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spk00: Good afternoon, my name is Brika and I will be your conference operator today. At this time, I'd like to welcome everyone to the Carlyle Company's third quarter 22 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 De La Torres, Carlyle's Vice President of Investor Relations. Jim, please go ahead.
spk11: Thank you. Good afternoon, everyone, and welcome to Carlisle's third quarter 2022 earnings conference call. We released our third 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 Kevin Zimmel, our Chief Financial Officer. Today's call will begin with Chris giving an update on our progress in achieving our strategic plan, Vision 2025, highlights of our third quarter results, and a discussion of current trends. Kevin will discuss the financial details and our updated outlook. Following Chris and Kevin's remarks, we will open up the line for questions. Before we begin, please refer to slide two of our presentation where we note that comments today will include forward-looking statements based on current expectations. Actual results could differ materially from these statements due to a number of risks and uncertainties which are discussed in our press release and SEC filings. As Carlyle provides non-GAAP financial information, We've provided reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, which are available on our website. With that, I will turn the call over to Chris.
spk08: Thank you, Jim. Good afternoon, everyone, and thank you for joining us on our third quarter 2022 earnings call. The third quarter of 22 was another superb quarter for Carlisle as our teams across the globe continued to deliver on the Carlisle experience utilized our continuous improvement culture to improve our processes, and leveraged our position as a preferred supplier of solutions to our customers. From order entry, to deliveries, to writing specifications, to the ongoing performance of our products in the building envelope. We also continue to see positive underlying trends, including positive multi-year re-roofing needs, solid new non-residential construction demand, and increasing interest in energy efficient solutions. Additionally, a much improved supply chain resulted in the emergence of a more orderly and normal operating environment than we have seen during the last two years. One example of this improvement is within our CWT business, where we have gone from having 50-plus suppliers on our watch list to now having less than 10. While supply remains tight in many areas, we did see our customers have more confidence in the supply of our product which drives a better and more efficient workplace and ultimately a reduction in the need for building inventory and extending lead times. As we enter the fourth quarter, despite the positive underlying trends I just mentioned, we continue to operate in a highly uncertain and volatile environment, which has really been the case since March of 2020. The continued effects of inflation and impact on the American consumer have been significant. The decision by the Fed to mitigate rising inflation with meaningful increases in interest rates has slowed the housing market due to a rapid increase in mortgage rates, which has raised borrowing costs for buyers and pushed many prospective buyers out of the market. In addition, most signs are pointing to a slowdown in U.S. and global growth, which will likely impact jobs and investments for the near term. Coupling these factors with the coming U.S. midterm elections and another potential 75 basis point increase by the Fed in November, There is no doubt the fourth quarter will continue to bring us volatility, uncertainty, and a more cautious stance by consumers and businesses. Turning back to the performance of the quarter and a more focused eye on our work here at Carlyle, I am very pleased with the outstanding performance of our teams. They continue to show resilience and persevere in their work and have driven record year-to-date earnings to over $14 of diluted earnings per share on a GAAP basis. Well, on our way to achieving our vision 2025 annual EPS target of $15 our accelerated path to achieving vision 2025 is due to our teams on yielding commitment to deliver the Carlisle experience. And a resilient and continuous improvement culture, all the while focused on delivering results for our stakeholders, please turn to slide three. Our record results continue to demonstrate that Vision 2025, which has provided the clarity and consistency of mission since its launch in 2018, has been a guiding beacon and well-defined path for Carlyle, particularly given extraordinary volatility in global markets over the past several years. In addition to our world-class teams and proven business model, we've relied on a strong balance sheet and excellent cash flow generation to provide both financial and strategic flexibility to execute on our long-term plan and elevate the earnings power of Carlyle. A significant portion of our success has been driven by the multi-year process of reshaping our portfolio to pivot from a diversified industrial products company to a building products focus, setting the stage for more focus, more simplification, and a better understood path to accelerated and sustainable value creation. The pillars of vision 2025 remain core to our strategy going forward, these include first drive mid single digit organic growth and in the third quarter we deliver 28% organic revenue growth. Second utilize the Carlisle operating system or CS to drive leverage. We use CS to consistently drive efficiencies and enhance operating leverage by targeting cost savings of one to 2% of sales annually. In the third quarter, adjusted EBITDA grew 75%, nicely leveraging our sales growth. Third, build scale with synergistic, accretive acquisitions. Under Vision 2025, we have streamlined and optimized our portfolio through acquisitions and divestitures to build scale in our highest-returning building products businesses. CWT leadership continues to execute extremely well on delivering a smooth and efficient integration of Henry and is on pace to exceed our initial synergy targets of $30 million. The CWT team is doing an excellent job working both incremental cost synergy opportunities and seeking to drive revenue synergies given its now broader set of products. We remain excited about acquisition prospects within the building envelope, and we're working an active pipeline of opportunities to broaden our suite of energy-efficient solutions. a returns-focused capital allocation strategy that includes deploying over $3 billion into capital expenditures, share repurchases, and dividends. Since the launch of Vision 2025, we have deployed over $2.8 billion into these areas. Turning to our 2022 year-to-date actions, we've made capital investments of over $130 million into our businesses to drive innovation, and the Carlyle experience is exemplified by the third quarter launch of our first industry-leading 16-foot TPO line in Carlisle, PA. And we remain on track to deploy $175 million in capital expenditures this year. We've also made share repurchases totaling more than $200 million and paid approximately $96 million in dividends in 2022. To that point, we were very proud to raise our dividend 39 percent to $3 in the third quarter. which continues our 46-year trend of annual dividend increases. This 39% increase is Carlyle's largest in the past 25 years and reflects our strong, sustainable financial position and confidence in continued growth of Carlyle's earnings and cash flow. While the pillars of our soon-to-be-achieved Vision 2025 have proven to be sound, I want to reiterate that these are core to Carlyle. With these cultural and strategic pillars in place, we are proud of our accelerated execution of Vision 2025 and remain committed to our approach to sustainable value creation for all stakeholders. Please turn to slide four and let's look at the drivers of our record performance in third quarter and year-to-date sales and earnings. First, U.S. non-residential construction demand remains strong, and we are optimistic that the underlying trends will overcome well-known pressures seen in the global economy. Reroofing demand also continues to be a reliable, significant, and sustainable driver for growth, and new construction is still a tailwind. Notably, we are on track for double-digit volume growth at CCM for the second straight year. Fortunately, material availability has improved meaningfully in the past few months, and as such, we are seeing a normalization of buying patterns by our customers. Additionally, the need for energy-efficient building solutions to help mitigate rising energy costs and collectively help reduce the planet's carbon footprint will continue to be a driver. Second, pricing at all of our businesses continues to be positive as we focus on earning price for the value we create for our customers through the Carlisle experience. Our continued and growing investment in new product innovation, world-class manufacturing capabilities, and best-in-class customer service encompass the value proposition that our partners have come to rely on from Carlisle. and architects and building owners know they'll benefit from our innovative, energy-efficient building solutions that the market increasingly demands. Third, residential markets are facing increased pressure due to interest rate hikes, significant inflation, and at the consumer level, a reduction in building products expenditures. While impactful in the short term, we believe that longer term, fundamentals in residential markets remain attractive given the undersupply of homes in the U.S. and growing demand for energy-efficient building solutions, particularly given recent supporting legislation and rising energy costs. Fourth, aerospace markets continue their recovery, driving record backlogs at CIT and increased profitability on the back of restructuring actions taken over the past few years. We're very optimistic about the prospects for continued recovery in the aerospace markets, supported by a shortage of aircraft which has caused the US airlines to cut back on flights as they struggle to cope with the rebound in passenger travel, both domestic and international. Finally, we remain firmly committed to sustainability. Please turn to slide five. The recent publication of our third corporate sustainability report is another milestone in our ESG journey. Carlyle's three pillars of environmental sustainability, energy efficient products and solutions, the reduction of greenhouse gas emissions in our manufacturing operations, and the reduction of waste entering landfills are central to our efforts to achieve our sustainability goals. We also announced on October 17th a special stock option grant to all eligible employees representing Carlisle's third broad-based stock option or cash equivalent grant to employees in the last 12 years. We believe that it is beneficial for all employees to have ownership and participate in the success of the company. This grant provides a significant incentive for the team to drive actions that will help Carlisle achieve its long-term objectives. Additionally, through the Inflation Reduction Act that was signed into law in August, the building industry can take advantage of extended and expanded incentives through energy efficient building practices. More than $300 billion will be invested in energy and climate reform through energy tax incentives, investments in clean energy production, and tax credits aimed at reducing carbon emissions. These increased incentives for U.S. builders, installers, homeowners, and commercial building owners who demonstrate reduced energy use should drive increased demand for Carlisle building products and energy-efficient solutions. Lastly, we continue to make significant strides towards aligning our greenhouse gas reduction strategy with the Science-Based Targets Initiative, or SBTI, which defines and promotes best practices and science-based targets that help provide companies with a clearly defined path to reduce emissions in line with the Paris Agreement goals. We are on pace to submit our alignment goals for approval by the end of 2022. Please turn to slide six, where we highlight our record performance in the third quarter of 2022. Revenue increased 36% year over year, with organic revenue up 28%. All segments contributed to this record growth. Adjusted diluted EPS increased 89% year-over-year to $5.66, driven by higher volumes, price, Henry's contribution, and COS initiatives, which more than offset inflation and supply chain disruptions. And with that, I'll turn it over to Kevin to provide more detail about the businesses, additional financial details, and our updated outlook for the remainder of 2022. Kevin? Thank you, Chris.
spk06: For segment highlights, please turn to slide seven. CCM drove revenue growth of 39% with excellent leverage. This performance was driven by continued strong demand in U.S. commercial roofing, capturing price earned by delivering on the Carlyle experience and new product sales, partially offset by what we consider near-term softness in our architectural metals business. Potentially more persistent challenges in our European business due to the effects of a recession and ongoing energy crisis and unfavorable impact from changes in foreign exchange rates. Adjusted EBITDA margin of 32.5%, a record performance in the third quarter by our CCM team, was driven by volume, price, and COS and partially offset by raw material and labor inflation and and unfavorable mix. Moving to slide eight, sales at CWT increased 44% year over year. This growth was achieved despite ongoing but improving supply constraints in pockets of incremental softness in demand, namely in residential markets. As we pass the one-year mark of our Henry acquisition, the largest acquisition in Carlyle's history, We continue to execute on our synergy strategies, drive the principles of the Carlyle experience, and are in the process of rolling out COS throughout CWT to drive further leverage in our operations. Moving to slide nine, CIT revenue increased 25% year over year in the third quarter of 2022, with balanced growth in its commercial aerospace and medical technology platforms. We continue to see domestic travel approach pre pandemic levels and, as a result, have seen CIT experience record backlog. We expect to see continued rising demand for narrow body aircraft and eventually wide bodies as domestic and international travel continues to recover. Leveraging these positives, our team delivered a nice lift in profitability in the third quarter versus the first half of 2022, aided by previous restructuring efforts. Turning to CFT on slide 10, CFT generated organic revenue of 10% year over year. partially offset by a 7% year-over-year FX headwind. With over half of CFT sales being international, we expect a strong U.S. dollar to continue to be a headwind to sales growth near term, but fundamentals remain intact. We remain confident that commercial and operational improvements combined with a strong backlog will deliver revenue growth and incremental margins in the mid-40% range. Slides 11 and 12 provide details about our record third quarter consolidated results for revenue and adjusted EPS. Moving to slides 13 and 14. Carlyle ended the third quarter of 2022 with $625 million of cash on hand with cash generated from continuing operations totaling $366 million, capital expenditures of $48 million, share repurchases of $26 million, and dividends paid of $39 million during the quarter. We currently have 4.2 million shares remaining in our share repurchase authorization. Our net debt to EBITDA ratio is 1.6 times. down from three times at the end of 2021, which as a result of the Henry acquisition was elevated compared to our target net debt to EBITDA range of one to two times. Given the repayment of our 350 million senior notes on October 17th and our expected EBITDA growth for the balance of this year, we expect to maintain our net debt to EBITDA ratio within this target range. On slide 15, we have our updated 2022 financial outlook. At CCM, we expect to deliver a record full year in 2022 and expect year-over-year revenue growth in the 35 to 40% range. At CWT, we continue to expect revenue to grow approximately 60% year-over-year. At CIT, we now expect revenues to exceed 20% in 2022. At CFT, we now expect mid single digit revenue growth in 2022 due to foreign translation headwinds. Finally, on a consolidated basis for Carlyle, despite the significant headwinds and volatility the economy has experienced in September, we expect to deliver a record year in 2022 with a full year revenue growth in the 35 to 40% range. Given strong fundamentals across our businesses, Staying ahead of inflation with proactive pricing actions and driving strong leverage through COS, we maintain our expectations for total Carlyle adjusted EBITDA margins to expand approximately 650 basis points. With that, I turn it over to Chris for closing remarks.
spk08: In closing, I want to express again how pleased I am with the hard work and perseverance of Carlyle employees. Their resilience and experience will continue to provide Carlisle with a competitive advantage as we navigate in this highly complex environment. Despite numerous macroeconomic challenges, the Carlisle team continues to live our culture of continuous improvement, focused on delivering solid results. Our outstanding third quarter demonstrates Carlisle's progress towards achieving our goals as laid out in Vision 2025, including delivering $15 of gap earnings per share, three years earlier than originally contemplated. While we will be vigilant and monitor the macroeconomic environment and the drivers of each business, we continue to be optimistic about the direction of Carlisle, and as Kevin mentioned, we expect a record fourth quarter and a record 2022. This concludes our formal comments. We are now ready for questions.
spk00: Thank you. If you would like to ask a question, please press star followed by one on your touch phone keypad. If you change your mind, please press star two. The first question we have from the phone lines today comes from Tim Walsh of Beard. Please go ahead when you're ready.
spk09: Yeah. Hey, guys. Good afternoon.
spk08: Good afternoon, Tim.
spk09: Maybe just to start on the market, I guess when you look at the non-residential parts of your business, have you seen any changes within order rates or backlogs or anything like that over the last 60 to 90 days? And then I guess on the residential side, could you quantify what your exposure is on the resi side and what your assumptions within that market are for the next few quarters?
spk08: Yeah, Tim, I'll start off and then Jim and Kevin can weigh in. On the non-resi, you know, we really started to see things improve on the material side as I talked about in supply chain. And in fact, our MSP program, which was really in the non-resi core commercial businesses that we had had to put in place due to the significant demand and the need to allocate due to lack of capacity across the industry, started to unwind in September as things started to improve. And obviously, When that happens, people get more secure in the ability to source product. And so we started to see some changes in the buying patterns in the sense of the fact that we now could bring things in and people didn't have to look so far out. Remember when we, I think we talked on the last call or it might have been sometime in the third quarter or second quarter, we mentioned that we were taking orders out into 23. So there was an extremely long view from contractors. And I think really Because of the improvements in the supply chain, we've started to see people get back to a more normal cadence, which is a definite change. It's a good change, though. On the non-resi side, you know, the mix there for Carlisle is about 85-15. When we look at the two businesses, CWT, I'm thinking it's around 50-50 with the addition of Henry there. And then on the CCM side, we're at about 90-10. So, I don't know, James, if you want to add anything to that.
spk06: Yeah, just as a reminder, too, on the fourth quarter piece, as we normalize, that's compared to last year where things were not normal and we had a very busy fourth quarter last year. So, seasonality will start returning more to what it has been historically.
spk09: Okay. Okay. And then as you kind of get back to normal seasonality, I mean, does that Does that have any implications in terms of, you know, kind of how you guys have kind of moved to a pricing upon shipment, you know, type strategy? Or how do you kind of think of that kind of unfolding over the next, you know, call it 12 months?
spk08: Yeah, well, I don't think it changes anything in pricing, Tim. As we said, pricing has continued to be strong. We don't see any changes in actual pricing yet. I mean, as far as we can see forward, you know, we did have the actions in September that were increases, and we've had other actions that are going to start to lap in 2023, but no real change in price. And I think the only thing is that comment you mentioned, the detail around at time of shipment. With MSP unwinding and that allocation process, yeah, we'll be relaxing that and going back to more normal, you know, kind of terms and conditions for our non-residential customers.
spk09: Okay, and then one last question, just on the EBITDA guidance for the year, has anything really changed there? I'm just trying to, I think, Kevin, you said it wasn't changed, but there's some squiggly lines and pluses and things. I'm just trying to understand if that changed at all.
spk06: Yeah, we remain confident on the year-over-year improvement, 650 basis points, so no change from the previous guidance there.
spk09: Okay. Okay. Thanks very much, guys. Talk to you soon. Okay.
spk00: Thank you. We now have Brian Blair, the Vulcan email. Please go ahead. Your line is now open.
spk04: Thank you. Good afternoon, guys.
spk08: Hey, good afternoon, Brian.
spk04: Something you could parse out, quantify if possible, the top line and margin impact of the headwinds in architectural metals and Europe in Q3, or I guess equivalently isolate U.S. commercial roofing performance in the quarter. Just curious how Q3 looked relative to Q2 for the core single-ply business.
spk06: Yes, so we don't break out the individual business units within the segments and can Overall, obviously, though, the third quarter for CCM and core roofing is the majority of that segment. I mean, we had significant improvement year over year, over 750 basis points improvement for the quarter.
spk08: Yeah, and I think it's safe to say, Brian, that the European situation is not one that anybody would say has improved over the last quarter. I would just add that.
spk04: Okay, fair enough. And kind of nuanced point, it was called an unfavorable mix within CCM EBITDA margin, and that's obviously relative to very strong year-on-year expansion. I would think with single-ply outgrowing the other business lines that that would be inherently favorable. So within that, what is the unfavorable mix callout?
spk06: yeah so we have mix on certainly there's different pieces besides the membrane insulation there's also accessories so that's a piece of it of driving that mix change okay that's fair uh and i guess uh any any early stage feedback you can offer on the commercial rollout of your 16 foot tpo one you know i know that we are early days there but
spk04: There's quite a bit of excitement around that. Just curious what you're hearing from the channel.
spk08: Yeah, I mean, a lot of good things. You know, we did a lot of work to understand how we handled the job site. Not a problem. We have rolled it out. Obviously, there's still pretty very good demand for TPO in the marketplace. The team is in the process of educating contractors, talking about how to use it on the job site. People are getting used to using it. That's the rollout. But the demand certainly is there, and I think it's just a great example, Brian, and I'm glad you asked it, of one of these ways that we're going to seek to maintain that Carlisle experience and obviously the margins that come with it where we're pricing to value because that 16-foot line is taking – labor off the roof. It's allowing contractors to get their jobs done faster and move on to other jobs. And we know the same things are holding true today that held true three months ago and six months ago. Labor is constrained. So everything we can do to get contractors to put down a high quality, you know, Carlisle roof and then move on and get more jobs done, we know that means obviously good things for us both in terms of sales and So, yeah, it's going well. And obviously, as with anything, it takes time to spool up and get rolling.
spk04: Makes sense. Appreciate the color. Yeah.
spk00: Thank you. Your next question comes from the line of Garak Smoys of Loop Capital. Please go ahead when you're ready, Garak.
spk01: Oh, hi. Thank you. I just wanted to follow up on the four-year revenue guidance, CCM. I think you were at 40% before. It's now 35% to 40%. Just to be clear, was that mostly on the roofing part of the business and the loosening of the allocation, or was a bigger component of that fine-tuning of the guide on what you're seeing in Europe and in the metals business?
spk11: Yeah, I'll take that one, Gary. It's Jim. Yeah, I mean, it has more to do with just encapsulating what's going to happen in 4Q and reflecting the buying pattern normalization that we're seeing in the marketplace, right? And so 40% is still in play, but we thought it prudent to expand it to 35% to 40% just because there is the timing variance that we're seeing currently in the second half. And then obviously, as Kevin pointed out, seasonality matters. is coming into play, and we haven't had to talk about seasonality for several quarters now.
spk01: Got it. Okay. And then just lastly, just on inflation, maybe you could touch on what you're seeing there and if any of the cost baskets have changed since the last quarter.
spk08: I'll take that. I think we look at inflation on the marketplace, and obviously it's continuing. We have had, I think, Eric, as you know, relatively consistent price increases now for however long, dealing with that raw material inflation. And we've also tried to separate out the value from the costs and put that down. I think the thing we are going to see those things normalize and supply more becomes more available. And we mentioned the CTW reduction from 50 to 10. There is pressure now, I think, on the supply chain to reduce costs in general, which is the intent of the Fed actions and other things is to reduce inflation. And we are seeing signs of that. So we do anticipate that really beginning here in Q4 and carrying over into 2023.
spk01: Got it. Okay, thanks, Dan.
spk00: Yeah, you bet. Thank you, Derek. We now have Dan Oppenheim with Credit Space. Please go ahead when you're ready, Dan.
spk05: Thanks very much. I guess wondering in terms of CIT given to the strong backlog and error in medicine, wondering sort of how do you think about the opportunity to boost margins from that in terms of its strength for revenue and such? what it translates into margins as you look ahead into 23 and such.
spk08: Yeah, I'll just take a general thing, and then Jim or Kevin can give a little more specific, but I think it's very positive for CIT moving forward. I mean, one of the biggest issues for us has been, right, getting back, getting these planes certified and back up and flying. We know the demand is there. We know that the restructuring actions that CIT has taken over the last two years are taking effect, but One of the big issues for us is the production of, say, the 787. That's been a significant contributor on the sales and profitability line. And obviously, with that plane not delivering the type of output from Boeing that we've seen in the past, that mix is suppressing margins. So I would anticipate as we roll into 23 that we'll get some of that 787 mix back as that plane and I'm optimistic for that, but I believe this will happen. We'll be back certified and flying, and they'll be producing at a good rate, and that should change the mix and enhance the profitability as well. So obviously volume, they've done a good job on price, they've taken restructuring actions, and then we get back to a more normal mix, and I think 2023 looks pretty good for CIT.
spk05: Great. And I guess then, secondly, just wondering, given the comment about the optimism about non-res sort of overcoming some of the recent pressure, that's more sort of an expectation over time rather than, I guess, wondering if there's anything you've seen more recently that sort of would reinforce that in terms of improvement, but sort of my sense would be that's more sort of weakness as the quarter went on, but just curious if there is anything that sort of supports the optimism right now.
spk08: Yeah, you know, we think contractors are busy. I talked about labor constraints. We also look at ABI. We look at Dodge. We look at the reports that we see. You know, one data point we're seeing now, you know, basically nine months of contractor backlog. I think we were at seven or eight when we came into 2022. So that's a positive. You know, I think this thing in the first quarter really is, you know, we had the big dip in In the spring of 20 where COVID hit, we then progressed through that, came back with some pretty high demand. And obviously, as we got back to work, and we see this everywhere, we see people coming back to the workplace, we see them going back to football games and all this stuff, we see this return to normalization. And obviously, there's got to be a period where some of that gets balanced out. And that's what I think we're seeing in the fourth quarter. So the underlying demand and the contractor work, and obviously, we've talked about re-roofing being a big driver for Carlisle over over time, and none of that re-roofing slowed up while we were pursuing a lot of new construction in 2022 and 2021. So, yeah, I don't think really anything's changed on the demand side, and we're just having this kind of, I guess, return to normalization that everyone is seeing and working through in the fourth quarter. Great. Thank you. Yeah.
spk00: We now have John Joyner of BMO. Please go ahead when you're ready.
spk07: Hey, good afternoon. Congrats on another good quarter. Thank you. My guess is that you would actually welcome some normalization and ultimately getting away from carrying, I guess, such a large backlog. Maybe you mentioned this, but how much visibility do you have going into next year? And then kind of in the same vein, how do you see the Delta between, you know, the price increases that you, you know, uh, been put, you know, that you put in place versus oil prices that have, you know, have moderated, but kind of stabilized at this roughly $90 level.
spk08: Hey, John, I'll let Jim talk about visibility. I think he's going to have some favorable comments there, but on that oil, uh, that, uh, We've done, and I think we've said this before, and I don't think we've done it in the last couple of years because of what we've been through, but we did a lot of work on the correlation between oil and actually the end products that we buy from suppliers. While it can be, I guess, a general guide in what can be happening, we don't see a lot of connectivity or correlation. It actually was pretty low, surprisingly, when we looked at it. Due to some of the processing and when we're cracking something, depending on what the band is and other, the automotive industry or things like that for different parts of the petroleum distillate that we're buying. So, you know, I don't think the oil pricing is going to have as big an impact as maybe the general indicator of oil pricing in the economy. I think what's more important is to really look at what's happening in places like the ports of Long Beach with trucking, with, you know, statements like CWT coming from 50 plus suppliers on a watch list to 10. And, and our ability to access product and, and, uh, you know, be more normal there. I think it's just when people can plan, uh, more rationally and can level load their factories and can plan for shipping on time. And these things, you tend to decrease the extra cost for labor. You decrease the extra cost for overtime, you know, freight, things like that. So, um, yeah, I would just say, I don't think that oil is going to be a big driver on that price. Jim, you want to handle that? Yeah.
spk11: Yeah. John, um, So, yeah, as far as the visibility, obviously, our view on demand, it's tied to demand. You know, what are contractors asking for in that nine-month of backlog that Chris alluded to? I mean, that is what we focus on, right? And so when you come into a year, you know, we thought we were going to grow 5% to 10% volumes this year. We're coming in at the high end of that, if not in excess of that for the year. It's directly tied to that customer demand. And so when you think about going into 2023, similar view as far as the visibility. The visibility doesn't really extend beyond the summer, but certainly as we are in this period of adjustment and normalizing buying patterns, the view going into 2023 is still volume strength. But that's basically where we kind of hang our hat on what we think volumes are going to be in the coming quarters.
spk07: Okay, got it. Thank you. Just one more. So, I mean, after recently seeing your 16-foot-wide TPO membrane line in the Innovation Center there in Carlisle, I mean, I think many people would be surprised, honestly, by the advancements in roofing and related products that are occurring. So, I guess, what are some of the other products that maybe target labor savings or other areas that maybe you could highlight that that you're excited about and that could be, you know, ultimately additive to organic growth?
spk08: Sure. I think, you know, you look at a couple of them that came out recently that I'm still excited about, and I guess they're recent enough that we can talk about them and they impact obviously margin of sales is, you know, we've, we've talked about our appeal product. I still think that's a great one. We're adding that, you know, clear layer of, um, product onto the tpo sheet and when we're done with the job people are peeling it away and having a exceptionally clean you know brand new roof with none of the traffic on it where before you would have had people walking on you know dirt things like this and then you'd have to bring pressure washing equipment up you'd have to haul it up on the roof you risk puncturing the roof with the equipment you've got people you know cleaning it water flowing off and it just all takes time and it takes labor and you know we don't have either one of those we want our our contractors moving on to the next job, not washing the previous job and using that labor to apply more TPO, EPDM, and PVC membrane. So I like that one. We've had a lot of good response, too, on our Velcro systems. Believe it or not, they are incredibly robust, and we've seen that in some of the recent weather events that they perform very well. And, you know, that's one that takes out, you know, some of the adhesives and other things and saves time. and still produces a great membrane and adherence that we can use in a variety of situations. So I kind of like the innovation there. I think it's all really around that idea that we've got to get this labor force working more efficiently for our contractors. And so I think when you look out and you look at what things our teams are working on, you're going to see things like that. It's going to be mostly evolutionary, which I get excited about. I mean, we are working on longer-term revolutionary things like new membranes and that. But I think the real power for us comes in connecting with the contractor, understanding the voice of that customer, and for products, just getting the job done with better quality, faster, so they can go on, be assured of a high-quality warrantied roof that they can pass on to the building owner and that's going to last, have confidence in that, and then get on to other jobs and get them done faster. So I'm glad you visited that. I think it is amazing when you look within the factory, there are things that are going to help us with really creating more capacity in the space we have with ideas around the Internet of Things, better and more robust sensing on pieces of equipment to produce a higher quality product with less defects and things like that. So all the way around, it benefits us. And then you didn't mention this, but the Carlisle experience and the customer experience, we're excited to have a more direct connection with the contractor through some technologies we have that hopefully we'll bring out in the next year or so that will help them do a better job of tracking shipments, will help them do a better job of understanding what they have, ordering, doing things like that, creating bills of materials so that they can, again, work more efficiently and use their labor more effectively. So I'm glad you mentioned it, and, you know, that's our goal, and that's where you create value, and that's what we want to do is create value. for everyone in the channel. That's the best interest of Carlisle.
spk07: All right, excellent. Yeah, thank you. Sounds exciting.
spk08: Appreciate it.
spk00: Thank you, John. We now have Adam from Delman & Associates.
spk02: Hey, good afternoon, everyone. Just a question on CWT. You know, maintained, you know, total revenue guidance for the year. I know last quarter you were calling for 20% organic revenue growth. Has that changed at all given the third quarter?
spk06: We're still in the range of that. I mean, those are approximate numbers, but, yeah, that's what we're still striving to hit for the fourth quarter and full year.
spk02: Okay, got it. And then just on some of the residential softness in CWT that you cited, just a couple things, curious. Was there any difference in maybe the level of weakness between maybe the repair and remodel market or the home center market and new construction? And then as well, was there any level of destocking in any of the channels during the quarter that may have impacted growth?
spk08: I don't think we saw any destocking. In fact, in some of our retail channels, we're actually in the process of gaining shelf space and share as we, you know, take some from other competitors. But, Jimmy, we're going to address the first question.
spk11: You know, I was just going to say that, yeah, on the repair and model side, that's more resilient. On the new, obviously things are tightening up on the resi side, right, Adam? So that's where we see, you know, the relative softness. And we were seeing that through 3Q, and we anticipate that will extend into 4Q, hence Kevin's alluding to being within that range of, call it, that 60% total. Not enough for us to come off of that previous guide.
spk08: And I think the other thing is we've got a pretty significant percentage of that residential homeowner that is dedicated to fixing leaks, to making repairs and that kind of thing. And so I think there's some stickiness there that we'll We'll see, and maybe even some improvement as people are a little bit more restrained on their incomes. They might go to more of a Henry product to repair leaks and things like that.
spk02: Okay, great. Thank you.
spk08: You bet.
spk00: Thank you. We now have the next question on the line from David McGregor of Longbow Research. Please go ahead when you're ready.
spk10: Good afternoon, everyone. Good afternoon. I can speak firsthand about the strength of the Henry product, Fixing Leaks. I was working on that last weekend here. Excellent.
spk03: Thank you.
spk10: I wanted to ask you about carryover pricing into 2023 CCM. How much of a benefit do you think 2023 pricing gets from 2022 pricing actions that carry over?
spk11: Yeah, I mean, it's Jim again. Hey, David. Yeah, I mean, if you look at the – there were several price increases throughout the year, with the last one being in early September. So if you just flatline that, you know, you could back into some math in that, you know, mid-single-digit-plus tailwind into 2023, if you just flatline that and gave us that benefit throughout 2023. Okay, good. Thanks for that.
spk10: Just on the CCM, what can you say about the size of the jobs that you're seeing, the size of the tickets? Are you seeing any meaningful change there, or are things pretty much continuing on trend?
spk08: Yeah, things are continuing on trend. I haven't had that called out that there's been any change in the size of the projects, no.
spk10: Okay. Henry, can you just talk about being above target in terms of your synergies and the stronger accretion and just what you think might be driving that? You mentioned a moment ago gaining share in retail. I'm guessing that's a contributing factor, but anything else that you can call it?
spk08: Yeah, I think the teams did a good job. You know, I go back and I think this is probably one of our best acquisition integrations we ever did. I think the team looked back over the past and when they went into this process integration had a very good playbook. We've actually taken that playbook and we've standardized it and we're using it for all of our integrations now. And it was really a cooperative effort between both the Henry team coming in and the CCM team. I think the teams worked together. I think it was very helpful that we had Frank Reddy on as the leader from Henry, leading his part of the integration, driving that. There's a lot of accountability on it. We had a a person in charge of the acquisition integration, as well as some outside resources to help with those things. So I think it was really about a good job of identifying up front what we could really attain and being reasonable and then having a plan and vision to execute it. So I really, I think that's the key. And a lot of the savings are coming from places that I would say are not directly volume dependent. Obviously, you have to have volume there to run your business, but when you look at back office operations, when you look at supply chain consolidation, things like that, I think they were things that just were identified, and it really came down to the team executing on the work they've done. So I'm super pleased with that. They are ahead of the synergies and will finish the year ahead of the pathway to, you know, $30 million. And then in the accretion, obviously, you know, that comes in doing the kind of things that we were counting on from the Henry team, which is like having a great brand name, a great relationship with some major retailers that offered them the opportunity to go in and showcase, you know, Carlisle support and the additional capital and additional resources and that that we have to enable them to take on projects to apply capital. And I think the Henry team has done a really good job of leveraging Carlisle as well as their own position to make the case that they're, one of the premium, if not the premium, supplier of their type of product to these major retailers and homeowners. So I think the only downside on that, on the accretion, is just this impact on the homeowner with rising interest rates and people having to come back to normal and perhaps changing their spending habits from maybe what they were spending on in their home to now more services going out to eat and things like that. But I mean, there's not much I think the NREAC team can do to overcome that.
spk10: Great. Thanks for that, and congratulations on the progress.
spk08: Thank you very much.
spk00: Thank you. We have no further questions on the line, so I'd like to hand it back to the team.
spk08: Well, thanks very much. That concludes our 2022 Q3 call. We appreciate everyone's attendance. They're great questions. We look forward to talking to you at the end of the fourth quarter and have a good end of the year. Thank you.
spk00: Thank you. That does conclude today's call. You may now disconnect your lines.
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