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CI

CSW INDUSTRIALS, INC. (CSWI)·Q2 2025 Earnings Summary

Executive Summary

  • Record Q2: Revenue $227.9M (+11.9% YoY), EPS $2.26 (+17.1% YoY), EBITDA $60.8M (+14.8% YoY), with gross margin 45.6% (+90 bps) and EBITDA margin 26.7% (+70 bps) . Sequentially, revenue rose modestly vs Q1 ($226.2M) while EBITDA and margins normalized from seasonally strong Q1 levels (Q1 EBITDA margin 28.9%) .
  • Balance sheet reset and liquidity catalyst: CSWI issued 1.265M shares at $285 for net proceeds ~$347.4M, repaid all revolver borrowings ($115M), ended Q2 with $273M cash; FCF $61.3M with 100.8% EBITDA conversion . Management emphasized this “war chest” to pursue disciplined M&A .
  • Segment breadth: Contractor Solutions (+13.5% YoY) with mix of organic (+5.2%) and M&A (Dust Free, PSP), Specialized Reliability Solutions (+5.2% YoY) on energy/rail/mining, and EBS to a record $32.7M revenue with 20.1% EBITDA margin for the second straight quarter .
  • Outlook/tax: Company doesn’t provide formal numeric guidance but reiterated expectations to deliver FY25 growth in revenue, EBITDA and EPS; Q3 GAAP tax rate may be favorably impacted by a potential $3.6M reserve release . Dividend raised 14.3% to $0.24 mid-year, supporting capital return narrative .
  • Potential stock reaction catalysts: net cash/liquidity for accretive deals, repeatable 20%+ EBITDA margins (particularly sustained 20% at EBS), and durable pricing power to offset freight headwinds; near-term watch items include ocean freight costs in 2H and seasonally softer Q3 for Contractor Solutions .

What Went Well and What Went Wrong

  • What Went Well

    • Broad-based growth and margin expansion: “record” revenue and cash from operations; gross margin +90 bps YoY to 45.6% on volume leverage and pricing . CEO: “record fiscal second quarter net income, EPS, and EBITDA” .
    • Balance sheet strength: $347.4M equity raised; revolver repaid; $273M cash at Q2 end; management highlighted ability to “swiftly act on business opportunities of any size” .
    • Segment execution: Contractor Solutions growth across HVAC/R, electrical, plumbing; EBS achieved ~20% EBITDA margin again; SRS margin improvement on manufacturing efficiencies . CFO: “EBS… reached the 20% EBITDA margin target for the second quarter in a row” .

  • What Went Wrong

    • Freight headwind in 2H: Ocean freight rates are elevated and “baked” into second-half COGS; pricing actions may be used if needed; partial offset from other costs .
    • Other income turned to expense YoY: Q2 “Other expense” of $0.7M vs $1.9M income LY due to non-recurring gain last year and FX losses .
    • EPS share count dilution from equity offering (WASO 15.94M vs 15.59M LY); management flagged full impacts in Q3, though interest income partially offsets .

Financial Results

MetricQ2 FY2024Q1 FY2025Q2 FY2025
Revenue ($USD Millions)$203.7 $226.2 $227.9
Diluted EPS ($)$1.93 $2.47 $2.26
Gross Profit ($M)$91.0 $107.4 $103.9
Gross Margin (%)44.7% 47.5% 45.6%
Operating Income ($M)$42.0 $55.1 $51.5
Operating Margin (%)20.6% 24.3% 22.6%
EBITDA ($M)$53.0 $65.3 $60.8
EBITDA Margin (%)26.0% 28.9% 26.7%
Net Income Attrib. to CSWI ($M)$30.1 $38.6 $36.1
Cash from Operations ($M)$44.7 $62.7 $66.8
Free Cash Flow ($M)$41.9 $59.6 $61.3

Segment performance (YoY and sequential trend):

Segment MetricQ2 FY2024Q1 FY2025Q2 FY2025
Contractor Solutions - Revenue ($M)$139.9 $160.4 $158.8
Contractor Solutions - Op Inc ($M)$39.0 $49.9 $46.3
Contractor Solutions - Op Margin (%)27.9% 31.1% 29.1%
Contractor Solutions - EBITDA ($M)$46.6 $58.3 $53.7
Contractor Solutions - EBITDA Margin (%)33.3% 36.3% 33.8%
SRS - Revenue ($M)$36.6 $36.8 $38.5
SRS - Op Inc ($M)$4.8 $7.2 $5.8
SRS - Op Margin (%)13.2% 19.4% 15.1%
SRS - EBITDA ($M)$6.3 $8.5 $7.1
SRS - EBITDA Margin (%)17.2% 23.1% 18.4%
EBS - Revenue ($M)$29.2 $30.9 $32.7
EBS - Op Inc ($M)$5.2 $5.7 $6.1
EBS - Op Margin (%)17.9% 18.5% 18.6%
EBS - EBITDA ($M)$5.7 $6.2 $6.6
EBS - EBITDA Margin (%)19.5% 20.1% 20.1%

Capital and liquidity snapshot:

KPIQ1 FY2025Q2 FY2025
Cash & Equivalents ($M)$18.9 $273.2
Long-term Debt ($M)$115.0 $0 (no borrowings; long-term debt “—”)
Weighted Avg Diluted Shares (M)15.60 15.94
Effective Tax Rate (GAAP)26.4% 26.1%
Equity Offering Net Proceeds ($M)—$347.4

Notes:

  • The CEO cited “net income of $37 million,” which refers to total net income ($36.621M) vs net income attributable to CSWI ($36.051M) in the 8‑K; both reflect rounding/attribution differences .

Guidance Changes

CSWI does not provide formal quantitative guidance. Management reiterated full-year directional expectations and disclosed specific tax commentary.

MetricPeriodPrevious Guidance/CommentaryCurrent Guidance/CommentaryChange
Consolidated outlookFY2025Expect growth in revenue, EBITDA and EPS; maintain strong margin profile Still anticipate delivering full year growth in revenue, EBITDA and EPS; continued strong cash flow Maintained
GAAP tax rateQ3 FY2025—Potential ~$3.6M reserve release could lower Q3 GAAP tax rate New update
Dividend per shareQuarterly$0.21 (paid Aug 9, 2024) $0.24 declared Oct 11; payable Nov 8, 2024 Raised
Capital structureNear-term$115M revolver outstanding at Q1 end All revolver borrowings repaid in Q2; $273M cash Deleveraged

Earnings Call Themes & Trends

TopicQ4 FY2024 (Q-2)Q1 FY2025 (Q-1)Q2 FY2025 (Current)Trend
Pricing power & marginsGoal to sustain best-in-class margins; EBS targeting 20% Expect to sustain margins; strong Q1 mix/volume; seasonality cautions Confident in pricing power; margins strong; Q3 seasonally lower for Contractor Solutions Stable/constructive
Supply chain/ocean freightLower freight aided FY24 margins Freight rising; headwind to Q2–Q4 COGS; may price as needed 2H COGS reflects higher ocean freight; some costs offset; potential easing next FY Headwind near-term
M&A & capital allocationRobust pipeline; disciplined; expect activity Robust pipeline; small/large targets; valuation discovery Equity “war chest,” robust pipeline, discipline; PSP integration underway Increasing optionality
EBS profitabilityTarget 20% EBITDA; hit in Q4 with help from gain Reached 20%; will fluctuate with mix 20.1% again; may fluctuate with project mix Sustained progress
HVAC OEM/residential backdropDestocking largely behind; mixed OEM projections OEM volumes improving; installed base tailwind Growth across HVAC/R; CSWI agnostic to OEM/refrigerant; inventory issues in rearview Improving
Tax itemsFY24 tax 27% (adj. 26.1%) Q1 tax 26.4% Potential $3.6M reserve release in Q3 lowers tax rate Favorable Q3 setup
Index inclusion / capital markets——Added to S&P 600; raised $347M equity; repaid revolver Positive visibility/liquidity

Management Commentary

  • Strategic and financial posture: “Our balance sheet strength, liquidity and increasing cash flows enable CSWI to swiftly act on business opportunities of any size.”
  • Growth drivers: “Record revenue… driven by organic volume growth, pricing actions, and strategic acquisitions of Dust Free and PSP Products.”
  • Capital markets: “Strong investor demand… allowed the Company to issue… 1.265 million shares… accretive to our earnings due to the full repayment of our debt and investment in interest-bearing accounts.”
  • Pricing power: “We are highly confident in our pricing power… historically [we have] the ability to pass along input costs.”

Q&A Highlights

  • Margin sustainability: Management sees nothing unusual in 1H; aims to sustain strong margins, with operating leverage and pricing power; cautions on normal fluctuations and seasonality (Q3 softer for Contractor Solutions) .
  • Ocean freight: Elevated container rates will weigh on 2H COGS; some offsets from other costs; potential to take pricing if needed .
  • M&A pipeline/use of cash: No specific targeted deal behind the raise; robust pipeline; equity proceeds provide speed/certainty; disciplined risk-adjusted returns framework (TRUaire cited as prior success) .
  • PSP acquisition: Expands electrical end-market exposure; leverages existing channels; margins roughly in line with company; smooth commercial integration; systems integration ongoing .
  • Contractor Solutions demand: Sentiment stable; CSWI agnostic to OEM/refrigerant/SEER changes; prior OEM inventory issues largely past .

Estimates Context

  • S&P Global consensus (EPS and revenue) for CSWI Q2 FY2025 was unavailable via our S&P Global feed at this time due to a mapping issue, so we cannot present beat/miss versus consensus. Management does not provide numerical guidance but reiterated full-year growth expectations for revenue, EBITDA and EPS, and highlighted a potential Q3 tax benefit .

Key Takeaways for Investors

  • Durable execution: Double-digit revenue/EBITDA growth with expanding gross/EBITDA margins underscores pricing power and operating leverage across segments .
  • Liquidity optionality: Net cash posture post-offering and repayment of revolver positions CSWI to accelerate accretive M&A without balance-sheet risk .
  • Segments humming: Contractor Solutions continues to compound with added electrical (PSP) and IAQ (Dust Free) adjacencies; EBS sustaining 20% EBITDA margin provides mix resilience; SRS margin lift from efficiencies .
  • Near-term watch: Elevated ocean freight is a headwind in 2H; management monitoring and prepared to reprice if sustained .
  • Tax tailwind in Q3: Potential $3.6M reserve release could boost GAAP net income and EPS in the next quarter .
  • Capital return continues: Dividend increased 14.3% to $0.24, signaling confidence in cash generation and balance sheet .
  • Trading setup: Narrative skew is positive (liquidity/M&A, margins, dividend), with freight costs and seasonal Q3 softness the principal tactical risks; monitor acquisition cadence and integration updates for catalysts .

Citations:

  • Q2 FY2025 8‑K/press release and financials
  • Q2 FY2025 earnings call transcript
  • Q1 FY2025 8‑K/press release and call for sequential/trend
  • FY2024 Q4 8‑K and call for baseline/trend
  • Dividend increase release
  • Equity offering releases