Carlisle (CSL)

Building envelope solutions provider Carlisle Companies (NYSE:CSL) reported Q1 CY2025 results topping the market’s revenue expectations, but sales were flat year on year at $1.1 billion. Its non-GAAP profit of $3.61 per share was 5.6% 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).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Carlisle struggled to consistently increase demand as its $5 billion of sales for the trailing 12 months was close to its revenue five years ago. This was below our standards 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. Just like its five-year trend, Carlisle’s revenue over the last two years was flat, suggesting it is in a slump. We also note many other Building Materials businesses have faced declining sales because of cyclical headwinds. While Carlisle’s growth wasn’t the best, it did do better than its peers.

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 was flat. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Carlisle’s $1.1 billion of revenue was flat year on year but beat Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 4.9% over the next 12 months. While this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

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 33.4% gross margin over the last five years. Said differently, Carlisle paid its suppliers $66.58 for every $100 in revenue.

This quarter, Carlisle’s gross profit margin was 35.2%, down 1.2 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s 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 18.5%. 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 10.8 percentage points over the last five years, showing its efficiency has meaningfully improved.

In Q1, Carlisle generated an operating profit margin of 16.8%, down 3.8 percentage points year on year. Since Carlisle’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in 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 a spectacular 16.4% compounded annual growth rate over the last five years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.

We can take a deeper look into Carlisle’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Carlisle’s operating margin declined this quarter but expanded by 10.8 percentage points over the last five years. Its share count also shrank by 20.7%, 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 more recent period because it can provide insight into an emerging theme or development for the business.

For Carlisle, its two-year annual EPS growth of 11.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q1, Carlisle reported EPS at $3.61, down from $3.73 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 5.6%. Over the next 12 months, Wall Street expects Carlisle’s full-year EPS of $20.13 to grow 12.7%.

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 14.4% over the last five years.

Taking a step back, we can see that Carlisle’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Carlisle burned through $27.2 million of cash in Q1, equivalent to a negative 2.5% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

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 16%, 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. Fortunately, Carlisle’s ROIC has increased significantly over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Carlisle reported $220.2 million of cash and $1.89 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 $1.31 billion of EBITDA over the last 12 months, we view Carlisle’s 1.3× net-debt-to-EBITDA ratio as safe. We also see its $6.1 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.

It was encouraging to see Carlisle beat analysts’ EPS and EBITDA expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Overall, this quarter had some key positives. The stock traded up 1.4% to $365 immediately after reporting.

Updated: May 16, 2025 at 10:57 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Carlisle, you should also grasp the company’s longer-term business quality and valuation.

Carlisle isn’t a bad business, but we have other favorites. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. And while Carlisle’s flat organic revenue disappointed, its impressive operating margins show it has a highly efficient business model.

Carlisle’s P/E ratio based on the next 12 months is 18x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $436.67 on the company (compared to the current share price of $408.50).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.