CSW Industrials, Inc. Q2 FY2026 earnings call

Key Points

• Joe Armes thanked the team for record quarterly results and mentioned the acquisition of Mars Parts, expressing intent to continue as CEO.
• James Perry detailed revenue growth of 22% to $277 million, driven by acquisitions but offset by 5.6% organic revenue decline in Contractor Solutions. Adjusted EBITDA grew 20% to $73 million, but margin contracted. Adjusted net income was a record $50 million.
• Discussed impact of tariffs on costs, pricing actions to offset, and cash flow metrics including cash from operations and free cash flow.
• Highlighted performance of recent acquisitions like Aspen Manufacturing and PF Waterworks, with strong growth under ownership.

In the fiscal second quarter of 2026, CSW Industrials delivered record results. The Contractor Solutions segment had revenue of $208 million, accounting for 74% of consolidated revenue and seeing 31.2% growth compared to the prior quarter. Organic revenue in this segment declined by 7.7% due to soft housing activity, shift to repair from replacement of HVAC units, and tariffs. The Specialized Reliability Solutions segment had revenue slightly up to $39 million, with segment EBITDA of $6.4 million (a 9.7% decline from prior year) and a margin of 16.5%. The Engineered Building Solutions segment saw revenue decrease 2% to $31.9 million, with segment EBITDA 20% lower than prior year at $5.2 million and a margin of 16.4%.

Forward-Looking Statements

• Expect consolidated revenue and adjusted EBITDA growth for fiscal 2026, along with EPS growth and stronger operating cash flow.
• Aspen Manufacturing's fiscal 2026 revenue expected to grow mid-teens of trailing 12-month revenue of $125 million.
• Mars Parts acquisition expected to close in November 2025, expanding HVAC/R portfolio and expected to enhance free cash flow.

Risks Identified

• Tariff impacts on input costs and margins across segments.
• Uncertainty in organic growth of Contractor Solutions due to market volatility and end market conditions.
• Distributor destocking leading to lower order volumes in the HVAC/R end market.

Q: Could you help us understand the trailing revenue trends at Mars and how it compares to organic performance?

A: Mars has trends a bit between organic and other segments, weighted more towards repair but also in replacement market. Trailing 12-month specifics hard to detail until integrated into system.

Q: Speak to the growth rate and accretion expectations for Mars?

A: Mars has over $200 million revenue, margins mid-20s; synergies of $10 million expected to push EBITDA towards 30% run rate a year from closing.

Q: Quantify destock impact in Contractor Solutions and inventory levels?

A: Destocking led to lower order volumes, inventory in distributors is in good shape; destocking expected to run course by end of calendar year.

Q: Thoughts on margins across segments given market conditions?

A: Contractor Solutions expected to hold low 30s margins; SRS and EBS have margin dynamics affected by indirect tariff impact and mix.

Q: Thoughts on M&A pipeline and shareholder returns?

A: Continue to be active in acquisitions, likely smaller bolt-ons; share buybacks continue as part of capital allocation based on returns analysis.

Q: Order cadence in Contractor Solutions and SRS traction?

A: Order cadence fine but softer than expected; SRS seeing progress in new product development and customer diversification, with more to come.