Q2 2024 Carlisle Co Inc Earnings Call

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on the 24th of July 2024. I would now like to turn the conference over to Mehul Patel, Carlisle's Vice President of Investor Relations. Thank you, and good afternoon, everyone.

Mehul Patel: Welcome to Carlisle's second quarter 2020 earnings call. I'm Mehul Patel, Head of Investor Relations for Carlisle. We released our second quarter 2024 financial results today, and you can find both our press release and the presentation for today's call in the investor relations section of our website. On the call with me today are Chris Koch, our Board Chair, President, and CEO, along with Kevin Zdimal, our CFO. Today's call will begin with Chris.

Chris Koch: He will provide highlights of our second quarter results and accomplishments. Followed by Kevin, who will provide an overview of our financial performance and an update on our outlook for the remainder of 2020. Following our prepared remarks, we will open up the line for questions. But before we begin, please refer to slide 2 of our presentation, where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties, which are discussed in our press release and SEC filing.

Chris Koch: As Carlisle provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to you, Mehul. Thank you.

Chris Koch: Good afternoon, everyone, and thank you for joining us for Carlisle's second quarter 2024 earnings call. To start, I'd like to direct your attention to slide 3 of the presentation. We are pleased to report another quarter of outstanding performance, reflecting the continued success of the Carlisle story. The underlying attributes of this story have been bolstered by the completion of our Pivot to a Pure Play building products company this year and reinforce the underlying themes and strategies we outlined in our Vision 2030 strategy launched this past December.

Chris Koch: We are pleased to see that the transformation of Carlisle since the introduction of Vision 2025 continues with success and confirms the path we've been on remains the right one for all our stakeholders. In the second quarter, we delivered sales of $1.5 billion, representing double-digit growth, up 11% on a year-over-year basis.

Chris Koch: The CCM and CWT businesses continued to build on their first quarter performance of driving improved profitability supported by pent-up re-roofing demand, continued discipline on price, and delivering on operational efficiencies gained through the Carlisle operating system. The combination of these key drivers translated into a record bottom-line performance for Carlisle, with adjusted EPS up 33% to $6.24 and adjusted EBITDA margin expanding 220 basis points year over CCM delivered an impressive quarter with 15% revenue growth and 220 basis points of adjusted EBITDA margin expansion driven by strong re-roofing demand, as I previously mentioned, solid contractor backlogs, and the benefit of inventory normalization in the channel.

Chris Koch: As we discussed when we entered 2024, we expected to see a year-over-year benefit of approximately $125 million in sales improvement from inventory normalization in the second quarter, and that estimate was on the mark. As a reminder, inventory normalization also positively affected our first quarter of 2024 by $200 million, and we project that inventory normalization will impact the third quarter positively by $50 million. CWT also performed well, showcasing its building earnings power. CWT delivered a 22.5% adjusted EBITDA margin on organic sales that were down approximately 1% as integration synergies and benefits from COS helped offset investments in growth initiatives and more difficult residential and commercial markets.

Chris Koch: We are very pleased to see that CWT continues to have their sights set on delivering on their aspirational goal of 30% EBITDA returns by 2030. During the quarter, we continued to make excellent progress on our Vision 2030 goal. The key milestone was the completion of our sale of CIT to Amphenol Corporation for approximately $2 billion. This sale marks the successful culmination of our strategic pivot to a pure play building products company, which allows us to continue to focus on delivering superior capital returns, keeps our management attention on a more focused portfolio, and provides a clearer picture of how value is created for our shareholders. We also completed our acquisition of MTL in May. As a reminder, MTL is a Wisconsin-based specialty manufacturer of high-performance metal edge and wall.

Chris Koch: This acquisition positions Carlisle as an industry leader in the $4 billion architectural metal category by 2024. We are extremely pleased that, in addition to a great acquisition in MTL, we were also able to strengthen our architectural metals platform by consolidating the team under Tony Malinger, MTL's president. We look forward to supporting Tony and the team as they continue to drive success in our architectural metals business. Continuing with the theme of driving future growth, we recently announced plans for a $45 million investment in a state-of-the-art research and innovation center in Carlisle, PA.

Chris Koch: This expansion will provide additional resources necessary for the next stage of our innovation journey. The investment will support our Vision 2030 objective to accelerate our innovation in areas of energy efficiency, Labor Saving Solutions, and Integrated Systems.

Chris Koch: Expanding our R&D center in Carlisle is a key initiative to help us achieve our goal of generating 25% of revenues from new products introduced within 5 years by 2030. Furthermore, we maintained our focus on returning capital to shareholders through dividends and share buybacks in Q2. During the quarter, we executed $550 million of share repurchase.

Chris Koch: This is consistent with our planned goal of $1.4 billion of share repurchases for 2024. We also distributed over $40 million in dividends. These actions reflect our ongoing commitment to returning capital to our shareholders and our confidence in Carlisle's future growth process. Turning to CWT, In the residential market, home buyer demand continues to experience affordability headwinds. Higher interest rates have kept buyers on the sidelines, and changes in consumer spending are negatively affecting repair and remodeling.

Chris Koch: However, with our focus on enhancing the Carlisle experience, bringing new products to market, and especially in our Retail Home Center channel, by continuing to drive COS through our business, and by implementing a price-to-value approach, we expect to continue to grow CWT EBITDA margins towards our goal of 30%. To close out slide 3, I would like to announce that we are raising our full-year 2024 outlook by coupling our strong first half results with our previous projections for the second half of 2024 and the addition of MTL as of May 2024. We have strong confidence that the remainder of the 2024 construction season will continue the trends we have experienced in the first and second quarters of this year.

Chris Koch: We now expect revenue to grow approximately 12%, up from approximately 10% previously, and the adjusted EBITDA margin to expand approximately 150 basis points, up from over 100 basis points previously. Now, please turn to slide 4 as I discuss our Vision 2030 Value Creation Drivers and Targets. Under Vision 2030, we are creating value for our shareholders through our portfolio of high-performing building envelope businesses that offer innovative, energy-efficient, and labor-saving solutions for our customers, coupled with our goals of driving above market growth, delivering consistent price and cost leadership, and operating with a relentless focus on customer service and flawless execution through COS. As a reminder, Vision 2030 focuses on six key pillars.

Chris Koch: The first is the Carlisle Operating System. Under Vision 2030, we will continue to drive our continuous improvement culture through the consistent application of COS across every function in the enterprise, with the goal to drive savings of 1 to 2% of sales annually through operational efficiency. The second is the Carlisle Experience.

Chris Koch: The Carlisle Experience has established us as a premium brand with a recognized value proposition backed by high quality products and exceptional service. Our commitment to our customers is to ensure we deliver the right products at the right place and at the right time. We understand that we win with customers through exceptional service and labor savings efficiency. Third, innovation. We plan to increase our spend on R&D to 3% of sales by 2030 to accelerate the creation of new products and solutions that add value to our customers through advancements in sustainability, energy savings, and labor efficiency. Fourth, we do M&A.

Chris Koch: We will expand in existing and adjacent categories that allow us to enhance our building envelope portfolio. As a reminder, our three criteria for acquisitions are, one, an embedded organic growth story. 2.

Chris Koch: Hard Cost Synergies, and 3. Accounted Management Team When completed with our Carlisle Integration Playbook, we believe we have a competitive advantage in M&A. Fifth, a disciplined approach to capital allocation. Ultimately, we work for our shareholders, and in line with our track record, we will continue to invest our cash responsibly for the highest ROIC opportunity. And lastly, and perhaps most importantly, our sixth goal is attracting and retaining top performers to ensure that we have the best talent to execute our strategic initiatives and drive above-market growth.

Chris Koch: The execution of Vision 2030 aims to drive superior shareholder returns and position Carlisle as a premier investment in the building product sector. We expect by 2030 to deliver $40 of EPS, deliver over 25% ROIC, and generate free cash flow margins in excess of 15%. Turning to slide 5, let me spend a few minutes discussing our latest acquisition, MTL. We were pleased to close on our acquisition of MTL during the second quarter, adding a tremendous set of assets that provide innovative, high-performance metal edge and wall security.

Chris Koch: This edition of MTL aligns perfectly with our Vision 2030 strategy and meets our acquisition criteria. By deploying our Carlisle Integration Playbook at MTL, we are on track to exceed the $13 million of synergies we announced in May. We now expect to deliver $20 million of annual synergies in Year 3. Another example of the effectiveness of Carlisle's integration playbook was in the Henry Acquisition, where we delivered over $50 million of synergies in year 3 compared to the $30 million of synergies initially announced.

Chris Koch: Now please turn to slide 6, and I'll highlight a few examples of innovation at work at Carlisle. As I mentioned, our Vision 2030 strategy includes new key initiatives such as an increased emphasis on innovation to further unlock the full potential of our pure play building products portfolio. By investing in R&D and accelerating new product development, we aim to expand our competitive moat, deliver additional value to our customers, and augment our financial results with enhancements to our products at higher price points.

Chris Koch: Our goal is to increase our R&D spend to 3% of sales and grow the contribution from new products introduced in the last five years to 25% of sales, which represents a significant potential revenue lift. Over the last 18 months, we've launched over 25 new products, including several recent introductions that capture the market opportunities presented by the energy-efficient, labor-savings, and integrated solutions trends highlighted in our Vision 2030 strategy. One such product is our new ReadyFlash technology, which allows commercial roofing applicators to maintain optimal productivity in various temperature conditions by adjusting the adhesive setup time using either the light or dark facer side of the rigid insulation board. Our customer trials have demonstrated that the Dark Ready Flash Facer can provide up to four times faster adhesive flash off than a standard light facer with no sacrifice in performance.

Chris Koch: Another example is Carlisle's patented SeamShield technology for our SureWeld TPO membranes in the commercial roofing market. This innovative feature provides an easy-to-remove protective film on the top and bottom seam areas, reducing cleaning time by 70% while increasing weld strength by 10%. Additionally, we recently introduced Henry Blue Skin VP Tech, an integrated panel that includes a weather-resistive barrier, continuous insulation, and seam sealing in a single panel. In trials with independent contractors, Blue Skin VP Tech installed 30% faster compared to traditional methods, saving both time and labor costs. It also improves a building's energy efficiency by reducing air leakage and enhancing thermal performance.

Chris Koch: These three products are patented or patent pending, and together with our other new product launches, represent a significant incremental sales opportunity at higher margins. As we continue to execute our Vision 2030 strategy, we remain committed to investing in R&D and accelerating the introduction of innovative products that drive energy efficiency, labor savings, and superior performance for our customers. Please turn to slide 7.

Chris Koch: Before I hand it over to Kevin, I wanted to quickly highlight that we recently released Carlisle's 2023 Sustainability Report. The report contains detailed information, including clear examples of how our products reduce the carbon footprint of buildings, how we reduce emissions in our operations, and how we plan to reduce waste to landfill. It will also give the reader our latest progress on GHG emission reductions and our progress towards zero emissions by 2050. In conclusion, I am extremely proud of our team's performance in the first half of 2020.

Chris Koch: Our ability to produce strong results in a dynamic environment demonstrates the resilience of our business model, our strategic market positioning, and the disciplined execution of our Vision 2030 strategy. As we move forward with Vision 2030, we are well positioned to capitalize on the positive fundamentals in our businesses and deliver profitable long-term growth. And with that, I'll turn it over to Kevin to provide additional financial details. Kevin?

Kevin P. Zdimal: Thank you, Chris. Our second quarter financial results continue to demonstrate Carlisle's strength and the effective execution of our strategic initiative. As shown on slide 8, we delivered a strong 2nd quarter on both the top and bottom lines. We grew sales to $1.5 billion, up 11% year-over-year, driven by the normalization of inventory levels in our channels, a solid start to the construction season, and robust re-roofing activity. We leveraged our top-line performance to expand our adjusted EBITDA margin by 220 basis points to a record 28.8%.

Kevin P. Zdimal: Furthermore, we grew adjusted EPS by 33% to $6.24, reflecting the strong operating results, margin expansion, and the benefit of our ongoing share repurchase program. Looking at our segment highlights, starting with CCM on slide 9.

Kevin P. Zdimal: CCM delivered second quarter revenues of $1.1 billion, up 15% year-over-year, reflecting strong re-roofing activity, the benefit of inventory normalization, and the acquisition of MTF. Organic revenue increased 13%. CCM's adjusted EBITDA increased 23% year-over-year to $364 million, and its adjusted EBITDA margin expanded an impressive 220 basis points to 33.4%, reflecting volume leverage on strong sales growth, favorable raw materials, and continued operational improvements driven by COF. Moving to slide 10. Revenues at CWT were up 1% year over year to $362 million, driven by higher volumes and the benefit from the acquisition of Polar Industry, partially offset by lower prices. CWT's adjusted EBITDA increased approximately 1% year-over-year to $81 million.

Kevin P. Zdimal: Adjusted EBITDA margin was stable, year-over-year, at 22.5% as benefits from the Henry integration and operating efficiencies helped offset ongoing growth investment. For your reference, slide 11 provides a year-over-year second quarter adjusted EPS bridge. Moving to slides 12 through 14, operating cash flow from continuing operations for the six months of 2024 was $333 million, up $61 million year over year, reflecting our earnings growth and disciplined working capital management. We invested $45 million in capital expenditures. Free cash flow was $288 million, up $73 million year over year.

Kevin P. Zdimal: We remain on pace for a free cash flow margin of over 15% for the full year 2024. We ended the quarter with $1.7 billion of cash on hand and $1 billion of availability under our revolving credit facility. The strong liquidity position provides us with ample flexibility to continue investing in our business while also returning capital to shareholders. We ended the quarter with a net leverage ratio of 0.4 times, which was positively impacted by the cash proceeds we received from the sale of CIT.

Kevin P. Zdimal: We are already making significant progress against the capital allocation goals outlined in our Vision 2030 strategy. We are doing so by reinvesting in our high ROIC building product businesses through continued investment and growth capital, evidenced by a recent announcement for a $45 million investment into our state-of-the-art research and innovation center. We continue to demonstrate our conviction in our strategy and commitment to returning capital to shareholders through dividends, including $40 million in dividends paid and repurchasing $550 million of shares during the second quarter of 2024. Since the inception of our program, we have repurchased over 20 million of our shares, reducing our diluted share count by more than 26%.

Kevin P. Zdimal: We are also making synergistic acquisitions that will deliver significant opportunities for value creation, such as our recently closed acquisition of MTF. These actions are collectively aligned with our Disciplined Capital Allocation Framework, which forms an integral part of our goals to deliver ROIC in excess of 25% and ultimately reach $40+ of Adjusted EPS by 2030. Following the repurchase of $550 million of shares during the second quarter, we have 5.6 million shares remaining under our share repurchase program.

Kevin P. Zdimal: Our financial strength is built upon a firm foundation, a pristine balance sheet, and a disciplined approach to managing leverage. This thoughtful capital structure empowers us to strategically deploy resources with a returns-oriented mindset. With a significant liquidity position of nearly 2.7 billion dollars, now including the CIT proceeds, we are ready to seize meaningful opportunities as they emerge, unlocking further value for stakeholders in both the near and long term. Overall, we are confident in our ability to drive sustainable growth and significant value creation for our shareholders for years to come.

Kevin P. Zdimal: Now moving to our full year financial outlook on slide 15. As Chris previously noted, we are raising our full year 2024 outlook for revenue to grow approximately 12% over the prior year. This increase in outlook is driven by a combination of our solid second quarter results, the acquisition of MTL, and maintaining our previous outlook for the second half of 2024. Leveraging the additional revenue through the Carlisle operating system, we now expect adjusted EBITDA margins to expand by approximately 150 basis points as compared to our previous guidance of expanding margins by at least 100 basis points. As such, we continue to expect double-digit EPS growth in 2024. Additionally, we maintain our expectation to deliver free cash flow margins of at least 15% and ROIC in excess of 25%.

Kevin P. Zdimal: This is directly aligned with the objectives outlined in our Vision 2030 Strategy, and we are experiencing an excellent start towards our 2030 goal of $40 plus adjusted EPS. Looking at the Components of the Outlook. For CCM, we now expect year-over-year revenue to grow approximately 15% in 2024.

Kevin P. Zdimal: The drivers for the 15% growth are tailwinds from the return to normalization and order patterns that were absent during 2023 due to destock. Solid and market demand driven by pent-up re-roofing activity and the acquisition of MTL, more than offsetting a slight decline in year-over-year prices. For CWT, we now expect revenue to grow approximately 3% in 2024 from strong sales execution on key growth initiatives, as well as modest end market growth, more than offsetting any declines in year-over-year prices. In summary, second quarter revenue was up 11%, and adjusted EBITDA was up 220 basis points to a record 28.8%.

Kevin P. Zdimal: Based on the strong second quarter results and a successful start to the MTL acquisition, we are raising our full year outlook to revenue of approximately 12% and approximately 150 basis points of EBITDA margin. With that, I turn it over to Chris for closing remarks. Thank you, Kevin.

Chris Koch: In conclusion, we are extremely pleased with our performance in the first half of 2024. As we look towards the second half, we believe the significant positive trends exhibited in the second quarter will carry over into the third quarter, and that belief is embedded in our raising of expectations for 2024. In addition, I want to emphasize our unwavering dedication to Carlisle's strategic trajectory under Vision 2030.

Chris Koch: As we progress towards 2030, our focus on innovative, energy-efficient, and labor-saving systems and solutions, the Carlisle experience, and flawless execution within our businesses positions us to outpace market growth and, consequently, deliver outstanding outcomes for all stakeholders. The pivot of our company to a building products portfolio, in tandem with our robust free cash flow generation and significant investment in innovation, sets the stage for us to unlock significant additional value for our shareholders as we move forward. I would be remiss if I didn't take a moment to convey my appreciation to each and every member of the Carlisle team.

Chris Koch: The remarkable achievements we've witnessed this quarter and the momentum we've built for 2024 are a testament to the dedication and skill of our talented employees. With Vision 2030 serving as the roadmap for our success, I remain incredibly optimistic about Carlisle's future. Thank you once again for your support.

Operator: That concludes our formal comments. Operator, we are now ready for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star button followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the number 1. Please press the start button followed by the number two.

Operator: If you're using a speakerphone, please lift the handset before pressing any key. One moment, please, for your first question. Your first question comes from the line of Tim Weiss from BIRD. Please go ahead, sir. Hey, guys. Good afternoon. Nice job. Good afternoon.

Timothy Ronald Wojs: Maybe just to start off, you know, Chris, I guess, obviously you guys are comparing yourself to last year. I'm kind of backing into kind of the underlying market maybe in Q2 and the back half, or the front half of the year, you know, kind of being up maybe like three to 4%. So I guess, A, is that kind of what you're seeing? be, you know, as you kind of look to the back half, you know, what kind of gives you the confidence, you know, either from talking with contractors or just kind of order rates that that type of market growth rate. Tim, I think you're right about the first half, and the first half was pretty much as we predicted.

Chris Koch: I think we did a good job, Kevin and the team, of defining the impact of the Restocking, I'll call it bad, the lack of destocking. And so that was good. That was right on the mark.

Chris Koch: I think we have also done some of our work, and this gets to the confidence issue. I've done some of our own independent work. We can talk about that later in the year around surveys and how that really gave us some insight that we didn't have two years ago. And I think we've talked about that before how we went out and did some of our own independent work after the destocking got us a little bit off guard a couple quarters ago. And we're seeing the same things going into the third quarter that we saw in the second quarter. CCM was a little bit better.

Chris Koch: You know, at the end of the second quarter, really, drivers were in mix. I think we had a better operating environment. You know, we added MTL to that. We had positive momentum there.

Chris Koch: If you look at CWT, while sales weren't probably what everybody would hope for, I think, given the context of the resume markets and the impact on R&R on that, it was probably about what we expected. And what I was excited about there was that in our retail channel, CWT and the Henry team introduced a couple of new products into the retail channel that really took off and helped. And so I think we should look at those things.

Chris Koch: We continue to have new products introduced. We continue to, we actually had a record month on the margin side, or record quarter, excuse me, on COS. And so we look at operational efficiency. We look at the raw material situation. We look at the demand situation across the board. We just look at Q3 and think. Unless there's a weather event or we see something deteriorating the economy, the trend should, they all look like they're going to continue into the third quarter, and then we'll look to the fourth quarter and see what kind of weather we get as we end the year and how many days on the roof we get as we get into November and that. Okay, okay. Okay, that's helpful.

Timothy Ronald Wojs: And then just on the re-roofing piece, when you guys talk about pent-up demand, are you really referring to, you know, kind of the echo boom from the late 1990s and the mid 2000s in terms of that kind of pent-up demand or above average demand for re-roofing? Or is it kind of, you know, a couple years ago where the industry just had to reprioritize or prioritize? The new construction market and that kind of pushed re roofing demand, you know, kind of to the right, and that's kind of, you know, kind of hitting now. I guess I'm just trying to get a sense for, you know, what visibility you have with that background. Yeah, and it's something we talked about before, you know, and I know this chart isn't great.

Chris Koch: We've had it out there for a while where increasing new construction 20 years ago is really laying the foundation of rebriefing that's going to occur. So, as you say, and we've talked about this for a while, the constrained labor markets, obviously, that's a big factor in driving our innovation is that we forecast continued constrained labor markets. And so I think you're right, you know, And I think that's kind of consistent with what we're seeing.

Chris Koch: Okay. Okay. And then, if I could sneak one last one in, just, it's hard for us to tell from the outside, but, I guess, how big is the data center market for Carlisle? I mean, obviously, they're putting roofs on, you know, just like any other building. And do you get a content benefit from a data center relative to a kind of, you know, run-of-the-mill, you know, type building? I'm just thinking with all the heating and cooling that needs to happen in data centers if there's any sort of additional poly ISO or anything like that.

Chris Koch: Right. So we did see data centers, obviously, with the increase in data consumption and things like this. We've seen, we've been seeing this build is a part of our overall sales, it's a small piece, it is growing, we're seeing more interest in it. And not just in areas like Phoenix, we've seen a lot of data center, excuse me, data center, talk about construction and that, but also around the country.

Chris Koch: And so it's getting our attention. We have a team focused on it. And it really gets to the point that you're making, not that it's a big part of it, but it is a nice content piece because of what you talked about. You really need to have a very secure building envelope.

Chris Koch: Energy efficiency is prime there, as well as moisture control and other things. So it's one of the most sophisticated roofs we would put down. And I think when you think about that and translate it into product content, it's a good roof for Carlisle. Okay, okay, great. Thank you for the time, and we'll look at the back half. Alright, thanks. Our next question comes from the line of Susan Maklari from Goldman Sachs. Please go ahead. Thank you. Good afternoon, everyone. Hi Susan.

Susan Marie Maklari: My first question is, you know, maybe going back to roofing for a bit, it sounds like channel inventories are still fairly lean as we think about the second half of this year. Can you talk a bit about how you are positioning the business relative to that and anything that you're doing to sort of ensure that you can maintain service levels and market share, all those key dynamics of Vision 2030 as you think about the potential for a restock or change in demand over the next couple of quarters?

Susan Marie Maklari: Right. You know, I think it was last quarter we said that inventory might be on the historically lighter side. I think that's true. There wasn't a big load this year. Obviously, you're aware of this. People were burned on inventory.

Chris Koch: We had to de-stock. Obviously, we're through that. I think coming into this year, we didn't expect a big load in. And to your point on being prepared, we actually were prepared and actually built a little bit more in the first quarter to be sure we could address customer needs by having lower inventory through the channel. So I don't see inventory picking up, Susan, as we go into the third quarter because, you know, we're past the peak of the construction season, so why would you load up on inventory now? Historically, people haven't done that.

Chris Koch: They've managed it more carefully in the back half of the year. And then, as we look at 2025, we'll do some more assessments. But that would be the time when, traditionally, we would have built inventory in the winter months to begin to address that load in the spring. And so we'll look at that. But that's one way we do it.

Chris Koch: The other way is, as I said, we had a record COS quarter in the second quarter. And I think you can think of that just simply in terms of increasing the efficiency of our operations. And we continue to invest in capital; we continue to invest in automation. We're starting to roll out AI in different places.

Chris Koch: One of them is SNLP planning, demand management, things like that, to make ourselves more efficient and to really be able to respond more quickly to any surges in inventory we've had. But to this point, we've handled the year pretty well. I think we're well positioned on inventory and production for the third quarter. And obviously, we'll be right there if there is a good, you know, weather-related fourth quarter that we need to continue to beat that demand. So I think we're in a good position for this year and then even into 2025. Okay, that's a great color, Chris.

Susan Marie Maklari: Thank you. And then you mentioned the $45 million investment that you're making in Carlisle, Pennsylvania. Can you talk a bit more about how we should think about those costs coming through over time, as you think about ramping up that R&D spend to towards that 3% target that you have, and what that could mean in terms of the next shift, as we start to think about perhaps 25 in the forward years in there, how that perhaps could move, and what that will mean for results? Yeah, the cost side, the $45 million investment, that's going to be over a two-year period.

Chris Koch: And I'll be more back-end loaded on it as we're getting permits and getting everything in place and then getting the building going and putting the labs in. And then, obviously, we'll be a little bit further out on when the new products come in. But certainly, we have a full pipeline of products that we're currently working on. We have three different buckets that we work on in our R&D.

Chris Koch: And the first one's the maintenance, where we're making improvements. It's really taking costs out of our products, and that's going very well. A lot in that pipeline. Then the evolutionary products, some of what Chris pointed out in his remarks on this call. And that's the part that we're going to see the immediate impact. We'll start seeing some of that right now in the 25, 26, just continue to ramp.

Chris Koch: So that's really the focus on our current new products. The new R&D center is going to be when we start seeing some more of the transformational R&D that we've been working on. And that's more in the three to five years. Okay, that's helpful, Culler. Thank you both and good luck with it.

Susan Marie Maklari: Thanks, Susan. Thank you. Our next question comes from the line of Garik Shmois from Loop Capital. Please go ahead. Oh, hi. Thank you.

Garik Simha Shmois: I was hoping you could provide an update on price cost; you're looking for it to be positive 20 million for the year that was raised after the first quarter. Is that still a good assumption, and maybe also talk about how that looked in the second quarter? Yeah, certainly, as we came into the year, we were expecting about really flat for the year. And then in the first quarter call, as you mentioned, we took that up to 20 million. And then, as we've moved on through the year, we've seen an uptick in MDI, which is hitting raw materials a little bit.

Kevin P. Zdimal: And then CWT has given up a little bit of price in one of their segments, and so that is bringing us back to looking at pretty much flat for the year. If you looked at it by segment, CCM was pretty much flat throughout all four quarters. So there was no real impact. Last quarter, we talked about CWT being a positive $10 million in the first quarter. The second quarter for CWT was flat.

Garik Simha Shmois: And then the third and fourth quarters will probably be both down about $5 million on the price cost side at CWT. Great, that's helpful. I wanted to follow up on the pricing comment; you did implement a price increase in the second quarter of CCM, you know. Just wondering how that was accepted by your customers and, you know, maybe just a little bit more color on how pricing moves sequentially. Garik, I'll take part of it; Kevin can talk about the sequential stuff.

Chris Koch: You know, we entered the year, and even I think when we saw that pricing announcement from one of our competitors, and again, we were happy they were attempting to show their price to value there. And they also thought, I think, my sense was, the raw materials were rising. So it did call there because, as Kevin just mentioned, MDI is getting a little higher, and labor costs are going up. We said that that wasn't really going to have much of an impact on 24 for us, maybe a little bit, I think, in the fourth quarter, if I'm right. Kevin can correct me if I'm wrong.

Chris Koch: So what we saw through the quarter is that we did actually see places where we implemented that pricing increase, and we were getting some traction, I would say, overall, though the response in the broader markets was not to have a lot of conviction over that. And just to continue to extend it, I wouldn't say it was a reduction; it was just an extension of current terms further into the year. And ultimately, when you keep extending the price increase implementation date, you run out of room for the year and its ability to be effective.

Chris Koch: So I think, overall, not only for us, but as we projected, it wouldn't have much impact. I think, in the industry, it won't have much impact either. It'll be something that, you know, how to, I think, manage labor costs, how to..., supply chain costs, things like that go into the third and fourth quarter. And then do you see some ability by the industry to build a firm as we enter 2025? Got it. No, I appreciate the call.

Garik Simha Shmois: I guess my last question is just on the MTL acquisition, you raised the EPS accretion guidance, you know, just, you know, a couple months into ownership. I was just wondering what you're seeing so early on that gave you confidence. Well, you know, when we come in, we have this projection that we do, and we try to be good about it. We don't get as much insight as we do after we own the company. But I think, just like with Henry, we've got a great leadership team. Frank Reddy was the Henry leader that really embraced our integration playbook.

Chris Koch: And that's a key thing: how does the team embrace the integration playbook? Because some of that, the synergies identified, and the actual identification of new synergies comes as the team gets together, and they pursue these things either passionately or not passionately. In both cases, Henry and MTL leadership have just hit the ground running, fully bought into COS, and fully bought into the integration playbook. And as a result, we've accelerated, I think, some of the things we thought were there.

Chris Koch: And then we've also identified some new opportunities for synergy, and I think it's worthwhile to say most of the stuff that we take action on initially with our cost synergies. And then as you start to get the groups together, you start thinking about sales synergies and how, you know, you can bring things together. So I think it's going really well, that management team and the teams at Drexel and at Peterson are just doing a great job, and that's why we feel confident in raising the synergies, the accretion, and I actually think there's even upside to the $20 million we Alright, sounds good. Thanks again and best of luck.

Garik Simha Shmois: With that, thank you, Gary. The next question comes from the line of Bryan Blair from Oppenheimer. Please go ahead. Thank you. Have a good afternoon, guys. Hey, Bryan.

Bryan Francis Blair: Sorry if I missed some of this detail. Just to level set on revised sales guidance, what's now baked in price and volume respectively for CCM and CWT? It seems like the overall organic outlook is... largely unchanged, CCM a bit better, CWT dialed back, et cetera. Just curious about that.

Kevin P. Zdimal: Yeah, you summed it up pretty well there. Just overall, as we look at the full year, going into this quarter, we had said upload double digits for CCM. So around 12%, we raised that to approximately 15%. So the increase, 2% of it is from the MTL acquisition. Then the other 1% would really be the additional volume that we picked up in the second quarter. And then we're expecting, we haven't made any changes to the second half of the year.

Kevin P. Zdimal: We're maintaining the outlook we provided in the last earnings call. Understood. Appreciate the clarification.

Bryan Francis Blair: And to follow up on MTL, maybe offer a little more detail on... The MTL profile synergistic fit with Drexel and Peterson and how your team is thinking about longer-term margin potential, and it sounds like the step up to, you know, $20 million in deal center views is going to ramp profitability pretty quickly. I think that, you know, MTL, longer term, Bryan is along the lines of CCM.

Chris Koch: I mean, we'd for sure be disappointed if we didn't see in the next few years getting into the mid-30s. And I think, you know, we're going to be aspirational to somewhere closer to 40. So, I know that's a big gain for the team, but I really do think we finally have the right approach, we've got the right volume, we've got the right platform across the profiles, edge metals, you know, the fabrication, the RESi, the non-RESi building panels, things like that, to really start to get some leverage out of this entire platform that we didn't have before. So, yeah, I would think it would continue to grow. And again, let's target the mid-30s and see if we can get to 40.

Bryan Francis Blair: Very impressive. And one last one, if I may, sticking with M&A. Any color you can offer on your, you know, current deal pipeline and, you know, potential or likelihood of, other strategic deals in the foreseeable future? MTL was seemingly a home run, tons of dry powder. We know that your team is always aggressive in terms of share repurchase.

Chris Koch: Curious on the M&A side. Yeah, the M&A pipeline is actually quite good. I think, you know, you're probably aware of what's said publicly around whether it's strategics and private equity wanting to have some exits, and we see that I think we're still a little bit getting a little bit of, I'd say tension around this idea that some people might think it's better to wait and have a higher valuation as a seller, thinking that rate cuts will come and 25 will be better. And so, if I'm going to sell it, I want a higher number.

Chris Koch: And then buyers are obviously saying, well, yeah, there's a lot of uncertainty there, and I think we want to be compensated for that uncertainty. So the pipeline is good. I think it's the valuation differential that's maybe slowing things down a little bit. But, as you said, we have assets, we have aspirations, and we have a good strategy. We've got clear targets across all of our businesses for what would be good acquisitions.

Chris Koch: So now the question is just getting close. And I think, you know, Kevin and I are both optimistic that M&A will continue to be a solid part of the growth story for Carlisle. So I think we're in good shape there. All sounds good. Thanks again.

Bryan Francis Blair: Thanks, Bryan. The next question comes from the line of Saree Boroditsky from Jefferies. Please go ahead. Hi, good evening.

Saree Emily Boroditsky: Um, yeah, you've highlighted some shared gain initiatives within CWT. Can you talk more about those opportunities and then how those add to growth, especially if you think of the second half of this year and into 2025? Saree, I'll take that one. It's Mehul here.

Mehul Patel: So, on TWT, we talked in prior calls a lot about cross-selling opportunities. We talked about Home Depot. So, if you just look at the Home Depot example with the new product categories that we added to that channel, that itself is going home by roughly double digits. In addition to that, we also have some pretty nice synergies around new products in waterproofing, which is gaining traction, and then Frank's putting a lot of focus on system selling across the full portfolio, which is also gaining some traction. So, when you roll it all together, overall, for CWT, that's adding somewhere between 3% to 4% of growth in the second half. That's super helpful.

Saree Emily Boroditsky: A little bit earlier in the call, you highlighted some survey work that you've done internally. Maybe just give us some color on what you've learned from those surveys and how it gives you confidence in your outlook. Yes, sir. I don't know. I think I thought we talked about it on a call before. Maybe we hadn't.

Chris Koch: You know, right after the inventory de-stocking in the third quarter of, I forget the year, but anyway, we were disappointed in that, as were you and other investors. There wasn't more visibility and clarity into the channel, I think, both at the contractor and the distributor level. And so we went out, and we worked with the firm to create kind of a, I won't call it proprietary, but a survey where we were looking at multiple hundreds of contractor data points in various geographies, various size contractors, and distributors, and then asking a series of questions to get around things like, "How are we doing on inventory levels?"

Chris Koch: What are you forecasting for growth? What are you seeing in your market? And then we did a consolidation around that, and it's been a pretty effective tool for us. I think the other thing it's done for us is start to give us some greater insights into the market perception of us. We put a lot of emphasis on the Carlisle experience. And so embedded in that are some questions around delivery and quality and things like that that we've taken back and we've used to also help us direct some efforts in our customer experience. So it's not earth shattering.

Chris Koch: It's just something we needed to do, and we feel like that direct connectivity is something we need to have. So we did it. Now, you may think, well, why weren't you already doing that?

Chris Koch: We do it, I would say, and have multiple conversations every day with, I'm sure, all of our customers. But I think this is a more formal process that was a little bit more statistically valid. So it was a good addition to the portfolio of information gathering tools we have at our disposal. I appreciate the colors. See that, Saree?

Saree Emily Boroditsky: The next question comes from David MacGregor from Longbow Research. Please go ahead. Yeah, good afternoon, everyone. And thanks for taking the questions. Chris, congratulations on a great quarter. I guess I wanted to see, sure, I guess I wanted to see if you could drill down into CWT a little further and just help us understand kind of the flat organic growth.

David Sutherland MacGregor: Looks like you're guiding 3% for the year, but based on some comments just made, it sounds like most of that city is syncretic internal programs. Can you sort of open up the residential versus the commercial side of that and talk about what's happening on each side of that and just how that plays out into the second half? Yeah, David, as you know, in the markets for CWT, it's fairly balanced, about 25% each into residential, residential R&R, commercial new, and commercial R&R.

David Sutherland MacGregor: So on the residential side, we were fairly on the conservative side, overall residential on the single family side, we kind of see that in the low double digit range, multifamily down pretty significantly around 30%. On the commercial news side, CWT leans more towards the institutional side, so that's up in the low single range. And then on the R&R side, we're down about roughly 4%. Obviously, people are, you know, affordability as well as lighter transactions between sellers and buyers on the residential side, there's less R&R.

Mehul Patel: But you net it all together, overall, the market, we see it down or up between 1% or 2%, so pretty modest small growth there. We talked about the initiatives there. There's also a small acquisition that CWT did in late Q4, so that's going to add about 1 point. And then price, as Kevin mentioned, in certain categories, mainly around the installation side, there are lower prices in the second half to the tune of 3%. So you net those together; that's how you get to the plus 3.

David Sutherland MacGregor: Are you confident that you're holding your share in CWT? Yeah, overall, we talked about share gains around some of the cross-selling things through Home Depot as well as the waterproofing side. So we feel pretty good there.

Mehul Patel: And on the insulation side, I think there's something that's going on in the channel where we see some softness outside of the overall market trends. This is a quick follow-up. For CCM, how much of a revenue impediment was weather in the quarter? Was the weather, if at all? Yeah, weather was minimal.

David Sutherland MacGregor: Yep. Yeah, it was very minimal. We had some put and takes there, but overall, no impact. A little bit of flooding at one facility, I think.

David Sutherland MacGregor: Okay, great. Thanks very much. Congratulations. You bet. Thanks, dude. Our next question comes from the line of Adam Baumgarten from Zelman. Please go ahead. Hey guys, quick question on CCM pricing.

Adam Michael Baumgarten: I think last quarter you talked about that being down about 1% from down two to three in terms of your initial outlook for the year. Is that maybe now back to that down two to three, or is that down 1% still a good number to use? Yeah, that's what we were aiming for earlier and one to 2% somewhere in that range, but no higher than that.

Kevin P. Zdimal: Okay, got it. And then just within your CCM business, maybe if you could give us some color on the verticals, whether it's office, retail, warehouse, you know, kind of what you're seeing. I'm sure there are some puts and takes, but, you know, what's been strong, what's been weak. Right. No, I think when we look across the board, obviously, the warehousing thing has been down, and that's been down significantly when I think about, You know, where we were maybe back in 22, where we were in the, I think, 20 plus percent increases in warehousing, and now we're probably the inverse of that, maybe a little less than that.

Kevin P. Zdimal: Education has been pretty consistent over the last couple of years as a good place to be. Office buildings, you can imagine, are still not great, a little bit negative. You read that in the press about what's happening there, work from home, and all that.

Adam Michael Baumgarten: We think about stores; we call stores, that's doing well. Healthcare has done well again. And then I think the one that everybody draws a lot of attention to, the reshoring of manufacturing, actually, this year has been a good year in terms of new construction.

Chris Koch: You know, overall, a mixed bag, but probably what you would have expected based upon what you're reading the news about the trends. Got it. Thank you. You bet. Once again, ladies and gentlemen, should you have a question, please press the start button followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised.

Operator: There are no further questions at this time. I'd now like to turn the call back over to Chris Koch for his final closing remarks. Please go ahead.

Chris Koch: Thank you. This then concludes the second quarter earnings call. Appreciate everybody being on the call and for the good questions. Look forward to speaking with all of you at our next earnings call. Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.