Carlisle Companies - Q3 2024

Transcript

Operator (participant)

Good afternoon. My name is Nicole, and I will be your conference call operator for today. At this time, I would like to welcome everyone to the Carlisle Companies' Third 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, 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 Third Quarter 2024 Earnings Call. I'm Mehul Patel, Vice President of Investor Relations for Carlisle. We released our third 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 providing key highlights of our third quarter results and some commentary on our progress towards Vision 2030's goal of $40 of EPS. Kevin will follow Chris and provide an overview on our third quarter and year-to-date financial performance and give an update on our most current outlook for the remainder of 2024.

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, and with that, I will turn the call over to Chris.

Chris Koch (Chair, President, and CEO)

Thank you, Mehul. Good afternoon, everyone, and thank you for joining us today on Carlisle's Third Quarter 2024 Earnings Call. To start, I'd like to direct your attention to slide three of the presentation. I'm pleased to share that Carlisle continued to demonstrate the outstanding performance we've seen in twenty twenty-four into the third quarter, despite facing increased headwinds in the quarter, which negatively impacted sales, primarily in our residential end markets. Despite these challenges and the additional impact of two major hurricanes, the Carlisle team delivered record third quarter results in both EBITDA margin and earnings per share. Carlisle's performance throughout this year underscores the resilience of our business model, the robustness of our key initiatives, and the perseverance of our team, and the effective execution of our Vision 2030 strategies.

The record achievements in profitability in the third quarter are even more rewarding, in that our teams delivered the record third quarter results in an environment that, as mentioned, saw a weakening residential market when compared to our second quarter outlook, as well as disruptions tied to weather-related and port strike events. In the third quarter, Carlisle delivered sales of $1.3 billion, representing growth of 6% on a year-over-year basis, despite the negative sales impact of CWT. Across both CCM and CWT, we maintained our strong focus on pricing discipline, on driving a superior customer interface through the Carlisle Experience, and continued to deliver operating efficiencies through our well-known approach to driving continuous improvement, the Carlisle Operating System.

These factors combined to deliver third-quarter record bottom-line results, with adjusted EPS growing 24% to $5.78 and adjusted EBITDA margin expanding 60 basis points year over year to 27.6%, highlighting our commitment to continued margin expansion in both CCM and CWT. CCM continued the positive momentum generated in the first half of 2024 into the second half of the year, with revenue growth of 9% and an impressive 110 basis points expansion in adjusted EBITDA margin, setting a new third-quarter record of 32.8%. This growth was driven by the continued strength in reroofing demand, along with the benefits from inventory normalization in the channel and the acquisition of MTL.

As we've discussed throughout the year, we anticipated a significant positive impact from inventory normalization in 2024, and we are pleased that it materialized as expected and in the order of magnitude we had forecasted at the start of the year. In the third quarter, in line with our original projections, we saw an approximately $50 million benefit of sales from CCM inventory normalization, which now completes the lapping benefit we expected this year, and it was tied to the prior year's inventory destock. As a reminder, when we entered 2024, we had anticipated $375 million from a return to normal inventory levels. Now, turning to CWT.

While we were pleased with the progress of our new product introductions, retail channel expansion, and overall share gains within CWT, higher interest rates and affordability challenges resulted in a further slowing in new housing activity and repair and remodel during the quarter. These negative factors drove a sales decline of 3% year-over-year in CWT, including an expected low double-digit price decline.... That said, our long-term positive outlook for CWT is unchanged, given the well-known need for additional housing, a forecasted return to a better interest rate environment, and success in key growth initiatives across commercial waterproofing, new product introductions, and expansion in the home center channel. Overall pricing in the third quarter remained relatively stable and in line with our expectations for both the CCM and CWT segments. Much of this was driven by our proactive approach, pricing discipline, and our commitment to value-based pricing.

Furthermore, the team's focus on operational excellence and strategic growth initiatives leaves us well-positioned to capitalize on market opportunities as they arrive. Now, let's turn to Vision 2030. Our Vision 2030 strategy continues to guide our focus on key growth drivers, including energy efficiency, labor-saving solutions, and capturing a larger share of the expanding reroofing market. We're doubling down on organic investments and innovation, more than tripling our historical R&D investments to bring more energy-efficient and labor-saving products to market faster. We also remain committed to our pivot to a pure-play building products platform and focused almost exclusively on the opportunities presented in the North American markets. Furthermore, we remain driven to be a superior capital allocator and demonstrated our commitment to returning capital to shareholders in the third quarter through our balanced approach of dividends and share repurchases.

During quarter three, we repurchased 1.1 million shares for $466 million, bringing our year-to-date total to $1.2 billion. These third quarter purchases put us well on track to achieve our planned goal of $1.4 billion in share repurchases in 2024. Additionally, we paid out $46 million in dividends this quarter and declared an 18% increase to our dividend in August, representing the 48 consecutive annual increase in dividends for Carlisle shareholders. These actions underpin our ongoing dedication to creating shareholder value and reflect our confidence in Carlisle's growth trajectory.

Our robust cash flow generation and pristine balance sheet continue to provide us with the flexibility to reinvest in our businesses and the ability to deploy capital to drive organic growth, continuously improve our operations, pursue strategic acquisitions, and actively return capital to our shareholders, all while maintaining our focus on driving long-term value creation. To close out slide three, while we are slightly lowering our full-year 2024 outlook to 10% revenue growth for Carlisle, reflecting the ongoing challenges in the residential markets and the impact of the previously mentioned weather and strike events, we are pleased to reaffirm our expectation to achieve approximately 150 basis points of Adjusted EBITDA margin expansion. I will now speak briefly to slides four through eight as I discuss our recent progress against our Vision 2030 goals.

As a reminder, our Vision 2030 strategy builds on the success of Vision 2025 and gives us a clear roadmap to drive value creation in the next chapter of Carlisle's ongoing story of success. Under Vision 2030, we are creating value for our shareholders through our portfolio of high-performing building envelope businesses with attractive secular trends. We are focusing on delivering the most innovative, energy-efficient, and labor-saving products and solutions to our customers through investment in our ever-improving Carlisle Experience, delivering well-understood and consistent value for price, leveraging a strong leadership focus, and operating with a relentless focus on flawless execution driven by our COS culture. As a reminder, Vision 2030 focuses on six pillars. The first is the Carlisle Operating System.

Under Vision 2030, we will continue to drive our continuous improvement culture through the consistent application of COS across every function in the enterprise, with the goal to drive savings of 1%-2% of sales annually through operational efficiencies. Second is the Carlisle Experience. The Carlisle Experience has established us as a premium brand with a recognized value proposition backed by high-quality products and exceptional service. Our commitment to our customers is embodied in the Carlisle Experience, which means delivering the right products to the right place at the right time. We understand that we win with customers through superior products and solutions, exceptional service, and labor savings efficiencies, and we price our products to reflect that value. Third is innovation.

We plan to increase our spend on R&D to 3% of sales by 2030 to accelerate the creation of new products and solutions that add value to our customers through advancements in sustainability, energy savings, and labor efficiency. We will pursue innovation based on an intimate knowledge of our markets and a focus on innovation that responds to our customers' needs and opportunities to improve their businesses. Fourth is M&A. We will focus on existing and adjacent categories that allow us to enhance our building envelope portfolio. We will seek opportunities to acquire assets that meet our well-understood criteria of an embedded organic growth story, an opportunity to deliver hard cost synergies, a talented management team, and the ability to deploy our Carlisle Integration Playbook. Fifth is our disciplined approach to capital allocation.

Ultimately, as superior capital allocators, we seek to create value for our shareholders and deliver benefits for all our stakeholders. In line with our track record, we will continue to invest our cash responsibly into the highest ROIC opportunities. And lastly, and perhaps more importantly, our sixth goal is attracting, motivating, and retaining top performers to ensure we have the best talent to execute our strategic initiatives and drive above-market growth. By executing on our clearly stated initiatives and strategies, reinforced by the progress we have made this year, we are on target to deliver our goal of $40 of EPS by 2030, while achieving over 25% ROIC and generating free cash flow margins in excess of 15%. Our M&A strategy, a key pillar of Vision 2030, continues to progress as expected.

We have a healthy pipeline of opportunities that can contribute to our Vision 2030 goal to grow and be a leading supplier of building envelope products and solutions. With the sale of CIT completed in May, I'm pleased to report that we've been able to deploy capital from the sale proceeds into meaningful acquisitions, demonstrating our ability to execute on our strategic plans and create value through M&A as part of Vision 2030. This rapid and strategic deployment of capital underscores our commitment to strengthening and growing our positions within the building envelope. With our solid balance sheet and robust cash flow, we are well-positioned to capture additional value through M&A over the Vision 2030 timeframe. We see opportunities in both existing and complementary categories, including architectural metals, insulation, underlayments, sealants and adhesives, and the many weatherproofing categories within CWT.

As a reminder, our M&A playbook is built on four core criteria: an embedded organic growth story, hard cost synergies, a strong management team, and the deployment of our Carlisle Integration Playbook. Our acquisition of MTL earlier this year and our recently announced agreement to acquire Plasti-Fab are recent examples of this strategy in action and the steady progress in M&A we are making against our Vision 2030 goals. Let's focus on Plasti-Fab for a moment. The rationale for the acquisition of Plasti-Fab is straightforward. It aligns perfectly with our Vision 2030 strategy to enhance our best-in-class building envelope product portfolio.

It establishes Carlisle as a leading manufacturer within the $1.5 billion North American expanded polystyrene insulation market and strategically provides vertically integrated polystyrene capabilities to our Insulfoam business while adding scale, supporting retail channel growth, and filling key geographic gaps in the U.S. and Canada. We expect this acquisition to generate approximately $14 million in annual cost synergies and be accretive to our adjusted EPS by approximately $0.30 in 2025. Recently, our M&A strategy gained recognition in a Harvard Business Review article titled A Better Approach to Mergers and Acquisitions. Carlisle has built a detailed Integration Playbook with clear milestones and goals. This approach, coupled with our rigorous due diligence process, gives us a competitive advantage in M&A execution.

We were pleased to be able to share our approach to M&A through a well-distributed and well-respected periodical and hope it helps provide shareholders with more insight into our approach. Our success in M&A complements our intensified focus on innovation, another key driver in our Vision 2030 strategy. We're significantly increasing our R&D investment to $1 billion over the Vision 2030 timeframe, aiming to derive 25% of our revenue from new products, up from 15% today. Our approach categorizes innovation into three types: business lifecycle, evolutionary, and revolutionary, each receiving equal focus and investment of about 1% of sales. Business lifecycle innovations, currently 80% of our efforts, focus on ongoing product improvements and cost reductions. Evolutionary innovations address specific and real current unmet customer needs. A great example is our new 16-foot TPO line.

By doubling the width of the traditional eight-foot TPO roll, we reduce seams in the roof, which reduces the opportunities for leaks over the life of the roof. It also reduces labor by significantly increasing the square foot applied by the contractor's installation team. Revolutionary innovations drive dramatic business inflections with longer-term development timelines. New reroofing insulation, like our recently introduced denim-based UltraTouch product that's available at Home Depot, is an example of a revolutionary product development idea. Our innovation efforts are already yielding results, with products like SeamShield and Blueskin VPTech gaining rapid market acceptance. SeamShield reduces cleaning time by 70% while increasing weld strength, directly addressing contractor pain points. Blueskin VPTech combines multiple components into a single product, improving energy efficiency and cutting installation time by 30%.

I'm particularly excited to highlight another innovative product that exemplifies our commitment to sustainability and customer value. Our Henry Roof Guard roof coating was recently named a finalist for Home Depot's Innovative Product of the Year award. This recognition not only showcases our progress in innovation, but also reinforces the strength of our relationships with key channel partners like Home Depot, and is another example of delivering value to our customers based on extensive market input. Roof Guard represents our next-generation acrylic waterproof roof coating, enhanced with urethane for improved performance. Its premium hybrid formula offers better weather protection, solar reflectivity, and longevity compared to standard acrylic reflective roof coatings. This innovation not only addresses our customers' needs for energy efficiency, but also aligns perfectly with our sustainability goals.

The success of products like Roof Guard have contributed to CWT's Henry brand being awarded Home Depot's Building Materials Vendor of the Year for the second time since 2022. This accolade underscores our commitment to innovation and customer satisfaction, serving as a prime example of The Carlisle Experience in action, and we are very proud of the Henry team for being recognized by Home Depot again. These innovations not only enhance The Carlisle Experience for our customer, but also drive margin expansion through pricing to value. They demonstrate how our focus on innovation is directly contributing to our Vision 2030 goals, positioning us to meet evolving market needs while driving sustainable growth and profitability. I'm extremely proud of our team's performance year to date. As we progress towards our Vision 2030 goals, I am confident in our ability to continue delivering value for all our stakeholders.

Our focus remains on demonstrating the strength of our margin resiliency through The Carlisle Experience and driving superior returns on capital through our strategic initiatives. With that, I'll turn it over to Kevin to provide additional financial details. Kevin?

Kevin Zdimal (VP and CFO)

Thank you, Chris. Our third quarter financial results continue to demonstrate Carlisle's strength and our effective execution. As shown on slide nine, we delivered a solid third quarter on both the top and bottom lines. We grew sales to $1.3 billion, up 6% year-over-year, driven by robust reroofing activity, the return to normalization of inventory levels in our channels, and the acquisition of MTL, which more than offset the negative impact from the slower residential end markets. We leveraged our top-line performance to expand EBITDA margins by 60 basis points year-over-year to a record third quarter, 27.6%. Furthermore, we grew adjusted EPS by 24% to a record third quarter, $5.78, reflecting the strong operating results, margin expansion, and the benefits of our ongoing share repurchase program. Looking at our segment highlights, starting with CCM on slide 10.

CCM delivered third quarter revenues of $998 million, up 9% year-over-year, reflecting pent-up reroof demand, the benefit of inventory normalization, and the acquisition of MTL. CCM's adjusted EBITDA increased 13% year-over-year to $328 million, and adjusted EBITDA margin expanded an impressive 110 basis points year-over-year to a record third quarter 32.8%, reflecting strong volume leverage on sales growth, favorable raw materials, and continued operational improvements driven by the Carlisle Operating System. Moving to slide 11, revenues at CWT were down 3% year-over-year to $335 million, primarily due to softer residential end markets and expected price declines in select product categories, partially offset by growth in our commercial business, share gain initiatives, and the acquisition of Polar Industries. CWT's adjusted EBITDA decreased 14% year-over-year to $69 million.

Adjusted EBITDA margin contracted 270 basis points year-over-year to 20.7%, attributable to strategic investments in the business to support longer-term growth initiatives, as well as lower sales in the quarter as a result of broader residential market weakness from higher interest rates as consumers take a wait-and-see approach to home purchases and R&R. For your reference, slide 12 provides a year-over-year third quarter adjusted EPS bridge. Moving to slide 13, our cash flow performance remains strong. Free cash flow from continuing operations for the first nine months of 2024 was $597 million, up $22 million year-over-year, reflecting robust earnings growth and disciplined working capital management. We have invested $64 million in capital expenditures year to date.

Moving to slide 14, our balance sheet remains solid, with $1.5 billion in cash and $1 billion available under our revolving credit facility as of quarter end. This solid liquidity, along with a net leverage ratio of 0.5x, gives us the flexibility to invest in value-creating opportunities while staying committed to delivering returns to our shareholders. Moving to slide 15, in line with our Vision 2030 capital allocation strategy, we're reinvesting in our high ROIC building product businesses through growth CapEx and strategically deploying capital towards synergistic M&A opportunities to grow and enhance our building envelope portfolio, while also returning significant capital to shareholders. In the third quarter, we paid $46 million in dividends and repurchased $466 million in shares, bringing our year-to-date share repurchases to $1.2 billion.

We have 4.5 million shares remaining under our current repurchase program. Carlisle's financial strength, underpinned by consistent cash flow generation and prudent capital management, remains a key competitive advantage. It enables us to balance investments in organic growth, strategic M&A, and shareholder returns, while maintaining the flexibility to navigate evolving market dynamics. This financial resilience, combined with our operational excellence driven by the Carlisle Operating System, reinforces our confidence in achieving our Vision 2030 objectives. Now moving to our full-year financial outlook on slide 16. As Chris previously noted, we now expect our full-year 2024 outlook for revenue to grow approximately 10% over the prior year, and we are reaffirming our expectations for Adjusted EBITDA margins to expand by approximately 150 basis points.

This outlook includes an expectation for fourth quarter revenue to grow low single digit, with an adjusted EBITDA margin of approximately 25% in the fourth quarter. As such, we expect record full-year EPS in 2024, with growth in excess of 25% compared to the prior year. Additionally, we maintain our expectation to deliver free cash flow margins of at least 15% and ROIC in excess of 25%. This is directly aligned with the objectives outlined in our Vision 2030 strategy. To provide a tighter band on the outlook, I will provide outlook by segment for the fourth quarter. For CCM, we expect revenue to grow mid-single digit through a combination of volume growth and the benefit from the MTL acquisition, offsetting slightly lower pricing on year-over-year comps.

For CWT, we expect fourth quarter revenue to decline low single-digit versus a fourth quarter of 2023. The main drivers for CWT is key growth initiatives, partially offsetting the softer residential end markets. In summary, our third quarter results of revenue up 6% and adjusted EPS up 24% year over year to a record third quarter $5.78 demonstrate the strength and resilience of our business model, as well as our ability to execute effectively in a dynamic market environment. The progress we have made year to date reinforces the momentum we are building towards our Vision 2030 goals. As we look ahead, we are excited about the opportunities to further leverage our operational excellence, drive innovation, and win in our end markets.

With our strong financial position, disciplined capital allocation strategy, and commitment to continued improvement through the Carlisle Operating System, we believe we are well-equipped to deliver long-term value creation. With that, I turn it over to Chris for closing remarks.

Chris Koch (Chair, President, and CEO)

Thank you, Kevin. In conclusion, I want to reiterate our confidence in Carlisle's strategic direction under Vision 2030. As we move forward, our ability to innovate with a focus on energy efficiency and labor-saving solutions puts us on the right path to drive above-market growth and superior financial results. Our record third quarter results, cash flow generation, and overall 2024 performance continue to give us confidence that we are firmly on track towards our Vision 2030 goals of $40 EPS, 25% ROIC, 15% free cash flow margins, 25% EBITDA margins, and mid-single-digit organic growth. The pivot of Carlisle's business model to an easier-to-understand and higher-returning building products portfolio continues to provide many strong catalysts for growth.

When combined with our robust free cash flow engine, strong balance sheet, enhanced focus on innovation, a robust pipeline of potential acquisitions, and a proven M&A integration playbook, Carlisle is clearly positioned to create significant additional value for all our shareholders and reach our goal of $40 of EPS under Vision 2030. I would also like to take this opportunity to express my continued thanks to all of Carlisle's employees for their exceptional efforts and perseverance in this challenging environment. And once again, let me extend my sincere congratulations to the Henry team on their Home Depot award. Thank you all as well for your continued support, investment, and interest in Carlisle. That concludes our formal comments. Operator, we are now ready for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star, followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the 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. Our first question will be coming from Timothy Wojs from Baird. Please go ahead.

Timothy Wojs (Senior Research Analyst)

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

Chris Koch (Chair, President, and CEO)

Good afternoon, Tim.

Timothy Wojs (Senior Research Analyst)

Hey, so maybe just on volumes, you know, in the CCM business, if you could maybe kind of take a step back and kind of, you know, give us some color on where you think maybe either industry sales are or kind of where industry volumes are, you know, kind of in this third quarter and maybe year to date. I guess, as you look at next year, I mean, I know it's early, but, you know, how do you think about the volume kind of puts and takes, you know, to next year with new construction? It seems like reroof continues to have some decent momentum.

Chris Koch (Chair, President, and CEO)

Yeah, I think you're right, Tim, on. I'll just take a look into 2025 first and we'll see what Kevin has to say about Q3. But I think 2025, we continue to be optimistic on that from a couple of perspectives. I think obviously, there's a lot of economic uncertainty going to the elections. Obviously, there was you know, hope for more interest rate cuts that didn't materialize. I think people may be sitting on the sidelines there. We also were going into the fourth quarter after just having basically got back to normal on the inventory restocking, and no one was gonna really restock into the light quarters of the year too heavily. And then we had a little bit of weather. I think things stabilized after the election.

Interest rate cuts, we think there may be some opportunity for some pricing. Obviously, we still see inflation in labor, medical costs, these things. As well as, more innovation that we have coming out, the effects of some, positive things on acquisition, some new channel, opportunities for us. So I think 2025 for us, we would say it looks good. And then last, I'd say, you know, we haven't had a load-in into the construction season in quite a while, and this probably isn't accurate, but I'm gonna say it probably hasn't been since COVID. And that used to be a nice boost to the year. So there, I think there's some opportunities for some inventory improvements when people have confidence in the economy again.

So with that, I'll turn it to Kevin and see what he'd like to say about the third quarter volumes.

Kevin Zdimal (VP and CFO)

Yeah, Q3 for CCM, I would say the industry was up about 3%, which would've been the same for our CCM business. There was some things at the end of the quarter, as you know, with some of the weather events, with the hurricanes, as well as the port strike, that impacted us a little more than 1% in the quarter. So that would've been against that 3% volume that we would've seen.

Chris Koch (Chair, President, and CEO)

You know, Tim, specifically, one thing, just one thing to add, too.

Timothy Wojs (Senior Research Analyst)

Okay.

Chris Koch (Chair, President, and CEO)

As I look across the verticals, you know, warehouses, educational, office, that kind of thing, you know, really, when we look in 2024, the big one that's been dragging, and it was kind of that way in 2023 as well, has been warehouses. Everything else is not in too bad a shape as far as how the volume's getting distributed. And I think you can. You're probably already aware of that, that we've seen that, so.

Timothy Wojs (Senior Research Analyst)

Yeah. I mean, to your point, like, new construction's down this year, right? So I mean...

Chris Koch (Chair, President, and CEO)

Right.

Timothy Wojs (Senior Research Analyst)

You know, and a lot of it is central. A lot of it is kind of centered around the warehouse vertical, right?

Chris Koch (Chair, President, and CEO)

Yeah. Yeah.

Timothy Wojs (Senior Research Analyst)

Yeah. Okay.

Chris Koch (Chair, President, and CEO)

I think new construction will... Yeah, okay. Enough.

Timothy Wojs (Senior Research Analyst)

No, no, that's fine. That's totally fine. And then just on the M&A kind of funnel and the pipeline and I guess kind of the pace, I mean, you know, you've done kind of two acquisitions or two tuck-in acquisitions here in the last, you know, couple of quarters. I mean, is there a pretty sizable pipeline of these tuck-in type acquisitions at pretty attractive financial profiles? Because, I mean, if you're able to do a couple of these a year, I mean, you could really start to get some momentum on the synergies and the capital deployment.

Chris Koch (Chair, President, and CEO)

Yeah, actually, you know, I still think prices are a little bit high versus what they were a few years ago. But after we get our synergies and our synergy and adjusted number, they've been looking really good. And it goes back to the four things we're looking for. You know, we're looking for that organic growth story. We're looking for hard synergies, good management team. We've got those both in MTL and Plasti-Fab. The other thing is, you said it, the tuck-in, that ability to get those synergies, but also add a dimension to the two businesses. And I think it's really nice that that MTL is a good acquisition for our existing CCM business around Drexel and Petersen. Got a great manager in Tony Mallinger, and things we're bringing efficiencies to the existing business by adding MTL.

And then you look at Plasti-Fab, and it really reinforces that, you know, Frank Blake's concept is built around national distribution, on being a national brand, on, you know, really enhancing the Carlisle Experience. I mean, part of his, you know, core competency at Home Depot is a 24-hour delivery anywhere in the country. So when we look at past Plasti-Fab, we're going to build out that EPS network as well. So they're really good fits, and we do see more of those. We do see more opportunities around the building envelope, and I think, you know, you'll see more of that from us, certainly in 2025 and beyond.

Kevin Zdimal (VP and CFO)

Yes, and as we look at the scale, the scale and size of them, we would expect to continue to deploy about $300 million-$500 million into these bolt-on acquisitions a year for the next few years.

Timothy Wojs (Senior Research Analyst)

Okay. Okay, great. And then, Kevin, just a clarification, that 3% industry volume number that you quoted, you guys were closer to mid-single digits? Just to make sure the math works.

Kevin Zdimal (VP and CFO)

Yeah, when you take into account some of the destock, then that puts us-

Timothy Wojs (Senior Research Analyst)

Yeah

Kevin Zdimal (VP and CFO)

... at the higher end there.

Timothy Wojs (Senior Research Analyst)

Okay.

Kevin Zdimal (VP and CFO)

Yeah, if I was excluding the destock impact.

Timothy Wojs (Senior Research Analyst)

Gotcha. Okay, sounds good. I'll hop back in queue. Thanks, guys.

Chris Koch (Chair, President, and CEO)

Thanks, Tim.

Operator (participant)

Thank you. Our next question will be coming from Saree Boroditsky from Jefferies.

Saree Boroditsky (SVP)

Hi. Good evening. So maybe just turning to CCM margins, obviously very strong performance in the quarter. You cited some positive raw material environment. Could you just talk about the price contribution to margins from the quarter, and anything else that drove that expansion?

Kevin Zdimal (VP and CFO)

Yes, so price cost was neutral in the quarter for CCM, and as you said, it was very good margins, up over a hundred basis points to a record. And for us, that really demonstrates the power of the business, where we can get these record margins, expand the margins without getting price, 'cause that's been a lot of the story in past years, is we needed the price to get the margins, but now with utilizing the Carlisle Operating System throughout CCM, that's driving these higher margins.

Saree Boroditsky (SVP)

Then you guys don't usually talk a ton about storm activity, but just given some of the recent hurricanes, you know, how do we think about the potential for additional construction demand versus having lower days on the roof in the short term?

Chris Koch (Chair, President, and CEO)

Probably neutral, I would say. I think, you know, we, we definitely had some impact at the end of September, and then into October. There are factories primarily, you know, Florida and around the Gulf but obviously we'll get some pickup from that. I mean, we hope people recover quickly. There was a lot of damage, and I think more importantly than the if we talk about weather, the bigger impact as those wash out, is probably around what kind of, you know, November, December we have across the country, Sheree, and whether we get a nice dry, warm fall or we get wet weather, and more snow early in the north.

You know, that's always the factor, but I think for the most part, the opportunity and the impact kind of wash each other out in the quarter, fourth quarter.

Saree Boroditsky (SVP)

Appreciate it. If I could just add one more. You've talked about the ramping of the R&D investments at 3% of sales. Can you just talk about how we see that spending step up and maybe what the contribution will be for next year? Thank you.

Kevin Zdimal (VP and CFO)

Yeah, we would expect to increase it around 50 basis points a year as we move forward to 2030. So we're not gonna get to 3% next year or even the following year. It's more of this steady increase of it throughout the next five years.

Saree Boroditsky (SVP)

I appreciate the color. Thank you.

Chris Koch (Chair, President, and CEO)

Thanks, Seree.

Operator (participant)

Our next question will be coming from Susan Maklari. Please go ahead.

Susan Maklari (Senior Equity Research Analyst)

Thank you. Good afternoon, everyone. My first question-

Chris Koch (Chair, President, and CEO)

Go ahead, Sue.

Susan Maklari (Senior Equity Research Analyst)

Good afternoon. My first question is digging into the reroof side of things again. Can you talk a little bit about what the latest survey of your contractors has shown? Has that changed any over the last quarter? And how are you thinking about their positioning as they look to the fall and year-end? And then how do you also, within that, think about the opportunities to capture some of that business, given the MTL and the other acquisitions?

Chris Koch (Chair, President, and CEO)

Right. Well, the survey that we do really reflected everything I think you've written and others have written about, more pressure on new and more pressure on the resi side of the business, and obviously, that's been reflected in more numbers than just ours, and I think it's pretty well understood. Very, very kind of positive on reroofing, you know, as we look out, and we kind of bifurcate this into a near-term look at what reroofing is doing. But on the long term, all those roofs that we've seen, and we've talked about this before, that are put on in the 2008, 2009, 2010, 2012, you know, these all come back at a higher price and have to be reroofed within 20 years.

So the outlook for Q4 has been positive across the board. Obviously, we talked about the impact of what weather can do, and there can be some, you know, impact on the margins, and then going into 2025, I was actually surprised that the kind of initial indicators were positive, both on a return to volume, and I think, again, I spoke to the, you know, uncertainty now and the macroeconomic conditions that are here, uncertainty, people being concerned, but the 2025 looked more positive, and then surprisingly, there was some positive expectation around price, that that would be a positive as we headed into 2025, so early days, right? These are projections. This is across a wide group of contractors, but I think good news on that commercial side.

Susan Maklari (Senior Equity Research Analyst)

Yeah. Okay. And then, can you talk a bit about your inventories within CCM, how those are going into the end of the year, and any thoughts on your production?

Chris Koch (Chair, President, and CEO)

Yeah, Sue, before I get to the inventories, you asked about MTL and what's happening. You know, MTL continues to make great strides to integrate into the specifications at CCM. As well as a reminder, MTL has patents and things like this, and we're bringing those into our warranty. We're bringing our salesforce teams together. I mean, it's only been about six months, but we're getting good traction there. We're seeing places where even Henry now is getting into the game, where we will bid on a national chain, and we'll suddenly see that, you know, Henry might be in there, and they're bringing MTL in or bringing CCM or vice versa.

So there's really good synergies there, and I'm really pleased with how quickly Brian and his team have integrated and really started to push that whole idea of the building envelope platform that we want. On inventories, you know, inventory turns have been better. We're fine. Our deliveries continue to increase in terms of an on-time delivery rate. It's always been good, but it has gotten better as we've moved through the quarter. And, you know, that's OTD to promise and then first time fill rate. So I think we continue to have pretty good service, and it continues to get better in the quarter.

Susan Maklari (Senior Equity Research Analyst)

Okay. All right. Thanks for all the color. Good luck with everything.

Chris Koch (Chair, President, and CEO)

Yeah, you bet. Thank you so much.

Operator (participant)

Next question will be coming from David MacGregor from Longbow Research.

David MacGregor (President and Senior Analyst)

Yeah, good afternoon, and thanks for taking my questions.

Chris Koch (Chair, President, and CEO)

Good afternoon, David.

David MacGregor (President and Senior Analyst)

Chris... Hey, Chris, can you just talk about the polyiso market? And it seems as though, you know, you've got a lot of new capacity that's a relatively large increase, I guess, in the amount of new capacity to come to market in the last year. It seems like pricing's been a little sloppy. How are you thinking about that market right now, and how it can absorb that capacity over the next year or so?

Chris Koch (Chair, President, and CEO)

Well, I think, you know, when we look at additions, maybe we take it into two different groups. You know, we look at our big, the big three that, you know, us and our two big competitors have been here for a long time and use it as part of an integrated system. I mean, we look at the reroofing volumes over the coming years. We look at North America getting some reshoring. We look at, you know, what we're doing with the need for energy efficiency. I think we'll be fine with what's been added. We do have others that have announced they're gonna come in. I think this is an interesting statement.

I think it's gonna be polyiso in the market, but it's not the same type of capacity as I would say out of those players that have a fully warranted system, national coverage, you know, training centers, tying it together with, as I just mentioned to Sue, you know, bringing in the metal and that kind of stuff. So, you know, we still are looking to be the provider of the building envelope solution. We're looking to add pieces like Plasti-Fab, which is an insulation, you know, company, obviously. And so I think there's been some capacity added and, or at least talked about being added, and I don't understand how that might integrate into, you know, the markets we serve. We've had this happen before.

I think three years ago, maybe four years ago, we had a competitor from Canada come down and put a facility in Maryland, and it was a TPO-Polyiso facility, and I think at the time, we'd had some questions around what's that gonna do to the market? Obviously, we don't ever talk about that on our calls, and I would say the impact was negligible. You know, obviously, there's a lot more to being in this building envelope business than just showing up with a TPO line and a polyiso line. While that's a great start, I'm sure for someone, you know, we've got a lot of years of relationships and other things that, you know, again, I like to think about Mehul, and Frank talks about this too. VPTech's a great idea.

That's not just adding the piece of Blueskin or the vapor barrier or the EPS or the board. It's putting them all together and then selling it through a highly talented sales network to architects and contractors and builders. And so, I think we're good. I think we've got a great outlook for North American construction markets, and so I think what we've added, while seems to be quite a bit compared to what we're used to, I think we'll be okay with it.

David MacGregor (President and Senior Analyst)

Good. Thank you for that detail. That's a great answer.

Chris Koch (Chair, President, and CEO)

Yeah, you got it.

David MacGregor (President and Senior Analyst)

Can you just walk us through your, your outlook for each of your principal raw material inputs, just in terms of price trends and what you're seeing there?

Chris Koch (Chair, President, and CEO)

Yeah. I think we had talked about MDI for the year, being a little bit down. I know our TPO resins were a little bit up, EPDM resins, I should say polymers down. So when we look overall, you know, that's where we're getting to, you know, some savings that those that are down are overwhelming it. But for the most part, it's been pretty stable through the year and much as we expected. I think some of it obviously depends on on demand, and in the resi markets, obviously, that's been down, but overall, yeah, relatively stable.

David MacGregor (President and Senior Analyst)

Good. Last question for me is just on CWT, and you talked about EBITDA, Adjusted EBITDA being down 14%. Can you just bifurcate for us the investments that were made there versus the volume deleverage?

Chris Koch (Chair, President, and CEO)

Yeah. You know, when we looked at it, we tried to break it into something that we all could digest a lot of moving parts, but basically, about a third of that was the continued deterioration in the resi markets. You know, both the resi new and the R&R were both down about mid-single digits. You know, obviously, I'll say it, but you already know it. It's interest rates, affordability, election uncertainty, you know, and then we had a little bit of an impact from the spray foam side of the business, where a little bit of irrational pricing from some competitors that had a bit of an impact.

But let's say that made up a third, and then the second third really was the investments, and maybe I'll let Mehul go into what those investments were. He's our residential, or I should say, CWT expert.

Mehul Patel (VP of Investor Relations)

Sure. Thanks, Chris. Hey, Dave, how are you? So you've heard us talk about key initiatives within CWT across expansion in The Home Depot, retail side of the business, as well as expanding into the national builders with their full system offerings, and then advanced waterproofing penetration. So those are areas where we're investing in the sales organization, adding people as well as equipment to drive our strategy there. In addition to that, we've had additional marketing and ad co-op programs with the retail channel as we expand into additional categories. And then you hear us talk about R&D as part of Vision 2030. So on CWT, you heard about products like Blueskin VPTech. We're investing in that in R&D.

And then lastly, as part of our cross-selling and selling the full system across the different CWT businesses, we've been investing in IT and systems and tools to make it a better customer experience. So, that kind of gives you an idea of where we're spending the additional money, and it's gonna support further long-term, long-term growth. And as we continue to grow, we should get a good return and see margins improve going forward.

David MacGregor (President and Senior Analyst)

Great. Thanks for the detail. Good luck.

Chris Koch (Chair, President, and CEO)

Thanks, David.

Operator (participant)

Next question will be coming from Bryan Blair from Oppenheimer.

Bryan Blair (Managing Director and Senior Analyst)

Hi, good afternoon, guys.

Chris Koch (Chair, President, and CEO)

Hey, good afternoon, Bryan.

Bryan Blair (Managing Director and Senior Analyst)

Chris, you mentioned likely neutral Q4 impact from the hurricanes. Obviously, there's some, you know, headwind from the first, you know, when that hit in Q3. Just to level set, what was the total impact between the port strikes and the, you know, initial impact of the first hurricane, you know, top line and margin to the extent that can be quantified?

Kevin Zdimal (VP and CFO)

Yeah, in the top line, it's about $10 million-$15 million of impact in the third quarter. And yeah, to the bottom line, you can do our incrementals off of that. So 40% is the impact there for the third quarter. And then, yeah, as Chris said, we don't see it coming back in the fourth quarter, getting that pick up. But 2025 is when we'll see more of the recovery of that piece that was slowed down due to the hurricanes. Right now, obviously, in the Southeast, the focus is on the essential jobs and the repairs. They're not doing as much work on new projects, but that's what we think will kick in in 2025.

Bryan Blair (Managing Director and Senior Analyst)

Okay. Understood, and, Chris, you've walked through some of the puts and takes for CCM looking to 2025. Maybe do the same with CWT. You know, how are you thinking about recovery prospects, continued watch items, related swing factors, et cetera?

Chris Koch (Chair, President, and CEO)

Yeah, well, I think, you know, you've got a lot of really positive things. I mean, Hull mentioned a couple of them. We've obviously expanded our retail channel. That was a great synergy that we, you know, we don't build into the $30 million of synergies that we had in the Henry deal. That came as a bonus. So the expansion into the retail channel has been good. We've talked about some of the different products, like I mentioned, the UltraTouch Denim insulation. We've got some other projects that are going on. So I like that. Frank's VPTech, you know, really, this new product, the whole innovation pipeline thing in a microcosm in CWT, that team has done a pretty good job, as even indicated by the supplier recognition at Home Depot.

I think the bigger things for us are really just around the economy and this affordability. I think a couple of interest rate cuts that will be needed will help. We've got to get people moving again, that affordability is an issue. We do know there's a backlog in housing stock, so let's get you know see that happen, CapEx gets deployed. So I think that as well as CapEx, and we haven't talked about it much on this call, but we did invest a lot into automation, into CWT, things like auto fill, taking really labor out of the equation, automating that, and increasing both the quality, reducing the waste, and increasing the efficiency of our factories. And Frank's done a nice job there.

So, you know, again, to me, when we look at the quarter and we think about that, that one-third, two-thirds, I think, that one-third in the beginning, while it may not have been as impactful as these investments, obviously, if the volume is there to run through it, the incrementals have been pretty good, and we were on a good pace to do that before we saw that further deterioration. So we look for this rebound in the resi and repair and remodel markets, and I think it'll be there. Whether it happens in the first quarter or not, I think I would look more towards the second half of the year, but we're confident it'll be there.

Bryan Blair (Managing Director and Senior Analyst)

Okay. Thank you for all the filler.

Operator (participant)

Our next question will be coming from Adam Baumgarten from Zelman.

Adam Baumgarten (Managing Director)

Hey, guys. Good afternoon. Just on the price cost, any change to the outlook of flat for the year at this point?

Chris Koch (Chair, President, and CEO)

No, not on. I assume you're talking on the CCM side.

Adam Baumgarten (Managing Director)

Yeah, just because I think you said it was flat in three, right?

Chris Koch (Chair, President, and CEO)

Yep.

Adam Baumgarten (Managing Director)

Okay, cool. And then just on CCM, specifically on pricing, just curious what you saw throughout the quarter, especially kind of later in the quarter and into Q4, and maybe what you're hearing from your distribution customers around price competition.

Chris Koch (Chair, President, and CEO)

Yeah, and I think it's been pretty. I wouldn't say it's widely disseminated, but I think for pricing, we're seeing relative stability. I mean, I think back to a few years ago when there was, you know, raw materials would go down, and we would just see pricing tied to raw materials. And I think as we pushed price discipline and as we pushed price to value, it's been pretty good to see our competitors investing in new factories, investing in innovation, investing in their sales teams, and really ensuring that they get paid for those investments they're making. So again, I think just what we got, as I said earlier in the call, what we got out of our survey was a relatively stable pricing environment throughout the year.

I think Kevin had said at the beginning of the year, we would probably be down 2% for the year, and I think we're gonna be pretty close to that, despite all the issues that have gone on through the year. And then I think going into 2025, the feedback was that there might be some upside to pricing from our survey. So we'll see how that plays out, but that is a good thing when our contractor base and our other investments in our value chain are thinking like that.

Adam Baumgarten (Managing Director)

Great. Thanks a lot. Best of luck.

Chris Koch (Chair, President, and CEO)

You bet. Thank you.

Operator (participant)

And our last question for today will be coming from Garik Shmois from Loop Capital.

Chris Koch (Chair, President, and CEO)

Garik, good afternoon.

Garik Shmois (Managing Director)

Hey, hey, thanks for squeezing me in. So just two questions on CWT. Just first on pricing. You know, it, you know, remained down, and I think that's fairly consistent with what you saw earlier in the year. But just, you know, wondering, you know, maybe similar to the earlier question on CCM, if the pricing cadences changed at all in CWT.

Kevin Zdimal (VP and CFO)

Yeah, it's steadily improved throughout the year, where we're in the back half of the year is about 2% down. First half of the year was a little bit higher than that at CWT, so it has improved, but we're expecting down a couple% in both Q3, which we had, as well as in Q4.

Mehul Patel (VP of Investor Relations)

And Garik, one thing I will add, just going back to our last earnings call when we talked about additional pricing pressure on spray foam. Outside of that, everything is in line. There's no pricing pressure. We're holding prices, stable, similar to CCM, and, declines that, Kevin mentioned, that's pretty much in line with what we said on the last earnings call.

Garik Shmois (Managing Director)

No, great. Appreciate the color there. And then just on the trends in CWT during the quarter and the outlook, just given the disconnect on what you're looking for, you know, coming out of 2Q, and I think it implied maybe mid-single-digit-type revenue growth in the back half of the year. You know, we kind of appreciate the residential. You know, it remains weak, but you know, any more color as to, you know, maybe either sales trends throughout the quarter or, you know, any specific product line or channels that, you know, just haven't materialized to the degree you expected?

Chris Koch (Chair, President, and CEO)

Yeah, I think, you know, when we look at each segment, it's been pretty good, as Mehul said. I mean, relative to what our expectations were when coming into the year and then even in the second quarter. And I really don't think we can underestimate the impact of, you know, the residential market's affordability, the fact that people aren't moving. And I think earlier in the year, you know, we had a lot of talk about even three interest rate cuts, and then we got one, and that was it. And I think that kind of has helped, or not helped, but it's hurt people because they're saying, "Well, maybe I'll just stick around and wait and see if things get better in 2025.

So why act now when I could, you know, maybe do it later?" Then I think the bigger impact from a product line perspective has just been probably a little more deterioration in spray foam than we thought in that one segment. And again, you know, that's a tough one. It's a very compelling market. It's got a lot of energy efficiency benefits to it. It's a much better product from an R-value perspective. From a vapor barrier perspective, we're seeing widespread adoption in home building, the sound abatement benefits. You know, it's a great product, but we've had some industry changes over the last five years, where there's been acquisitions by one group and some regional players that have maybe taken some different actions.

And so pricing has been a little bit worse there than we thought, and I'd say that would be the one thing that or those two things are the things that really impacted that CWT pricing in the third quarter and looking into the fourth.

Garik Shmois (Managing Director)

Okay. No, I appreciate that. Thanks, and best of luck in Q4.

Chris Koch (Chair, President, and CEO)

Okay. Thanks, Garik.

Operator (participant)

There are no further questions at this time. I'll hand the call over to Chris Koch for closing remarks. Please go ahead.

Chris Koch (Chair, President, and CEO)

Thanks, everybody. This concludes the third quarter call for Carlisle. Thanks for the participation. Thanks for the great questions. Look forward to speaking with you all on our next call. Thank you.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.