CSW Industrials (CSWI) Q1 Revenue Up 17%

Globe and Mail

6 days ago

Key Points
Revenue rose 16.6% in Q1 fiscal 2026, but missed analyst expectations by 17.5% (GAAP).
Adjusted earnings per share (Non-GAAP) grew 2.5%, but were 10.1% below estimates.
Organic growth declined 2.8%, and gross margin (GAAP) shrank to 43.8% due to cost inflation and product mix.
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CSW Industrials (NYSE:CSW), an industrials company specializing in heating, ventilation, air conditioning, and refrigeration (HVAC/R), plumbing, and building products, reported its earnings for the quarter ended June 30, 2025, on July 31, 2025. The most notable news was that revenue reached a record $263.6 million in the fiscal first quarter, up 16.6% from the prior year, but still fell well below analyst estimates. Adjusted earnings per share (EPS) came in at $2.85, also missing consensus. Despite record headline numbers driven by acquisitions, underlying organic sales fell 2.8%, and profit margins narrowed. The quarter showed mixed results amid ongoing integration costs, tariff headwinds, and softness in key sectors.
Metric Q1 fiscal 2026(Quarter Ended June 30, 2025) Q1 fiscal 2026 Estimate Q1 fiscal 2025(Quarter Ended June 30, 2024) Y/Y Change
EPS (Non-GAAP) $2.85 $3.17 $2.78 2.5%
Revenue $263.6 million $319.35 million $226.2 million 16.6%
Operating Income $54.9 million $55.1 million -0.4%
EBITDA $68.7 million $65.3 million 5.2%
Free Cash Flow $57.7 million $59.6 million -3.2%
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q4 2025 earnings report.
Business overview and recent focus
CSW Industrials operates across three main segments: Contractor Solutions, Engineered Building Solutions, and Specialized Reliability Solutions. Its products include HVAC/R components, specialty lubricants, and safety solutions, targeting end markets such as HVAC/R, plumbing, general industrial, architectural building products, energy, mining, and rail.
The company has recently focused on expanding its reach in value-added HVAC/R and plumbing products through acquisitions. The ability to balance organic growth, effective acquisition integration, and margin management remains a key success factor for the business.
Quarter highlights: Results, drivers, and segment details
The quarter saw reported revenue up 16.6% from the prior year, with growth from the acquisition of Aspen Manufacturing, PSP Products, and PF WaterWorks more than offsetting a decline in organic revenue. However, organic revenue actually declined by 2.8%, with softness in major end markets dampening underlying performance even as acquired businesses contributed top-line growth.
Gross profit grew by 7.5%, but gross margin fell sharply compared to last year. The margin drop, from 47.5% to 43.8%, resulted from lower-margin contributions from acquired businesses and ongoing tariff and input cost pressures. Operating expenses increased due to the broader company scope and integration efforts, but represented a slightly lower share of revenue, reflecting attention to cost control.
Operating income came in essentially flat with last year, while EBITDA rose 5.3%. Despite these records, the margin contraction is noteworthy. Free cash flow, which measures cash left after capital expenditures and is an important indicator of financial flexibility, fell 3.2% from the prior year. The company borrowed $135 million to help fund acquisitions but paid back $40 million, leaving net leverage at a low 0.2 times EBITDA.
Performance varied across business segments. In Contractor Solutions, revenue rose 22.6%, with growth from acquisitions more than offsetting a decline in organic revenue; organic revenue dropped 4.6%. Operating profit in the segment grew, but gross margin shrank to 43.8% due to acquisition mix and sales mix/volume leverage. Specialized Reliability Solutions revenue was flat, but operating income tumbled 26.7% as commodity costs and one-time consolidation expenses weighed on profitability. The Engineered Building Solutions division posted a modest revenue increase, but its operating income fell, reflecting tariff impacts and ongoing investment in sales and research and development. The quarterly dividend remained steady at $0.27 per share.
Products and acquisitions: Expanding capabilities
This period saw the continued integration of Aspen Manufacturing, a producer of air handlers and evaporator coils for HVAC/R systems. These components are used chiefly for repair and replacement in building climate control systems. The acquisition emphasizes US-based manufacturing, which can help limit the effect of international tariffs on imported goods.
CSW Industrials' acquisition strategy in the HVAC/R and plumbing categories is designed to strengthen its portfolio of niche, value-added products. The company has further raised research and development spending in Engineered Building Solutions, working on new fire and smoke protection solutions and related architectural products, though these investments contributed to near-term margin pressure.
Financial outlook and investor considerations
Management reaffirmed its outlook for fiscal 2026, expecting full-year organic revenue growth and adjusted EBITDA growth for each segment. For fiscal 2026, consolidated earnings per share are also expected to rise, though growth will trail EBITDA gains due to a higher share count, interest costs from acquisition funding, and increased amortization.
Leaders cited ongoing risks tied to tariffs, input inflation, and the challenge of restoring profitability in newly acquired units with thinner margins. No specific quarterly guidance was provided. The quarterly dividend was held steady at $0.27 per share. Looking ahead, investors may want to watch for improvement in organic sales growth, gross and EBITDA margin recovery, and successful integration of recently acquired operations -- all of which are likely to shape the company's performance in the coming quarters.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
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