管理層發言
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 Carlisle Companies Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' 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.
Second quarter 2026 earnings call. I am Mehul Patel, vice president of investor relations. We released our second quarter financial results earlier today, and you can find both our press release and a presentation for today's call on the Investor Relations section of our website. Joining me today are Christopher Koch, our board chair, president, and CEO, and Kevin Zdimal, our CFO. Today's call will begin with Kevin, who will walk through our Q2 financial performance and updated full year 2026 outlook. Christopher will then follow with closing remarks and an overview of our long-term value creation strategy. Following our prepared remarks, we will open up the line for questions. 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 Carlisle provides non-GAAP financial information, we have included reconciliations between GAAP and non-GAAP measures in our press release and in the appendix of our presentation materials, both of which are available on our website. With that, I will turn the call over to Kevin Zdimal on slide 3.
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 3. Our record second quarter results reflect the Carlisle 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. Inflation 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 reroofing demand, execution of our strategic initiatives, including improved traction in data centers, and a couple percentage points from customer pre-buying ahead of announced price increases more than offset continued softness in 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. Carlisle 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 came 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 reroofing 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 nonresidential new construction end 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 6/30/2026, we had $665 million in cash and cash equivalents, and $1 billion available under our revolving credit facility. Net debt to EBITDA was 1.7x, comfortably within our target range of 1x to 2x. 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. Given our strong cash generation and recent stock price levels versus our internal assessment of the intrinsic value of our shares, we are increasing our full year repurchase target from $1 billion to $1.2 billion, which will bring our total share repurchases to more than $7 billion over the last 10 years. 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 a 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 reroofing up 3% to 4%, new construction down low single digits, and pricing realization 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. We remain confident in our long-term targets of $40 of adjusted EPS and ROIC above 25%. Despite a challenging environment over the last two years for new construction, and a difficult deal environment where sellers' expectations continue to be elevated relative to our valuation, we remain on track to meet our 2030 objectives. 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 Carlisle experience, investment and innovation, pursuit of accretive M&A, and superior capital allocation, keeps us well positioned to achieve our long-term objectives. With that, I will turn the call over to Christopher.
Thank you, Kevin, and thank you all for joining us today on our Q2 earnings call. I will 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 multiyear drag from new construction markets, we delivered record revenue and record adjusted EPS. We also took decisive pricing actions in response to the significant events and ongoing conflict in the Middle East. We made meaningful progress on structural improvements at CWT and continued to convert our innovation pipeline into commercial wins. The recent geopolitical events, along with ongoing uncertainty around future interest rates, have clouded the timing of a new construction market recovery. The increase in our revenue outlook assumes no such improvement for new construction in 2026. 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 and most innovative products and services to benefit our contractors. As a reminder, Carlisle 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 reroofing. With over 70% of our sales driven by reroofing, we have benefited from its largely noncyclical nature and its steady mid single digit growth over the last two decades. Combined with our strong cash generation, we are positioned to deliver steady performance through almost any economic environment. With that context, I would like to provide an update on our key Vision 2030 initiatives and why we believe Carlisle remains well positioned to create long-term value for shareholders. Innovation remains central to our organic growth strategy and underpins our efforts to deliver 5%+ organic growth. This quarter showed that our growing pipeline of new ideas generated by our new voice-of-customer process is translating into increased commercial momentum. We shipped the first orders of our award-winning ThermaThin R-7 polyiso insulation in June, slightly ahead of schedule. The initial project utilizing our new R-7 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. ThermaThin R-7 was the answer. Why? Because ThermaThin R-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. ThermaThin R-7 is one of a dozen new products we will launch in 2026, with half of them already launched 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 UltraTouch 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. 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 Carlisle'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 have made a commitment to being superior capital allocators. That will not change. We seek to do deals that fit our four criteria: 1) an existing organic growth story, 2) tangible hard cost synergies, 3) a strong management team, and 4) the ability to deploy our Carlisle 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 end 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 product 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—a relentless focus on ROIC and strong cash generation has remained constant. That discipline is foundational to who we are and how we operate. Our industry-leading ROIC of approximately 25% and free cash flow margin above 15% are not targets we merely 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, Carlisle will announce its 50th consecutive annual dividend increase. That achievement will place us in an elite group, becoming what some call a dividend king. Fewer than 60 publicly traded companies in the United States today have achieved this milestone. It is a testament to the durability of our business model, to the dedicated management teams that have led this business for decades 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 Carlisle'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 are 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. Over 70% of the nonresidential building stock in North America is more than 25 years old, underpinning the recurring reroofing demand that anchors our resilience through cycles. Those advantages give us conviction to raise our full year revenue outlook even without assuming any improvement in end market demand. We remain committed to being best-in-class operators and disciplined capital allocators, delivering on our Vision 2030 strategy through growing sales both organically and with bolt-on acquisitions, expanding margins, and increasing free cash flow. As our employees all know, 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 Carlisle. With that, I will turn it back to the operator to open the line for questions.
分析師問答
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. If you would like to ask a question, please press star-1 to raise your hand. To withdraw your question, press star-1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Susan Maklari with Goldman Sachs. Susan, please go ahead.
Thank you. Good afternoon, everyone.
Hi, Sue. Good afternoon.
Hi, Christopher. Hi, Kevin. My question is around the Vision 2030 target that you have 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 are seeing as you are realizing the benefits of the Carlisle operating system and other efficiencies and productivity that are coming through.
Yes. Sue, thanks for the question. Innovation was added in 2025 as part of our Vision 2030 strategy. We think it is one of the key axes for Carlisle to invest in. We continue to make investments, and we expect to run at about a 3% level for innovation-driven growth within the near future. We are funding products that deliver tangible value to the contractor. We want the contractor and the building owners to have a benefit, and our distribution channel partners to have a preference for stocking Carlisle because of that end-user demand. So when you think about ThermaThin R-7, we are creating value, as we saw in the example I mentioned on the call, for everybody in that chain. Our plan is to increase profitability by increasing their profitability. If you think about cost per square foot, it is going up, and an R-7 insulation is higher priced, of course, so there is revenue growth embedded in that scenario, but there is also increased margin. That increased margin comes from us capturing a portion of the additional value created across the contractor, distributor, and building owner. That shows up in different ways, whether we talk about the number of cranes you need, truckloads, installation time, labor savings, or operating the building more efficiently. So I think when you look at innovation, ThermaThin R-7, while it might not be the biggest product we launch over the next five years, it is representative of what we are trying to do by creating value and increasing profitability per square foot. Remember, our goal is to get to 25% of sales from products introduced in the past five years, and as that builds, it will generate organic top-line growth and, over time, have a positive impact on margins. On the Carlisle operating system, we have always targeted 1% to 2% of sales as our annual productivity savings. COS continues to do a great job for us. We continue to evaluate how we spend money and how we allocate capital. We are putting automation and robotics into factories to increase productivity, enhance safety, reduce scrap, and improve efficiency. COS is alive and well, and there are even applications around AI that COS will start to take on. You will continue to see COS as a contributor to margin improvement.
Okay. Thank you for all that color. I will pass it on.
Your next question comes from Timothy Wojs with Baird. Please go ahead.
Hey, guys. Good afternoon. Nice job. Maybe just first question: 8% organic growth in CCM. I know you called out a couple of points there from pre-buys, but that is definitely the strongest growth we have seen in several quarters. Can you give us a little bit of color on the pricing piece and, if you have a little bit more intel than maybe we do, what is your feel on what the market actually grew in the second quarter and how you performed relative to that?
Hey, Timothy, I'll take the first one on the market. We do our Carlisle market survey. When we look at the overall market, new construction was pretty much what we thought, down low single digits. Reroofing has consistently been in that low single digits to maybe mid single digits range. There are pockets of stronger growth—data centers are one that continues to be a higher growth area, and you see that in product sales across companies. One thing we've seen is a constraint on the availability of PVC in the data center market, so some specs are opening up and premium TPO is being used as a substitute. That helps us because premium TPO is a strong product for us. Overall, the market is pretty much what we expected—overall pretty much flat.
Timothy, as you look at pricing in the second quarter, we have three pricing announcements in the market as you know. They take time to ramp up. Jobs that were previously bid are protected, and some pricing is in place with distributors that require notification periods. So it takes time for pricing to flow through. Second quarter pricing for us was low single digits. We expect that to ramp to mid single digits in Q3 and then high single digits in Q4.
Okay, that is helpful. And then maybe just help us a little bit on the modeling to think about the price-cost impact in CCM on the EBITDA line? And then 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.
On MDI, we talked about this at the end of the first quarter where I said we were concerned about price increases. My concern was that continued pressure could lead to supply issues, and that is what we are starting to see with MDI. These issues are not all related to the Gulf and what is going on there—there have been disruptions from other factors like chlor-alkali disruptions. For us, we have been able to get our supply of MDI. We appreciate the commitment our suppliers make to Carlisle. I would say that others may be more constrained, but we do not have detailed information to confirm that for everyone.
And then, Timothy, to help you with modeling: yes, we look at Q3 for CCM expecting around a 29% EBITDA margin. Q4 around 28%, and that implies a full-year margin right about 29% for CCM. For CWT, we are expecting full-year improvement of about 100 basis points on EBITDA, with about 250 basis points of improvement in both Q3 and Q4 sequentially relative to earlier quarters.
Alright. Sounds good. Thank you.
Yeah. Thanks, Timothy.
Your next question comes from Tomohiko Sano with JPMorgan. Please go ahead.
Hi, everyone.
Kelly.
Hi, Tomohiko. Thank you for taking my questions. Christopher, you mentioned COS and Henry. What is the single biggest driver of success there? And on CWT with a 380-basis-point sequential margin improvement, how much is from Kingman automation and EPS insourcing, and how should we think about second-half demand and margins, please? Thank you.
Maybe we'll take the margin detail first and then address COS at Henry. Mehul, do you want to handle the CWT margin contribution breakdown?
Yes, Tomo. As we said previously, with the self-help initiatives and margin expansion at CWT for the full year, we are expecting around $20 million of margin expansion, and those investments are in place so we are starting to see the contribution, which did help our Q2 results. If you look at the automation piece of it, that was approximately $3 million of contribution. Footprint consolidation contributed about $1 million. The expanded polystyrene in-house capability we added contributed around $2 to $3 million in the quarter. Again, for the full year, the total is around $20 million, so we will continue to see traction and growth in the second half.
Tomohiko, I missed part of your earlier question due to a connection issue. You asked what the single biggest driver of success of COS at Henry is. I think the number one driver is culture. When we implement COS in an acquisition, it brings people together and we couple it with a methodology for deal integration where we pair leaders from the acquired company with Carlisle leaders. At Henry, leaders embraced the system. That cultural alignment and focus on safety, efficiency, and disciplined capital allocation drove success. Henry had been owned by private equity and did a good job, but Carlisle brought a different system and commitment which the Henry team embraced. So culture was the biggest driver.
Appreciate it.
Thank you, Tomo.
Your next question comes from Bryan Blair with Oppenheimer. Please go ahead.
Thank you. Good afternoon, guys. I was hoping you could remind us of the key share gain initiatives at CWT. Those certainly seem to be reading through and maybe drill down on the products and categories involved and, if possible, quantify the magnitude of run-rate share capture.
Overall, Bryan, share gain was a significant contributor to CWT's top-line performance, which grew 10% with markets down. The traction has come from multiple initiatives across waterproofing and spray foam, and base category share gains. Within waterproofing, advanced waterproofing—cold fluid-applied waterproofing technology used in commercial space—is growing over 50% and is contributing approximately $15 million this year. UltraTouch, the product launched through the Bonded Logic acquisition, is now in roughly half of Home Depot stores and is contributing approximately $4 to $5 million this year. Within spray foam, we started a new go-to-market strategy selling direct to contractors through our own delivery vans, starting in the Southeast and expanding to additional markets out West and in the Southwest; that's approximately $10 million for the full year. There is also meaningful traction in base categories through expansion into additional channels and distributors for roof coatings and roof linings. All that together is driving growth despite in-market weakness.
Thanks, Mehul. Appreciate all the detail.
Your next question comes from Ryan Merkel with William Blair. Please go ahead.
Hey, everyone. Thanks for the question. Wanted to ask on price-cost: what is included in guidance for the price/cost hit this year in dollars? And then for the margin guide, was the move to flat EBITDA margins all price-cost timing? Or is there something else in there?
Yes. The change in the margin outlook was 100% related to price-cost. We have had rapid inflation on both raw materials and freight, and that is a negative for the year. The second quarter was about minus $40 million on price-costs at CCM; it was immaterial at CWT, a couple million dollars. Q3 we look to get back to neutral on price-cost, and then Q4 a little bit positive. That flows through the year on price-cost. As you know, when pricing ramps, it comes in as revenue without the immediate additional EBITDA dollars, so it can be dilutive to margin in the near term. We increased the revenue outlook from low single digits to mid single digits, which implies high single digit growth in the second half at both CCM and CWT—both Q3 and Q4.
Alright. Very helpful. Pass it on. Thanks.
Your next question comes from David MacGregor with Longbow Research. Please go ahead.
Yeah. Good afternoon, everyone, and thanks for taking my questions. Let's talk about CWT. Is CWT turning the corner here? I know there has been a lot of work put in and Frank and his team have been laser-focused on turning this around. It looks like it is starting to move. You made a lot of investments and are mostly realizing on those investments now. Can you get this back to 2023 margins in a full year of 2027 benefit?
David, on turning the corner: the whole team, and Frank and his team in particular, have done a lot of work. We are getting traction on UltraTouch in Home Depot, performance in polyurethane, and the market strategy of going direct to certain contractors. Those initiatives are positive but do not necessarily drive large volume immediately. What we really need is a market turnaround to provide more volume. The team continues to focus on self-help, new products, efficiency, and automation to drive margin. I have always said that over time we aspire to get to 35% margins in this business with new products and bolt-on M&A, but the timing depends on a market recovery—rates and homebuilding normalization. I do not see a full recovery before the end of this year; next year will depend on market dynamics. Margin will improve with our initiatives, but it improves much faster if we get volume recovery.
On incremental margins, we are modeling around 33% to 35% incremental margin in CWT, and as Christopher mentioned, as we get more operating efficiencies, our goal is to push that incrementally higher.
Okay. And 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 more substantial.
I do not think the business needs a transformative piece right now. We are building out around the building envelope, expanding metal panel positions, and looking to build nationwide EPS manufacturing that could mimic the value proposition Henry brings to big-box retail partners. EPS expansion in the Southeast is an example of an area we are still working on. Polyurethane foams have been a tough market with pricing challenges, but we are taking market-approach shifts to show the value to contractors. In each area there are bolt-on opportunities that meet our four acquisition criteria—organic growth story, hard synergies, strong management team, and deployable integration playbook. For transformative deals, it is harder to find that clear path to the hard cost synergies we require. So I expect more bolt-ons to drive CWT performance rather than transformative deals.
Your next question comes from McClaran Hayes with Zelman and Associates. Please go ahead.
Hey. Good evening, guys. Maybe sticking with CWT, that segment touches so many different end channels. Could you share what you are embedding in your volume outlook across those different end channels?
Within CWT for the year, we are assuming any improvement from the first half into the second half is steady, and comps get easier. From an in-market standpoint, we are assuming the market is down about 2% for the year. Residential new construction started off down high single digits; in the second quarter, it was between mid single digits and high single digits. In the second half, things are not getting materially better, but with easier comps, we are assuming residential new construction will be down low single digits in our assumptions. Commercial new construction has deteriorated further; we are assuming down mid single digits in the second half. R&R pieces for both commercial and residential are assumed to be flat. Putting that together, overall CWT in the second half—both Q3 and Q4—we assume down a couple percentage points.
That is helpful. Are you seeing any difference in your ability to pass on price across those end channels?
Overall, we have not had issues passing through price in the majority of the business. Expanded polystyrene is one area where we see more competitive pressure and it has been more difficult. Waterproofing has not had issues, nor has polyurethane spray foam in general for the initial price increases we announced. With MDI and polyols force majeures, we did see elevated costs, but we have been able to obtain the first price increases.
Thank you.
There are no further questions at this time. I will now turn the call back to Christopher 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.