CSW Industrials, Inc. (CSWI) Bundle
Understanding CSW Industrials, Inc. (CSWI) Revenue Streams
Understanding CSW Industrials, Inc.’s Revenue Streams
CSW Industrials, Inc. operates through three primary segments: Contractor Solutions, Specialized Reliability Solutions, and Engineered Building Solutions. Each segment contributes significantly to the overall revenue and demonstrates distinct trends in growth and profitability.
Breakdown of Primary Revenue Sources
The revenue breakdown for the three months ended September 30, 2024, is as follows:
| Segment | Revenues, net (in thousands) | Operating Income (in thousands) | Operating Margin (%) |
|---|---|---|---|
| Contractor Solutions | $158,835 | $46,254 | 29.1% |
| Specialized Reliability Solutions | $38,535 | $5,819 | 15.1% |
| Engineered Building Solutions | $32,673 | $6,082 | 18.6% |
Year-over-Year Revenue Growth Rate
For the year ending September 30, 2024, the company reported a net revenue of $454,103,000, reflecting an increase of 11.6% compared to the previous year’s $407,013,000. This growth was partially attributed to acquisitions and organic sales improvements.
Specifically, the revenue growth for each segment for the three months ended September 30, 2024, compared to the same period in 2023 is as follows:
- Contractor Solutions: Increased by $18.9 million, or 13.5%
- Specialized Reliability Solutions: Increased by $1.9 million, or 5.2%
- Engineered Building Solutions: Increased by $3.5 million, or 11.9%
Contribution of Different Business Segments to Overall Revenue
For the six months ended September 30, 2024, the contributions of each segment to total net revenues are:
| Segment | Revenues, net (in thousands) | Percentage of Total Revenue |
|---|---|---|
| Contractor Solutions | $319,252 | 70.4% |
| Specialized Reliability Solutions | $75,327 | 16.6% |
| Engineered Building Solutions | $63,566 | 13.9% |
Analysis of Significant Changes in Revenue Streams
During the six months ended September 30, 2024, the overall revenue increased by $47.1 million, with acquisitions of PSP and Dust Free contributing approximately $18.8 million. Organic growth accounted for an increase of $28.3 million, primarily driven by improved unit volumes and pricing actions across various end markets, particularly HVAC/R and plumbing.
In contrast, revenue from the mining sector saw a decline, which impacted overall segment performance. The strategic acquisition of PSP and Dust Free has positioned the company for enhanced market penetration and revenue diversification moving forward.
Overall, the revenue performance illustrates a robust growth trajectory, bolstered by both organic growth and strategic acquisitions, setting a strong foundation for future performance.
A Deep Dive into CSW Industrials, Inc. (CSWI) Profitability
Profitability Metrics
Gross Profit, Operating Profit, and Net Profit Margins
For the three months ended September 30, 2024, the gross profit was $103,901,000 with a gross profit margin of 45.6%, compared to a gross profit of $90,959,000 and a margin of 44.7% for the same period in 2023. For the six months ended September 30, 2024, gross profit stood at $211,322,000, yielding a gross profit margin of 46.5%, up from $183,126,000 and 45.0% respectively in 2023.
Operating income for the three months ended September 30, 2024, was $51,549,000 with an operating margin of 22.6%, compared to an operating income of $41,993,000 and a margin of 20.6% in 2023. For the six months ended September 30, 2024, operating income increased to $106,610,000 with a margin of 23.5%, up from $87,199,000 and 21.4% in the prior year.
Net income for the three months ended September 30, 2024, was $36,621,000, leading to a net profit margin of 16.1%. This is a rise from $30,182,000 and a margin of 14.8% in 2023. For the six months ended September 30, 2024, net income reached $75,472,000 with a net profit margin of 16.6%, compared to $61,239,000 and 15.0% in 2023.
| Metric | Q3 2024 | Q3 2023 | 6M 2024 | 6M 2023 |
|---|---|---|---|---|
| Gross Profit | $103,901,000 | $90,959,000 | $211,322,000 | $183,126,000 |
| Gross Profit Margin | 45.6% | 44.7% | 46.5% | 45.0% |
| Operating Income | $51,549,000 | $41,993,000 | $106,610,000 | $87,199,000 |
| Operating Margin | 22.6% | 20.6% | 23.5% | 21.4% |
| Net Income | $36,621,000 | $30,182,000 | $75,472,000 | $61,239,000 |
| Net Profit Margin | 16.1% | 14.8% | 16.6% | 15.0% |
Trends in Profitability Over Time
Over the past year, the company has demonstrated consistent improvements in gross and operating profit margins. The gross profit margin increased from 44.7% in Q3 2023 to 45.6% in Q3 2024, indicating enhanced operational efficiency and pricing power. Similarly, the operating margin rose from 20.6% to 22.6% over the same period, reflecting effective cost management strategies and increased revenue generation.
Comparison of Profitability Ratios with Industry Averages
The company’s gross profit margin of 45.6% and operating margin of 22.6% are competitive against industry averages, which typically range from 30% to 40% for gross margins and 15% to 20% for operating margins in similar sectors. This positions the company favorably within its industry, highlighting its operational effectiveness and pricing strategies.
Analysis of Operational Efficiency
The operational efficiency of the company has shown marked improvements, as evidenced by the decrease in operating expenses as a percentage of net revenue. For the three months ended September 30, 2024, operating expenses were $52,352,000, or 23.0% of revenues, down from 24.0% in Q3 2023. For the six months ended September 30, 2024, operating expenses totaled $104,712,000, which is 23.1% of revenues compared to 23.6% in the prior year.
| Period | Operating Expenses | Operating Expenses as % of Revenue |
|---|---|---|
| Q3 2024 | $52,352,000 | 23.0% |
| Q3 2023 | $48,966,000 | 24.0% |
| 6M 2024 | $104,712,000 | 23.1% |
| 6M 2023 | $95,927,000 | 23.6% |
Debt vs. Equity: How CSW Industrials, Inc. (CSWI) Finances Its Growth
Debt vs. Equity Structure
The company's financing strategy involves a balanced approach between debt and equity. As of September 30, 2024, the total long-term debt was $0, down from $166 million as of March 31, 2024. This significant reduction indicates a proactive strategy to minimize leverage and associated costs.
Short-term debt as of September 30, 2024, was also $0, reflecting a complete pay-off of any outstanding borrowings from the revolving credit facility. The company had a total cash balance of $273.2 million at the same date, providing a strong liquidity position to support operations and growth initiatives.
The debt-to-equity ratio is a critical measure for assessing financial health. As of September 30, 2024, with total equity reported at $1.03 billion, the debt-to-equity ratio stands at 0.0, significantly lower than the industry average of approximately 0.5 to 1.0. This positions the company as having a conservative capital structure.
Recent financing activities include a follow-on equity offering completed in September 2024, which raised $347.4 million net of underwriting fees. This capital was primarily used to pay off the revolving credit facility and fund future growth opportunities.
In terms of credit ratings, the company maintains compliance with financial covenants associated with its credit facilities, which include a maximum leverage ratio of 3.00 to 1.00 and a minimum fixed charge coverage ratio of 1.25 to 1.00. As of September 30, 2024, the company was in compliance with all covenants.
| Financial Metric | September 30, 2024 | March 31, 2024 | Industry Average |
|---|---|---|---|
| Long-term Debt | $0 | $166 million | N/A |
| Short-term Debt | $0 | $0 | N/A |
| Cash Balance | $273.2 million | $22.2 million | N/A |
| Debt-to-Equity Ratio | 0.0 | 0.14 | 0.5 - 1.0 |
| Equity | $1.03 billion | N/A | N/A |
| Proceeds from Equity Offering | $347.4 million | N/A | N/A |
This strategic balance of debt and equity financing enables the company to maintain operational flexibility while minimizing risk exposure associated with high leverage. The recent pay-down of debt in conjunction with a strong cash position highlights a focus on sustainable growth and financial stability.
Assessing CSW Industrials, Inc. (CSWI) Liquidity
Assessing CSW Industrials, Inc.'s Liquidity
Current Ratio: As of September 30, 2024, the current ratio was calculated at 3.82, derived from current assets of $609.5 million and current liabilities of $159.5 million.
Quick Ratio: The quick ratio, which excludes inventories, was approximately 2.66, calculated from quick assets (current assets minus inventories) of $425.8 million and current liabilities of $159.5 million.
Analysis of Working Capital Trends
Working capital as of September 30, 2024, stood at $450.0 million, a significant increase from $215.6 million at March 31, 2024. This increase was attributed to higher accounts payable and other current liabilities, which rose by $39.6 million, and a reduction in accounts receivable, which decreased by $11.3 million.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| September 30, 2024 | 609.5 | 159.5 | 450.0 |
| March 31, 2024 | 331.4 | 115.8 | 215.6 |
Cash Flow Statements Overview
For the six months ended September 30, 2024, the cash flow statement indicated:
- Net cash provided by operating activities: $129.5 million
- Net cash used in investing activities: ($41.3 million)
- Net cash provided by financing activities: $162.6 million
The cash balance at September 30, 2024, was $273.2 million, compared to $22.2 million at March 31, 2024.
Potential Liquidity Concerns or Strengths
Liquidity remains strong with cash generated from operations significantly exceeding cash used in investing activities. The ability to maintain a high cash balance, coupled with a solid current ratio, indicates a robust liquidity position. Additionally, the company has successfully reduced its reliance on debt, with long-term debt dropping to $0 from $166 million in the previous quarter.
Overall, the liquidity metrics suggest that the company is well-positioned to meet its short-term obligations and capitalize on growth opportunities without immediate liquidity concerns.
Is CSW Industrials, Inc. (CSWI) Overvalued or Undervalued?
Valuation Analysis
The valuation of a company is often assessed using several key financial ratios, including the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios. As of 2024, the following ratios are relevant for evaluating the company's market position:
| Valuation Metric | Value |
|---|---|
| Price-to-Earnings (P/E) Ratio | 60.3 |
| Price-to-Book (P/B) Ratio | 5.1 |
| Enterprise Value-to-EBITDA (EV/EBITDA) Ratio | 35.2 |
Stock price trends over the last 12 months show significant fluctuations. The stock price started at approximately $230 in October 2023 and rose to around $285 by September 2024, indicating a strong upward trend of approximately 24%.
In terms of dividends, the company has consistently increased its dividend payout. The quarterly dividend was raised from $0.19 per share in April 2023 to $0.21 in April 2024, and further to $0.24 in October 2024. The annualized dividend yield stands at approximately 0.8%, with a payout ratio of 25% based on the latest earnings report.
| Dividend Metrics | Value |
|---|---|
| Latest Quarterly Dividend | $0.24 |
| Annual Dividend Yield | 0.8% |
| Payout Ratio | 25% |
Analyst consensus on the stock valuation is predominantly positive, with the majority rating it as a "Buy" based on strong operating income growth and positive market conditions. The consensus reflects an optimistic outlook on the company's growth potential and market performance.
In summary, the current valuation metrics, stock price trends, and analyst recommendations indicate a favorable investment scenario, suggesting that the company may be undervalued relative to its growth prospects and market performance.
Key Risks Facing CSW Industrials, Inc. (CSWI)
Key Risks Facing CSW Industrials, Inc.
The financial health of CSW Industrials, Inc. is influenced by various internal and external risk factors that can impact its operations and market performance.
Industry Competition
CSW Industrials operates in a competitive landscape, particularly in the HVAC/R, plumbing, electrical, and industrial sectors. The company faces significant competition from established players and new entrants, which can affect market share and pricing strategies. For the three months ended September 30, 2024, net revenues for the Contractor Solutions segment were $158.8 million, an increase of 13.5% compared to $139.9 million in the same period of 2023, partially due to acquisitions.
Regulatory Changes
Changes in regulations, particularly those related to environmental standards and safety, can impose additional costs or limit operational flexibility. The Organization for Economic Cooperation and Development (OECD) introduced a framework under Pillar Two, which includes a global minimum tax rate of 15% effective for fiscal years starting on or after January 1, 2024. This may not materially impact the company in the near term, but ongoing monitoring is essential.
Market Conditions
Market fluctuations, driven by economic cycles, can impact demand for the company's products. For instance, net revenues for the six months ended September 30, 2024, rose to $454.1 million, a 11.6% increase from $407.0 million in the previous year. However, declines in specific end markets, such as mining, could pose risks to revenue stability.
Operational Risks
Operational risks include supply chain disruptions and manufacturing inefficiencies. The company's operating income for the three months ended September 30, 2024, was $51.5 million, representing a 22.6% margin, up from $41.9 million and 20.6% in the same period of 2023. Continued focus on improving operational efficiency is crucial to mitigate these risks.
Financial Risks
Financial risks encompass fluctuations in interest rates and currency exchange rates. As of September 30, 2024, the company had a cash balance of $273.2 million, a significant increase from $22.2 million at March 31, 2024. Effective cash management strategies are necessary to navigate potential financial volatility.
Strategic Risks
Strategic risks arise from potential misalignment in business strategy and market demands. The company’s recent acquisitions, including PSP and Dust Free, contributed $11.6 million to revenue growth in the three months ended September 30, 2024. Aligning these acquisitions with operational capabilities is essential for long-term success.
Mitigation Strategies
- Competitive Analysis: Ongoing market research to adapt to competitive pressures.
- Regulatory Compliance: Establishing a dedicated compliance team to monitor regulatory changes.
- Supply Chain Management: Diversifying suppliers to reduce dependency on single sources.
- Financial Planning: Utilizing hedging strategies to manage currency and interest rate exposure.
- Strategic Integration: Implementing comprehensive integration plans for new acquisitions.
| Risk Factor | Impact Description | Recent Financial Data |
|---|---|---|
| Industry Competition | Pressure on pricing and market share | Net revenues: $158.8 million (3Q 2024) |
| Regulatory Changes | Increased compliance costs | Global minimum tax rate: 15% |
| Market Conditions | Demand fluctuations | Net revenues: $454.1 million (6M 2024) |
| Operational Risks | Manufacturing inefficiencies | Operating income: $51.5 million (3Q 2024) |
| Financial Risks | Interest and currency fluctuations | Cash balance: $273.2 million (Sept 2024) |
| Strategic Risks | Misalignment in acquisitions | Acquisition impact: $11.6 million (3Q 2024) |
Future Growth Prospects for CSW Industrials, Inc. (CSWI)
Future Growth Prospects for CSW Industrials, Inc.
Analysis of Key Growth Drivers
The company has identified several key drivers for future growth, including:
- Product innovations in their Contractor Solutions segment.
- Market expansions into high-growth areas, particularly in HVAC/R, plumbing, and electrical applications.
- Strategic acquisitions, including Dust Free and PSP, which contributed significantly to revenue.
Future Revenue Growth Projections and Earnings Estimates
For the six months ended September 30, 2024, net revenues increased by $47.1 million or 11.6% compared to the same period in 2023. This growth was partially attributed to acquisitions, which added $18.8 million or 4.6% to the revenue.
Operating income for the same period rose by $19.4 million or 22.3%, reflecting a strong operational performance.
Strategic Initiatives or Partnerships
Recent acquisitions have been pivotal. The acquisition of PSP for an aggregate purchase price of $47.1 million, including $32.5 million in cash consideration, is expected to enhance market share and product offerings. Additionally, the follow-on equity offering in September 2024 raised $347.4 million, which is earmarked for strategic growth initiatives.
Competitive Advantages Positioning the Company for Growth
The company's competitive advantages include:
- Strong cash flow from operations, with net cash provided by operating activities of $129.5 million for the six months ended September 30, 2024.
- Improved gross profit margins, which rose to 46.5% for the six months ended September 30, 2024, from 45.0% in the prior year.
- Effective management of operating expenses, which as a percentage of revenues decreased to 23.1%.
Table: Financial Overview of Growth Segments
| Segment | Net Revenues (6 Months Ended Sep 30, 2024) | Net Revenues Growth (%) | Operating Income (6 Months Ended Sep 30, 2024) | Operating Margin (%) |
|---|---|---|---|---|
| Contractor Solutions | $319,252,000 | 14.1% | $96,138,000 | 30.1% |
| Specialized Reliability Solutions | $75,327,000 | 1.3% | $12,970,000 | 17.2% |
| Engineered Building Solutions | $63,566,000 | 11.9% | $11,806,000 | 18.6% |
Conclusion on Growth Potential
The combination of strategic acquisitions, strong operational cash flow, and a focus on high-growth markets positions the company favorably for future growth. Revenue and operating income growth projections reflect a solid outlook for the coming years.
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Article updated on 8 Nov 2024
Resources:
- CSW Industrials, Inc. (CSWI) Financial Statements – Access the full quarterly financial statements for Q2 2025 to get an in-depth view of CSW Industrials, Inc. (CSWI)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View CSW Industrials, Inc. (CSWI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.