the <unk>.
Pricing expectations.
Okay.
Maybe get a little bit more clarity.
We will comment that you made you expect pricing to be.
Is that a comment for that.
Second half of the year, you've anniversaried price increase in 2022.
Or are you expecting.
On your pricing for 2000.
It will be flat.
Apple case, I think that might be a little bit different than what we communicated on the last quarter call.
Yes.
Yes go ahead Kevin.
Yes, so that's flat for the full year I think in their earlier call.
We were maybe up slightly it wasn't a whole lot that we are putting the price that we had some carryover, but yes. We're looking at now is flat for year over year, Yeah Garrick.
Eric when you look at that the difference would be that.
We had that fourth quarter price increase and I think it's all attributed to we thought there would be destocking ending sooner, we thought that pricing gain a little more traction I think you saw as was mentioned earlier one of our competitors, adding a.
Price in there as well and I think there was thought that that would hold and that was what was our original assumption on the year for pricing being up I don't know, what we have one or 2% and then now we're back to flat and it really centers around that that price increase not not holding.
Okay.
Thanks for that just one last question for me just on.
Switching to CDW.
Strength in our retail.
In the quarter was that related to any channel fill or timing benefits.
Wondering if you could provide a little more color what happened there.
Yes in the retail channel if we're talking about retail in the same way kind of big box thinking like that.
Most of the improvement there was around.
Whether and what happens after weather, especially in the west.
We've got a lot of population was affected by rain.
We tend to see a surge in in our CWT products and the Henry products and that team addressed it in an <unk>.
Unbelievable way because they have to pick up production they've got to reallocate.
And divert product out there to make sure that those big box retail stores get it they did a heck of a job doing it but thats really what that was attributed to a not any type of rollout we have.
I had some new product.
Introductions occur but.
Those don't tend to have the big load in like maybe you see some other companies. So yes, all related really to that to that weather.
Okay.
Thanks, again and best of luck.
You bet. Thank you very much.
Thank you for your questions.
The next question is from John Joyner with BMO capital markets. Please go ahead Ken.
Excellent. Thank you for taking my question so.
Ill ask about Destocking.
So many times, we cannot say that word but.
Yes, other than areas like brake and friction I mean in the past I don't really have a recall much discussion historically around destocking or restocking for CCM. So.
Has there been any changes at CCM as it relates to your channel partners partners or is it simply that maybe they bought too much inventory over the past year. I mean, maybe just help me understand that because I just don't recall.
Discussions around <unk>.
Destocking so much historically.
Yes, I think youre right Thats a good one our CBF I mean, if we go back to 2008 2009, I think there was a lot of inventory and then the bottom fell out on the.
If the cats and commodities and that it was left with inventory. So good call Thats, a while ago brings back some memories, but as far as CCM is concerned.
Nothing has really changed when we went into 19 at least we were still doing that.
Kind of thing where the winter, we'd make product for the season.
Distributors are loaded and we did get through the season.
They'd have the inventory they would work it down contractors, we work through the season and once in a while you would see if we had an early spring or a <unk>.
Late fall or sales or shipments in Q4, Q1 would be a little bit better in fact, I think prior to 19th Q1 had gotten successively better every year for a few years by a single digit improvement. So we go through Covid.
Things decline and then the surge comes back in their supply chain issues that everybody had and were well known.
We saw what other saw as well, which was people tended to I hate to use the word <unk>, but I think they tended to do a couple of things order, putting multiple jobs at multiple suppliers to ensure they got product they would grab product when they could in stock. It I think the idea that we had contractors.
Building inventory was a very new.
But for US and that was one that we really miss John in the fourth quarter. When we gave you. The first estimates I mean bad on US we had anticipated that other people were stocking as well so.
<unk>.
It's just going to take time to get through it which it has and we don't think we have good visibility to it once it's done I think unless we have another.
Fly chain crisis of the magnitude, we did under Covid, which I don't anticipate we'll be back to that normal cadence because really that system of how we order and how we introduce products and how we.
Supply the market I mean, Ccs has been doing it for a lot of a lot of years contractors distributors and I would think over time, they've gotten pretty efficient at it. So I would think we would go back to the way we used to do it which was probably the best practice. So I think it's just.
Let's call it a one year a onetime aberration.
Okay got it that's very helpful color and then maybe just one more.
And I think I think I know the answer to this but.
I realize that you intend to focus on the kind of core building products businesses, but.
Maybe just looking at CFT the business actually performed quite well and people are focusing on CCM CIT CFT performed quite well so with the with the operational improvements that <unk>.
At CFT.
A lot of heavy lifting for that business have you, possibly re thought how you view CFT going forward with regard to how it fits within your portfolio strategy.
No I think it would be I think youre right to recognize the hard work that Fred et cetera, and the team have done since he came into the business in terms of introducing new products introduced in terms of.
Improving the sales force and operations that everything and obviously, that's what we had in mind for CFT. When we initially bought it but I think when we look at being spirit capital Allocators. They look at what the runway for ROIC performance and also magnitude in terms of effect on the P&L, it's still within the bidding building products.
Segment at CCM that history, and you know you have the data.
It's hard to fight against and while CFT is performing well, it's still a pretty small part of our business the $300 million and it would it would be a <unk>.
It'd be a tough time for them to get to the point, where it would make better sense to to allocate in a big way to that as opposed to driving to that core pivot to building products. So we think we've done the work and we think in terms of where we put our capital with a pivot to building products makes the most sense for us.
For the foreseeable future.
Okay, I figured I knew the answer but just wanted to ask thank you.
But thanks for recognizing the team that's been a really nice turnaround from where we were a couple of years ago.
Alright, Thank you Chris.
Thank you.
Thank you for your question.
The next question comes from Adam Baumgarten, with Zelman and Associates. Please go ahead Adam.
Hi, Thank you good afternoon. So just given some of the surveys you've done and give a better sense for of that I think you said $100 million of inventory that needs to come out in Q and how that splits between contractors and distributors and then also just are there any specific products, where within that $100 million, where theyre more elevated than others in the portfolio.
Yes.
No breakdown on the contractor distributor I don't think we got to that level of granularity and apologize we will continue to.
We continue to drive on these things. It is a new addition that we're going to do regularly. So we'll have we'll get better at it but at this point. We did we don't have that breakdown I still think the bulk of it though if I got off my gut is a distribution in that.
The contractor is probably.
At major contractors, and so I would say the bulk goods distribution.
As far as products in any one that's out there that's another one.
I Couldnt.
Wouldn't want to even guess at I apologize.
Yes.
And then just maybe more high level, just give a sense for the percentage from projects that are that need financing.
Jim and I, just had a discussion on that and I think on the re roofing, it's mostly coming out of kind of an expense budget remember I think on the.
This was a new construction, it's all part of a big project Thats coming under one.
Capital request and then their or however, they do it and it's in our roofs included in that and it gets financed but once it's sold to a customer and then at your 20 or 15 or 35 or whatever that typically comes out of their operating budget to reroute. The road for the building owners budget. So I would say, it's probably pretty low as.
As a specific percentage that are financed.
Okay got it and then just maybe some help on EBITDA margins are down about 500 basis points year over year in the first quarter and you guys are guiding to down 100 for the year. Maybe you can help on kind of quarterly progression there to get back to that down 100 would be great.
Yes, we talked so you have to first quarter obviously.
What we did for margins and I guess here.
Youre looking overall at the business.
Let me see in margins by quarter.
That's a lot of it is going to be absorption and you can just do it off of the volume so whatever youre projecting by quarter.
For volume you should be able to drop that to the bottom line, we're probably high forty's on decremental margins for the CCM business and that should help you get there by quarter.
Great. Thanks, a lot.
Hi.
Thank you for your question.
The next question is from David Macgregor with Longbow Research. Please go ahead.
Yes, good afternoon, everyone.
Okay.
The app.
Hey.
Good afternoon.
Wanted just ask about the guidance revision here in it.
When you go from kind of low single digit revenue growth to high single digit revenue declines.
It implies about a $400 million differential.
I'm trying to reconcile that with the first quarter, where you said.
$300 300 million, obviously was the revenue Delta that you said, 70% to 80% of that would've been the destock and you've got another $100 million coming into <unk>.
I guess I'm trying to get a sense of just whether there's any catch up coming here in the second half of the year from the weather portion or whether you're just being conservative for that $400 million.
So there to the guide can you help me just think through that.
Yes, I think one of the things just in general and certainly Jim or Kevin can weigh in on it but I think there is a little conservative nature going into Q3 and four around how much we can catch up to things that I think about our very.
Irrelevant here, we just talked about the weather and we always worry how long does that fall continue the lager continues the better we can do because we've got contractors on the roofing <unk>.
Yes, that's probably.
The biggest one for well maybe the biggest the other one has been the labor and we keep discussing labor and that really is a constraint around how much can we put down.
And so again the CCM team I think we're almost tripling R&D investment to deal with that so we can help with the catch it because it's really been multi year backlog and we don't see the labor situation getting any better and then we see all of these positive drivers around the investment act around re shoring around energy efficiency.
<unk> and we think to ourselves.
Not only do we have to catch up every year from weather in that but now.
We have other things that are stimulating demand for the future. We think are going to consume labor. So I mean, that's really what drives a lot of our effort into new products and the investment there, but those are the two things that I would say make us a little conservative about how much we can catch up although.
Like you and like all of our shareholders, we'd love to do some catch up.
As quickly as possible.
Alright, great.
Okay, and I just wanted to clarify.
You talked a number of different calls in the past about the fact that.
Good.
<unk> of your business does.
Does not go through distribution, but goes directly to contractors and you've already commented.
Commented in passing earlier in the call.
Inventory surpluses occurring both at distributors and contractors.
And I.
I guess I just I was hoping you could give us an update in terms of just how should we think about the percentage of your business is actually going through distributors with products being distributed.
Some of it to a distributor versus direct to the job site.
And how that maybe has changed since maybe a year ago.
Yes, that's a good question.
I really appreciate the fact that you clarified that statement around how much we sell to a contractor and how much we deliver direct because there is a difference and that's what I made a comment earlier on on pricing.
I'm going to say 90 plus percent of our.
Sales go through distribution, while delivery is probably in the 60% to 70% or shipped direct.
To the contract or did that change during <unk>.
Covid.
I don't know that that did.
I guess is it may have just because of some of the local <unk>.
Constraints around PP&E on a job site with masking and that kind of stuff that it might have been more.
Beneficial for the contractor to take it directly as opposed to come to a distributor in picking up our interface with the distributor employees delivery to the site, but I don't have any details on that so my guess is it hasnt changed much over that.
Okay last question for me is just the extended production curtailments.
Undertaken here to compensate for this.
How would you quantify those production curtailments vis vis <unk>.
Shipment reductions in other words, I guess, what's happened in Europe .
Sure.
Finished goods inventories.
Yes, we've cut back shifts and we've cut back temp labor that piece of it but trained labor, we're holding on to that piece of it.
Still are optimistic for the second half of the year and going into 'twenty four and your comment about inventory we really.
As I mentioned earlier, we build in the winter months and so our inventory has not gone down if anything it's gone up in anticipation of the needs we're going to have in Q2 and Q3.
Okay. So if you do get a catch up you've got inventory ready to go.
Absolutely and it looks very much that you can cite.
So I think coming on in the Tpa to 16 foot line that gives us some additional capacity too so.
Yeah, good luck with that.
Thank you.
Yes.
Thank you for your questions.
The next question is from Dan Oppenheim with Credit Suisse. Please go ahead.
Thanks, very much was wondering on the CGM side.
Given the weather issues that occurred in the first quarter.
Which obviously prevented some of the roofing, but also the inventory issues.
As you as we get to more normal conditions here in the second quarter.
Better weather and such.
And we worked through some of the inventory do you think that central there is that more pent up demand with it.
And if so is there the ability to service that in terms of labor and such or is there not so much of a catch up how do you view the potential for that.
Yes, I think thats, what we just talked about.
I'll just repeat it though which is that we think there is a labor constraint there is demand, but the demand is really on top of probably some demand that was built up during COVID-19 as well and so all.
All of this contributed to a backlog that already existed for roofs that were aging out hitting their 17, 18 19 year age and we're needing to be re roofed. So the labor constraint probably in that case is the biggest one in Q2 and just can you get crews to put it down. So my guess is and maybe I'm being conservative but that.
There won't be much catch up in Q2.
For contractors on job sites.
We're talking about is there is catch up from us being able to serve out of our inventory rather than serve that demand from distributor inventory that's already on hand or the contractors. So again, when we look at opportunities for catch it by point to Q4, and Q Q4 of 2023 in Q1 of 'twenty four.
We're a shortened.
Winter season on either end would help give some days and some opportunity to catch up there.
Great and then I guess on the CWT side.
Given what we've seen.
Some decent signs in terms of residential construction here.
Any.
More positive view.
Still a little early but just.
Are you feeling any better there in terms of.
Trends over the course of this year than you might have recently.
Yes, definitely I mean that was a tough blow to the resi market or to CWC on the resi side, but we're optimistic coming into the season I think a couple of things that also really bolster my.
Excitement around CWT or one Pos is getting fully implemented at Henry.
And Frank and the team there just become believers in that in our factories are getting more efficient we've actually had a couple of.
Sites that have been.
Eliminated and we've put that production into other sites. So we're getting more efficient there we're driving automation.
And then new products are taking hold and we've got some new products coming out this spring that are.
That had been introduced before a couple of new ones coming out now that really again increase the efficiency and effectiveness of what the contractors doing so that coupled with.
Good disposable income and people that are interested investing in their homes again for the summer months, and making repairs and that yes, we're very positive on it we still again, even with all the issues.
The team is still delivering on their synergy number and along a lot of the other initiatives we had under the deal model. So we're very optimistic about what they can do.
Great. Thank you.
Thank you for your question.
There are no questions waiting at this time, so I'll pass the conference back over to Chris Koch for any additional remarks.
Well, thanks, Francis and that does conclude our first quarter 2023 earnings call and thank everyone as usual for their participation and the great questions and your interest in Carlisle and we look forward to speaking with you at our next earnings call. Thank you.
That concludes the Carlisle companies' first quarter 2023 earnings call. Thank you for your participation you may now disconnect your lines.