Stock Story -
Building envelope solutions provider Carlisle Companies (NYSE:CSL) reported results in line with analysts' expectations in Q2 CY2024, with revenue down 4.9% year on year to $1.45 billion. It made a non-GAAP profit of $6.24 per share, improving from its profit of $5.19 per share in the same quarter last year.
Is now the time to buy Carlisle? Find out by reading the original article on StockStory, it's free.
Carlisle (CSL) Q2 CY2024 Highlights:
- Revenue: $1.45 billion vs analyst estimates of $1.45 billion (small miss)
- EPS (non-GAAP): $6.24 vs analyst estimates of $6.02 (3.7% beat)
- Gross Margin (GAAP): 39.2%, up from 34.7% in the same quarter last year
- Free Cash Flow of $157.5 million, up 19.3% from the previous quarter
- Organic Revenue rose 9% year on year (-13.9% in the same quarter last year)
- Market Capitalization: $20.39 billion
Building MaterialsTraditionally, building materials companies have built competitive advantages with economies of scale, brand recognition, and strong relationships with builders and contractors. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of building materials companies.
Sales GrowthA company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Unfortunately, Carlisle's 1.2% annualized revenue growth over the last five years was weak. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Carlisle's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 9% annually.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, Carlisle's organic revenue averaged 1.7% year-on-year growth. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline performance.
This quarter, Carlisle reported a rather uninspiring 4.9% year-on-year revenue decline to $1.45 billion of revenue, in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 7.4% over the next 12 months, an acceleration from this quarter.
Operating Margin Operating margin is an important measure of profitability. It’s the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. Operating margin is also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Carlisle has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17%.
Looking at the trend in its profitability, Carlisle's annual operating margin rose by 11.2 percentage points over the last five years, showing its efficiency has significantly improved.
In Q2, Carlisle generated an operating profit margin of 26%, up 4.6 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, and administrative overhead.
EPS Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Carlisle's EPS grew at an astounding 19.5% compounded annual growth rate over the last five years, higher than its 1.2% annualized revenue growth. This tells us the company became more profitable as it expanded.
We can take a deeper look into Carlisle's earnings to better understand the drivers of its performance. As we mentioned earlier, Carlisle's operating margin expanded by 11.2 percentage points over the last five years. On top of that, its share count shrank by 16.8%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Carlisle, its two-year annual EPS growth of 7.8% was lower than its five-year trend. We hope its growth can accelerate in the future.
In Q2, Carlisle reported EPS at $6.24, up from $5.19 in the same quarter last year. This print beat analysts' estimates by 3.7%. Over the next 12 months, Wall Street expects Carlisle to grow its earnings. Analysts are projecting its EPS of $18.84 in the last year to climb by 16.2% to $21.88.
Key Takeaways from Carlisle's Q2 Results It was good to see Carlisle beat analysts' EPS expectations this quarter. We were also happy its organic revenue topped Wall Street's estimates. Zooming out, we think this was a decent quarter, showing the company is staying on target. The stock remained flat at $412.27 immediately after reporting.
