Carlisle Companies Incorporated

Good afternoon. My name is Rebecca and I will be your conference call operator today. At this time, I would like to welcome everyone to the Carlyle Company's second quarter 2026 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 will now hand the conference over to Mr. Mehul Patel, Carlisle's Vice President of Investor Relations. Mehul, please go ahead.

Kevin Zdimal, our CFO. Kevin Zdimal, Stephen Wallace, Stephen Aldrich Following our prepared remarks, we will open up the line for questions. But before we begin, please refer to slide 2 where we note that today's comments will include forward-looking statements based on current expectations. Actual results could differ materially 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 have included reconciliations between GAAP and non-GAAP measures in our press release and an appendix of our presentation materials, both of which are available on our website. With that, I will turn the call over to Kevin on slide three.

Thank you, Mehul, and good afternoon, everyone. I will review our second quarter results and discuss our updated outlook for the full year. Let's begin on slide three. Our record second quarter results reflect the Carlyle team's relentless focus on execution and operational discipline, continuing our track record of delivering results through challenging macro environments. Revenue was a record $1.6 billion, increasing 8% year over year, and adjusted EPS increased 12% to a record $7.03. These results demonstrate our unwavering commitment to operational excellence. Through disciplined pricing, productivity from the Carlisle operating system, and strong commercial execution, we delivered solid growth and profitability, despite a significant increase in petroleum-based raw materials and freight costs stemming from the conflict in the Middle East and related supply chain disruptions. and several supplier force majeure events impacted key inputs across our roofing and insulation product lines. Our response was timely and commensurate with the cost pressure we expect in the coming months. Since the start of the conflict, we have announced three broad-based price increases and implemented freight surcharges to offset higher raw material and freight costs. As we have seen in prior inflationary cycles, price realization typically lags rising costs. As I mentioned on the first quarter call, we expected to see negative price costs in Q2 as we worked through committed quotes and the required notification period to customers. We expect the benefit of our pricing actions to build through the second half of 2026, turning positive in Q4. Turning to slide 4, second quarter revenue increased 8% to a record $1.6 billion, driven by solid performance in both CCM and CWT. Healthy Roofing Demand, execution of our strategic initiatives, including improved traction and data centers, and a couple percentage points from customer pre-buying ahead of announced price increases more than offset continued softness and new construction. Adjusted EBITDA increased 6% to $412 million, with an adjusted EBITDA margin of 26.2%, down 70 basis points year-over-year, as a result of the expected impact of raw material and freight costs increasing faster than pricing realization during the quarter. Carlyle Operating System productivity improvements, disciplined cost management, and synergies from recent acquisitions helped offset some of that pressure. Record-adjusted EPS of $7.03 increased 12% year-over-year was driven by higher operating earnings and share repurchases, partially offset by higher interest expense. Moving to CCM on slide 5. CCM delivered record revenue of $1.2 billion, an increase of 8% year-over-year. Reroofing demand remained healthy, growing approximately 3%, while commercial new construction declined mid-single digits. The vast majority of CCM's high single-digit revenue growth resulted from strong commercial execution and the success of our strategic initiatives, while customer pre-buys ahead of announced price increases contributed a couple percentage points of growth. Adjusted EBITDA increased 5% to $363 million and adjusted EBITDA margin was 30.7%, down 90 basis points year over year. Margin performance was in line with the expectations we discussed last quarter and reflects the benefits of higher volumes partially offsetting elevated cost inflation during the period. Importantly, CCM achieved margins above 30% despite significant raw material and freight inflation, underscoring the strength of our business model, the resilience of re-roofing demand, and the effectiveness of the Carlisle operating system. Turning to CWT on slide 6, revenue increased an impressive 10% to $389 million through solid execution on share gain initiatives which more than offset continued softness in residential and non-residential new construction and markets. Adjusted EBITDA increased 5% to $74 million, and adjusted EBITDA margin was 19%, down 90 basis points year over year. While margin was impacted by the same inflationary pressures affecting CCM, CWT's margin improved 380 basis points sequentially from the first quarter. This improvement reflects the benefits of the structural efficiency initiatives we implemented over the past year and CWT's relentless focus on costs. Investments in automation, footprint consolidation, and in-house expanded polystyrene resin capacity are now largely in place and beginning to generate operating leverage. We expect those benefits to continue building through the rest of the year and drive further margin improvement in the second half. Turning to slide 7 and our financial position. As of June 30, 2026, we had $665 million in cash and cash equivalents and $1 billion available under our revolving credit facility. Net debt to EBITDA was 1.7 times, comfortably within our target range of 1 to 2 times. This balance sheet strength allows us to continue investing in the business to drive organic growth, pursue disciplined M&A opportunities, and return significant capital to shareholders. Moving to cash flow on slide 8. For the second quarter, operating cash flow from continuing operations was $244 million, and free cash flow from continuing operations was $203 million, reflecting the expected working capital impacts during the peak construction season. Capital expenditures were $42 million. During the quarter, we repurchased $250 million of shares, bringing year-to-date purchases to $500 million. Including $90 million of dividends, we returned $590 million to shareholders in the first half of 2026. Kevin Zdimal, Stephen Aldrich Now turning to our updated outlook on slide 9. Based on our first half performance, continued momentum in our strategic growth initiatives, and the pricing actions we have taken, we are raising our full year 2026 revenue outlook to mid-single digit growth, but lowering margins 50 basis points to now reflect flat adjusted EBITDA margin year over year. The change in our margin outlook reflects the additional raw material and freight inflation impacts stemming from the extended conflict in the Middle East and related supply chain disruptions. We expect pricing to recover those costs, but with the previously discussed lag in timing. Importantly, our structural margin expansion initiatives remain on track and our long-term margin outlook remains unchanged. With that consolidated outlook, we now expect CCM revenue growth up mid-single digits with re-roofing up 3-4%, new construction down low single digits, and pricing realization building through the second half. We expect CWT revenue growth also up mid-single digits, with meaningful margin improvement in the second half as the benefits of our structural initiatives continue to build. We continue to expect full-year ROIC of approximately 25%, free cash flow margin of approximately 15%, and double-digit adjusted EPS growth in 2026. Finally, turning to Vision 2030 financial goals on slide 10. Thank you for watching. Through the end of 2026, we expect our adjusted EPS CAGR since launching Vision 2030 to exceed 11%. We believe that our strong operational performance, a relentless focus on the Carlyle experience, investment and innovation, pursuit of accretive M&A and superior capital allocation keeps us well positioned to achieve our long-term objectives.

Thank you, Kevin, and thank you all for joining us today on our Q2 earnings call. I'll begin by briefly emphasizing some points that Kevin touched on, but before I do, let me first address the rumors in the market recently regarding a Carlisle effort to acquire Owens Corning. We have not publicly commented on these rumors, and today I would like to reiterate our stance by clearly stating Carlisle does not comment on rumors or speculation. Turning to our second quarter performance and market conditions, the quarter demonstrated exactly what we mean when we say we focus our teams on what we can control, a hallmark of our results-driven culture. Despite significant macroeconomic headwinds, including the Middle East conflict, higher oil prices, and the continued multi-year drag from new construction markets, we delivered record revenue and record adjusted EPS. Thank you for watching. Kevin Zdimal, Stephen Aldrich Instead, our revised outlook is built on continued superior capital allocation, relentless focus on operational excellence, delivering the Carlisle experience, and bringing to market the latest in innovative products and services to benefit our contractors. As a reminder, Carlyle is uniquely positioned to benefit from being a market leader with a 109-year history built on delivering innovative products to the strongest building products market in the world, the United States. We are also benefiting from our focus on re-roofing. With 70-plus percent of our sales driven by re-roofing, we have benefited from its largely non-cyclical nature and its steady mid-single-digit growth over the last two decades. Thank you for joining us today. This quarter showed that our growing pipeline of new ideas generated by our new VOC process is translating into increased commercial momentum. We shipped the first orders of our award-winning ThermaThin 7 polyiso insulation in June, slightly ahead of schedule. The initial project utilizing our new R7 product was an energy efficiency, building code driven win. It was all about helping a customer meet energy code requirements within a constrained roof assembly height. Thermothin 7 was the answer. Why? Because Thermothin 7 delivers approximately 23% higher R-value per inch than standard polyiso in many conditions, helping reduce material layers, roof height, number of delivery truckloads, crane lifts, and installation time. Thermothin 7 is one of a dozen new products we will launch in 2026, with half of them already launched and in the market. including our temperature sensing adhesive gun and 16 foot seam shield. Additional launches including our high yield closed cell spray foam are scheduled for August. On the retail side, Henry's ultra touch denim insulation is now stocked in nearly half of Home Depot stores nationwide and delivering improving sales at stores it has been in for a year. While these recently introduced products will take time to ramp, more meaningful contributions will build into 2027. Our expanding new product pipeline, which will be enhanced and supported by our new addition to our Research and Innovation Center, positions us to sustain an increasing cadence of new product introductions into the next decade. Importantly, we are on track to achieve our Vision 2030 goal of generating 25% of total sales from products introduced in the past five years. Innovation, investment, and new product introductions are a significant point of differentiation in the marketplace and will provide a meaningful response to competitive threats. And as the competitive landscape evolves, our focus on proprietary building envelope innovation, technical selling, code-driven application expertise, and contractor productivity tools will distance us from the competition. While innovation is a key driver to growth, I also want to spend a few minutes on M&A because capital allocation is one of Carlyle's core competencies and an important driver of long-term shareholder value creation. Our approach over the last decade has not changed. We remain focused on targets within the building envelope that add to our organic growth prospects, increase our connection to our contractors, enhance our product offering, strengthen our market positions and increase our content per square foot. We've made a commitment to being superior capital allocators. That will not change. We seek to do deals that fit our four criteria. One, an existing organic growth story. Two, tangible hard cost synergies. Three, a strong management team. And four, the ability to deploy our Carlyle integration playbook. These are the foundation of our successful approach to M&A. Importantly, we require a clear path to value creation. Through the Carlisle operating system and the Carlisle experience, we look to accelerate growth, expand margins, and improve returns while maintaining the disciplined ROIC thresholds that have guided our capital allocation for decades. Whether investing organically, pursuing acquisitions, repurchasing shares, or increasing dividends, our objective is the same. Deploy capital where it creates the greatest long-term value for our shareholders. Our track record speaks for itself. Henry is a strong example. Even against softer residential and markets, it continues to deliver on profitability we underwrote. with EBITDA margins running in line with our original deal model and synergies exceeding the initial target by 65% despite the challenging end markets. Before I close, I want to take a moment to reflect on what I believe defines Carlisle as much as any product line or market position, and that is our track record as a superior capital allocator and what that has meant for our shareholders over the long term. Carlisle is best understood not merely as a roofing products company, but as a capital allocation story. For more than five decades, through recessions, market cycles, and the transformation of our portfolio from a diversified industrial conglomerate to the focused, pure-play building products company we are today, one thing has remained constant, a relentless focus on ROIC and strong cash generation. That discipline is not a recent development. It is foundational to who we are and how we operate, regardless of the business in our portfolio at any given time. are not targets we aspire to. They are the results of this philosophy applied consistently and compounded over time. We have repeatedly converted operating profits into cash and redeployed that cash at attractive rates of return through portfolio optimization, disciplined M&A, share repurchases, and dividends. The result has been sustained long-term value creation for our shareholders. Next month, Carlyle will announce its 50th consecutive annual dividend increase. That achievement will place us in an elite group, becoming what some call a dividend king. In fact, fewer than 60 publicly traded companies in the United States today have achieved this milestone out of thousands of public companies. It is a testament to the durability of our business model, to the dedicated management teams that have led this business since 1976 with the same core philosophies, a commitment to financial strength and to providing our owners returns that few companies can claim they have demonstrated for half a century. Reaching this milestone reflects the strength and consistency of Karloff's capital allocation model. It means we have sustained margin resilience and generated strong free cash flow through every environment we have navigated, including periods of significant macro disruption, portfolio transformation, and end market headwinds. We're deeply proud of this record and equally committed to sustaining it. As we look forward, that same capital allocation philosophy, built on ROIC discipline and a relentless focus on value creation, will continue to guide every decision we make, and our shareholders can count on that. Stepping back, everything we accomplished this quarter connects to the same foundation. Carlisle operates an imperative business in what we believe is the world's best building products market, and we hold leading positions across key product lines. Thank you. Thank you. Thank you. Thank you for watching. They do the work necessary to fulfill our commitments and deliver on our promises. From our sales teams currently educating the market on our new products, to our innovators bringing us new solutions to everyday issues, to our factory teams making our products with industry leading safety, we recognize their efforts and thank everyone for another solid quarter. Thank you to all on the call for your time and continued interest in Carlyle. And with that, I'll turn it back to the operator to open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. For the sake of time, we kindly request each person limit themselves to one question to give everyone the opportunity to participate in the question and answer session. Thank you for joining us today. Your first question comes from Susan McCleary with Goldman Sachs. Susan, please go ahead. Thank you. Good afternoon, everyone.

Hello, Chris. Hello, Kevin. My question is around the Vision 2030 targets that you've outlined and talked about. Can you give us a bit more color on how the new products are positioning you to achieve those long-term targets on an organic basis and how we should also be thinking about the improvement in the margins that you're seeing as you're realizing the benefits of the Carlisle operating system and other efficiencies and productivity that are coming through?

Yeah, Sue, thanks for the question. Innovation, you know, we added it in 2025 to our Vision 2030 strategy. We think it's one of the key axes for Carlisle to invest in. And then we continue to make investments and we'll be at 3%, hopefully, within the near future. We're funding products that are really like Thermothin 7. Producing a lot of really tangible value to the contractor. We want the contractor benefit. We want to see the building owners have a benefit and our distribution channel partners have a preference for stock in Carlisle because of that end user demand. So when you think about Thermasyn 7, we're creating value as we saw in the example that I mentioned in the call. by everybody in that chain. And what we're really, our plan is to increase our profitability by increasing their profitability. So if you think about the cost per square foot, it is going up. And an R7 insulation is higher priced, of course. So there's revenue growth there embedded in that scenario. But there's also increased margin. And that increased margin comes from us really splitting in essence Thank you for joining us. Thank you for joining us. and so that'll start to move everything up. It'll start to generate organic growth on the top line and then hopefully have an impact on the margins as we go to the future. And then when you look at the parallel operating system, I mean, we've always targeted 1% to 2% of sales as our savings during the year. COS continues to do a great job for us. We continue to, as we said in the call, think about how we spend our money are we doing it efficiently? Return on invested capital, how do we put CapEx into the business under the COS? and think about how we perform our tasks. Should we use automation? Now we're putting in a lot of robotic equipment into the factories that increase productivity, reduce safety concerns, increase efficiency, reduce scrap, things like that. So COS is alive and well. There are even applications around AI that COS will start to take on. So I think you'll continue to see COS be a contributor to that margin profile as well.

Okay, thank you for all that color. I'll pass it on.

You're welcome.

Your next question comes from Tim Weiss with Baird. Please go ahead.

Hey, guys. Good afternoon. Nice job. Maybe just, you know, first question, you know, 8% organic growth in CCM. I know you called out and a couple of points there from pre-buy. But that's definitely the strongest growth there we've seen in several quarters. Just I guess if you could give us a little bit of color on the pricing piece and then you have a little bit more intel than maybe we do, but what's your feel on what the market actually grew in the second quarter and how you perform relative to that?

Tim, I'll take the first one on this, on the market. You know, we do our Carlisle market survey. I think when we look at the overall market, we were seeing, you know, the new construction pretty much what we thought it was going to be down, you know, low single digits. And then when we look at re-roofing, you know, we've said it's consistently been in that, you know, low single digits to maybe mid single digits. I think they're big pockets. Obviously, data centers are one that continue to be a higher growth area. You see that, I think, in the PBC sales across companies. One thing I would say is there's been a little bit of a constraint on the ability to get PBC in the data center market. And so what we're seeing now is some of the specs are opening up and we're seeing premium TPO be a substitute because It was a fine product to use. We could also use EPDM and other things, but in the past it had been pretty much a PBC market. Now it's opening up to TPO to address that need by end users and contractors to get these jobs done and get them up and running. So obviously opening up that that aperture into premium PPO helps us because obviously that's a sweet spot for us and there's some nice market growth in there but I think overall the market is pretty much what you know we thought it was it's overall you know pretty much flat.

Yeah Tim as you looked at pricing in the second quarter that's where for us we have pricing announcements that we have out there three of them as you know they take time to ramp up you have jobs whether it's jobs that were previously bid and you protect those jobs or some pricing in place for notification with distributors. So it takes time for all the pricing to flow through first quarter or second quarter here was low single digits. We expect that to ramp to mid single digits and Q3 and then high single digits in Q4. Okay.

Okay, that's helpful. And then Maybe just if you could help us a little bit on the modeling, just to think about kind of the price cost impact in CCM on the EBITDA line. And then, you know, just another question, MDI supply has been tight. Have you had any issues accessing or getting supply of MDI? And have you heard of others that have had issues with that? Thanks.

Yeah, Tim, on the MDI, we talked about it, I think, at the end of the first quarter call where I'd said, you know, we're concerned about prices going up. And then, you know, I think I'd mentioned that my concern was that eventually, if this thing continued, we'd start to get supply issues. And that's what we're seeing with MDI. And they're not necessarily all related to the Gulf and what's going on there. That's some issues with chlorine and things like that. For us, we have been able to get Our supply of MDI, we appreciate the supply chain and the commitment they've made to Carlisle. I would say that our thoughts would be, though, that there are others who might be a little bit more constrained on that, but we don't have, you know, obviously information that we can tell you that for sure.

And then, Tim, to help you with the modeling, as we look at it, Q3 for CCM, we're expecting around a 29% EBITDA. Q4, we're looking around 28% and that's full year, right about 29% for CCM. CWT, we're expecting to be up for the full year 100 basis points on EBITDA with that's about 250 basis points in both Q3 and Q4 for improvement.

All right. Sounds good.

Thanks, everybody.

Yeah, thanks, Tim.

Your next question comes from Tomo Sano with JP Morgan. Please go ahead.

Hi, everyone. Hello. Hello, Tomo. Thank you for taking my questions. So, Chris, you mentioned COS at Henry. What's the one biggest driver of success there? And on CWT with a 380 basis point sequential margin improvement, How much is coming from Kingman Automation and EPS insourcing? How should we think about the second half demand and margins, please? Thank you.

Maybe we'll take how much the margin is coming from Kingman and from the EPS and those improvements in CWT. Mehul, you want to handle that one?

Yeah, Tomo. So, as you know, we said this in the past with those self-help initiatives and margin expansion at CWT for the full year. We're expecting around $20 million of margin expansion. And all those investments are in, so we're starting to see a contribution, which did help our Q2 results. If you look at the automation piece of it, that was approximately $3 million of contribution. The footprint consolidation, another million. And then on the expanded polystyrene in-house capability that we added, that's adding around... two to $3 million in the quarter. But again, as I said, for the full year, it's $20 million. So we'll continue to see traction grow in the second half.

And Tomo, I missed, I think we had a connection issue. I missed the first part of your question. Can you repeat that please?

Sure, Chris. So what's the one biggest driver of success of COS at Henry, our operating system at Henry, please?

Oh, at Henry, yeah. Well, I think the number one key driver to success is just culture. I think when we implement COS in any new acquisition, it tends to be something that brings people together, and we couple it up with our real two-in-the-box methodology for deal integration, where we're putting someone from Henry with someone from Carlisle. And I would say at Henry, our leaders at that time, we had Steve Schworer running the one side from Carlisle who is now vice chairman for us running our metal business and we had Frank Ready who runs CWT both very committed to driving safety to driving efficiency to driving being smart capital allocators in that and so I think it's the culture that you know Henry was owned by private equity they did an excellent job they got a great return for their dollar what Carlisle brings is a different system a different commitment to safety and things like that. And I think once people see that at the beginning of the acquisition, that they're involved, that they have a framework, I think the Henry people embraced it. And that to me, the culture is really the biggest driver.

Thank you. I appreciate it. Thank you, Tomo.

Your next question comes from Brian Blair with Oppenheimer. Please go ahead.

Thank you. Afternoon, guys. Afternoon.

Afternoon.

I was hoping you could remind us of the key share gain initiatives at CWC. Those certainly seem to be reading through. Maybe drill down on the products and categories involved, and if it's possible, quantify the magnitude of run rate share capture.

Yeah, so overall, Brian, I'll take that one. Share gain, obviously, was a huge contributor to CWT's top line performance, 8% organic growth, with markets down, you know, 3%, 4% overall solid performance. And it's all coming from traction on all the work that they've been doing around their share gain initiative. So it's mainly around the waterproofing and the spray foam parts of that business. within waterproofing, advanced waterproofing. That's a cold fluid applied waterproofing technology that's used in the commercial space. That's growing over 50%. It's contributing approximately $15 million this year. The second one is UltraTouch. That's the new product that we launched through the Bonded Logic acquisition. That's in roughly half the stores. That's gaining some traction. It's probably growing. You know, $4 to $5 million this year. And then within SprayFoam, we started a new go-to-market strategy selling direct-to-contractor through our own delivery bands. We started in the southeast market. We're expanding that into additional markets out west and the southwest. That's approximately $10 million for the full year. And then you have pretty significant traction on what we call base products. share gain growth on base categories. We're expanding into additional channels and distributors between root coatings and roofing underlayment. So all that together is driving the growth while the markets are still down for CWTs.

Thanks, Mehul. Appreciate all the detail.

Your next question comes from Ryan Merkle with William Blair. Please go ahead.

Hey everyone, thanks for the question. Wanted to ask on price cost, what is included in guidance for price cost hit this year in dollars? And then for the margin guide, was the move to flat EBITDA margins, was that all price cost timing or is there something else in there?

Yeah, the move on the margins was 100% related to the price cost. As you know, we've had rapid inflation on both raw materials and freight. And so that ends up being a negative to us for the year. The second quarter was a minus about $40 million on the price cost at CCM. It was Imaterial at CWT, a couple million dollars there. So that piece of it was Q2, Q3, we'd like to get back to neutral there, and then Q4, a little bit positive. So that's what flows through the year on the price-cost, but yeah, when you look at margins, that's going to have a hit on the margins, and also as you get that additional revenue, as you know, from that pricing, and you don't have the additional EBITDA dollars that has a dilutive impact on the margins. So margins did go down. The outlook, as you know, on the revenue was increased from low single digits to mid single digits for the year. that implies high single-digit growth in the second half at both CCM and CWT and really both Q3 and Q4 for both of those businesses at that high single-digit growth rate.

All right. Very helpful. Pass it on. Thanks.

Your next question comes from David McGregor with Longbow Research. Please go ahead.

Good afternoon, everyone. Thanks for taking my questions. Let's talk about CWT. Is CWT turning the corner here? I mean, I know there's been a lot of work put in here. Frank and his team have been, you know, laser focused on, you know, the minutiae of turning this thing around. It looks like it's starting to move. You've made a lot of investments. It looks like you're realizing on those investments now. Can you get this back to like 2023 margins with a full year of 2027 benefit?

Yeah, David, I mean, the question, turning the corner, I think the whole team, and Mehul knows them very well, when you look at all the initiatives, I mean, getting the UltraTouch launched and out into Home Depot, The real performance on this poly iso and shifting the market strategy and going direct and really creating value there by the team in polyurethanes. I mean, Mehul mentioned the waterproofing and things like this. All this is great. It just doesn't drive a lot of volume on dollars or even down margins, right? So what we really need is we really need that market turnaround. I mean, that's what's been holding it back. So when we look at Your guess is as good as mine here. Someone, I think I would agree with this, they said that it's not a question in resume markets of when the recovery, it is a question of when it occurs, not if. And I think that's where we are. The team continues to do what they can. We mentioned doing things under their control and they're making good progress. are pleased with everything on all fronts from safety up to raw material production in Canada where we're controlling more of that on EPS. So we've got it across the business. The issue is we need some volume. And once we get that, I've always said I think I'm aspirational to getting to 35% in this business over time with new products and some more M&A and bolt on M&A there, which I think will happen. But the timing, I'd like to think we'll get through this conflict and we'll get interest rates in a better position and we'll get home building back on track and we'll be there. But yeah, I don't see it happening before the end of the year. And even next year, I just see that team needing to focus on self-help, right? Introducing new products, driving more efficiency, more automation, things like that to drive margin. So margin will improve. It just will improve a lot faster if we get some volume to throw on it.

So, I mean, there's a lot going on in that segment. There's a lot of diverse businesses, but what's the incremental margin? What's that volume when it recovers? What should it leverage at?

Yeah, it's around 33% to 35%. And then, as Chris mentioned, as we get more operating efficiencies, our goal is to get that incremental higher.

Okay. With regard to M&A, is this a business you would continue to allocate new capital to from an M&A standpoint? I don't mean bolt-ons, but maybe something a little more transformative or a little more substantial.

I don't think the business needs a transformative piece. I think we're starting to get really built out around this idea of the building envelope. We've We got MTL and we improved our position on Edge Metal for CCM. We started to get a little bit heavier into the metal panel business, which we can expand. There could be some opportunities there. When we look at EPS, we talked about having a nationwide system of EPS manufacturing that would mimic Henry's sealants business in one of the huge value propositions, too. to Home Depot. So, you know, EPS, we've probably got a couple areas still left to fill that we're working on, specifically the southeast. That'll happen. When I look at polyurethane foams, that's been a tough market, as you know. Pricing hasn't been very good. We've had some players there that might have had some different objectives. But this move, again, I compliment the team to taking a different market approach to be able to show the value to the contractor. So I think in every one of those areas, there's opportunities to add these bolt-ons and expand and it goes back to the four criteria really that we've got to have those hard synergies and I think when you start looking at transformative deals and CWT you're talking now a new leg and then I wonder how we fulfill our four criteria. I think we could get the organic growth story but I would be hard pressed to figure out how we're going to get those synergies that we talked about delivering on the Henry acquisition. Yeah, I don't see us going in that direction as much as seeing us continue to drive the performance we have in increasing barges that way.

Your next question comes from McLaren Hayes with Zellman and Associates. Please go ahead.

Hey, good evening, guys. Yeah, maybe sticking with CWT, that segment does touch a lot of different end channels. just be helpful if you could share maybe what you're embedding in your volume outlook across those different end channels within CWC for the year.

Yeah, I could take that one. So overall markets for us, we're not assuming any improvement from the first half into the second half. So it's steady. The comps do get easier. So from an in-market standpoint, we're assuming down about 2%. You look at residential, new construction, it started off down high single digits In the second quarter, it was somewhere between mid-single digits and high-single digits. And in the second half, things aren't getting better, but with easier comps, as I mentioned, it's going to be down low-single digits in our assumptions. The commercial new segment, that one's deteriorated further, so we're assuming down mid-single digits in the second half. And the R&R pieces for both commercial and residential, we're assuming flat. So you put those together over our CWT in the second half, both Q3 and Q4 down a couple points.

That's helpful, thanks. And are you seeing any difference in your ability to pass on price across those end channels?

You know, overall, we haven't had any challenges in the majority of the business. I would say expanded polystyrene is one area where we've seen more competitive pressure, and it's been more difficult, but waterproofing hasn't been any issues. Within polyurethane spray foam, the initial price increase that we announced haven't had any issues, but with Thank you.

There are no further questions at this time. I will now turn the call back to Chris Koch for closing remarks.

Thanks, Rebecca. This concludes our second quarter earnings call. Thanks everyone for your participation. and we look forward to speaking with you at the next earnings call. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.