Q4 2024 Carlisle Companies Inc Earnings Call
Good afternoon. My name is Konstantin and I will be your conference operator for today. At this time, I would like to welcome everyone to the Carlyle Company's 4th Quarter 2024 Earnings Conference Call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will conduct a question and answer session. I would like to turn the call over to Mr. Mehul Patel, Carlyle's Vice President of Investor Relations. Mehul, please go ahead.
Thank you and good afternoon, everyone. Welcome to Carlyle's fourth quarter 2020 for earnings call. I'm Mehul Patel, Vice President of Investor Relations for Carlyle.
We released our fourth 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, who will provide key highlights on our fourth quarter and full year 24 results, and some commentary on 2025.
Kevin Zdimal: Kevin will follow Chris and provide an overview of our Q4 and full year 2024 financial performance and give an update on our outlook for 2025.
Kevin Zdimal: Following our prepared remarks, we will open up the line for questions.
Kevin Zdimal: 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.
Kevin Zdimal: 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.
Kevin Zdimal: As Carlyle provides non-GAAP financial information, we provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Chris.
Chris Koch: Thank you, Mehul. Good afternoon, everyone, and thank you for joining us for Carlisle's 2024 fourth quarter earnings call.
Chris Koch: Turning to slide three of the presentation, I would like to start by extending my sincere appreciation to all our Carlyle team members for delivering a very productive start to our Vision 2030 initiatives in 2024.
Chris Koch: Exceeding $20 of adjusted EPS this past year and for completing our pivot in 2024 from a general industrial portfolio of businesses to a pure play building products company.
Chris Koch: To start, 2024 was a historic year for Carlisle as we completed our strategic pivot to a pure playbuilding products company with the $2 billion sale of CIT in the second quarter.
Chris Koch: Our focus on building products has clarified and refined our mission for our employees and investors.
Chris Koch: highlighted the best-in-class financial performance that our building products businesses have delivered for years and provided a clear path to $40 of adjusted EPS in 2030 by adding innovation and a strong M&A playbook to our already well-established and successful pillars of Vision 2025.
Chris Koch: driven in part by our growing and recurring revenue stream from re-roofing which was up mid-single digits throughout the year.
Chris Koch: We also benefited from the return to more normalized inventory levels and buying patterns within our channels to the contractor. Our margin performance was also strong this year with adjusted EBITDA margins expanding 150 basis points to a record 26.6%.
Chris Koch: This is even more impressive when we are reminded of two important factors. First, CWT's margin was substantially impacted by the significant negative trends in the residential markets we serve.
Chris Koch: And second, CCM worked through the well-forecasted but nonetheless negative impact of a low single-digit price decline in commercial markets.
Chris Koch: We also continue to strengthen our market position in the building envelope space by deploying nearly $700 million of capital into two synergistic acquisitions that added to existing businesses within Carlisle.
Chris Koch: MTL enables us to offer a wide range of prefabricated solutions such as edge metal, fascia, coping, and composite panels and systems for the building envelope.
Chris Koch: As the year progressed, we validated the superb fit of MTL's leadership team with Carlisle
Chris Koch: And through our superior integration playbook, we exceeded our expectations on the synergy front and now expect synergies to increase from our initial estimate of $13 million to now well over $20 million.
Chris Koch: This acquisition of MTL also further positions Carlisle as an industry leader in the $4 billion architectural metal category.
Chris Koch: Second, our recent acquisition of Plastifab advances our position as the leading vertically integrated manufacturer of expanded polystyrene insulation for the building products market across North America.
Chris Koch: Plastifab drives innovation in expanded polystyrene products for commercial, residential, and infrastructure construction applications.
Chris Koch: PlastiFab's customers seek energy efficiency and contractors and building professionals seek comprehensive solutions. As the only vertically integrated expanded polystyrene company in North America, PlastiFab meets those needs.
Chris Koch: And as with MTL, we expect a superb fit with our existing EPS business and significant synergies, currently estimated at $14 million, which we expect to increase as we move through 2025.
Chris Koch: Yesterday we completed the previously announced acquisition of Texas-based expanded polystyrene insulation manufacturer Thermofoam, which builds on the recently completed acquisition of Plastifab and leverages Carlisle's vertically integrated expanded polystyrene capabilities while adding geographic coverage in Texas and the South Central United States.
Chris Koch: Looking at the fourth quarter 2024 performance on slide 4, Carlisle continued to experience broad market headwinds more heavily weighted to the residential new and R&R markets and the commercial new construction markets.
Chris Koch: These headwinds included higher interest rates, restricting landing conditions, and unfavorable weather patterns.
Chris Koch: These factors negatively impacted sales and the results were below our mid-year 2024 outlook.
Chris Koch: Despite this challenging environment, Carlisle's consolidated Q4 revenues of $1.1 billion remained essentially flat year-over-year and adjusted EPS grew by 7% to a fourth quarter record of $4.47.
Chris Koch: We were pleased to see continued EPS growth as we remain confident in our Vision 2030 journey to $40 of adjusted EPS per share.
Chris Koch: We remain committed to the same principles our stakeholders know well. Disciplined capital allocation, a focus on ROIC, and growing our businesses both organically and through robust M&A.
Chris Koch: Looking ahead to 2025, our Vision 2030 Strategy guides our path forward through four key elements.
Chris Koch: First, we are accelerating innovation focused on energy efficiency and labor-saving solutions. Nothing exemplifies our commitment to innovation more than our $45 million-plus investment in our new, state-of-the-art Innovation Center in Carlisle, PA.
Chris Koch: This expansion will provide additional capabilities and resources necessary to accelerate our development of innovative, energy-efficient, labor-saving solutions and integrated systems, supporting our goal of generating 25 percent of revenues from new products introduced within the past five years.
Chris Koch: Second, we will seek to continue to expand our best-in-class margins by pricing our innovative products and solutions for the value we provide, by delivering those innovative products and solutions through the value-enhancing Carlyle experience, and by driving operational excellence through the Carlyle operating system.
Chris Koch: Our well-defined M&A playbook will continue to drive significant returns on deals and provide a strategic competitive advantage for Carlisle, as was exemplified by our successful acquisitions and integrations of Henry, MTL, and now Plastifab.
Chris Koch: Leveraging our M&A playbook, Carlisle aims to maximize value creation by employing a disciplined integration process and ensuring acquisition targets align strategically.
Chris Koch: We achieve this by adhering to four key investment criteria in our selection process. As a reminder, those four criteria are 1. A solid organic growth story already underway in the target company.
Chris Koch: Two, a talent management team. Three, identified and meaningful hard cost synergies. And lastly, the ability to add value through executing the integration with our proven Carlisle M&A playbook.
Chris Koch: As a reminder, using our M&A playbook, we have identified over $20 million of synergies through the acquisition of MTL, and we expect more than $14 million of hard-cost synergies through the acquisition of Plastifab.
Chris Koch: In 2025, we expect to add approximately $1 of EPS through these recent acquisitions.
Chris Koch: And fourth, we remain committed to delivering superior results through disciplined capital deployment.
Chris Koch: Balancing growth investments with shareholder returns, Carlyle deployed nearly $700 million this year into strategic acquisitions and returned $1.8 billion to shareholders in 2024 through share buybacks and increased dividends.
Chris Koch: Now let's turn to 2025. We expect the market challenges we experienced during the fourth quarter to continue through the first half of 2025.
Chris Koch: We are also continuing to digest the recent actions taken by the new administration on tariffs in recent days.
Chris Koch: With over 90% of our sales in the U.S. and less than 10% of our raw material sourced outside of the U.S., we expect little direct impact from the tariffs.
Chris Koch: That said, recent indicators make us cautiously optimistic that 2025 will be another record year. And we expect that positive trend to continue into 2026 and 2027, given Carlisle's ability to deliver solutions that address the significant housing and labor shortages.
Chris Koch: necessary energy efficiency improvements in buildings and an increasingly volatile environmental backdrop.
Chris Koch: Our latest Carlyle market survey of over 500 market participants conducted in early January indicated positive 2025 volume expectations for commercial roofing, driven more by re-roofing than new construction.
Chris Koch: Based on the results of our survey, we expect a slow start to the year with Q1 flat when excluding any negative impact from weather. And then we expect growth to build through the rest of the year to deliver an overall low single-digit increase in volume for 2025.
Chris Koch: Additionally, inventory in the channel is lower by historical comparisons due to higher carrying costs. A pickup in inventory stocking should be expected as the channel leans into the summer construction season in mid to late Q2.
Chris Koch: On the residential side, the Carlisle Market Survey indicates flat to low single-digit volume growth for 2025, with the first half down low single digits and the second half up low to mid single digits as residential markets rebound.
Chris Koch: We've seen estimates of about 30% of construction workers are immigrants, and a significant share of those workers may be undocumented.
Chris Koch: As we look into 2025 and beyond, Carlisle will continue to focus our efforts on the factors that are in our control. Maintain resiliency in our businesses through advancements in new product introductions, cross-selling and market penetration into CWT, and our architectural metals businesses.
Chris Koch: Overall, the underlying fundamentals supporting our long-term growth remain strong, anchored by the pillars of Vision 2030, which include our commitment to innovation,
exceptional service provided through the Carlisle experience.
Chris Koch: Operational excellence achieved through the CARLA operating system and strategic and accretive M&A. Combined with our strong balance sheet and clear strategic vision, we are well positioned to drive sustained growth and create value for all our stakeholders as we progress towards our Vision 2030 goals.
Chris Koch: And with that, I'll turn it over to Kevin to provide additional financial details and color on our outlook for 2025. Kevin?
Kevin Zdimal: Thank you, Chris. We're extremely pleased with our results for the full year 2024, where we achieved record adjusted EPS of $20.20, up 30% from 2023.
Kevin Zdimal: Record adjusted EBITDA margin of 26.6% up 150 basis points from the prior year. Strong free cash flow margin of 18.8% and solid ROIC of 28.5%.
Kevin Zdimal: Our 2024 results demonstrate strong early progress towards our Vision 2030 goals.
Kevin Zdimal: The 30% growth in adjusted EPS puts us firmly on track toward our adjusted EPS target of $40.
Kevin Zdimal: The 150 basis point expansion and adjusted EBITDA margin reflects the success of our pricing discipline and operational efficiency initiatives through the Carlisle Operating System.
Kevin Zdimal: Our free cash flow margin of 18.8% also aligns with our Vision 2030 goals, providing us with continued flexibility to invest in growth while returning capital to shareholders.
Kevin Zdimal: Moving to slides 7 through 9, fourth quarter consolidated revenues of $1.1 billion were essentially flat year over year. CCM revenues grew 2% driven by the acquisition of MTL, which more than offset challenging new construction activity.
Kevin Zdimal: CWT's markets were negatively impacted by higher interest rates, housing affordability and unfavorable weather conditions. CWT's revenues were down 7% in the quarter, primarily as a result of the softer residential end markets and price.
Kevin Zdimal: Fourth quarter adjusted EBITDA margin was 25.1%, a 130 basis points year-over-year decline due to lower volumes, negative price costs in the quarter, and unfavorable mix.
Speaker Change: CCM's adjusted EBITDA margin was 29.4% while CWT delivered an 18.3% adjusted EBITDA margin.
Speaker Change: For your reference, slides 10 and 11 provide the year-over-year fourth quarter and full-year adjusted EPS bridges.
Speaker Change: Moving to slides 12 through 14. Our balance sheet remains strong with 754 million in cash, 1 billion available under our revolving credit facility and a net debt to EBITDA ratio of 0.8 times.
During 2024, we produced free cash flow of $938 million.
Speaker Change: deployed nearly 700 million dollars towards acquisitions, repurchased 1.6 billion dollars of shares, and paid 172 million in dividends while maintaining strategic flexibility for continued M&A activity.
Speaker Change: We have 3.5 million shares available for repurchase under our Share Repurchase Program.
Speaker Change: Now, moving to our 2025 financial outlook on slide 15. For CCM, we expect mid-single-digit revenue growth driven by continued strength and re-roofing activity and a full-year benefit from the MTL acquisition.
Speaker Change: We expect to expand margins via price increases, volume leverage, and operational efficiencies.
Speaker Change: For CWT we expect high single-digit revenue growth driven by the full year impact of the acquisitions of Plastifab and ThermoFoam.
Speaker Change: We expect margin improvement from acquisition synergies and leveraging the Carlyle operating system, including automation in our factories.
Speaker Change: We expect Consolidated Revenues to grow mid-single digits weighted towards the back half of the year, driven by solid re-roofing demand, price increases, and the full-year contribution from our recent acquisitions.
Speaker Change: Additionally, continued focus on COS, operational efficiencies, and acquisition synergies are expected to drive approximately 50 basis points of adjusted EBITDA margin expansion.
Speaker Change: This also factors in an expected 50% year-over-year increase in R&D expense to support an increasing pipeline of innovative new products.
Speaker Change: Overall, this outlook puts us on track to achieve double-digit EPS growth and another record year on our way to achieving our Vision 2030 goals.
Speaker Change: In summary, 2024 was a record year for Carlisle with $20.20 of adjusted EPS.
and adjusted EBITDA margin of 26.6%.
Speaker Change: As we enter 2025, uncertainty in the broader economy, including broader economic impact from recently announced tariffs and the timing of potential interest rate cuts, has our customers taking a wait-and-see approach to projects.
Speaker Change: However, we have solid plans in place and are focusing on the initiatives that are in our control to drive above market growth through innovative products, synergistic acquisitions and the Carlyle experience, and expand margins by leveraging the Carlyle operating system.
Chris Koch: With that, I turn it over to Chris for closing remarks.
Chris Koch: Thank you, Kevin. In conclusion, while we faced headwinds in the fourth quarter of 2024, our full year 2024 record performance demonstrates the resilience of the Carlisle business model and the success of our strategic pivot to a leading pure play building products company.
Chris Koch: As we enter 2025, we remain confident in our ability to drive sustainable growth through our Vision 2030 initiatives, focusing on innovation, operational excellence, organic growth, and strategic acquisitions.
Chris Koch: I would once again like to take this opportunity to thank all of our Carlyle employees for their exceptional efforts and perseverance throughout 2024. Your dedication has been instrumental in achieving our strong results and positioning us for further success in the years ahead.
Chris Koch: Thank you all as well for your continued support and interest in Carlisle that concludes our formal comments operator We are now ready for questions
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press star followed by the number 2. If you are using a speakerphone, please make sure to lift the handset before pressing any keys.
Speaker Change: Your first question comes from the line of Team Wise from Baird. Please go ahead.
Speaker Change: Hey, everybody. Good afternoon. Thanks for all the follow-up on the call.
Speaker Change: Thanks, maybe just, you know, first question, as you think about, you know, I think you said in your remarks, Chris, that
pricing.
Speaker Change: was down low single digits in 2024 in CCM. I guess was it, did it get any better in the fourth quarter? And I guess the reason I'm asking is
Speaker Change: It seems like you do need some price to kind of stick this year to kind of get margin expansion and to offset raw material inflation. So maybe just kind of talk through how pricing has kind of tracked and what maybe gives you confidence that we could start to see some positive price this year.
Speaker Change: I think that that says it all right. It got better and better as we went through the year and I think your second and that's 24 and then your second comment about we need it in 25. It should be helpful. And I think when we look at our market survey that we did here in the middle of January, we were we were pleased to see that.
Speaker Change: While we probably wouldn't get any in Q1, just because of the timing of the announced price increases in December and then how they get quoted, it would likely hit more in the March-April timeframe, that there was still expectation that there would be traction on the price axis as demand recovered.
Speaker Change: If demand is there, inventories are still what we'd say probably historically light.
Speaker Change: And so, as we go into the year, if demand is there, you know, a light inventory situation, maybe some stock in, helps out too with that pricing. So, that's kind of how we see the year, the year playing out.
Speaker Change: Again, Tim, as far as our guide for the first quarter, we're expecting pricing to be down just from the carryover. That pricing would be down in the first quarter 1%.
Speaker Change: And then, as Chris said, as we get the price increases into the season, really, that's where it flattens in the second quarter and then starts seeing a benefit from the price increases in the second half of the year.
Speaker Change: Okay, so we should also kind of assume that you're probably somewhat price cost negative in the first half of the year as well and then that builds as organic growth gets better and price sticks.
Speaker Change: that comes due to China restricting imports. We've got some other fire retardants.
Speaker Change: and Paulie Isotter. But then we've got other areas where we're seeing flat to declines and so across the board I think our outlook, you know, for Ross is a pretty stable with all the puts and takes pretty stable for the year.
Okay, so price-cost.
Speaker Change: You know, so basically raw material should be stable and actually price cost could be positive at price six. Is that what you're saying? Yeah, I would say, yeah, and I would say we're heavily weighted second half.
Speaker Change: Okay, gotcha. And then just the last one, just what's built in for capital deployment and guidance? I guess in the 10% plus EPS growth comment, what's in there for buybacks? And have you earmarked anything for M&A in that number?
Speaker Change: I think we'd like to see something similar to 2024 on M&A, at least to similar size acquisitions.
on
Speaker Change: CapEx I think we're thinking around 150 million could be a little bit more than that we've got you know depends on how quickly R&D accelerates and then I would say on bare buybacks we'd probably target around 800 million in buybacks for the year
Speaker Change: Right, Tim, and for those buybacks, probably it will be more half-loaded on the sheer buybacks. The part of the acquisitions, as Chris said, similar levels is what we're looking at. That's obviously not in our guide that we put out for the full-year revenue guidance.
Speaker Change: Okay, so the antermillion of buybacks is in and M&A would be incremental.
Correct.
Gotcha. Okay. Sounds good. I'll hop back in queue.
Thanks, Tim.
Speaker Change: Your next question comes from the line of Brian Blair from Oppenheimer. Please go ahead.
Thank you. Have a good afternoon, guys.
Hey, good afternoon, Brian.
Speaker Change: To level set a bit on CCM volume trends, maybe you can offer a little more detail on how monthly revenue shook out in Q4. Our checks.
kind of suggested a lot of volatility.
Speaker Change: You know incremental project deferral specifically in November. Just curious if that was reflected in your order of cadence and then more importantly, you know, what you're seeing or what you saw through December and into January and if there's any variance versus that kind of flattish key one volume expectation that you started.
Speaker Change: Yeah, I think when you went through the quarter, I think we got actually increasingly optimistic.
Can't give you the exact...
Speaker Change: after the election I think there was more certainty and you know maybe that's not the only driver but I think I would say that it got more positive as we went to the end of the year and then you know as we look out
Kevin Zdimal: For the first quarter, I think Kevin talked about it, that we don't really see a lot of volume in the first quarter. I think there's a few things that are still happening. I mean, these macroeconomic...
Kevin Zdimal: a few other things that happened with the election, and I think that, to your point on delays, I wouldn't argue with that, that that caused trepidation for sure, it caused people to bring less inventory in, but I think what we're seeing in our Carlisle market survey is that, you know,
Kevin Zdimal: The construction, the new construction, really the interest rates and people moving and housing prices is...
Kevin Zdimal: Probably not improving as fast as we wanted. We've got some indications to the consumer spending hasn't been exactly great You can see that in all sorts of different products that are out there, and we see it through the retail chain and then
Kevin Zdimal: Weather surprisingly, and Mihul could talk about this if you'd like more detail, he was at Henry for 19 years, the dry weather on the west coast had a impact on the roof coatings business.
Kevin Zdimal: Appreciate the detail there. You've offered helpful color on top-line dynamics to your price-cost cadence.
Bye.
Speaker Change: Did I hear correctly that the base case assumption that you've built in for the full year, understanding first for second half, is that price cost is about neutral? Is that the case? And then to ask directly on the segments within the 50 basis point, consolidated margin expansion, how should we think about CCM versus CWT in that direction?
Speaker Change: Well, I think on the first question, you know, we're seeing I think that's where Tim ended with a little bit positive price and neutral on Ross so it gets us full year
Speaker Change: a more, I would say, positive price rise, positive on the price over the rise.
Speaker Change: and much of that, like you said, is going to be in the second half. And then Kevin can take the second question. Yeah, for between the two segments, it's pretty much the exact same story on both the price-cost, looking at it for first half, second half, and also being positive overall price-cost.
in both segments.
425
Understood. Thanks again.
You bet. Thank you.
Speaker Change: Your next question comes from the line of Sari Burditski from Jeffries. Please go ahead.
Sari Burditski: Hi, thanks for taking the question. Just building on the margin improvement commentary there, I believe you have some headwinds from the acquisition, so maybe just what you're seeing from an underlying margin improvement story excluding the dilutive impact of acquisitions.
Sari Burditski: Yeah, it's going to be we are looking to get volume on the top side and leveraging that with the Carlisle operating system Which will be a benefit the price cost we've been talking about that's also a benefit
improvement in both the CCM and CWT segments.
Speaker Change: And then just to clarify, sorry if this is just confusing on my end, but within your guidance for mid-single-digit growth for the full year and then flat sales in the first quarter, can you just help us understand the top-line impact from acquisitions versus underlying demand or volume for the first quarter and then for the full year as well? Thank you.
Suri: That's a good question, Suri. I can't afford to put that hat on.
Suri: First quarter and then $20 million is incremental in the second quarter.
Suri: So that's on the CCM side. On CWT, just over $100 million for the full year of M&A. And it's more of our typical split that the second and third quarters are stronger than the first and fourth quarters there.
Thanks. That's very helpful. Appreciate it.
Speaker Change: Your next question comes from the line of Garry Schmeiss from Loop Capital. Please go ahead.
Speaker Change: Oh, hi, thanks. I'm CW, just wondering if you could say good afternoon.
Speaker Change: On CWT, I'm just hoping you can go into a little bit more detail on your assumptions regarding volume and price in 2025. And if I remember correctly, I think...
Speaker Change: Well, Mahul can get into some of the details, just hit the polyurethane that you're talking about, the spray foam insulation. Yeah, it, you know, I would say 24 was not, we were in and around that, low teens, decline.
Speaker Change: I think we have, well I don't think, I know we put in a new leader about a quarter ago.
Speaker Change: I think really our growth market strategy and emphasizing the technological differences which there are some between Carlyle and other products. So I think we'll see improvements in that segment which should help us in 205, but Mouli you want to...
Mouli: Yeah, so Derek, on CWT, as you know, we, in our guide, have high single-digit scores for CWT. The biggest driver there is going to be M&A for both our Plastifab and ThermoFoam. We're pretty much going to get the full-year impact there.
Mouli: that's going to be pi single digits. Overall, the markets, the way we see it, what we're seeing in the deterioration macro conditions in the second half of this year that's going to continue.
Mouli: into the first half of this year but then we see based on our market data reads with what we see with the in markets and contractors they feel more optimistic in the second half but you put those together the markets
with the American Heart Association.
Mouli: Yeah, I mean, I think when we when we have you know, Kevin and I have been out with a lot of contractors distributors we've also gathered a lot over the last six months we had our Carlyle market survey and
I just think people were, you know...
Mouli: caught a little bit off guard with in the fall with the interest rates and then as we got through the fall we got more stability in the political situation that's a big change you know to have a presidential election as we got closer to that and saw that there's going to be some stability I think
Mouli: You know, at least on the re-roofing side, things continue to go, I think.
Mouli: I just feel like people had a lot of tension and then they realized it's probably not going to be as bad as they might have had in their mind. So we've got great, you know, drivers behind it. I think new construction is going to continue to be soft.
Mouli: in the beginning, especially on the resi side, but that it picks up.
Mouli: The labor situation being tight, I don't know how much you can delay because I think if you, on a very real side of it, if you delay and that labor gets reallocated, what are the chances of you getting that labor back? So to a certain degree, it can be delayed depending on where you are on the level of the project, but if you're into it.
Mouli: You've got to get it completed and move on. I mean, there's a there's a big backlog We haven't seen much speaking of backlog if I look at what we got out of our survey, you know throughout the year That backlog is hovered right around, you know eight to nine months
So it's been relatively stable and we continue to see
Mouli: Re-roofs that were put on you know in that increase in the late 90s and 2000 coming for re-roofing so that increasing that's increasing demand on that side too so I think that just all puts together that
Page 10 of 10
Speaker Change: No, I appreciate your thoughts there and I guess I'll pass it on. Best of luck.
All right. Thanks, Eric.
Speaker Change: Your next question comes from the line of Susan McClary from Goldman Sachs. Please go ahead.
Thank you. Good afternoon, everyone.
Thank you.
Speaker Change: Hi, good afternoon. I want to start with talking about the assumption in your guide that we do get some lift in housing in the back half of the year. If that doesn't happen, can you talk about your ability to outpace the market organically given some of the new products and the share gains that you are seeing in the business?
Speaker Change: Yeah, I think definitely that and that's a great comment around what we're doing because you know as you're right We don't sit still we've got a lot of innovation going on specifically on the R&R and I would say the The new construction front a couple of new products that I could highlight just to show you that and then I can speak some other areas, but on the sales side We've just launched a new
Speaker Change: Organic cotton-based insulation in Home Depot. I think it's out there now in what will be 300 stores on the West Coast.
Speaker Change: Vapor Barrier continues to be really well received gaining momentum. Frank Grady and the team that developed that it's just just high value and again not a cheap product and a good margin product for us as well so as we
Thank you. Bye-bye.
Speaker Change: Filling, automated blending, and in three of our factories now that that
operation is going to come online that new system.
Speaker Change: And so we'll be taking a lot of labor out of the process, we'll be getting better efficiency through the process, and less waste, less scrap, obviously that improves margins for us as well. So just a couple of examples that we're doing both on the innovation side within our factories, we still continue to deploy COS.
Speaker Change: And Kevin mentioned that with MTL as well, that, you know, we bought the business, obviously, the mid-20s margin is good. We're certainly aspirational to be over 30 on that. And so things like the Carl operating system, the purchasing leverage, you can see it, how we upped our synergies from, you know, over $20 million from the original deal model.
Speaker Change: You know, we continue to focus on being a low-cost producer as well there. So those are the kind of things that will help us mitigate, I think, any slowdown in demand or on the new construction site or failure to have a recovery as quickly as we'd like.
Speaker Change: Okay, that's great color. And maybe building on that, one of the comments that you made is that you plan to double the R&D spend this year. Can you talk about what that means in terms of the multi-year pipeline for products and the ability to continue to price for value?
Speaker Change: Yeah, so the the thing that I think we all Realize is we want new products faster, but innovation just takes time so this thing will build over time We've made the investment in the R&D center in Carl LPA. We actually probably will increase
Speaker Change: that space as we go through the year as we see the need to do more testing and bring more testing in-house which
Speaker Change: We don't have to shut down a factory line to test the product. We can do it offline in Carlisle, PA. Some other things we're doing is, and we haven't talked a lot about this, but you know, we've had an accelerator going for the last, I'd say, two years. We're in our third cohort right now. We have
Speaker Change: And now we are in the process of being really integrated, we can start to look at enhancements we can make to the bead there to improve the qualities of the bead and improve our EPS board. So when we do that, obviously, we'll communicate those values to everyone, show how they're better, and we'll expect to be paid for that.
Chris Koch: That's great color, Chris. Thank you for everything and good luck.
Okay, thanks so much, Sue.
Speaker Change: Your next question is from the line of David McGregor from Longbow Research. Please go ahead.
Speaker Change: I wouldn't say that the multiples have changed much for us. I don't think we've seen that with the deals we've looked at. I think seller expectations are still...
Speaker Change: Higher than they've been over the last, you know, let's say David, you know, five six seven eight years ago. We are seeing
Speaker Change: I'd say a slight uptick in the number of deals coming through that we look at. Obviously, you know, we have the four criteria, and so a lot of those deals don't meet our criteria, and so they never see the light of day here. But I would say we're seeing more deals.
Speaker Change: We've been doing deals from the MTL, Plastifab side, and we've also done a deal like ThermoFoam. So we're seeing...
Speaker Change: You know, small bolt-ons that can give us a meaningful geographic presence, like thermofoam, all the way up to a mid-size deal like the Plastifab or MTL that brings, you know, access to new markets, new technology. We got into Canada.
Speaker Change: and then we still see some deals like the Henry size that are out there and I think those we may see a few more of those as the year unwinds which I think positive
Speaker Change: Interesting. Thanks for that. And then I guess second question, just more on a strategic level here, it seems like we're maybe on the cusp of...
Speaker Change: more consolidation in the distribution function in your business. And I'm just wondering if, you know, if you could comment on your thoughts regarding, you know, how consequential consolidation in distribution channels might be. In the event you think it's not consequential, perhaps you could explain why.
Speaker Change: Well, I think definitely you're going to continue to see consolidation and distribution. I think you're also going to see it in contractors. We've, you know, seen some roll-ups in the contractor space. I think you've seen all of our...
Speaker Change: major distribution partners consolidate over the last five, six, seven, eight years. You can probably find those deals online as to what they did. And so I think that's gonna continue. I think you're also going to have some continuation of
Speaker Change: You know, manufacturers consolidation, are well we continue to do it obviously. By buying NPON I'm buying classify a budget that will continue to ramifications obviously on your things have to be impacted with distribution against all these you can look at what's happening now.
We
Speaker Change: have seen this and I think I've talked about it on other calls where we've seen
places where distribution hasn't.
Speaker Change: provided the same type of benefits they have in the past or contractors have changed either their size or their capabilities and you've seen our direct sales to contractors increase. So Carlisle has been flexible and in fact I think if you went back 10 years ago we probably sold less than 5% direct to contractors and now I think we've probably stated we're you know somewhere in the mid-teens.
Speaker Change: at least I'm pleased that I think Carlyle is well positioned with just an outstanding logistics team and a freight team and having that experience and I've said this publicly before that while we sold
Close to 70% of our
Yeah, you bet. Thank you.
Speaker Change: Your last question comes from the line of Adam Bongarten from Zellman. Please go ahead.
Adam Bongarten: Hey everyone, thanks for taking my question. Just on the price increases in CCM, I believe they
Adam Bongarten: effective a few weeks ago and I know you're not building in much for one cue just given the timing but just curious on the receptivity so far and what gives you confidence that those will go through as we move into the kind of more active part of the spring season.
Adam Bongarten: When I look back to September, you know, I think people were all ready.
Action.
Adam Bongarten: in the coming months. We'd already seen in 2024 earlier that GAF had tried to push a price increase out there. I don't really think that took any effect, as you can see. But we also have seen
Adam Bongarten: You know, and they're expecting it in the second quarter, really tied to this idea that demand improves, that's one of the things, and then two, that the construction season gets underway.
Adam Bongarten: So, that's with a flat raw material situation. Obviously, the tariff impact, as I'm sure, had some...
Adam Bongarten: both imagined and real consequences. This ATO out of China has been a real price increase for people that are in the PVC markets, and we've seen that impacted, so that will have an impact on increased prices. And I just think that...
Adam Bongarten: Well, first of all, I think we, in the fourth quarter, we probably, a couple of days, maybe $10 to $15 million of impact.
Adam Bongarten: On the Henry side, it's a little bit different than the...
Adam Bongarten: The first quarter, I would say probably not. It doesn't look like we're going to see a lot of wet weather coming.
but ultimately those roofs are
Speaker Change: potential for leaks so if it happens in the second quarter and you get rain you're eventually gonna find you have a leak and I think that's been Henry's over your 19 years middle I think ultimately it all washes out.
Got it. Thank you.
Thank you.
Speaker Change: There are no further questions at this time. I would like to hand the call back to Chris Cook for closing remarks. Sir, please go ahead.
Speaker Change: Well thanks Constantine. I want to thank everybody for joining us on this fourth quarter earnings call. Look forward to speaking with you at our next earnings call which will be the end of the first quarter. Thanks and have a good evening everyone.
Speaker Change: This concludes today's conference call. Thank you very much for your participation. You may now disconnect.