Carlisle (CSL)

Building envelope solutions provider Carlisle Companies (NYSE:CSL) reported Q3 CY2025 results exceeding the market’s revenue expectations, but sales were flat year on year at $1.35 billion. Its non-GAAP profit of $5.61 per share was 4.8% above analysts’ consensus estimates.

Company Overview

Originally founded as Carlisle Tire and Rubber Company, Carlisle Companies (NYSE:CSL) is a multi-industry product manufacturer focusing on construction materials and weatherproofing technologies.

Traditionally, 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.

Companies providing construction materials include Owens Corning (NYSE:OC); companies competing in the technological sector of Carlisle include TE Connectivity (NYSE:TEL); and companies competing in the fluid technologies industry include Graco (NYSE:GGG).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Carlisle’s 3% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Carlisle’s annualized revenue growth of 4.3% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Carlisle’s organic revenue averaged 2.4% year-on-year growth. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Carlisle’s $1.35 billion of revenue was flat year on year but beat Wall Street’s estimates by 1.2%.

Looking ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its products and services will see some demand headwinds.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Carlisle’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 33.8% gross margin over the last five years. Said differently, Carlisle paid its suppliers $66.23 for every $100 in revenue.

This quarter, Carlisle’s gross profit margin was 36%, marking a 2.5 percentage point decrease from 38.6% in the same quarter last year. Carlisle’s full-year margin has also been trending down over the past 12 months, decreasing by 1.7 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

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 19.5%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Carlisle’s operating margin rose by 9.6 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Carlisle generated an operating margin profit margin of 21.8%, down 1.9 percentage points year on year. Since Carlisle’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Carlisle’s EPS grew at an astounding 24.7% compounded annual growth rate over the last five years, higher than its 3% annualized revenue growth. This tells us the company became more profitable on a per-share basis 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 declined this quarter but expanded by 9.6 percentage points over the last five years. Its share count also shrank by 21.3%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Carlisle, its two-year annual EPS growth of 10.5% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Carlisle reported adjusted EPS of $5.61, down from $5.78 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4.8%. Over the next 12 months, Wall Street expects Carlisle’s full-year EPS of $19.96 to grow 5.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Carlisle has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 15.3% over the last five years.

Taking a step back, we can see that Carlisle’s margin expanded by 9.7 percentage points during that time. This is encouraging because it gives the company more optionality.

Carlisle’s free cash flow clocked in at $392.7 million in Q3, equivalent to a 29.2% margin. This result was good as its margin was 6 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Carlisle hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 17.4%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Carlisle’s ROIC has increased. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Carlisle reported $1.11 billion of cash and $2.88 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.26 billion of EBITDA over the last 12 months, we view Carlisle’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $8.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Carlisle beat analysts’ organic revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, Q4 guidance came in below expectations for both revenue growth and EBITDA margin. This is weighing on shares, and the stock traded down 1.7% to $324.84 immediately after reporting.

Updated: December 4, 2025 at 10:15 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Carlisle.

Carlisle is a fine business. Although its revenue growth was weak over the last five years and analysts expect growth to slow over the next 12 months, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits. And while its projected EPS for the next year is lacking, its impressive operating margins show it has a highly efficient business model.

Carlisle’s P/E ratio based on the next 12 months is 16.1x. Looking at the industrials landscape right now, Carlisle trades at a pretty interesting price. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $369.50 on the company (compared to the current share price of $322.87), implying they see 14.4% upside in buying Carlisle in the short term.