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spk03: Good afternoon. My name is Zen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Carlisle Company's second quarter 2021 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. Jim Giannakouros, Carlisle's Vice President of Investor Relations. Jim, please go ahead.
spk07: Thank you, Zen. Good afternoon, everyone, and welcome to Carlisle's second quarter 2021 earnings conference call. We released our second quarter financial results after the market closed today, and you can find both our press release and earnings call slide presentation in the investor relations section of our website, carlisle.com. On the call with me today are Chris Koch, Chairman, President, and Chief Executive Officer, and Bob Roach, our CFO. Today's call will begin with Chris discussing business trends experienced during the second quarter of 2021, views of what's to come, and context around our continued progress toward an unwavering commitment to achieving Vision 2025. Bob will discuss the financial details of Carlisle's second quarter performance and current financial position. Following Chris and Bob's remarks, we will open up the line for questions. But before we begin, please refer to slide two of our presentation, where we note that comments made on this call may include forward-looking statements based on current expectations of future events and their potential effect on Carlyle's operating and financial performance that involve risks and uncertainties, which could cause actual results to be materially different. A discussion of some of these risks and uncertainties is provided in our press release and in our SEC filings on Forms 10-K and 10-Q. Those considering investing in Carlyle should read these statements carefully and review reports we file with the SEC before making an investment decision. Today's presentation also contains certain non-GAAP financial measures. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financials in our press release and in the appendix of our presentation materials. With that, I introduce Chris Koch, Chairman, President, and CEO of Carlyle.
spk04: Thanks, Jim. Good afternoon, everyone, and thank you for joining us on our second quarter 2021 earnings call. While we recognize that there are still many people suffering from the continued effects of the pandemic globally and an uneven recovery, we hope all of you, your families, coworkers, and friends are healthy and you're reengaging as global economies open. I'm also pleased to report Carlyle's COVID-19 infection rates approached zero in the second quarter, which wouldn't have happened without our team's strict adherence to our safety protocols and and commitment to each other across our global footprint. I'm also very pleased that Carlisle's performance continues to strengthen as we further accelerate into the economic recovery. Please turn to slide three. Vision 2025 has provided the clarity and consistency of direction that proved to be essential in guiding our efforts during the depths of the pandemic last year. It continues to guide us today as we seek to leverage improving demand across our end markets in 2021 and beyond. Vision 2025 provides Carlisle and our stakeholders a clear and direct vision that unites us in a collective goal, which in turn drives our priorities and everyday actions. We are very much on track to exceed the $15 of earnings per share targeted in Vision 2025. Our performance in the second quarter of 2021 illustrates our continued solid execution towards our stated goals. Several highlights of this continued progress include CCMs continued rebound in sales from the bottom of the pandemic in the second quarter of 2020. As a reminder, CCM sales were down approximately 20% in the second quarter of last year. As we entered the third quarter of last year, we had already begun to see improvements sooner than many industries, and that has continued sequentially through today. That positive momentum drove 28% organic growth year over year at CCM in the second quarter of this year and added to a significant and growing backlog. The rapid recovery from the lows of 2020 reinforced our confidence in this business. As we commented on in the fourth quarter 2020 earnings call, we envisioned 2021 being a year of challenges as pent-up re-roofing demand returned rapidly and supply chains, distribution channels, contractors, and labor markets came under increasing pressure to deliver their services and meet customer expectations. Our conviction in the late fall of last year that all of the fundamental drivers of growth we saw prior to the pandemic were still in place led us to take significant action on securing raw materials, ensuring production facilities were fully capable, and putting in place pricing actions to offset what we anticipated to be significant raw material headwinds in the year. Looking into the future, we continue to believe that the multi-decade trends in re-roofing demand, increased emphasis on energy efficiency, and tight labor markets will drive solid growth in our CCM business. As a result, we will continue to invest significant capital into our building products businesses. A few recently announced examples of our steadfast commitment to CCM's future include our plans to invest more than $60 million to build a state-of-the-art facility in Sykeston, Missouri, where we will manufacture energy-efficient poly-acyl insulation. We're also constructing our sixth TPO manufacturing line in Carlisle, PA, which will produce the commercial roofing industry's first 16-foot wide TPO membranes. We're breaking ground on phase two of the 8 million euro expansion of our CCM Waltershausen, Germany facility, which, as a reminder, produces our unique EPDM-based Restorix product. And lastly, a significant investment in our R&D capabilities and manufacturing capacity in our Cartersville, Georgia spray foam insulation business. Shifting gears to other parts of Carlyle, we continue to leverage the Carlyle operating system to drive efficiencies across our platforms and geographies. And in the second quarter, COS delivered 1% savings as a percent of sales and continued to further its role as a culturally unifying, continuous improvement foundation for Carlyle employees globally. In seeking to raise the return profile of Carlyle Companies, we continue to focus on optimizing our business portfolio. During the quarter, we announced the divestiture of CBF, and earlier this week, we announced an agreement to acquire Henry Company, which we will talk about later. Both changes to our portfolio will enhance long-term value creation for our shareholders. We continue to be a consistent and meaningful returner of capital to our shareholders. Since 2016, we have returned over $1.8 billion in share repurchases alone. Bob will provide more details later, but we continue to be active in the capital markets, opportunistically repurchasing shares when appropriate. We also anticipate continuing our long history of consistently raising our dividend, and when completed in August, will be our 45th consecutive year. We're very proud of this symbolic achievement. act in the nature of nearly half a century of stability of our business model, financial profile, and commitment to our shareholders. Moving to slide four. Driven by the growing strength in our CCM business and momentum building at CFT, our revenue increased 22% year over year. CCM had outstanding performance, growing revenue 28% year over year. CFT continues to drive new product innovation and operational efficiencies to better leverage improving dynamics in its global end markets. Partially offsetting this growth was commercial aerospace, which continues to weigh on CIT, with revenues declining 8% year over year in the quarter. That said, aerospace orders have stabilized, and we have line of sight to continued sequential revenue improvement in 2021. While aerospace markets have been depressed, our team at CIT has remained focused on innovation and continuing our long-term commitment to our customers, and most importantly, preparing for the inevitable recovery. Please turn to slide five. Carlyle Construction materials segment continues to demonstrate its extremely durable business model and to execute very well in the face of numerous challenges. CCM volumes in 2021 are benefiting from work postponed in 2020 due to the COVID-19 pandemic. And given both material and labor constraints, we believe even more deferrals experienced in the first half of this year will only add to the pipeline of roofing contractors' workload in the second half of 2021. We maintain our strong conviction in the sustainability of re-roofing demand in the U.S., where we continue to expect the market to grow from $6 billion to $8 billion in the next decade. We continue to be very proud of the CCM team's ability to keep the Carlyle experience intact, managing a record level of incoming orders, ensuring we keep our contractors working, and maintaining our commitment to being the best partner in the industry. And I'd like to take a moment to acknowledge our procurement, manufacturing, logistics, and customer service teams for their tireless and extremely dedicated work, without which the Carlyle experience wouldn't be possible. And as a reminder, by the Carlisle experience, we mean ensuring delivery of the right product at the right place at the right time. We do this by deploying industry leading investment in production and R and D capabilities. These investments have totaled over $300 million in the past five years. We also continue to invest in best in class education for our channel partners on the latest roofing products and installation best practices, including over 20,000 hours of virtual learning courses during the pandemic. I mentioned our world-class customer service team that processed over 65,000 orders in the second quarter, a remarkable feat at nearly two times the normal quarter's activity. We continue to innovate and provide value-added products that ensure quicker, more efficient and safer installation of our building envelope systems and solutions in an increasingly labor and material constrained environment. Finally, and importantly, we continue to focus on producing products that contribute to a better environment for all stakeholders. A few comments on our other businesses. CIT's second quarter results were in line with subdued expectations given the ongoing disruption in the commercial aerospace market. Despite a difficult past 18 months, the CIT team is taking significant actions to position CIT to be stronger when the market rebounds. We acted to create a more rational footprint in 2020 and 2021, closing three of our facilities. And while these decisions are not taken lightly, they were necessary to position CIT to return to and exceed our legacy profitability levels when demand returns. Also during this time, we have continued to invest in R&D in order to build our new product pipeline and support our customers. We continue to see some light at the end of the tunnel, evidenced by improving leading indicators for commercial aerospace, including the expanding vaccine rollout, numbers of TSA daily screenings increasing from a low of 20% of normal last year to over 80% in July, growing activity at our aircraft manufacturers, and corresponding improvements in CIT's order books. All of this gives us confidence that CIT is positioned for sequential improvement going forward. CFT delivered improved revenue and profitability performance in the second quarter driven by its re-energized commitment to new product introductions, improved operational efficiencies, price realization from earning the value that comes with innovation, and an improved customer experience. I'm very heartened by the progress the team has made over the last year in improving their sales and profitability, putting us back on track to achieve our expectations for this business. We expect the team to continue executing on its Vision 2025 growth strategy and to deliver continued improvement moving to the second half of 2021. Turning to slide six. Hopefully everyone had the opportunity to listen to our call on Monday during which we introduced our agreement to acquire Henry Company, a best-in-class provider of building envelope systems that control the flow of water, vapor, air, and energy in a building to optimize building sustainability. Henry delivered revenues of $511 million and adjusted EBITDA of $119 million, or 23% margin, in the last 12 months ended May 31, 2021. Bob will review more of the financial details related to Henry later in the call, but we expect Henry to add more than $1.25 of adjusted EPS in 2022. All of us at Carlisle are very excited to work with the Henry team, which has a proven track record of growth, a very strong brand, and a long history of new product innovation. The announced agreement to acquire Henry is another clear example of how we are executing on our Vision 2025 strategy to optimize our portfolio, which includes our efforts to expand further into the building envelope. For those of you new to Henry, let me give you a few examples of how, in practice, Henry complements CCM. Henry's large direct sales force, who have been focused on helping architects specify waterproofing and air and vapor barriers, can now assist in specifying CCM single-ply roofing solutions on the same buildings. Additionally, Henry has a presence in the residential and big box marketplaces, markets not previously a substantial part of CCM's business. Moving to slide seven, our ESG efforts also continue to gain momentum. In April, we published our 2020 sustainability report, which built on the foundations of our first report in 2019. And for the first time, the 2020 report disclosed in detail how Carlyle is tracking on the Global Reporting Initiative, or GRI, standards. We're also in the process of establishing achievable water, energy, and emission reduction targets based on detailed audits of our global facilities. Turning to diversity, during the course of April, Carlyle employees participated in the CEO Action for Diversity and Inclusion Day of Understanding. The Day of Understanding created a singular focal point in our year and is an opportunity for leaders to guide open dialogue about diversity in their workspace. Carlisle has been a member of the PWC-led CEO Action for Diversity and Inclusion since 2018, an organization that now includes over 2,000 CEO signatories. In order for Carlisle employees to participate in our ongoing success, we issued a special stock option grant or equity equivalent of 100 shares to employees on May 2, 2018. Those shares vested in the second quarter of 2021 having appreciated almost 80%. For each participating employee, this meant a gain of over $8,000. I'm very pleased the shares performed so well for our employees because Carlisle's success wouldn't be possible without their efforts. Finally, one area where we have made significant improvement is in our industry leading safety record. Our incident rate of approximately one quarter of the industry average demonstrates the work that has been done by all employees to ensure a safe workplace. While staying ahead of the industry is important, in the past six years, our incident rate has fallen 52%. Of all of our track metrics, this is especially meaningful because reducing employee injuries by 50% has had a tangible benefit and meaningful impact on people's lives. To continue to drive the importance of safety in our operations, in early 2020, we announced Path to Zero, which represents our commitment to creating the safest possible work environment and features the goal of zero accidents and zero industries. This program was launched globally in the second quarter of this year. And now Bob will provide operational and financial detail about the second quarter, review our balance sheet and cash flow. Bob?
spk08: Thanks, Chris. As Chris mentioned earlier, we had a very solid second quarter. I'm especially pleased about the margin expansion of CCM, CIT coming off market lows and positioned to deliver sequential growth for the next few quarters, CFP's order book improving, our disciplined approach to capital deployment in the form of share repurchase and dividends, continued investment in our high ROIC businesses to drive organic growth, and our portfolio optimization actions, including divesting CBF and the announced agreement to acquire Henry Company. Please turn to the revenue bridge on slide 8 of the presentation. Revenue was up 22% in the second quarter, driven by CCM and CFT, offset by the well-documented commercial aerospace declines at CIT. Organic revenue was up 20.7%. CCM and CFT each delivered greater than 25% organic growth in the quarter. Acquisitions contributed 0.4% of sales growth for the quarter, and FX was a 90 basis point tailwind. On slide 9, we have provided an adjusted EPS bridge where you can see second quarter adjusted EPS was $2.16, which compares to $1.95 last year. Volume, price, and mix combined were a $1.30 year-over-year increase. Raw material, freight, and labor costs were a $0.95 headwind. Interest and tax together were a $0.01 headwind. Share repurchases contributed $0.07, and COS contributed an additional $0.12. Higher op-ex was a $0.32 headwind year-over-year. half of which is related to the May vesting and cash settlement of stock appreciation rights granted to all parallel employees outside the U.S. in 2018, with the remainder reflecting the resumption of more normalized expense level versus last year's cost containment measures taken in the depths of the pandemic. Now let's turn to slide 10 or use second quarter performance by segment in more detail. At CCM, the team again delivered outstanding results with revenues increasing 27.5%, driven by volume and price, along with 70 basis points of foreign currency translation tailwind. All of CCM's product lines delivered 20% growth with particular strength in architectural metals and spray foam insulation. CCM effectively managed raw material inflation headwinds experienced in the quarter with disciplined pricing, proactive sourcing, and allocating products to strategic customers. Adjusted EBITDA margin at CCM was 21.5% in the second quarter, a 60 basis point decline from last year driven by higher raw material prices, partially offset by volumes, price, and COS savings. Despite raw materials being a headwind in the second quarter, we continue to anticipate net neutral price RAS for the full year. Adjusted EBITDA grew 24% to $201.2 million, again demonstrating the earnings power of our CCM business. Please turn to slide 11 to read CIT results. CIT revenue declined 8.2% in the second quarter. As has been well publicized, this decline was driven by the pandemic's continued impact on commercial aerospace markets. We still anticipate a prolonged recovery in aerospace, but are optimistic there will be resumption of growth as we enter the second half of the year. CIT's medical platform continues to build a robust pipeline of projects with an increasing backlog. We continue to expect sequential improvement from pent-up demand as the impacts of COVID on hospital CapEx and postponed elective surgeries ease. CIT's adjusted EBITDA margins declined year-over-year to 8%, driven by commercial aerospace volumes partially offset by price, COS, and lower expenses. Given the positive indicators, we are optimistic that CIT will deliver sequentially improving financial performance into the second half of 2021. Turning now to slide 12, CFT sales grew 54% year-over-year. Organic revenue improved 44.3%, and acquisitions added 3.6% in the quarter. FX contributed 6%. CFT is well-positioned to accelerate through the recovery due to continued stabilization in key end markets driven by an improved industrial capital spending outlook in 2021, coupled with new product introductions would have included $4.1 million of incremental new product sales in 2021 year-to-date. along with our continued pricing resolve. Adjusted EBITDA margins of 15.9% were over 100 basis point improvement from last year. This improvement primarily affects volume, price, and mix. On slides 13 and 14, we show selected balance sheet metrics. Our balance sheet remained strong. We ended the quarter with $713 million of cash on hand and $1 billion of availability under our revolving credit facility. We continue to approach capital deployment in a balanced and disciplined manner, investing in organic growth through capital expenditures and opportunistically approaching shares while also actively seeking strategic and synergistic acquisitions. In the quarter, we repurchased 643,000 shares for $116 million, bringing our 2021 year-to-date total to 1.6 million shares for $266 million. We paid $28 million of dividends in the second quarter, bringing our 2021 total to $56 million. We invested $32 million of CapEx into our high-returning businesses to drive organic growth, bringing our 2021 total to $55 million. A few examples of these investments include our new Missouri Poly-ISO facility, expansion of our TPO line in Carlisle, PA, and investment in our spray foam capabilities in Cartersville, Georgia. In addition, as has been noted, we announced an agreement to purchase Henry Company for $1.575 billion. Henry generated revenue of $511 million and adjusted EBITDA of $119 million, representing a 23% EBITDA. Additionally, Henry is expected to deliver $100 million in free cash flow in our first year of ownership. We also expect meaningful cost synergies of $30 million by 2025. Finally, we expect Henry to immediately accrete Carlisle's EBITDA margin adding over $1.25 of adjusted EPS in 2022. Free cash flow for the quarter was $64.6 million, a 54% decline year-over-year due to increased working capital usage related to our high sales growth of 22%. Turning to slide 15, you can see the outlook for 2021 in corporate items. Corporate expense is now expected to be approximately $125 million, up from the previous estimate of $120 million. The increase is wholly related to the vesting and cash settlement of our stock appreciation rights discussed earlier. We expect depreciation and amortization expense to be approximately $210 million. We still expect free cash flow conversion of approximately 120%. For the full year, we continue to invest in our business and expect capital expenditures of approximately $150 million. Net interest expense is still expected to be approximately $75 million for the year, and we still expect our tax rate to be approximately 25%. Finally, restructuring is expected in 2021 to be approximately $20 million. And with that, I'll turn the call back over to Chris.
spk04: Thanks, Bob. Entering the third quarter, we continue to be very optimistic about the remainder of 2021. From record backlogs at CCM to supportive trends in CIT aerospace markets to growing strength at CFT, coupled with excellent sourcing and price discipline and significant traction on our ESG journey, we are confident in our ability to deliver solid results for all Carlyle stakeholders. For full year 2021, we anticipate the following. At CCM, as previously mentioned, the trends that began in Q3 2020 gained momentum as we moved into 2021. We anticipate this momentum to carry over into the third and fourth quarters of 2021. Considering this momentum, coupled with record backlogs stemming from project deferrals that occurred in 2020, positive momentum in our newer businesses of architectural metals and spray foam, and expansion of our European business, we are increasing our anticipated revenue growth to high teens in 2021. At CIT, we are encouraged by leading indicators trending positive, but it remains difficult to gauge when a complete recovery in commercial aerospace will occur. Given a very difficult year-over-year comparison in the first and second quarters, we continue to expect CIT revenue will decline in the mid to high single-digit range in full year 2021. At CFT, With end market strengthening and improvements in the team's execution of our key strategies, we now expect mid-teens revenue growth in 2021. And finally, for Carlyle as a whole, we are now increasing our expectations to mid-teens revenue growth in 2021. As we pass the midpoint of 2021, we are tracking to deliver our Vision 2025 goals of $8 billion in revenues, 20% operating income, and 15% ROIC, all driving to exceed $15 of earnings per share by 2025. Despite lingering uncertainties around COVID, supply chain constraints, and what we perceive as near-term raw material inflation, Carlyle's employees across the globe remain focused on the execution of the strategies and key actions that support Vision 2025. Our team continues to embody a positive and entrepreneurial spirit, a commitment to continuous improvement, and a focus on delivering results for the Carlisle shareholder. Given our 100-year-plus history and the resilience this company has shown in times of adversity and uncertainty, we remain confident in Carlisle's outlook, our strong financial foundation, cash-generating capabilities, unwavering commitment to our Vision 2025 strategic plan, and to providing products and services essential to the world's needs. This concludes our formal comments. Then we're now ready for questions.
spk03: As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Your first question comes from the line of Brian Blair of Oppenheimer.
spk05: Thanks. Good afternoon, guys.
spk04: Good afternoon, Brian.
spk05: a great performance in CCM. You actually were flirting with normal seasonality, sequential seasonality, which I didn't think was possible. Given the supply chain constraints that you've called out and that are so pervasive, to what extent did raw material availability, freight, other constraints impact CCM's ability to meet demand in the quarter?
spk04: Well, as we discussed, the team did a great job managing it, and I don't think it really impacted their ability to beat the demand that was present in the quarter. Obviously, the surge in orders takes into account some orders that are for the third quarter and fourth quarter, and we continue to work to fulfill all of those. But the team did a great job in meeting all the demand that was put to it in the second quarter. Understood.
spk05: Thinking about the third quarter, are there any incremental watch items in terms of the listed constraints that we should think about in terms of CCM's ability to meet demands? And in extension of that, what kind of growth rate are you assuming as we bridge to the high-teens guidance?
spk08: Yeah, Brian, we don't see any. Again, there's a lot going on in the world with Delta variant and everything else, but we don't see a lot of changes from what happened in the second quarter going into the third. We would expect raw materials to. I'm going to say loosen up a little. They've been loosening up since the beginning of the year, more and more since the problems in Texas and the freeze and everything. So we see that continuing slightly. So we don't see a lot of watch-out items on our list going in today. You know, we'd expect, I'm going to say, normal growth. You expect third quarter to be, you know, somewhat higher than the second quarter, probably. So I think the growth rate will continue going into the third with, like you said, normal seasonality where third quarter is larger than the second and then shrinking a bit in the fourth, as always happens, into the winter months.
spk04: Yeah, and Brian, I would just add one thing that I think we – The results were encouraging, and it's interesting to talk about normal seasonality, but we really are still in the midst of an extraordinary time, just as impactful as going down was last year into the declines we had. I think coming back has been something that is not normal, and I think the CCM team has done a superb job of managing through all of that, like you said, and getting close to normal seasonality, but we still want to communicate the fact that it's a very difficult environment. throughout the business from supply chain all the way to order entries we discussed.
spk05: Completely understood. One last one for me. In the revised high-team sales growth guide for CCN, how should we think about volume first price contribution for the year?
spk08: Yeah, Brian, that's mostly going to be price, but there is some volume increase in there as well.
spk05: Okay, so the step up from low double digits to high teens is mostly price?
spk08: Yep, mostly price. As raws continued to increase, we, as discussed, needed to continue to increase price to keep up with that.
spk05: Got it. Okay, thanks again, guys.
spk04: Thanks, Brian.
spk03: Our next question comes from the line of Team Voice of Baird Equity Research. Good afternoon.
spk02: Good afternoon.
spk04: Afternoon, Tim.
spk02: Nice work. I guess first question, could you just talk a little bit about how you're managing the backlog? Just there's chatter that, like, people are double ordering and trying to get products from anybody they can. So how are you kind of controlling that just to make sure that you actually have real backlogs?
spk04: Well, certainly we can't. We don't know because we don't have the customer's mind as to what's a real order and what's not a real order. We treat all orders, you know, the same. And then what we're really doing is just prioritizing them based on the necessity of shipping. And in addition to that, obviously a customer, an existing customer that's been a longtime customer for Carlisle is is going to be prioritized over someone that's being opportunistic. So I think, again, we're doing it in a very rational way. We're attempting to maintain that Carlisle experience and ensuring that the contractors that need it have that product there. and making sure that we're not having any inventory or products sit around somewhere on a job site or in a warehouse, but that people that need the product put on the roof are getting it done. And I think the team's doing a good job of that. But obviously that involves a lot of heavy lifting on the part of the sales force on the part of customer service to coordinate a lot of work there. So I think as we, to your point on the extra ordering, as we get through the year, we don't see it impacting the projections that we've made. That will sort itself out as we begin to continue to fulfill these orders. And then I'd say just, you know, we'll check in as we get closer to the winter and and we'll know where we are. So as I mentioned to Brian, you know, it's such an evolving environment, and this recovery has been so rapid, and the demand has been, you know, in a lot of industries so strong that I think we just focus on the near term and make sure, again, that we're delivering on that Carlisle experience for the contractor that needs it today.
spk02: Okay. Okay, good. And then I think you guys are definitely taking share. Where would you kind of peg the market at, you know, relative to – you know, your high teen sales growth. And I guess what's your confidence that, you know, once some of these supply chain issues, you know, settle down, that you can hang on to some of that share gain longer term?
spk04: Well, I'll take the last one first. I think we view these last year and this year these disturbances, these really trying times as opportunities and probably the best opportunity for contractors, distributors, end users, architects to see the really true Carlisle experience and the work that our team does. I mean, when everything's going smoothly, You don't understand how powerful that experience is. And so what I would hope is that as we are introduced to new customers, as people that are with other suppliers decide to try Carlisle, that they are overwhelmed by the experience and decide to make that permanent shift. Does that always occur? I can't tell you what does. level of people, you know, or what percentage of the people that get material from us for the first time stay with us. But my guess is that it's contributed to our growth over the last few years and we'll continue to do that. So that's our goal, continue to perform well, continue to perform better than anyone else and make sure that people see that and want to be part of that team. I think on the other side, the growth side, Bob may have some comments on that. But I think that the industry right now and the recovery, probably market shares have not moved much relative to overall demand just because demand has been so heavy. So, again, what I would look for is to run through the year, let's sort out those orders you talked about, that there may be some overordering, and then get into 2022. Hopefully we'll have a more normal year, and then we'll be able to assess our progress versus the industry and versus our competitors. Bob, do you want to add anything?
spk02: Okay, good. Well, I'll have that in queue. Thanks, guys. Yeah, thanks, Tim. Thanks, Tim.
spk03: Next question comes from the line of Joe Tis from Bank of Montreal.
spk10: Hey, guys, how's it going? All right. So I'm going to switch gears a little bit. I wonder, it's kind of an off-the-wall question, but you think it would make any sense for you guys to think about, like, spinning out everything that's not CCM? That would kind of accelerate your move to 2025, maybe not on the revenue side, but certainly on the margin side.
spk04: Well, I don't think it would make any sense right now. And the only reason I say that is I think that certainly valuations, you know, would be very hard to find a valuation from a purely pragmatic perspective on any business given, you know, CCM's declines and given the fact that CFT has not probably reached its full potential after the years of work we put into it, but there's still more to come. So what I would say, Yeah, I would just say that's probably not a thought right now in our mind. I mean, we want to continue to boost the building products portion of our business around CCM. Adding Henry does that. That gives us a lot to digest and to focus on. I think we wait until things get through the sustainable growth recovery and runway that we see in CIT and CFT. And then, you know, Joel, as we've always done, we just assess the portfolio, and I think that's something that's gone back As long as I've been at Carlisle, everything from divesting of Carlisle tire and wheel, motion control, food service, and making additions like Acela, Peterson, and that, we're always looking at the portfolio. And, you know, obviously we make all our decisions based on what's best for the Carlisle shareholders. So it's something we always look at, but I don't see any actions in the near term.
spk10: And then as you build out your building envelope and it's starting to get pretty serious, is there any way to team up with, you know, like a carrier or a train or someone who's doing sort of building assessments to, you know, help the buildings get more efficient and lower their costs and all that? Is there any way to team up with those guys to get, like, specced in to being part of that, you know, energy audit and helping them get to their goals?
spk04: Sure, and I think, you know, I don't know about those two companies in particular, but I do know that every day our teams in CCM, through their connections with the industry organizations, through their connections to architects, through large building owners, people who are putting in warehousing, data centers, things like that, you can't help but think that as ESG, as energy efficiency becomes a bigger priority for all those end users and building owners, that they're going to almost drive cooperation so that we're making sure that as we're putting on that building envelope and ensuring that it's a You know, it's got great insulation, vapor, water, air barriers, things like that, that they're also asking, you know, the provider of that energy unit that's either heating and cooling to participate and have some coordination. I think a lot of that occurs at the design level with architects and specifiers, and as we mentioned, both with Carlisle and with our Henry team, they're going to spend a lot of time with those organizations. So I think you're on the right track. I just can't comment on carrier or train because I just don't know, but I would imagine those conversations are being had.
spk10: Well, that's great. Thank you very much. You bet, Joel.
spk04: Thank you.
spk03: Next question comes from the line of Sari Boroditsky of Jefferies. Hi.
spk01: Good afternoon.
spk04: Good afternoon.
spk01: So within CIT, could you talk about what you saw in the quarter from medical versus aerospace? And then how do those growth rates are expected to look for the remainder of the year, and then any color as we start to think about 2022?
spk08: Yeah, I'll take the last one first, Suri. I mean, I don't think we're ready to talk about 2022 yet. Now, certainly we expect growth at CIT and continued, you know, ramp in our profitability, but we're a long way from what's going to happen with aerospace getting into 2022 at this point in time. Medical versus aerospace in the quarter were almost the same decline, and that's largely due to the massive orders or, I'm going to say, revenue we saw last second quarter. Remember, we talked about a big spike in orders when COVID hit in shipments in the quarter. So in medical, so that's why it was relatively flat. But we expect acceleration, faster acceleration in medical going to the end of the year than we do in aerospace, but we expect some growth in aerospace.
spk01: Got it. And then you raised the outlook for CFT. Could you just talk about the outlook for industrial CapEx and projects? What are you hearing from customers? And then, again, I'll just ask, you know, should that strength continue as you think about going into next year?
spk04: Well, yeah, I think we see, you know, the industrial space continuing to improve out of the depths of 2020 and improvement in production and that. I think the other thing that I would remind you is, you know, CFT, we did have some difficulties when we first bought that business and there were share losses. And I think part of the gains are getting back what is what I would call their rightful share through their innovation and and new products and really good work by the teams in communicating the value proposition. So I think it's a combination of that, that markets are improving, industrial markets are improving. We think they'll continue to improve globally as we go throughout the year. And then I think there's a piece of that, too, that is just CFT getting its stride back and becoming a solid Carlyle company. Bob, do you want to add anything? Nope. Okay.
spk01: Thanks for taking my questions. I'll pass it on.
spk04: Thanks for it.
spk03: Next question comes from Kevin Josevar of North Coast Research.
spk09: Hey, afternoon, everybody. Nice job there. Chris, I'm trying to wrap my head around one of the comments you made, I think, in your prepared remarks. I think you had mentioned in the CCM business you had received 65,000 orders in the quarter, which is double the usual amount. So I guess I'm just trying to understand what that means. means? I mean, is that, again, a sign that there's some double ordering going on? Is it, you know, maybe distributors trying to build some inventory, even maybe contractors get some product on the job site, even if they don't need it yet, just because things are so tight? Is it backlogs building in a pretty material way? I guess I'm Does that mean there will be less orders in the third and fourth quarter? Is it some panic buying? I guess I'm just trying to understand because that seemed like a pretty interesting stat. I'm just wrapping my head around it. I'm curious if you can just elaborate on that a bit.
spk04: Yeah, well, I think one of the things we probably will need to do later is give the reference point of 2019, because without that reference point of double the previous period, you don't have a good reference for where we were in 2019 to gauge that. I think the other thing is, on the double ordering, I'd be careful about that, because as we know, last year people were not ordering. We talked at length about how distribution going into the season had cut back on orders. People were concerned about would they be on the job. I mean... It was only a year ago that states like Pennsylvania and cities like Boston weren't allowing contractors on the job site. In certain cases, they were increasing the PPE and the other protocols, making it more difficult. We were having inspections occurring virtually. It was hard to get permits pulled because governmental agencies were shut down. And we think that now we're in the second quarter. But you have to remember, some of that stuff, there was still concern in the first quarter that things weren't happening. And we did get ahead of it in production, as we mentioned. We got ahead of it in our pricing, but there was still some lag there on the market until the confidence came back that the contractor and the distributors and that would be able to function somewhat normally. So I think there is a surge there, and I think a lot of those orders – I have no reason to believe that most of them actually that occurred in the quarter aren't real because I do think there was pent-up demand. People were waiting. That's what we talked about is demand to continue to build. And if you think about even not including 25% of the orders in a year and letting them build in the back half of 2020 and then the first quarter of 2021, one would expect a pretty substantial surge in in the second quarter of this year. And then we'll just need to monitor, and when we get to the third quarter of this year, we can do that same check and then have a comparison because we've been through the heavy and last part of the season getting into the winter months. So I wouldn't read too much into it other than demand is strong and we are coming out of this pandemic strong and people are gaining confidence and they're placing orders and they're getting back on the roof and they've got a lot of backlog to make up.
spk09: Yeah. Yeah. Okay. That's helpful. And in terms of the increased guidance, just one quick question there. So the low double-digit to high teens increase in CCM, it sounds like the majority of that is pricing. Is that pricing increase based on what you've currently kind of realized between price increases that have already taken effect? Or, you know, I know there's also like an August increase you have out there for a lot of roofing products. Is there some assumptions of future pricing as well based into that guidance?
spk08: No, that includes obviously the announced price for August, but no, nothing beyond that at this point.
spk09: Okay. Gotcha. And then just last question, what was – in terms of the price-cost dynamics, what was that in the second quarter? And it sounds like the expectation is, you know, a continuation of neutral for the year. So is there any change in the expectations of three – I mean, obviously there's been a lot of moving pieces since three months ago in terms of the inflation expectations and the pricing expectations. But maybe is the – Kind of the trajectory sounds like might not be the expectation of the net of that might not be all that different. But, yeah, curious what it was in the quarter and then kind of how you see that playing out to balance of the year.
spk08: Yeah, certainly the net's not different, but certainly with our increase in revenue based on price, we've gotten a lot more cost pressure and assumed a lot more price traction over the last three months as well. you know, costs have continued to rise and be up there. We are a lot more confident that we need the price to cover it. Q2 was about $25 million negative, as we expected, and we expect to make that up in the second half of the year. More in the fourth quarter than the third quarter, but positive in both those quarters to make up for what we were short this quarter.
spk09: Okay. All right. Thank you very much. Thanks, Kevin. Thanks, Kevin.
spk06: next question comes from the line of gary schmoys of lube capital thanks for uh taking my question today um chris just curious you made a comment in your prepared remarks around allocating products to strategic customers you know just wondering if you could expand on that is it really you know more of a function that because you're you're effectively at full capacity you can be selective and you know service your i guess higher margin higher quality customers or any Kind of additional color on that comment would be helpful.
spk04: Yeah, I think, you know, that our customers, we have a lot of very loyal customers that work very hard to make sure Carlisle is specified and, you know, chosen throughout the world, actually. And we don't want to make decisions in a quarter. And, you know, we want to have share gains, but we want to make sure that the work we're doing with people, because it is pretty extensive. We spend a lot of time working with our contractors on things like warranty inspections and on helping prepare quotes and that, that we always want to strategically give our efforts to those distributors, contractors, those that are with us for the long run and have invested significantly in the Carlisle brand. So I don't think it's anything, while we state it, I don't think it's anything other than our normal practice there that we expect a lot out of our partners and they would expect a lot out of us in terms of loyalty as well.
spk06: Okay, thanks. And just on the building envelope business, you called out spray foam and metal roofing growing over 40% in the quarter. Sounds like the entire building envelope business was up over 20% in the quarter. What's the outlook there? I guess what I'm asking, given that business has been more exposure to housing, is there any pause that you might be seeing at all just with the pause in new housing, just given the inflation in the market and the builders pulling back a bit? Any help on the building envelope side would be helpful.
spk04: Well, I think on the metal side, you know, Peterson is pretty much a commercial metal business, and I think we're seeing a lot of movement into metal as it becomes architecturally more attractive, as it has some renewable and recyclable aspects to it. We're just finding it's gaining traction. There's some very positive trends there, and Peterson has done an excellent job of adopting the Carlyle experience, which they probably called it the Peterson experience beforehand, but it's a great brand with great coverage and good relationships. On the Drexel side, which is a little bit more on the residential side, again, we're seeing people are choosing metal roofs in a lot of cases. There's more interest, and Drexel has a very unique value proposition where they are actually preparing that work right on site and driving a lot of value. So as that team gets out and, you know, demonstrates a value proposition, they're gaining a lot of traction. On the spray foam side, you know, when we originally bought Acela, we talked about that high single-digit industry growth rate as – People would adopt foam as a far superior insulator and some, in certain cases, vapor barrier components to it. And what we're really just seeing is that continued traction versus other forms of insulation. And certainly here in the southwest with the heat and even in the north, I know, being from Minnesota and living in Arizona, spray foam insulation just provides a superior solution for the space in the wall cavity. and just drives great performance. And we see it just continuing to gain share in the marketplace. So I think the trends are positive for both. And then on top of that, we're adding very positive, unique value propositions with each business. And I would be remiss if I didn't say that the partnership between CFT with their newly launched spray foam equipment, which provides You know, superior on ratio performance. It's got better heating capabilities in the competition. A much better performing product coupled with our spray foam coming out of CCM has also created a lot of interest with the end users and is helping us drive the preference for our brand. So, actually, we're excited about all of those businesses and what they've done.
spk06: Okay. And I guess just a follow-up to that. In the guide, you took your CCM guidance up largely on price. Was there any change to the underlying assumptions on the edible milk side of the CCM?
spk08: No, Gary, they're mostly in line. And those are up in price as well, right? The commodities that go into metal roofing and the spray foam are just as volatile as the flat roofing commodities. So we need to get price in those as well to keep up with our flat price cost. Okay, fair point. Thanks again. Yep, thank you, Gary.
spk03: There are no further questions at this time. I would now like to turn the call back to Chris. Please go ahead.
spk04: Thanks, Jen, and thanks, everybody. This concludes our second quarter 2020 earnings call, or 2021, excuse me, and thanks for your participation. We look forward to speaking with you at our next earnings call.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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