Carlisle Companies has transformed its business by focusing on high-growth opportunities in the construction industry. By divesting non-core assets, making targeted acquisitions like Henry Company, divestment of Carlisle Brake & Friction and implementing the Carlisle Operating System (COS), the company streamlined its operations and enhanced profitability.
These efforts have driven Carlisle to achieve a record ROIC exceeding 20%, solidifying its leadership in energy-efficient building solutions. By aligning with market trends and prioritizing innovation, Carlisle has established itself as a focused, high-performing company with a strong foundation for sustainable growth in the construction sector.
Carlisle Companies, historically operating as a diversified industrial company, faced challenges in achieving consistent due to the varied performance of its business units. To address these issues and capitalize on growth opportunities, the company identified the need for a strategic shift. This transformation involved divesting non-core assets and focusing on the construction products sector, which offers higher growth and profitability potential.
Carlisle adopted a focused approach to restructure its portfolio and streamline its operations. One of the key steps was the divestment of Carlisle Brake & Friction, a low-margin business unit, allowing the company to allocate its resources toward more profitable segments. This strategic move narrowed the company’s focus and enhanced its competitiveness in the construction products market.
In July 2021, Carlisle made its largest acquisition by purchasing Henry Company for $1.575 billion. This acquisition strengthened Carlisle’s position in the building envelope market, enabling it to offer innovative solutions for air, vapor, energy, and water barriers. The integration of Henry Company expanded Carlisle's reach into both commercial and residential construction markets, aligning with its sustainability and energy efficiency goals.
Additionally, Carlisle leveraged the Carlisle Operating System (COS) to improve operational efficiency, reduce costs, and optimize its processes. COS contributed to annual cost savings of 1-2% of sales, ensured resilience against market disruptions, and supported the company’s strategic shift toward the construction sector. This system was instrumental in maintaining profitability and improving the company’s overall performance.
Carlisle’s strategic transformation from a diversified industrial company to a construction products-focused enterprise was pivotal in addressing its challenges. The divestment of Carlisle Brake & Friction streamlined operations and redirected resources to high-growth areas. The acquisition of Henry Company bolstered the company’s portfolio with energy-efficient and innovative products, solidifying its position in the construction market. Furthermore, the implementation of COS enhanced operational excellence, enabling the company to achieve significant cost savings and resilience in a dynamic market environment.
By focusing on the construction sector and leveraging its operational strengths, Carlisle not only improved its ROIC but also positioned itself as a leader in the growing market for energy-efficient and sustainable building solutions. This strategic shift has been critical in driving the company’s financial success and long-term growth.
Carlisle Companies' strategic moves in 2021, including the acquisition of Henry and portfolio optimization, significantly boosted its financial performance. These actions led to a sharp increase in ROIC, EBIT margin, and revenue growth, consistently outperforming industry averages by 2023 and mid-2024. The company’s market focus and operational improvements also drove its stock prices increase rate higher than competitors.
4.1. ROIC
It is clearly seen in the ROIC graph that the average of peer companies was significantly impacted by Carlisle's strategic moves in 2021. These included the acquisition of Henry and the sale of Carlisle Brake & Friction. As a result, Carlisle's ROIC, which stood at 7.7% in 2021, increased to 16.6% in 2022. The effects of these actions have continued in subsequent years, with Carlisle's ROIC reaching 20.4% in the first half of 2024, even as the average ROIC of competitor companies has shown a decline since 2022.
Source: FinancialCharts (Peers: Trane Technologies, Johnson Controls International, Allegion PLC, Carrier Global Corp)
4.2. Revenue Growth
In the revenue growth index, benchmarked at 100 in 2021 when strategic moves were made, Carlisle Companies significantly outpaced peer companies in revenue growth following these actions. Although the growth indices converged somewhat in 2023, Carlisle Companies still achieved higher revenue growth than the peer average that year.
Source: FinancialCharts (Peers: Trane Technologies, Johnson Controls International, Allegion PLC, Carrier Global Corp)
4.3. Share Price
In the stock price index, benchmarked around the time of the Henry Company's acquisition, the market clearly reflects the impact of Carlisle Companies' shift towards the construction sector and portfolio optimization. By mid-2024, Carlisle Companies' stock prices have increased more than those of all its competitors in the sector.
Source: Investing.com
4.4. EBIT Margin
In terms of profitability, Carlisle Companies performed nearly on par with the average EBIT margin of other companies in the sector until 2022. However, the impact of its strategic moves became evident as the company's EBIT margin increased from 15.1% in 2021 to 22.6% in 2022 and 21.4% in 2023. During the same period, the average EBIT margin of competitor companies remained stable.
Source: CapitalIQ (Peers: Trane Technologies, Johnson Controls International, Allegion PLC, Carrier Global Corp)
4.5. Asset Turnover Ratio
Looking at the asset turnover ratio, the impact of Carlisle Companies' 2021 strategic moves became evident in 2022.
Source: CapitalIQ (Peers: Trane Technologies, Johnson Controls International, Allegion PLC, Carrier Global Corp)
