Carlisle Companies - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $1.45B, flat year-over-year, with diluted EPS $5.87 and record adjusted EPS $6.27; margins compressed as operating margin fell to 23.1% and adjusted EBITDA margin to 26.9%.
• Results missed Wall Street consensus: revenue $1.45B vs $1.49B* and adjusted EPS $6.27 vs $6.63*; sequentially, margins improved vs Q1 but remain below prior-year levels.
• Guidance cut: FY25 revenue growth reduced to low-single-digit and adjusted EBITDA margin now expected down 150 bps vs prior outlook of MSD growth with ~50 bps margin expansion; both CCM and CWT guided to low-single-digit growth.
• Capital allocation remained active: repurchased 0.8M shares for $300M in Q2, $700M YTD; later raised quarterly dividend 10% to $1.10 (49th consecutive annual increase), and priced $1.0B senior notes for general corporate purposes.
• Narrative pivot: strength in commercial re-roofing (~70% of CCM roofing) offset by persistent softness in new construction and residential; limited traction on price increases and volume deleverage weighed on CWT margins.

What Went Well and What Went Wrong

What Went Well

• Resilient commercial re-roofing supported top-tier margins at CCM; management reaffirmed re-roofing remains a reliable recurring revenue stream and ~70% of CCM’s commercial roofing business.
• Record adjusted EPS of $6.27 despite market softness; “We are proud of the Carlisle team’s ability to deliver record adjusted EPS of $6.27” — Chris Koch.
• Strategic M&A execution and innovation pipeline: Bonded Logic acquisition enhances insulation platform and Henry UltraTouch recognized by Home Depot; expected synergies from MTL, Plasti-Fab, ThermaFoam to exceed $34M annually.

What Went Wrong

• CWT organic revenue down 10%; adjusted EBITDA margin fell 260 bps to 19.9% due to volume deleverage in residential and new commercial.
• Limited traction on announced price increases; company expects second-half pricing to be flat at both CCM and CWT.
• New construction softness and weaker channel load-in drove project delays; July market survey indicated deteriorating contractor/distributor sentiment through H2 2025.

Transcript

Operator (participant)

Good afternoon. My name is Andrew, and I will be your conference call operator today. At this time, I would like to welcome everyone to the Carlisle Companies second quarter 2025 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, Carlisle's Vice President of Investor Relations. Mehul, please go ahead.

Mehul Patel (VP of Investor Relations)

Thank you, and good afternoon, everyone. Welcome to Carlisle's second quarter 2025 earnings call. I'm Mehul Patel, Vice President of Investor Relations for Carlisle. We released our second quarter 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. He's our Board Chair, President, and CEO, along with Kevin Zdimal, who's our CFO. Today's call will begin with Chris providing key highlights of the second quarter. Kevin will follow Chris and provide an overview of our Q2 financial performance and our outlook for the full year of 2025. Following our prepared remarks, we will open up the line for questions. Before we begin, please refer to slide two of our presentation where we note that comments today will include forward-looking statements based on current expectations.

Actual results could differ materially from these statements due to a number of risks and uncertainties which are discussed in our press release and SEC filings. 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 Chris.

Chris Koch (Board Chair, President, and CEO)

Thank you, Mehul. Good afternoon, everyone, and thank you for joining us for Carlisle's second quarter 2025 earnings call. To start, I'd like to direct your attention to slide three of the presentation. Carlisle was pleased to announce another quarter of solid performance and deliver a message of thanks to our outstanding Carlisle team for achieving a record-adjusted EPS of $6.27. Amidst the dynamic and evolving U.S. building products landscape in the second quarter, Carlisle revenues, while less than we had planned for in Q2, held steady at $1.4 billion year-over-year, and we continued to drive margins above our Vision 2030 targets, showcasing the resilience and strength of our focused pure-play building products model. Our second quarter performance underscores the enduring strength of our re-roofing business at CCM, backed by a substantial multi-year backlog, enabling us to achieve top-tier industry margins despite challenges in new construction.

The commercial re-roofing market continues to align with our long-term growth expectations, reinforcing its role as a reliable and recurring revenue stream, accounting for approximately 70% of CCM's commercial roofing business. This momentum is driven by the aging commercial building stock, energy efficiency mandates, and the trust our customers place in the Carlisle Experience and our premium solutions. While CCM's performance remains strong, we face some challenges at CWT due to well-known factors such as higher interest rates and negative builder sentiment impacting new and remodel residential markets. Nevertheless, we have continued to prioritize our capital allocation strategies, returning $343 million to shareholders through dividends, insurer repurchases, investing in innovation, and strategically acquiring Bonded Logic to enhance our position in the sizable and growing market for insulation.

As we approach the end of the second quarter, building product markets and new construction failed to gain the momentum we had anticipated, including an anticipated return to a more historically normal inventory load-in by distribution to prepare for the construction season. We had previously outlined the risks to our full-year outlook that were present and emerging in April, such as tariffs, interest rate cuts, and builder sentiment. Despite those risks, we maintained our confidence that improved conditions would materialize in the second half of the year. Our optimism was supported by positive contractor sentiment, anticipated policy resolutions, and strong backlogs promising robust activity aligned with historic norms. Although some of the external risks materialized and influenced market activity, our teams diligently addressed the challenges and focused on factors within our control.

They also remain committed to our key strategic actions to deliver on our goal of $40 of adjusted EPS by 2030. We remain optimistic about our strong re-roofing performance balancing the macroeconomic pressures in new construction. We remain confident in the fact that many of the headwinds are merely delays as repair and remodel and new construction continue to have strong underlying drivers of long-term growth, as has been exhibited by our re-roofing business in CCM. Carlisle is committed to Vision 2030 and continues to invest in initiatives that will ensure our long-term success. On slide four, the July Carlisle Market Survey results showcase the continued resilience of the commercial re-roofing market, with full-year mid-single-digit growth expectations remaining robust. Our commitment to leadership in the re-roofing sector is supported by our comprehensive product portfolio, strong specifications, full warranties, superb contractor training programs, cutting-edge product innovations, and unparalleled service capabilities.

In the residential segment, while repair and remodel activity is showing signs of stabilization, expectations have shifted slightly from previous growth projections for 2025. Nevertheless, we continue to see substantial opportunity for increased sales and profitability when residential markets rebound. Our focus now is squarely on our efforts and strategies to enhance our manufacturing cost position, strengthen our innovation and launch of new products, and enhance our product portfolio to continue to drive to complete building envelope solutions. The new construction market has softened somewhat for both commercial and residential segments since our April Carlisle Market Survey. On the residential front, although the survey indicates a mid-single-digit decline in new construction activity, our resilient approach and adaptable strategies prepare us to navigate these changes effectively. Despite recent headlines noting challenges such as record-high home prices and elevated mortgage rates, we remain optimistic about our strategic pathways to growth.

In new commercial construction, while expectations have adjusted to low single-digit decline, it's important to note the potential positive impact of recent political developments such as the reinstatement of the 100% bonus depreciation and a renaissance of U.S. manufacturing, which could invigorate demand. This is especially true in emerging sectors like data centers and manufacturing facilities, where Carlisle is strategically positioned to capitalize on growth opportunities. Our readiness to capture investments in these areas remains strong, and we are optimistic about the future. Moving to slide five, I'm excited to highlight our recent strategic acquisition of Bonded Logic, which perfectly embodies our commitment to innovation and strategic acquisitions as growth drivers. Bonded Logic, based in Phoenix, Arizona, brings to Carlisle and the Henry brand an innovative approach to energy efficiency with its recycled denim insulation technology through the UltraTouch brand.

This acquisition strengthens our commitment to comprehensive building envelope solutions and aligns seamlessly with our sustainability goals and Vision 2030 objective of generating 25% of revenue from new products introduced within the past five years. Though currently generating approximately $35 million in revenue, Bonded Logic operates in an estimated market for insulation of $14 billion, and specifically within the rapidly growing segment focused on sustainable insulation products. We see tremendous potential for double-digit revenue CAGR in the insulation market as we integrate Bonded Logic's unique material platform with Henry's extensive retail distribution network and customer relationships. We anticipate this acquisition to reach run-rate EBITDA margins that support our Vision 2030 objectives. From a market expansion standpoint, we are uniquely poised to leverage the benefits of denim insulation to penetrate the large fiberglass and mineral wool markets. Market feedback and our retail success have been exceedingly positive.

Currently, Henry UltraTouch insulation is available at over 400 Home Depot stores, with Home Depot serving as our exclusive big-box retail distributor. We are thrilled to announce that Henry has been selected as a finalist for the Home Depot's 2025 Merchandising Innovation Award for the Henry UltraTouch product. This prestigious award recognizes products that have significantly transformed the home improvement landscape. This recognition also underscores and validates our commitment to innovation as a key driver of Vision 2030 and highlights the significant growth opportunities that Bonded Logic offers through their cutting-edge denim insulation capabilities. Now, turning to slide six, innovation is at the heart of our Vision 2030 goals and serves as a key differentiator for Carlisle. Our robust pipeline of new products is focused on delivering energy savings, labor efficiencies, and integrated building envelope solutions.

Our unwavering commitment to innovation is evident in the significant strides we've made in 2024 and 2025, including the refinement and implementation of our advanced Stage Gate and Voice-of-the-Customer processes. These initiatives ensure our teams deliver straightforward innovations that meet the evolving needs of building owners, contractors, architects, and other stakeholders. We aim for our products to offer measurable outcomes, such as a solid return on investment, providing value to users and allowing us to price based on the value created, ultimately creating the opportunity for substantial returns for Carlisle shareholders. This quarter, we've advanced several product development initiatives aimed at capturing emerging market opportunities, enhancing labor savings, and improving energy efficiency for our customers. As previously mentioned, our acquisition of Bonded Logic brings revolutionary denim insulation technology to tap into a vast addressable market.

Organically, products like the new dual-tank Flexible Fast Adhesive, our expanding Blueskin portfolio with innovations such as ZeroFlash and VPTech, along with larger 12-inch InsulBase Flat Polyiso panels, positions us to meet the increasing demand for integrated building envelope solutions. These solutions enable contractors to work more efficiently while delivering superior building performance. Looking to the second half of the year, we are proactively addressing market headwinds by implementing measures such as reducing CWT's footprint and gaining efficiencies through automation. We anticipate our COS initiatives combined with acquisition synergies to generate over $30 million in savings, contributing to more than 200 basis points of margin improvement for CWT. While some benefits will take time to fully materialize, we are confident in our ability to drive significant margin expansion over the Vision 2030 timeframe. Looking ahead, we remain optimistic about our long-term strategic positioning.

The key drivers of our businesses, including aging building stock, energy efficiency requirements, and infrastructure investment needs, continue to be strong. In residential markets, the ongoing housing shortage supports longer-term growth opportunities. Our strong balance sheet provides the flexibility for continued strategic investments while we maintain our commitment to returning capital to our shareholders. With that, I'll turn it over to Kevin to provide additional financial details and color on our outlook for 2025. Kevin?

Kevin Zdimal (CFO)

Thank you, Chris. Moving on to slide seven, I'll review our second quarter financial results. During the quarter, we achieved revenue of $1.4 billion, essentially flat compared to the second quarter of 2024. The acquisitions of MTL, Plasti-Fab, and ThermaFoam contributed $39 million of revenue in the second quarter.

While strong re-roofing activity provided some stability, we experienced lower volumes resulting from slower new construction across both residential and commercial segments, lower residential repair and remodel, and an increase in weather-related disruptions. Adjusted EBITDA for the quarter came in at $389 million, with a margin of 26.9%, a decline of 190 basis points from last year. This decline was mainly due to volume deleverage and softer market conditions at CWT, higher operating costs related to preparing for a strong construction season and the load-in that Chris mentioned at CCM, and our ongoing strategic investments and innovation and enhancements to the Carlisle Experience. Adjusted EPS had a record $6.27, up from $6.24 in the prior year. Share repurchases and accretive acquisitions more than offset lower organic earnings, which faced pressures from the previously mentioned end market challenges. Now, let's turn to our segment performance, beginning with CCM on slide eight.

The construction materials segment reported second quarter revenues of $1.1 billion, growing approximately 1% year-over-year, with the increase coming from the positive contribution from the MTL acquisition. Organic revenue was effectively flat in the quarter, with re-roofing growth offset by a decline from new construction headwinds and unfavorable weather. Also, as a reminder, CCM's second quarter revenue was negatively impacted by approximately $15 million. As Canadian customers accelerated purchases in the first quarter of 2025 in anticipation of tariff-related price increases. Adjusted EBITDA for CCM was $346 million, down 5% compared to last year, with a margin of 31.6%. Adjusted EBITDA margin declined by 180 basis points due to the previously mentioned higher operating costs as we anticipated stronger second-half volumes and investments in innovation and enhancements to the Carlisle Experience. Pricing and raw materials were flat on a year-over-year basis in the quarter.

The MTL acquisition continues to exceed expectations, creating substantial value through additional content per square foot in our broader warranted system offering and strategic account expansions, offering comprehensive building envelope solutions. Turning to slide nine, our CWT segment reported second quarter revenues of $354 million, a 2% decline from the prior year, with organic revenue down 10%, largely due to softer residential end markets, roof coatings demand, and new commercial construction. CWT's adjusted EBITDA was $71 million, a 13% year-over-year decline, with an adjusted EBITDA margin of 19.9%, a decrease of 260 basis points. This margin compression was primarily due to volume deleverage. However, we are encouraged by the investments we are making in automation and COS initiatives, which we expect to yield an incremental $12 million of annualized EBITDA.

Integration of our recent acquisitions, including MTL, Plasti-Fab, and ThermaFoam, are ahead of plan, and we expect year-three synergies to exceed $34 million annually. We are leveraging our broader building envelope systems approach to drive cross-selling opportunities, illustrating the effectiveness of our M&A playbook. Moving to slide 11, our balance sheet remains strong with $68 million in cash and a net debt-to-EBITDA ratio of 1.4x. We have $1 billion available under our revolving credit facility, offering significant flexibility for strategic investments. As shown on slide 12, during the quarter, we generated free cash flow of $258 million, maintaining a balanced approach to capital deployment. We repurchased 800,000 shares for $300 million, bringing our year-to-date share repurchases to $700 million, in line with our 2025 share repurchase target of $1 billion.

We expect to generate approximately $1 billion of free cash flow in 2025, which would be our fourth consecutive year of delivering over $1 billion in operating cash flow. The strong, consistent cash generation provides us with the financial flexibility to facilitate continued investment in capital expenditures, innovation, synergistic acquisitions, share buybacks, and dividends, and drive to our $40 of adjusted EPS goal. Turning to slide 13, our updated outlook for the full year of 2025 reflects low single-digit revenue growth at both CCM and CWT, as we expect contributions from recent acquisitions will be substantially offset by persistent end market challenges related to interest rate pressures, housing affordability, and lack of buyer confidence. We expect commercial re-roofing demand will remain strong; however, we reduced our expectations for commercial and residential new construction and residential repair and remodel.

We also expect second-half pricing to be flat year-over-year at both CCM and CWT. As a result, we now anticipate a 150 basis point decline in our full-year adjusted EBITDA margin due to the lower volume expectations and limited traction on the price increases announced earlier this year. We continue to expect our free cash flow margin to exceed 15% for the year. In conclusion, while we navigate these challenging end markets, our strong fundamentals support long-term growth. We remain focused on executing our Vision 2030 initiatives and delivering our Vision 2030 financial goals. With that, I will hand it back to Chris.

Chris Koch (Board Chair, President, and CEO)

Thank you, Kevin. Turning to slide 14, I am pleased to highlight the team's proactive approach, focusing on the factors within our control, positioning Carlisle for an even stronger future margin profile while staying true to our strategic priorities outlined in our Vision 2030 plans.

In our CCM business, we are maintaining our market leadership and have robust margin recovery strategies in place. Despite current market challenges, our business model remains strong and resilient. We anticipate margin expansion through volume leverage, ongoing MTL synergy realization, operational improvements via our Carlisle operating system, disciplined pricing through the Carlisle Experience, and the adoption of emerging AI technologies. Our innovation pipeline is strong, featuring products like Flex FAST Solutions, which offer customers premium labor savings and energy efficiency enhancements. For CWT, our self-help initiatives are pivotal during this period and are set to drive higher margins in 2026, leading to significant long-term margin expansion towards our Vision 2030 goal of achieving 30% adjusted EBITDA margins for CWT. We're harnessing automation benefits, optimizing our facility footprint, and capitalizing on synergies from our Plasti-Fab and ThermaFoam acquisitions.

Additionally, we are fostering growth through our innovative new products like UltraTouch and expanding our Home Depot relationship to include single-ply roofing, insulation, flashing, and air barriers. Company-wide, we're focused on seamlessly integrating our strategic acquisitions while accelerating innovation through new product development. Our Vision 2030 targets remain firmly on track despite near-term challenges. We are committed to more than doubling adjusted EPS to $40+ by 2030, maintaining industry-leading ROIC of 25% and achieving free cash flow margins exceeding 15%, with a target organic revenue CAGR of over 5% and anticipated cumulative free cash flow exceeding $6 billion. We have multiple pathways to achieve our $40 of adjusted EPS, as committed to in Vision 2030.

The actions we're taking today, ranging from operational improvements and strategic acquisitions to innovation investments, position Carlisle to bridge current performance to these long-term objectives, all the while maintaining a disciplined approach to capital allocation. In conclusion, the second quarter showcased the robust strength of our business model and strategic positioning. Our emphasis on the recurring re-roofing revenue stream, strategic investments in innovation, and disciplined capital deployment are driving solid performance. I extend my gratitude to our Carlisle employees for their unwavering dedication. Their commitment to excellence is the foundation of our success and will continue to propel our outperformance. That concludes our formal comments, operator. We are now ready for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. Should you have a question, please press the star followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question is from Garik Shmois from Loop Capital. Please go ahead.

Garik Shmois (Managing Director)

Oh, hi. Thanks. Just starting off, I was wondering if you could provide a little bit more color on how we should be thinking about EBITDA margins by segment in the second half of the year, given the new outlook.

Kevin Zdimal (CFO)

Yes, Garik, this is Kevin. As we look at the margins, overall, as we look from Q2 to Q3, I'll start with CCM, that the revenue in Q3 is lower than Q2. Some of that volume carries over that will challenge the margin a little bit.

We expect to be around 31% in Q3. Q4, as you know, that's the lighter quarter for us overall. We have CCM down around 29% in Q4. As you look at CWT, we would expect to be both the Q3 and Q4, right around 20%, some of that improvement because they have a lighter revenue as well in Q4. That's when some of the synergies are kicking in from the Plasti-Fab acquisition, as well as some of the automation that we've done in the factories.

Garik Shmois (Managing Director)

Great. That's helpful. My follow-up question is just if you can speak a little bit more detail on some of the actions you're taking in CWT, the footprint rationalization, the automation, how to think of the timing of some of these cost savings. I think you mentioned two figures, the prepared remarks. I think there's $12 million and $30 million.

Just wanted to be clear on these amounts or these run rate figures or the expected savings you're anticipating in the second half. Just a little bit more hand-holding on the actions you're taking there. Maybe also if there's any plans for CCM just given the weaker demand environment.

Mehul Patel (VP of Investor Relations)

Garik, I'll take the breakdown on CWT. Overall, to your point on the earnings call, Chris and Kevin mentioned there's $12 million of total synergies in CWT from automation projects that we implemented for Fernley and Kingman. There's also some additional plants that we're looking at to implement automation. In addition to that, with those automation projects, the next phase is looking at some footprint consolidation. You add those together, that's $12 million. Those are annualized savings. We'll get a portion of that in the second half of 2025, and then we'll get the remaining amount in 2026.

We'll continue to see margin expansion there going into next year. Lastly, on the synergies from the Plasti-Fab and ThermaFoam acquisition, there's a total of roughly $14 million of synergy. You add those together, that's how you get to roughly $30 million of opportunities for CWT.

Kevin Zdimal (CFO)

On the CCM side, we continue to, one, we had some expenses in the second quarter that we will not have repeat in the third quarter and the fourth quarter. Those were expenses that we added for the build-up for what we expected to be a strong season that didn't pan out. Those costs will be removed. Of course, we're working on COS as well at CCM, and there's opportunities there to improve margins.

Garik Shmois (Managing Director)

Very good. Thank you very much.

Chris Koch (Board Chair, President, and CEO)

Thanks, Garik.

Operator (participant)

Your next question is from Bryan Blair from Oppenheimer. Please go ahead.

Bryan Blair (Managing Director)

Thank you. Good afternoon, guys.

Chris Koch (Board Chair, President, and CEO)

Hey, good afternoon.

Bryan Blair (Managing Director)

I was hoping you could offer a little more detail on monthly order and revenue phasing through Q2 by segment and what you're seeing in the month of July relative to the Q2 run rates and how that perhaps influences the guide.

Chris Koch (Board Chair, President, and CEO)

Yeah, Bryan, similar to how we exited, I don't see a lot of change from June to July. Of course, July has the holiday and some other things in it. Usually, it's not a terribly robust month or one we have high expectations for. As we went through the first quarter, obviously, when we were at the end of April and we did our Carlisle Market Survey and we looked at where we were on what I'll call our political macro front, I think we were more optimistic.

As we got through the quarter, I think more anxiety crept in, which really, we saw Powell today say that the housing market was still weak on his report. From the commercial side for us, I think a few contractors that I talked to about a week ago characterized it as healthy activity, but the activity had changed. A reduction in bids to a certain degree, especially on the new side. Something that was interesting was this idea that there were a lot of pending to be, pending but to yet be awarded or decisions were just not being made. It wasn't that it wasn't going to happen, but the interest rate environment and the economic outlook and the anxiety over tariffs and that were causing people to have a more difficult time making decisions. I think that progressed through the quarter.

That was a definite tone for maybe where we were more optimistic in April. I think that tone is still here. You heard some of the questions that the Fed Chair got today around even some conflict on the Fed board there, I think, two dissenters about where we are. I think that's causing some anxiety, which are making people delay things. It doesn't mean that we're not having activity. It doesn't mean that activity isn't planned or the economy isn't going well. It's just creating more anxiety. That's kind of where we sit. In June, I think we also saw in some regions some weather impact, about a day or two that had an impact there as well. A little bit of more degradation, I would say, throughout the quarter. From June to July, as you asked, pretty consistent with each other.

Bryan Blair (Managing Director)

That's very helpful. Maybe offer a little more, I guess, big picture color on how your team's thinking about the impact or catalysts of One Big Beautiful Bill on construction markets going forward and how tax incentives may influence your own investment planning. You've obviously never been shy about investing in the business. There's incentive to do more.

Chris Koch (Board Chair, President, and CEO)

I think first on the, I'll talk about the Beautiful Bill. Kevin can talk about the investing. One thing I'd remind everyone of, and I think we called it out on, is that we're still generating a lot of cash flow. Over the last four years, $1 billion a year. You're right. We've never been shy about investing in innovation or investing in our manufacturing facilities to drive that, be the low-cost producer in the industry, and we're going to continue to do that.

We're also seeing more investment in things like AI that we didn't have five years ago, but we're seeing some opportunities there that Kevin can get into as well. As far as the Big Beautiful Bill from a non-tax side, from just generating potential revenue, obviously, the biggest one for us is this idea that we bring manufacturing back to the U.S., right, and what that means and reinvestment in the U.S. When we looked at the sectors or verticals, as Dodge produced them, I think, recently, in 2023, manufacturing was down 1.5%. In 2024, I think 23%, 24%. Even in 2025, now about 19%. If we could see that bill have a reinvestment in America and we can see the tariffs have the action of driving some manufacturing back, I think it'd be very positive for us.

When you couple it up with the fact that our dollar per square foot on new construction and on re-roofing is higher than it was five years ago and 10 years ago and 15 years ago, based upon additional demands for energy efficiency and labor savings, I think. It could put us in a good position as we move forward. Kevin, why don't you pick up the tax and how Carlisle doesn't change our investment.

Kevin Zdimal (CFO)

Yeah. The first thing we look at for on a capital investment is going to be ROIC. Certainly, having depreciation in year one vs over multiple years helps the return, so higher ROIC. That only impacts manufacturing facilities, R&D, new facilities. I don't think it'll be the number one driver for us adding anything with new facilities, but certainly, it will have a positive impact on ROIC as we're looking at those projects.

Bryan Blair (Managing Director)

All makes sense. Quick level-setting questions on Bonded Logic. You had mentioned run rate sales and that EBITDA margins will be supportive of Vision 2030. What should we think about as normalized growth for the asset? Where are margins currently, and what kind of profitability are you targeting over time?

Chris Koch (Board Chair, President, and CEO)

For targeting over time, we would ideally like to see something north of 50% gross margins. That's one of the things that we talk about on new products. That's why we get there. We want to see value-add. We want to price the value, and gross margin is a good indicator of price and value-added market and also how efficiently we're producing the product. From a big picture perspective, that's where we'd like to see Bonded Logic add up.

Kevin Zdimal (CFO)

As a new product, that's really what we're looking at, almost picking up, buying a new product. The CAGR is going to be very high from a revenue standpoint. It's going to be well into the double digits as far as what we're looking at. It'll take a year or two before it really starts ramping, but even in those initial years, that's what we're looking at. I would agree with Chris on the gross margins and EBITDA margins above or even where we stand today.

Bryan Blair (Managing Director)

Understood. Appreciate the detail.

Chris Koch (Board Chair, President, and CEO)

It looks great.

Operator (participant)

Your next question is from Susan Maklari from Goldman Sachs. Please go ahead. Once again, your next question is from Susan Maklari from Goldman Sachs. Please go ahead.

Susan Maklari (Senior Equity Research Analyst)

Can you hear me?

Chris Koch (Board Chair, President, and CEO)

Yeah. Sue, we've got you.

Susan Maklari (Senior Equity Research Analyst)

Okay. Good afternoon. How are you?

Chris Koch (Board Chair, President, and CEO)

Good afternoon. All well here. Thanks.

Susan Maklari (Senior Equity Research Analyst)

Good. My first question is thinking about the opportunities that you do see in a more challenging environment. You talked in your prepared remarks about investing in innovations and the Carlisle Experience. Can you help us understand how you can further those initiatives to perhaps even gain market share or maintain market share in this kind of a situation? What you're seeing in terms of the competition out there and what that could perhaps mean for Carlisle in the upcoming quarters?

Chris Koch (Board Chair, President, and CEO)

Yeah. Sue, I think this idea of investing in the Carlisle Experience, and one of the things we're looking at in there is how can we use, obviously, AI to help facilitate that? How can we use mobile devices to provide more information quicker? One of the big discussions I had, and I talked to contractors quite a bit. One of the big discussions we had was around trucking, right? It was very interesting that one of the contractors said to us, "It's been a problem.

For a long time, our biggest issue, trucking. It's not that the trucks are hard to get. It's not that. We don't have them coming in, but if they're supposed to be there at 8:00 A.M. They'll call us at noon, and then they won't show up until the next day," right? That's kind of a direct quote. How can we apply technology? How can we make investments in our Carlisle Experience to help provide better information, better real-time information, better tracking? Coordinate better with trucking companies, maybe even invest in our own certain assets to enhance that so that, once again, we get back to that key pillar of labor efficiency, right? Even for the contractor, it's not on the roof, but it's no use having a crew at a job site at 8:00 A.M. and not being able to begin work, right? That's just wasted time.

I think that gets to the investing in the Carlisle Experience. It also helps with specifications. We've been looking at ways we can also, another example would be on inspections. Before we can issue a warranty and before a contractor can be paid, we do an inspection of the roof. Right now, typical inspections for us would be somewhere around 30 days at the outset, at the longest. How could we get those to be condensed into something like a day later? Or how could we have our contractors be able to do their own inspection some way with technology through whatever it might be, video or something like that, or using AI? All these go back on that idea of how do we make the life of the contractor easier? How do we allow them to be more profitable?

We can also do it through investments in innovation, which we're doing, where we're combining products into solutions that help them put up. The job up quicker. All that points to share gains, hopefully, and it points to more profitability as we, I would say, share that labor savings or share that efficiency with them, make them making more money, and they'll be happier to buy Carlisle. The other thing it does, and you brought up competition, is it embeds us closer and creates a stickiness, right? Obviously, once you get something rolling on a trucking perspective or on a new product perspective that makes your life easier, you want to use that product more and more. Also, you want to train your people, and we do a great job of training and providing training.

As these products get more technical, the better training we can do, both at our locations like Carlisle, P.A., where we have a massive infrastructure around training, but also to ones where we can work with distribution to train in the field or at a contractor's job site, just makes it stickier again for us and helps with competition. I think when we get into competition, it probably begs the question around what's happening with some of the competitors we've talked about that might be foreign or otherwise. I would say that as we've always said, our U.S. competition, the changes there with Amrize and Elevate, the changes over at GAF have been productive. I think the industry has certainly become more professional and is investing in the right things as an industry around innovation, manufacturing excellence.

I think what that also does, though, is it makes it more difficult for new competitors to enter as we, larger organizations that are well established and have deep-seated roots in manufacturing and architectural relationships and contractor relationships. It makes it harder with all those things I talked about initially to displace us. Not much happening out of the ordinary on the competition front. A lot of talk out there, but not much that we're seeing that's changed over the last six months.

Susan Maklari (Senior Equity Research Analyst)

Okay. That's a very helpful color. Can you talk a bit about what you're seeing in terms of the M&A environment, given the macro and the housing backdrop that we're in? I guess if there are any changes in that M&A pipeline, how you're thinking about capital allocation in this environment and your willingness to perhaps do more on the buybacks or other forms of shareholder returns?

Chris Koch (Board Chair, President, and CEO)

Yeah. The M&A pipeline, it's been, I would say, good, robust, as we've talked about. There are. Deals that are attempting to be made. I think what I said probably in the last call, and I've said before, has been this gap between sellers and buyers in terms of value. I think it points back to this discussion we've had around increasing anxiety in the markets on people not wanting to take action because of uncertainty or greater uncertainty. We've had a look. I can cite one example we were in where it basically ended up being a failed process because the gap between seller and buyer was too big. It wasn't just us, obviously. If a process fails, it was across the entire set of bidders.

I think that kind of typifies where we are, that where two parties can come together and be reasonable, there's probably going to be a transaction. Obviously, Bonded Logic was one we worked on for a while. We were able to close that. Plasti-Fab was another one. A great many of them don't ever get there. That's kind of where we are in capital allocation. Kevin will explain that for you.

Kevin Zdimal (CFO)

Yeah. Capital allocation, we've been fortunate to generate a lot of cash and be able to pick where we want to invest. We look at each one of them: M&A, buybacks, dividends, CapEx, independently. Each one of them, we're looking for—we have return hurdles that we're looking for. On M&A, as Chris said, we will remain a disciplined buyer.

We're going to look for acquisitions that can be bolt-on acquisitions to our current product line or geography expansions, continue to do that, but at the right cost. The same with buybacks. When we look at buybacks, we look at our intrinsic value, and that's how we base our buyback decisions. We'll continue with that going forward.

Susan Maklari (Senior Equity Research Analyst)

Okay. Thank you both for the color, and good luck with everything.

Chris Koch (Board Chair, President, and CEO)

Okay. Thanks, Sue.

Operator (participant)

Your next question is from Tim Wojs from Baird. Please go ahead.

Tim Wojs (Senior Research Analyst)

Hey, guys. Good afternoon. Thanks for the time.

Chris Koch (Board Chair, President, and CEO)

Good afternoon.

Tim Wojs (Senior Research Analyst)

Maybe just the first question, just on the lack of pricing traction. As you kind of step back and think about that, is it just the weaker volume environment? It doesn't sound competitive, but maybe there's some of that. Is it just lower raw materials and kind of the lower raw material basket? Just how would you kind of frame up just that kind of lack of pricing traction and the drivers of that?

Chris Koch (Board Chair, President, and CEO)

Yeah. I would say that, first of all, I think the pricing environment is pretty good, considering we may not have. Achieved traction on the latest round of price increases, but we also haven't seen much degradation on pricing. When we look at the bidding environment, I think, Tim, it relates just to the volume around new. With new going down, obviously competitors or contractors are out there looking at re-roofing. Our re-roofing contractors are very strong. You can see that in there. With a reduction in new, you're getting more bids on the jobs that are there. I'm not unhappy with where we are in pricing. I think it's been pretty rational, especially with the fact that raw materials are staying relatively flat too. Not a lot there. I think pretty much I just say it's volume related.

Tim Wojs (Senior Research Analyst)

Okay. And then I guess on the delays and some of the kind of bidding pushes and things, is that strictly in new construction? Is it the whole building? Because obviously, if you're putting up a building, you're going to need a roof. I guess is it just the overall new construction environment, and that's kind of hitting you guys, or has that also kind of bled into any sort of discretionary re-roofing activity?

Chris Koch (Board Chair, President, and CEO)

No, it doesn't appear to have moved into re-roofing. Re-roofing has been strong, continues to be strong. We've said that. I think, actually, in a way, this is a really good example of something that we'd had concerns about. They're not us, but the market, I think, around what happens in a pullback. Does re-roofing stay strong? Is there really backlog?

Obviously, in the quarter, re-roofing stayed strong. Labor was allocated to that. Pricing remained good, and we had good strength in re-roofing. It's really related to new construction. I think it's pretty much across the country, right? Whether we're up in Seattle in the Northwest or we're in L.A., I think when we look at the markets, the sectors, I mentioned the manufacturing being down. I think that's still the case. Warehousing has been down for now three years. Data centers are up. That's a popular one. We think somewhere between 30% and 40% year-over-year. The ones I mentioned, and then a little bit of retail being impacted, I think this year. Last year had some good growth, high single digits, and this year it's pretty flat. It gets back to that idea of I like the phrase of pending to be awarded, meaning it's there.

If I can wait 30 days to see what's happening, maybe that's a good decision. Maybe something changed on the interest rates. Obviously, maybe it makes some things loosen up. I think it really is just the statement around people being confused, harder to make a comfortable decision, and that anxiety. Obviously, it's on the margin. Yeah.

Tim Wojs (Senior Research Analyst)

Okay. Okay. I just have—I'm going to sneak one last one in, just kind of a broader kind of open-ended question, but I think it's kind of topical for people. Just how should we think of Carlisle just kind of in the context of kind of what's going on in a kind of a changing market? Two of your kind of larger distributors in roofing have been acquired by different entities. There's some larger M&A in the market. You're seeing kind of maybe some contractor M&A that's kind of going on too. How does that all kind of piece together, and where does Carlisle kind of come out the other side with this?

Chris Koch (Board Chair, President, and CEO)

Yeah. Tim, no question that I think I said to someone when I joined 17 years ago, compared to today, who knew that roofing and building products was going to be such an interesting space. Obviously, the distribution changes. By the way, that might have impacted things in the second quarter as well, where we have a transaction occurring, and they're working through the integration and things like that. Obviously, those changes, private equity getting in and buying contractors, there's been strong activity there. When I do talk to contractors, they will tell you that there is definitely activity, and they're being talked to by people who are interested in rolling up that side of the industry. Manufacturing, we see more people wanting to get into the business.

It's an evolving environment. I think the key thing is that we still, at least on the commercial roofing side, we think we're the leader there. We've got very strong competitive advantages in commercial roofing and building envelope solution. We've got scale. I mean, our margins and our cash flow generation are giving us tremendous opportunity to invest in things right now, whether it be our own stock or whether it be AI or customer excellence. Whether it's innovation or driving cost reduced down in our factories through automation and even through the use of AI there. Those margins, that cash flow sets Carlisle up to be able to make the investments we need to as we go forward and maintain our leadership position. R&D and innovation is going to be key.

I think one of the big things for us is going to be to be the preferred choice, to be that sticky preferred choice, to own the contractor, to make it through our customer service experience and customer intimacy to our innovation, to our operational excellence, the product of choice. I think if we do that, everything else is going to work out. I think there will be changes around us, but I'd like to think of us as being the one place where people can come and get a consistent response from an organization that's been around for a long time. You know what you're going to get. You're going to get high quality, price to value, excellent customer service from our teams. We've got good teams with good tenure. We've got a good workforce. We've invested over the years.

I think about that flywheel, and you add M&A in there, and you expand our product offering to the building envelope, and I like where we end up.

Tim Wojs (Senior Research Analyst)

Okay. Great. Thank you for all the color. Appreciate it.

Chris Koch (Board Chair, President, and CEO)

You bet, Tim.

Operator (participant)

The next question is from Tomohiko Sano from JPMorgan. Please go ahead.

Tomohiko Sano (Managing Director)

Hi. Good afternoon. Thank you for taking my questions. This is Tomo.

Chris Koch (Board Chair, President, and CEO)

Hi, Tomo.

Tomohiko Sano (Managing Director)

Thank you. My first question is, I'd like to have more color on pricing and have stable commercial re-roofing allow you to sustain pricing power through innovation and the car experiences compared to the softer demand in other markets and rising competitions? That's my first question.

Kevin Zdimal (CFO)

Yes. We look at innovation. That's where we look to price to the value that we bring to whether it's a contractor or a building owner.

If we can bring them opportunities to reduce labor for their costs, then we deserve a higher price for our product. We share some of that savings with the contractor. Similar for a building owner, if it's energy efficiency play and the building owner is going to save money on energy, then we look to price our product higher there and ensure that savings with the building owner. Overall, we have pricing this year. It's more about the volume that Chris talked about into the second half of the year, and we're looking at pricing being stable both in the third and fourth quarters.

Chris Koch (Board Chair, President, and CEO)

Yeah. Tomo, I would say that pricing is a reflection of how well we're delivering on our value proposition to the customers.

It also helps us preserve price because they can clearly see that if we deliver on time with the right product, if they don't have callbacks for warranty, if they have a smooth warranty inspection process, if their questions are answered quickly, if they have good training, then they can see the value in that. That helps us maintain pricing even in an environment where there may be more competition or new construction may be slowing.

Tomohiko Sano (Managing Director)

Thank you very much. My last question is EPS forecast. You mentioned record EPS for 2025, but compared to the prior comment of 10%+ growth, the tone this time seems slightly more tempered. Should we interpret your EPS outlook, including strong capital returns, as a flat to slightly up year-over-year right now?

Kevin Zdimal (CFO)

Yes. We definitely, with our revised guidance, see it lower than what we talked about at the double-digit number, but we're still looking in the growth rate on our EPS. We don't do EPS-specific guidance, but yes, if you put the factors in, I think you should come up with something that's going to be, again, a record EPS year for us in 2025.

Tomohiko Sano (Managing Director)

That's very clear. Thank you very much. That's all.

Chris Koch (Board Chair, President, and CEO)

Thank you, Tomo.

Operator (participant)

Your next question is from David MacGregor from Longbow Research. Please go ahead.

Joe Nolan (Associate Analyst)

Hi. Good afternoon. This is Joe Nolan on for David.

Chris Koch (Board Chair, President, and CEO)

Hey, Joe.

Joe Nolan (Associate Analyst)

CCM, can you just talk? Hey, guys. On the CCM side, can you just talk about channel inventory and levels for TPO, EPDM, and Polyiso, and just how you expect those to develop into the second half of the year?

Chris Koch (Board Chair, President, and CEO)

I think obviously we didn't get the loading we wanted. I would say that inventory levels have just been pretty consistent with what they were in the fall and as we move through the spring. A little bit on the lighter side, I think, relative to what we would have expected, especially if the season had been more robust around new construction. I don't see a big change in inventory levels. At Carlisle, certainly, we have plenty of supply to keep our OTD up and to service all those. No real change, I think. Perhaps at the distribution level in a couple of cases where they're going through integrations and acquisitions, there may be some delay and maybe light in some areas, but nothing of note that I picked up, Kevin?

Kevin Zdimal (CFO)

I would agree with that analysis as well. Nothing bad.

Joe Nolan (Associate Analyst)

Okay. Thanks. Just to follow on the pricing questions, we heard that some manufacturers have announced a Polyiso increase. Could you talk about your confidence in that increase given the softer traction on the earlier increases?

Chris Koch (Board Chair, President, and CEO)

Yeah. I think that we've embodied that in our projection for really a flat second half on pricing. As we mentioned, we didn't see a lot of traction occurring on those Polyiso price increases. I wouldn't anticipate, without some change in demand on the new construction side, seeing that. The one other variable that could have happened or could happen is if there was some major action from a supplier of MDI or that might be related to tariffs or otherwise, it might create some price issue there. Our forecast for that is no traction on those price increases and flat for the year.

Joe Nolan (Associate Analyst)

Got it. If I could sneak one last one in. In the prepared remarks, you talked about a $20 million impact to volumes for weather in the second quarter. Should we expect that to be fully made up in the second half? Was there any incremental storm demand created from those, or were these maybe too moderate of storms to create that demand?

Chris Koch (Board Chair, President, and CEO)

I can't really comment on the storms. I think the storms have been getting worse. I know on the residential side, they talk about that a lot on the shingles. On the commercial construction side, our roofs are very robust. I would say that any storms we had do impact future demand because obviously where leaking occurs or some damage, that creates future demand. Will the demand that we saw from the weather show up in the third quarter? I imagine some of it, but remember, we think we're at a pretty full employment of contractor labor situation. Likely that rolls into the backlog or pushes something else into the backlog while they repair that.

We're still a little bit constrained, and it probably goes without saying that certain immigration actions and things like that have also been affected, or contracts have been affected by that. I wouldn't say there's surplus labor that can address that kind of weather-related demand and make it up in one quarter.

Joe Nolan (Associate Analyst)

Got it. Makes sense. Thanks. I'll pass it on.

Chris Koch (Board Chair, President, and CEO)

Thanks, Joe.

Operator (participant)

Your next question is from Keith Hughes from Truist. Please go ahead.

Keith Hughes (Managing Director)

Thank you. Question on some inputs, particularly MDI. We've seen some acceleration in that first half of the year. Are you expecting that to kind of flatten out. As we go to the second half, given this kind of flattish price environment, you're talking about here in your end-use products?

Chris Koch (Board Chair, President, and CEO)

Yeah, indeed. A little bit in 2025 here in a rise from Q1 to Q2. A couple %, but then flattening out through Q3 and Q4, Keith.

Keith Hughes (Managing Director)

Okay. Is that still in here? That would still be some inflation. That would still be inflation in here, though, the second half.

Chris Koch (Board Chair, President, and CEO)

It would be if you look from Q2 of 2024 to, yeah, Q2 of 2025, but sequentially not much inflation after Q1 of this year, or really not much inflation actually since Q3 of 2024.

Keith Hughes (Managing Director)

Okay. If we look within CWT, we talked a lot about flat pricing, non-tractional price increases. Is there any product there that you're specifically struggling with to get price increases through and maybe alternately some you're doing a little bit better than average?

Mehul Patel (VP of Investor Relations)

Yep. So overall, Keith, this is my whole here for CWT. Pricing is stable year-over-year, and it's pretty much across all the different segments.

Keith Hughes (Managing Director)

Okay. Thank you.

Mehul Patel (VP of Investor Relations)

Spray foam, Keith, just I know last year there was pricing pressure on that specific category, so that's bottomed out. Earlier this year, there were some price increase announcements, but I think given the challenges in residential, it's going to remain stable vs going up.

Keith Hughes (Managing Director)

Okay. Great. Thank you.

Operator (participant)

There are no further questions at this time. Please proceed with closing remarks.

Chris Koch (Board Chair, President, and CEO)

Thank you, Andrew. This concludes our second quarter earnings call for 2025. I want to thank everybody for your participation, and as usual, we look forward to speaking with you at the next earnings call. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.