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CI

CSW INDUSTRIALS, INC. (CSWI)·Q3 2025 Earnings Summary

Executive Summary

  • Fiscal Q3 2025 delivered record revenue of $193.6M (+10.7% y/y) and record adjusted EPS of $1.48 (+38.2% y/y), while GAAP EPS was $1.60; adjusted EBITDA rose 14.2% to $42.0M with margin expanding 70 bps to 21.7% .
  • Sequentially, results were below Q2 and Q1’s seasonally stronger HVAC/R quarters (Q2 revenue $227.9M, EPS $2.26; Q1 revenue $226.2M, EPS $2.47), reflecting normal seasonal cadence and freight headwinds .
  • Gross margin contracted 90 bps to 41.4% on elevated ocean freight and a Q2→Q3 freight expense alignment, but pricing actions effective Jan 1 are expected to offset freight in Q4; interest income replaced interest expense with no revolver debt outstanding .
  • Dividend: company announced its 24th consecutive quarterly cash dividend of $0.24 per share post-quarter; balance sheet ended Q3 with $213.8M cash and no long-term debt, supporting continued M&A and capital returns .
  • S&P Global Wall Street consensus estimates were unavailable through our tool this quarter; we therefore cannot quantify beats/misses vs consensus (see Estimates Context section).

What Went Well and What Went Wrong

What Went Well

  • Record quarter: “record revenue… record net income, adjusted earnings per diluted share, and adjusted EBITDA” driven by acquisitions (Dust Free, PSP, PF WaterWorks) and organic growth .
  • Operating leverage: adjusted EBITDA margin expanded 70 bps to 21.7% despite freight headwinds; Contractor Solutions operating margin held >20% adjusted (20.9%) .
  • Capital allocation: repaid revolver in Q2, generated interest income in Q3, acquired PF WaterWorks to expand into eco-friendly drain solutions and pro wholesale distribution, and continued regular dividends .

What Went Wrong

  • Gross margin compression: consolidated gross margin fell 90 bps to 41.4% on elevated ocean freight and a freight accrual alignment from Q2 to Q3 (~100 bps), partially offsetting operating expense leverage .
  • Free cash flow down y/y: quarterly CFO fell to $11.6M vs $47.0M last year due to a deferred $16.8M tax payment and strategic inventory build ahead of potential port strike/tariffs; FCF was $8.5M vs $43.1M .
  • Seasonality and mix: Contractor Solutions margin slightly lower vs prior year due to freight and integration costs; architecturally-specified firestopping was softer industry-wide, muting organic growth in the quarter .

Financial Results

Consolidated Performance – Sequential Trend (oldest → newest)

MetricQ1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$226.2 $227.9 $193.6
GAAP EPS ($)$2.47 $2.26 $1.60
Adjusted EPS ($)N/AN/A$1.48
Gross Margin (%)47.5% 45.6% 41.4%
Adjusted EBITDA ($USD Millions)$65.3 $60.8 $42.0
Adjusted EBITDA Margin (%)28.9% 26.7% 21.7%

Consolidated Performance – Year-over-Year (oldest → newest)

MetricQ3 2024Q3 2025
Revenue ($USD Millions)$175.0 $193.6
GAAP EPS ($)$0.59 $1.60
Adjusted EPS ($)$1.07 $1.48
Gross Margin (%)42.3% 41.4%
Adjusted EBITDA ($USD Millions)$36.8 $42.0
Adjusted EBITDA Margin (%)21.0% 21.7%

Segment Breakdown – Year-over-Year (Q3)

Segment MetricQ3 2024Q3 2025
Contractor Solutions Revenue ($M)$115.4 $132.2
Contractor Solutions Adjusted EBITDA ($M)$33.0 $37.5
Contractor Solutions Adjusted EBITDA Margin (%)28.6% 28.4%
Specialized Reliability Solutions Revenue ($M)$33.7 $34.6
SRS Adjusted EBITDA ($M)$5.2 $6.6
SRS Adjusted EBITDA Margin (%)15.4% 19.1%
Engineered Building Solutions Revenue ($M)$27.9 $28.8
EBS Adjusted EBITDA ($M)$4.0 $4.1
EBS Adjusted EBITDA Margin (%)14.2% 14.2%

Segment Breakdown – Sequential (Q2 → Q3)

Segment MetricQ2 2025Q3 2025
Contractor Solutions Revenue ($M)$158.8 $132.2
Specialized Reliability Revenue ($M)$38.5 $34.6
Engineered Building Solutions Revenue ($M)$32.7 $28.8

KPIs and Balance Sheet

KPIQ2 2025Q3 2025
Cash from Operations ($M)$66.8 $11.6
Free Cash Flow ($M)$61.3 $8.5
Cash & Equivalents ($M)$273.2 $213.8
Long-term Debt ($M)$0.0 $0.0
Interest Income/Expense (Quarter) ($M)$(1.3) expense $2.0 income
Effective Tax Rate (Quarter, GAAP / Adjusted)26.1% 13.8% / 24.5%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareNext payment$0.24 (increased mid-year) $0.24 declared post-Q3, payable Feb 14, 2025 Maintained
Effective Tax RateQ3 2025Indicated lower GAAP rate possible due to reserve expirations GAAP 13.8%; Adjusted 24.5% Realized lower GAAP; adjusted within range
Revenue/EBITDA/EPSFY 2025No formal numerical guidanceManagement expects full-year growth in revenue, EBITDA and EPS Qualitative reaffirmation

Note: No formal quantitative guidance ranges provided for revenue, margins, OpEx, or segments in Q3 materials; management reiterated positive outlook and M&A focus .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2025)Trend
Supply chain & freightStrong gross margin in Q1/Q2; freight not highlighted; operational leverage and pricing actions Elevated ocean freight and ~100 bps freight accrual alignment hurt margins; pricing effective Jan 1 to offset; rates easing into Q4/Q1 Headwind easing into Q4; pricing tailwind
Tariffs/MacroStrong cash flow, debt paydown; equity offering; dividend increase in Q2 Watching tariffs; low China exposure; Vietnam largest source; macro “higher for longer” but HVAC demand resilient Monitoring; limited direct risk
Product performanceQ1/Q2 strength across HVAC/R, plumbing, electrical; EBS backlog conversion HVAC/R, electrical, plumbing grew; architecturally-specified firestopping softer; EBS bookings solid (8-quarter book-to-bill ~1:1) Mixed: core trades strong; firestopping softer
M&A pipelineDust Free (Q1), PSP (Q2) acquisitions; expanded portfolios PF WaterWorks added; pipeline “opening” with capacity for larger deals; focus on disciplined returns Active and accretive
Capital allocationQ1/Q2 record CFO; revolver repaid; dividend increased Interest income replaces expense; continued dividends; strong cash supports growth Strengthened balance sheet
Refrigerant transitionNot highlighted in Q1/Q2 documentsDistributors pre-bought old/new equipment; minor Q3 headwind; neutral for CSWI products; pricing tailwind in Q4 Temporary inventory headwind

Management Commentary

  • CEO on record performance and acquisitions: “record revenue… driven by the strategic acquisitions of Dust Free, PSP Products, and PF WaterWorks… record net income, adjusted EPS, and adjusted EBITDA” .
  • CFO on freight headwinds: “freight was certainly a headwind… a freight expense alignment… about 100 bps of margin shifted from Q2 to Q3… price increase effective January 1 to cover freight” .
  • CEO on M&A readiness: “we entered 2025 in a spectacular position… opportunities in small and larger acquisitions… maintain rigor and discipline” .
  • CFO on macro and segment mix: HVAC relatively resilient; EBS bookings “high-quality” with 8-quarter book-to-bill at 1:1; SRS more GDP-like with energy sensitivity .

Q&A Highlights

  • Freight and margins: Ocean freight peaked mid-year and flowed through Q3 COGS; ~100 bps accrual alignment from Q2→Q3; pricing increase effective Jan 1 expected to offset freight in Q4 .
  • Inventory build and tariffs: Strategic inventory build ahead of potential port strike/Lunar New Year and tariff risks; acquisitions account for ~half of y/y inventory growth; minimal Mexico/Canada exposure; low-teens China exposure; Vietnam largest source .
  • Organic growth and share gains: Organic year-to-date mid-single-digit; market share gains targeted in indoor air quality, surge protection, mini-splits; broader product palette to consolidate vendor base .
  • Refrigerant transition: Pre-buy dynamic created minor Q3 headwind; neutral to CSWI product portfolio; potential replacement cycle tailwind; pricing tailwind into Q4/Q1 .
  • M&A pipeline: Active opportunities including larger deals; strong cash position and no debt confer advantage amid higher-for-longer rates and regulatory scrutiny .

Estimates Context

  • S&P Global consensus estimates for Q3 2025 (revenue and EPS) were unavailable via our data tool due to a mapping issue; therefore, we cannot quantify CSWI’s performance versus Wall Street consensus for this quarter within S&P Global’s framework. We default to company-reported actuals and qualitative assessment of performance drivers [GetEstimates tool errors].

Key Takeaways for Investors

  • Seasonal cadence and freight normalization: Expect sequential recovery in Q4 as pricing implemented Jan 1 flows through and ocean freight eases; watch gross margin trajectory and coverage of freight costs .
  • Acquisition-led and organic growth: Recent acquisitions (PF WaterWorks, PSP, Dust Free) drove most of the y/y growth; integration costs/seasonality modestly weighed on margins; pipeline is active for 2025 .
  • Operating leverage resilient: Adjusted EBITDA margin expanded y/y despite freight; Contractor Solutions remains the profit engine with >20% adjusted OI margin .
  • Balance sheet strength: $213.8M cash and no long-term debt provide dry powder for M&A and dividends; interest income replacing expense supports EPS durability .
  • Near-term trading: Setup is constructive into Q4 on pricing tailwinds and easing freight; monitor any macro/tariff headlines and EBS backlog conversion for project mix effects .
  • Medium-term thesis: Consolidation in pro trade channels and broadened portfolio support share gains; disciplined M&A and operating rigor underpin multi-year revenue/EBITDA/EPS growth .
  • Watch items: Architecturally-specified firestopping softness; free cash flow conversion post inventory normalization; absence of formal guidance requires closer monitoring of quarterly cadence .