Carlisle (CSL) Holds Promise Amid Construction Materials Softness
Carlisle Companies CSL stands to gain from its focus on delivering innovative new products, driven by increased investment in research and development. Continued demand for energy-efficient building products, particularly for non-residential reroofing products, bode well for the company.
Carlisle's global footprint, solid product portfolio and ability to penetrate different markets through acquisitions are commendable. Over the past few years, the company has become one of the major European manufacturers and suppliers of EPDM roofing systems, with acquisitions in Germany and the Netherlands. CSL’s acquisition of MBTechnology, Inc. (February 2022) strengthened the Carlisle Construction Materials segment's building products platform, boosting its energy-efficient solution offerings.
Acquisitions are an integral part of business expansion for Conglomerates. Recently, Honeywell International HON completed the acquisition of Compressor Controls Corporation, fortifying its expertise in industrial control, automation and process solutions while simultaneously bolstering its sustainability portfolio with new carbon capture control solutions.
In July, Honeywell entered into a deal to acquire SCADAfence, a provider of operational technology (OT) and Internet of Things cybersecurity solutions. The acquisition will expand HON's OT cybersecurity portfolio in Tel Aviv, Israel, while simultaneously fortifying its existing capabilities in cybersecurity, offering customers enhanced security, reliability and efficiency. The acquisition is expected to close in the second half of 2023.
ITT Inc. ITT focuses on expanding its business through acquisitions. The acquisition of Micro-Mode Products, Inc. in May 2023 enhanced the company’s product portfolio and customer base, specifically for long-term defense programs. The addition of Micro-Mode expanded ITT's existing North America connectors platform.
In August 2022, ITT acquired Clippard Instrument Laboratories’ product lines. With product lines of stainless steel, brass and aluminum cylinders, and volume tanks, the acquisition expands ITT’s Compact Automation product offering in the robotics, packaging and automation end markets.
Coming back to Carlisle, the company has also been divesting non-core operations to focus on its core areas of growth. In June 2023, the company entered into an agreement to divest its Carlisle Fluid Technologies segment to an associate of Lone Star Funds. The divestment is in sync with the company’s Vision 2025 strategy and will allow it to build a concentrated portfolio of construction materials businesses to accentuate its capital allocation approach to investments. The deal is likely to close in the third quarter of 2023, subject to certain regulatory approvals and other customary closing conditions.
Under the Vision 2025 program, Carlisle seeks to achieve above-market organic growth, pursue synergistic acquisitions and further leverage its Carlisle Operating System (COS) culture to drive efficiencies through business processes apart from returning cash to its shareholders. Contribution from COS and price realization are supporting the company’s margins. The company’s gross margin increased 60 basis points year over year in the second quarter of 2023.
Carlisle remains highly committed to adding to its shareholders’ wealth through share repurchases and dividends. In August 2023, the company hiked its dividend by 13% to 85 cents per share. In the first six months of 2023, Carlisle rewarded its shareholders with a dividend payout of $77.2 million, up 36.2% year over year. The amount spent on share buyback totaled $250 million, up 42.9% year over year. At the end of second-quarter 2023, CSL was left to buy back 2.3 million shares.
However, Carlisle’s operations are being hurt by weakness in the Carlisle Construction Materials segment due to continued destocking in channel inventory and project delays due to growing economic uncertainty, tighter financing conditions, and a tight labor market for roofing contractors. The company expects the segment’s sales to decline in the low-teens-digit range in 2023. Reduced residential end-market demand is affecting Carlisle’s Carlisle Weatherproofing Technologies segment. CSL expects the segment’s revenues to decline in the low-teens-digit range in 2023.
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