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CI

CSW INDUSTRIALS, INC. (CSW)·Q2 2026 Earnings Summary

Executive Summary

  • Record quarter: revenue $277.0M (+21.5% YoY), adjusted EPS $2.96 (+15.2% YoY), and adjusted EBITDA $72.9M (+19.9% YoY), driven primarily by recent acquisitions (Aspen, PF WaterWorks, PSP) in Contractor Solutions .
  • Estimate check: On S&P Global consensus, Primary EPS missed by ~$0.27 (2.49 vs 2.76), revenue was ~-$1.5M light, while EBITDA was slightly above; management said adjusted EPS ($2.96) was ahead of “street expectations”* .
  • Guidance/tone: Management expects record FY26 revenue, adjusted EBITDA, adjusted EPS, and operating cash flow; FY26 tax rate ~23% GAAP / 26% adjusted .
  • Strategic catalyst: Signed to acquire MARS Parts for $650M (close expected Nov-2025), with identified ~$10M synergies to lift MARS to ~30% EBITDA run-rate within ~12 months; CSW expects ~2.0x net leverage at close .
  • Balance sheet/capital returns: Net leverage 0.12x; repurchased >$18M stock; paid down $35M of debt in Q2 and declared $0.27 dividend .

What Went Well and What Went Wrong

  • What Went Well

    • Acquisition-led outperformance: “record revenue, net income, adjusted EBITDA, and adjusted EPS” as recent acquisitions broadened HVAC/R and plumbing offerings; CEO expects record full-year results .
    • Strong cash generation: Q2 operating cash flow $61.8M; adjusted FCF $58.7M; ex a prior-year tax deferral, adjusted operating cash flow rose 22.2% YoY .
    • Contractor Solutions scaling: Segment revenue +31.2% YoY to $208.5M; adjusted EBITDA $67.6M with 32.4% margin; pro forma (pre-acq effect) organic growth +2.8% despite market headwinds; Aspen/PF delivered ~40% weighted avg growth .

  • What Went Wrong

    • Margin pressure: Gross margin contracted 260 bps to 43.0% on acquisition mix and tariff/material cost inflation, partially offset by pricing and lower ocean freight .
    • Residential HVAC softness/destock: Consolidated organic revenue -5.6%; Contractor Solutions organic revenue -7.7% amid soft housing and shift to repair vs replacement; GRD tied to new residential was weak .
    • SRS/EBS margin compression: SRS EBITDA margin down 190 bps to 16.5% on tariffs and freight; EBS revenue -2.3%, EBITDA margin 16.4% (vs 20.1%) on material costs and strategic pricing; EBS trailing 8Q book-to-bill at ~0.9x .

Financial Results

Overall performance versus prior quarters

MetricQ4 2025Q1 2026Q2 2026
Revenue ($USD Millions)$231.0 $264.0 $276.951
Adjusted EPS ($)$2.24 $2.85 $2.96
Adjusted EBITDA ($USD Millions)$60.0 $69.0 $72.939
Adjusted EBITDA Margin %25.9% 26.1% 26.3%
Gross Margin %44.2% 43.8% 43.0%

Q2 vs estimates (S&P Global)

MetricConsensusActualDelta
Primary EPS ($)2.7609*2.4900*-0.2709
Revenue ($)278,439,710*276,951,000*-1,488,710
EBITDA ($)71,290,790*71,377,000*+86,210

Values marked with * retrieved from S&P Global.

Segment breakdown – Q2 2026 vs prior year

SegmentRevenue Q2 2025 ($M)Revenue Q2 2026 ($M)YoYAdj. EBITDA Q2 2025 ($M)Adj. EBITDA Q2 2026 ($M)Margin Q2 2025Margin Q2 2026
Contractor Solutions158.834 208.468 +31.2% 53.713 67.613 33.8% 32.4%
Specialized Reliability Solutions38.534 38.806 ~Flat 7.108 6.421 18.4% 16.5%
Engineered Building Solutions32.673 31.914 -2.3% 6.564 5.233 20.1% 16.4%
Consolidated227.926 276.951 +21.5% 60.823 72.939 26.7% 26.3%

KPIs and cash/balance sheet (Q2 2026)

KPIQ2 2026
Cash from Operations ($M)$61.826
Adjusted Free Cash Flow ($M)$58.746
Effective Tax Rate (GAAP)26.4%
Interest Expense, net ($M)$1.320
Dividend per Share$0.27 declared for Nov 14, 2025
Net leverage (credit facility defn)0.12x
Share Repurchases>$18M in Q2
Debt Paydown in Q2$35.0M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated revenueFY 2026Growth vs FY25 “Record” year expected Raised tone (qualitative)
Adjusted EBITDAFY 2026Growth vs FY25; each segment up “Record” year expected; each segment growth maintained Maintained/raised tone
Adjusted EPSFY 2026EPS growth; base EPS to grow less than EBITDA given D&A/shares “Record” adjusted EPS expected Maintained/raised tone
Operating cash flowFY 2026Stronger than FY25 “Record” operating cash flow expected Raised tone
Tax rate (GAAP/Adj)FY 2026~26% (prior view) ~23% GAAP / 26% adjusted; Q3 GAAP may be lower due to $6.3M reserve release Maintained, Q3 caveat
Contractor Solutions EBITDA marginFY 2026Low 30% Low 30% for full year reiterated Maintained
Aspen revenue growthFY 2026Low double digits on $125M TTM Mid-teens on $125M TTM Raised
Leverage post MARS closePoint-in-timeN/A~2.0x net leverage at close New
DividendOngoingRegular quarterly$0.27 declared (Nov 14, 2025) Maintained policy

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’25, Q1’26)Current Period (Q2’26)Trend
Tariffs & pricing actionsHighlighted tariff headwinds; broad-based pricing; moving manufacturing out of China; Contractor Solutions COGS China ~10% FY26 Margin pressure persists; pricing actions largely in place; further project-based pricing (EBS); SRS 7% list price taken late Q2 Continued headwind; pricing offset largely effective
Repair vs replacement mixShift to repair noted; Aspen benefits from repair exposure Repair mix favored Aspen; Contractor Solutions organic -7.7%; destocking pressuring volumes Repair tailwind to Aspen; legacy replacement tied items pressured
Channel inventories/destockingNormalizing into spring/summer; strong Q4 organic in CS Destocking at distributors; expected to normalize by spring; order cadence soft seasonally Near-term drag; potential restock tailwind in CY26 spring
SRS margin trajectoryTarget 20%; short-term mix/volume drags; plant consolidation underway EBITDA margin 16.5%; tariff and freight increases; 7% price implemented; no customer churn on move Near-term below target; initiatives supportive
EBS backlog/bookingsHistorically strong bookings; 1.0x trailing book-to-bill; aiming for 20% EBITDA margin Book-to-bill dipped to ~0.9x; strategic pricing vs competition; higher-margin backlog mix improving Mixed: near-term softer, mix improvement helps margins later
Supply chain footprintReduce China exposure to ~10% of CS COGS; Vietnam in low-30% China exposure ~10% exiting FY26; continued shifts; safeguarding inventory during transitions On track
M&A integrationAspen closed May-1; target ~24% EBITDA margin FY26 MARS Parts acquisition signed; synergy plan to reach ~30% EBITDA run-rate; bolt-on focus near-term Accretive portfolio build continues

Management Commentary

  • “Record results for the fiscal second quarter and first half of 2026… driven by the outstanding performance of our recent acquisitions… We expect to deliver record results for the full fiscal year in revenue, adjusted EBITDA, adjusted EPS, and operating cash flow.” — CEO, press release .
  • “Adjusted EPS… was ahead of street expectations… despite… a higher average share count… and some compression in the margins.” — CFO .
  • “Most of the pricing actions had an effective date in June 2025… our goal is to protect margin dollars, and as a result, these tariffs will cause margin compression in the near term.” — CFO .
  • “Mars is a little over $200 million of revenue… synergies of $10 million… will get us right on top of that 30% [EBITDA] number… up into the $60+ million of EBITDA.” — CFO (synergy/accretion detail) .
  • “We will continue to focus on delivering sustainable growth that outpaces the end markets we serve…” — CEO .

Q&A Highlights

  • Contractor Solutions destocking quantified qualitatively; distributors reduced orders; management expects destock to “run its course through year-end” with normalization into spring; channel share seen as intact .
  • MARS Parts synergy/trajectory: ~$10M synergies front-loaded; target ~30% EBITDA run-rate ~1 year post-close; upside from pricing and cross-sell not in synergy case .
  • Margin outlook: CS segment low-30% EBITDA margin for FY26 reiterated; winter quarters seasonally high-20s; SRS/EBS longer-term 20% margin targets remain, though near-term below on tariffs, mix, and EBS competitive pricing .
  • Pricing cadence: SRS implemented 7% price late Q2; EBS pricing by project amid cost inflation; industry-wide annual Contractor Solutions increase under evaluation for coming season .
  • Tax: Q3 GAAP ETR may be lower on potential $6.3M reserve release; FY26 ~23% GAAP / 26% adjusted .

Estimates Context

  • On S&P Global consensus, Primary EPS missed by ~$0.27 (2.49 actual vs 2.76 est), revenue missed by $1.49M ($276.95M vs $278.44M), while EBITDA slightly beat ($0.09M). Adjusted EPS ($2.96) was above “street” per management commentary, highlighting differing definitions vs “Primary EPS.” Values marked with * retrieved from S&P Global [see table above] .

Key Takeaways for Investors

  • Acquisition-led compounding continues: Aspen and pending MARS Parts expand repair-oriented HVAC/R offerings, supporting growth even in softer replacement/new construction cycles .
  • Near-term margins pressured by tariffs and acquisition mix, but broad pricing actions and ocean freight tailwinds largely offset dollar impacts; watch gross margin stabilization and CS EBITDA margin holding low-30s into H2 .
  • Destocking should fade by spring; a restock could provide volume tailwind given maintained share and broader SKU breadth; monitor order cadence updates next quarter .
  • MARS integration is a 2026 catalyst: rapid synergy capture targeted to ~30% EBITDA run-rate and ~$60M+ EBITDA; initial leverage (~2x) manageable with robust FCF .
  • Cash generation remains strong (OCF $61.8M; adj. FCF $58.7M), enabling continued buybacks/dividends while funding M&A and debt paydown .
  • For modeling, align to S&P “Primary EPS” for consensus comparisons; management emphasizes adjusted EPS and EBITDA as operating performance measures .
  • Medium-term: EBS backlog mix improvement and SRS consolidation should aid margin normalization toward 20% targets; watch EBS book-to-bill recovery and SRS mix/pricing execution .

Footnote: Estimates and “Primary EPS” values marked with * are retrieved from S&P Global.