Carlisle Companies, Inc. 2026 Q3 Earnings Call

Mehul, please go ahead. Thank you, operator, and good afternoon.

On behalf of Carlisle, welcome. Earlier today, we reported third-quarter results. The press release and the slides are available on the investor relations page of our website. With me on the call are Chris Koch, our Chair of the Board, President, and CEO, and our Chief Financial Officer, Kevin Zdimal. Chris will start with his perspective on pricing, raw materials, margins, and competitive dynamics. Kevin will then review our financial results and fourth-quarter outlook, and Chris will follow with the Vision 2030 priorities, and then we'll take your questions. Before we begin, please turn to Slide 2. Today's remarks contain forward-looking statements that reflect our current expectations and are subject to risks and uncertainties.

Factors that could cause actual outcomes to differ are described in our SEC filings and today's press release, and we undertake no obligation to update these statements except as required by law. We will also refer to non-GAAP financial measures with the reconciliations in today's presentation and press release. With that, I'll hand the call to Chris, starting on Slide 3.

Thank you, Mehul, and good afternoon, everyone. Our third-quarter results build on the strong demand we saw in quarter 2. Despite significant market volatility, we maintained high single-digit growth, and importantly, demand remained resilient through our pricing actions. We remain focused on superior capital allocation and our path towards $40 of adjusted EPS in 2030. With that, let me turn to the key areas of focus as we enter the fourth quarter: price cost, margins, demand, and the competitive environment. Let me start with pricing. We addressed the cost increases that began in quarter 1 with multiple price increases and freight surcharges. Historically, price realization has lagged cost increases by approximately 3-6 months, primarily because we honor existing quotes and firm orders already in our system.

On our Q2 call, we said we expected price cost to be close to parity in Q3 and then turn slightly positive in Q4. Unanticipated cost increases in Q3 did not change the shape or the direction of that curve but pushed the timing of achieving parity out by one quarter. Price realization and our freight surcharges are gaining meaningful traction, and we now expect to reach price cost parity as we exit 2026. Pricing has not had a detrimental impact on demand, and we saw no additional pre-buying in the quarter. Our July outlook assumed raw material and freight costs would stabilize. Instead, oil and diesel costs rose further, pressuring petrochemical-based raw materials, freight, and virtually all of our costs.

U.S. diesel reached record levels of about $6.50 per gallon in late September and was approximately $6.35 as of yesterday, roughly 75% higher than one year ago. Reaching parity as we exit this year assumes stability in input costs and freight and no further deterioration in global markets. We would expect the pricing we now have in place to be a tailwind in 2027. Well, that brings us to margins. Adjusted EBITDA held at $348 million on 9% revenue growth as volume leverage and Carlisle Operating System productivity helped offset inflation. Due to the unexpected cost increases in the third quarter, margins declined more than we expected. We view the pressure as a timing issue, not a structural one. The drivers of margin expansion remain intact, and those are increasing price realization, freight offsets, Carlisle Operating System productivity, CWT efficiency programs, operating leverage, and new products.

As costs normalize, we would expect margin expansion to resume, and with that, our Vision 2030 targets are unchanged. On the demand side, reroofing at CCM continues to be a consistent mid-single-digit contributor, as it has been for decades. Despite seeing some pre-buying activity ahead of the price increases in Q2, our channel inventories remain at normal levels. We confirmed this through hundreds of Carlisle market survey interviews and real-time feedback from our almost 1,000-person sales force. Data centers continue to build momentum driven by our newly formed and dedicated data center market team. Our premium TPO portfolio and our manufacturing capacity is benefiting data center customers as PVC supply remains constrained and as these customers discover the excellent attributes of TPO for data center roofs. We thus expect the trend towards premium TPO systems on data centers to continue to increase.

These factors help offset softness in new construction, which is a positive, as our near-term outlook does not assume a recovery in new construction markets overall. At CWT, where residential is roughly 45% of revenue, share gains and cost actions are offsetting residential softness in sales. We also expect no near-term recovery in residential end markets as mortgage applications, list price, and home sales have declined sequentially. On the competitive front, our distribution relationships remain healthy, productive, and aligned. We continue to monitor new market entrants and their investments, but we have not seen any meaningful impact from them on our volumes. Finally, capital allocation. Our balance sheet is strong. Repurchases are on track for $1.2 billion this year, and we are proud to be a Dividend King with 50 consecutive years of dividend increases. And of course, our M&A criteria have not changed.

With that, I will turn the call over to Kevin to cover the financials, and I will return to discuss our progress towards Vision 2030 before we end the call.

Thank you, Chris, and good afternoon, everyone. I will review our third quarter results and then discuss our outlook for the fourth quarter. Let's begin on slide 3. Our third quarter results demonstrate our team's ability to execute with discipline through macroeconomic challenges. Revenue increased 9% to $1.5 billion, and adjusted EPS increased 6% to a third-quarter record of $5.92. Demand remained healthy, and our strategic initiatives once again drove above-market revenue growth in both segments. Price realization also contributed meaningfully and increased throughout the quarter. Importantly, we have not seen a material change in demand from our pricing actions or geopolitical developments. We have also not seen a meaningful increase in project delays or cancellations. Higher input costs remained the primary challenge in the quarter.

Renewed escalation of the conflict in the Middle East drove petroleum-based raw material, diesel, and freight costs higher than we anticipated in our July outlook. On our July call, we expected price costs to be neutral in the third quarter and positive in the fourth quarter. However, costs continued to increase, which pushed our recovery timeline out one quarter. We now expect to reach price cost parity as we exit 2026. As we have seen in prior inflationary cycles, price realization typically lags rising costs, and that timing pressured our margins in the third quarter. Turning to slide 4. Third quarter revenue increased 9% to $1.5 billion. Healthy reroofing demand, strong volume, and price realization that increased through the quarter more than offset continued softness in residential and non-residential new construction.

Adjusted EBITDA was essentially flat at $348 million, with an adjusted EBITDA margin of 23.8%, down 210 basis points year over year as raw material and freight costs increased faster than price realization during the quarter. Higher volume, disciplined cost management, and Carlisle Operating System productivity helped offset that inflation and held adjusted EBITDA in line with the prior year. Record third quarter adjusted EPS of $5.92 increased 6% year over year, driven by higher segment earnings and an 8% lower diluted share count from share repurchases, partially offset by higher interest expense from the notes we issued in August 2025 and higher corporate compensation and benefit costs compared to the prior year. Moving to CCM on Slide 5. CCM revenue increased 8% to $1.1 billion, driven by strong volume growth and price realization that built throughout the quarter.

Reroofing demand remained healthy, growing mid-single digits, while new construction declined mid-single digits and our end market grew low double digits overall. Chris Koch will discuss the strategic initiatives behind our above-market growth. On our second quarter call, we noted that customer pre-buying ahead of announced price increases contributed a couple of percentage points to CCM's growth. Our strong third quarter volumes confirm that the vast majority of that growth came from end market demand. Channel inventories are at normal levels for this time of year, and October bookings remained strong. CCM adjusted EBITDA increased 1% to $306 million, with an adjusted EBITDA margin of 28.2%, down 200 basis points year-over-year. The margin decline reflects further raw material and freight inflation from where we started the quarter, which outpaced our price realization. This was partially offset by operating leverage on higher volume, Carlisle Operating System productivity, and cost controls.