CSW Industrials (NYSE:CSW) reported second-quarter financial results on Thursday. The transcript from the company’s second-quarter earnings call has been provided below.
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Summary
CSW Industrials reported record results in revenue, adjusted EBITDA, adjusted EPS, and cash flow for the first half of fiscal 2027, driven by strong organic growth and contributions from recent acquisitions.
The company prioritized debt reduction, paying down $91 million in debt, reducing the net debt to EBITDA ratio from 2.37 to 2.1, and returned $10.7 million to shareholders through share repurchases and dividends.
Contractor Solutions segment achieved 13% organic revenue growth and 31.5% adjusted EBITDA growth, with expectations to outgrow end markets served and deliver mid- to high-single-digit organic growth.
Specialized Reliability Solutions segment saw a 21.5% adjusted EBITDA margin due to restructuring savings, strategic pricing, and favorable product mix, with continued strong demand.
The company plans to exit the Greco businesses within the Engineered Building Solutions segment, focusing on profitable growth and maintaining a healthy order backlog.
Management expressed confidence in the M&A pipeline, seeing an increase in opportunities, and continues to focus on cross-selling and wallet share growth.
Future outlook remains positive with expectations of significant growth in adjusted EBITDA, EPS, and free cash flow for fiscal 2027, amidst resilient demand and effective cost management.
Full Transcript
OPERATOR
Greetings and welcome to the CSW Industrials Fiscal 2027 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Alexa Huerta. Thank you, Alexa. You may begin.
Alexa Huerta (Investor Relations)
Thank you, Jasmina. Good morning, everyone, and thank you for joining CSW Industrials Fiscal 2027 second quarter earnings call. Joining me today on the call is Joe Armes, our Chairman, Chief Executive Officer and President of CSW Industrials, and James Perry, our Executive Vice President and Chief Financial Officer. Earlier today we issued our earnings release, updated Investor Relations presentation and quarterly report on Form 10-Q. Each is available on the Investors section of our website at www.ir.csw.com.
Today’s call is also being webcast, and replay information is included in the earnings release. Before we begin, I would like to remind everyone that today’s discussion will include forward-looking statements. These statements reflect our current expectations and assumptions and are subject to various risks and uncertainties that could cause actual results to differ materially. Additional information about these risks is included in our earnings release, our comments on today’s call, our annual report on Form 10-K and our other filings with the SEC.
Except as required by law, we do not undertake any obligation to update any forward-looking statements. I will now turn the call over to Joe.
Joe Armes (Chairman, Chief Executive Officer and President)
Thank you, Alexa, and good morning, everyone. Today we reported all-time record results in several metrics, including revenue, adjusted EBITDA, adjusted EPS, and cash flow for the first half of fiscal 2027, underscoring the wisdom of our strategy, the excellence of our execution, and the resilience of our business. Recent acquisitions have strategically expanded our product portfolio and enhanced our growth trajectory. Consistent with our enduring capital allocation strategy, we prioritized debt reduction during the quarter, paying down $91 million in outstanding debt and further deleveraging the company.
CSW Industrials also returned a total of $10.7 million in cash to shareholders, including $5.8 million in open-market share repurchases and $4.9 million in dividends. Our net debt to EBITDA ratio declined from 2.37 times at the end of the fiscal first quarter of 2027 to 2.1 times at the end of the fiscal second quarter, driven by lower net debt and EBITDA growth. Our strong balance sheet and record cash flow continue to give us the flexibility to pursue investment opportunities as they arise.
End-market activity followed a more typical seasonal pattern during the quarter despite continued macroeconomic uncertainty. All three of our business segments delivered impressive top-line results when excluding the Greco business from EBS, and we achieved consolidated EBITDA margin expansion. Our Contractor Solutions segment delivered strong organic revenue growth of 13%, accompanied by 31.5% adjusted EBITDA growth. The addition of Mars and Aspen has broadened our product portfolio, expanded the repair solutions we offer, and increased our scale.
Together these capabilities position us to continue to serve customers more effectively and capture additional share-of-wallet growth through cross-selling. We continue to expect this segment to outgrow its end markets served and deliver healthy mid- to high-single-digit organic growth through the cycle. Our Specialized Reliability Solutions segment delivered record results across the board, including EBITDA margin above our 20% target for this segment. The integration of the two recent acquisitions continues to drive accretion. Adjusted EBITDA margin expanded 490 basis points, and we expect margin performance to remain strong for the full fiscal year. Strong organic revenue growth of 12.7% was a result of pricing discipline, volume growth, and strategic product placement and availability.
We continue to advance the planned exit of the Greco businesses within our Engineered Building Solutions segment. Excluding the Greco businesses, the segment delivered organic revenue growth, a solid EBITDA margin, and exited the quarter with a healthy order backlog and increasing book-to-bill ratio. We remain confident in this segment’s outlook, differentiated product offering, and margin trajectory. At this time, I will turn the call over to James for a detailed review of our financial performance, and following his update I will return with some closing comments.
James Perry (Executive Vice President and Chief Financial Officer)
Thank you, Joe, and good morning, everyone. As Joe noted, CSW Industrials delivered another outstanding quarter highlighted by record results and continued progress integrating our recent acquisitions. I will review our consolidated performance, segment results, cash flows, and balance sheet for the second quarter of fiscal 2027. Consolidated revenue increased $84 million, or 31% year over year, to a record $361 million. Growth was driven by strong organic performance and contribution from recent acquisitions.
Consolidated organic revenue growth was 10.2%, reflecting impressive double-digit growth in the Contractor Solutions and Specialized Reliability Solutions segments as well as growth in the Engineered Building Solutions businesses that we will retain following the planned exit of the Greco businesses. Adjusted gross margin was 42.1% compared with 43% in the prior-year period, a decline of 90 basis points primarily attributable to increased ocean and domestic freight expense as well as rising raw materials costs. Although we were impacted by this inflation as well as ongoing tariffs, planned pricing actions across our businesses offset most of the dollar increases. Consolidated adjusted EBITDA for the fiscal second quarter rose to a record $97 million, an increase of $24 million, or 33%, from the prior-year period, reflecting stronger market demand and the earnings power of our expanded product platform.
Adjusted EBITDA margin expanded 50 basis points to 26.8%, supported by the contribution from recent acquisitions, strategic pricing actions, synergy and restructuring realization, and disciplined cost controls as we grow. These results highlight the scalability of our business model and the margin opportunity embedded in our product portfolio. Adjusted EPS for the fiscal second quarter was $3.66, an increase of 24% from the prior-year period. As previously communicated, EPS growth trailed EBITDA growth primarily due to net interest expense, which increased by $11.1 million, reflecting the higher debt balance associated with significant acquisition activity and share repurchases over the past year. Turning to items excluded from adjusted EPS, the fiscal second quarter included, on an after-tax basis, $11.5 million, or $0.70 per share, of acquired intangible amortization and $0.9 million, or $0.05 per share, of acquisition-related integration costs.
Contractor Solutions fiscal second-quarter revenue was $286 million, accounting for 78% of our consolidated revenue and representing growth of more than 37% from the prior-year quarter. Acquisitions contributed $51 million, or 24% of growth, while our organic growth contributed $26.8 million, or an impressive 13%. Contractor Solutions delivered its third consecutive quarter of organic growth supported by both pricing and volume. Of note, we now estimate that approximately 75% of this segment’s revenues are tied to replacement and repair demand.
Our revenues tied to new housing comprise only about 25%, positioning us very well in various economic cycles. Contractor Solutions generated adjusted EBITDA of $89 million, representing a margin of 31% compared with $68 million and a margin of 32% in the prior-year period. The year-over-year margin decline primarily reflected higher freight and raw materials cost, partially offset by pricing actions. Of note, looking ahead, we announced a mid–single-digit price increase in this segment just this week to offset the rising costs.
It will go into effect later this calendar year as costs have risen quickly in recent months. There is a bit of a timing mismatch before pricing takes effect to offset cost. I would like to provide one final update on the Mars synergies. We are approaching a total of $15 million in synergies related to the acquired Mars business, surpassing our originally stated target of $10 million. All of the synergies have been actioned and most have been realized as our first year of ownership comes to a close.
Specialized Reliability Solutions revenue increased 28% to $50 million. Acquisitions contributed $5.8 million, or 15%, while organic growth contributed $4.9 million, or 13%, driven by volume growth, pricing actions, and our continued focus on product availability and customer service. Adjusted segment EBITDA in the second quarter was $11 million, an increase of 66%, and adjusted EBITDA margin expanded 490 basis points to 21.5%. The improvement reflects restructuring savings from actions taken earlier this calendar year, multiple strategic pricing actions, favorable product mix, and contribution from the higher-margin acquisitions.
Integration of the two businesses acquired in the fiscal third quarter of 2026 is now substantially complete. In response to rising costs for certain petroleum-based inputs in the Specialized Reliability Solutions segment, we have announced four separate price increases during fiscal 2027, including the most recent increase earlier this month. We continue to monitor input costs closely and will take additional pricing as appropriate. Demand has remained resilient to date in this segment, and in fact we recorded our highest ever incoming order day in early October.
Within Engineered Building Solutions, we previously announced our plan to sell the Greco U.S. business and strategically exit the Greco Canada business. The Greco U.S. business was classified as held for sale as of March 31, 2026. We will continue to update our progress on this as warranted on future earnings calls. Excluding the Greco businesses, the Engineered Building Solutions segment revenue was $22.7 million, an increase of 2.4% from the prior-year period.
Adjusted EBITDA was $4.4 million, with an adjusted EBITDA margin of 19% compared with 22% in the prior year. The remaining EBS businesses continue to perform well, supported by a trailing four-quarter book-to-bill ratio of 1.05 to 1 and a healthy backlog, despite a shorter historical book-to-bill cycle reducing the amount of revenue captured in the reported backlog. We have raised our prices as materials and freight costs have risen and expect to have another round of price increases in the near future across all of our product lines.
Turning to consolidated cash flow, operating cash inflow reached a record $95 million in the fiscal second quarter compared with $62 million in the prior-year quarter. This 54% year-over-year increase primarily reflected contributions from increased organic sales and acquisitions completed during fiscal 2026, partially offset by higher interest expense associated with increased borrowings. Free cash flow, defined as cash flow from operations less capital expenditures, was an inflow of $92 million in the fiscal second quarter compared with an inflow of $59 million in the prior-year period.
As Joe mentioned, this allowed us to repay a significant amount of debt during the quarter, which led to a lower pricing tier for our revolver and Term Loan A, essentially offsetting the most recent increase in rates by the Federal Reserve. Our effective tax rate for the fiscal second quarter was 24.1%. On a GAAP basis, we expect amortization of intangible assets to be approximately $61 million for fiscal 2027. At quarter-end we had $767 million of debt outstanding under our revolving credit facility and Term Loan A. Reflecting the higher debt balance as compared to last year, fiscal second-quarter interest expense was $12.5 million compared with $1.3 million in the prior-year quarter. We currently expect fiscal 2027 interest expense of approximately $49 million, assuming no additional M&A or outsized share repurchase activity. At quarter-end, our net debt for covenant purposes was $734 million, resulting in a net debt to EBITDA leverage ratio of 2.1 times.
Accordingly, the interest rate on both debt instruments will now be SOFR plus 175 basis points, a 25-basis-point reduction. As a reminder, in the third quarter of fiscal 2026 we entered into an interest rate swap that fixed SOFR at 3.42% for three years on $300 million of our Term Loan A balance. That fixed rate remains well below the current SOFR level and continues to generate meaningful interest expense savings. We continue to maintain a strong balance sheet with net debt to EBITDA well within our target range of 1 to 3 times.
This provides ample liquidity to support growth initiatives and broader capital allocation priorities. During the quarter we repurchased approximately $5.8 million of our common stock in the open market at an average price of $298 per share. These repurchases reflect our confidence in CSW Industrials’ long-term value-creation opportunity and our disciplined approach to capital allocation. Our outlook for fiscal 2027 remains positive, supported by buying patterns that are closer to historical norms. Excluding the Greco businesses within Engineered Building Solutions, we expect each segment to deliver year-over-year organic revenue growth and EBITDA growth driven by resilient demand, acquisition contributions, cost management, and continued strong execution. At the consolidated level, we expect significant growth in adjusted EBITDA and EPS in fiscal 2027.
GAAP EPS will reflect the full-year impact of higher interest expense and increased intangible amortization from our recent acquisitions. As a result, adjusted EBITDA remains the clearest measure of our underlying profitability growth and the expanding earnings power of the business. We also expect to generate strong free cash flow in fiscal 2027 with significant growth from the fiscal 2026 level. Finally, we still expect our fiscal year 2027 GAAP tax rate to be approximately 22% to 23% and the adjusted tax rate to be approximately 25% to 26%.
Quarterly rates will vary based on specific items. With that, I’ll now turn the call back to Joe for his closing remarks.
Joe Armes (Chairman, Chief Executive Officer and President)
Thank you, James. CSW Industrials delivered an impressive fiscal second quarter 2027 with revenue growth of 31% and margin expansion supported by volume leverage, acquisition integration, and synergy realization. Recent acquisitions are filling in previous product portfolio gaps, strengthening our wallet share through new business with legacy customers through cross-selling, and accelerating our growth trajectory. All teams are executing with discipline while delivering strong, above-market profitable growth.
Our planned exit of the Greco businesses further demonstrates our commitment to active portfolio management and to long-term shareholder value creation. Our execution strategy for the year remains consistent. We will prioritize driving long-term shareholder value, allocating capital efficiently on a risk-adjusted returns basis, maintaining balance sheet resilience, outgrowing all of the end markets we serve, rigorous cost management, and accelerating profitability. We still expect full-year organic revenue growth in excess of our end markets along with significant growth in adjusted EBITDA, adjusted EPS, and free cash flow.
At the same time, we will continue to pursue accretive acquisitions that enhance our portfolio and strengthen our ability to serve our customers. CSW Industrials takes considerable pride in being a trusted partner to our customers and in making it as easy as possible to do business with us. Our Contractor Solutions segment was just recently named Home Depot’s 2025 Plumbing Partner of the Year, which is an important recognition from a valued retail and distribution customer. This award reflects the team’s outstanding customer service and operational excellence, and I want to congratulate the entire Contractor Solutions team, including its leader, Jeff Underwood, on this outstanding achievement.
In closing, I want to thank our CSW Industrials team, who collectively own approximately 4% of the company including our ESOP, for their continued performance and commitment, and I also want to thank our shareholders for your continued interest in and support of CSW Industrials. Jasmina, we are now ready to open the line for questions.
OPERATOR
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Our first question is from John with CJS Securities. Please proceed with your question.
Jeremy (Analyst at CJS Securities)
Good morning. It’s actually Jeremy on for John. Thank you guys for taking the time to answer some questions here. Can you break out the organic volume growth versus price in the Contractor Solutions business and what you’re expecting there for the remainder of the year?
James Perry (Executive Vice President and Chief Financial Officer)
Jeremy, it’s James. Thanks for being on for John this morning. Good to hear from you. I’ll say this, in both Contractor Solutions and Specialized Reliability Solutions, which each had about 13% organic growth. Really, really proud of Jeff and Mark and their teams and those businesses for that type of growth in this environment, price and volume both contributed. Volume was a little more than price in each, but both were significant contributors. In terms of going forward, other than forecasting we expect organic growth for the rest of the year, we’re not able to get that much detail looking forward the remaining quarters of the fiscal year. But as Joe said, we expect organic growth above the end markets in both segments as well as EBS, and we do expect to have positive momentum.
Jeremy (Analyst at CJS Securities)
Awesome. Thank you. And then you mentioned that you may see some near-term margin percentage headwinds from inflation. Having said that, you’ve historically had really good pricing pass-through power. So are there any changes to your profit dollar expectations going forward versus last quarter?
James Perry (Executive Vice President and Chief Financial Officer)
No. And that’s a good distinction. Jeremy, this is James again. When we push pricing through, our first priority is to cover the dollar impact from cost increases. We’ve done that in SRS, as we said, four times already this fiscal year. Contractor Solutions had a price increase mid-summer and just this week announced another price increase a little earlier than we normally do that will go into effect, a mid-single-digit price increase later this calendar year.
Normally that’s a January, February type event. As we look at the last couple of months and the next couple of months, when we put in place the July price increase, we tried to cover what costs had come through but didn’t necessarily and weren’t able to anticipate diesel continuing to go up, some commodity prices continuing to go up, and ocean freight continuing to rise. So this price increase we’re putting in December covers that and what we anticipate going forward. But you’ve got a little bit of a timing mismatch.
We always try to stay ahead of that. Some of those costs, as you know, take a few months to come through the system in inventory, like ocean freight and the overseas commodity costs. But things like over-the-road trucking with the diesel spike we’ve seen in the last few months, certainly since the spring, but that’s continued with record diesel prices — those are pretty real-time commodity prices here in the U.S. That inventory turns faster. So the team’s done a great job managing that as well as they can. We’re playing a bit of catch-up on this new price increase, so you’re going to have a little timing mismatch and a little margin headwind. The goal is always, as I said and you emphasized, to cover margin dollars across the board and then continue to work back towards the same margin percentages as we go through the next fiscal year.
Jeremy (Analyst at CJS Securities)
Super helpful. That makes sense. And if I could just squeak one more in, what are you guys seeing in terms of the M&A pipeline? Are you seeing opportunities increase or decrease in the current environment against the backdrop of rising rates? And thank you both again.
Joe Armes (Chairman, Chief Executive Officer and President)
You bet. Jeremy, this is Joe. Yeah, we’ve been very, very pleased with the pipeline. A number of opportunities that we have seen and continue to see, analyze and diligence. So we have not seen any decrease at all. In fact, I’m pleased with a little bit of an uptick in activity there. And I think that bodes really well for the future. And we view ourselves as financially strong on a relative basis compared to others. And so a little bit of softness in the market sometimes can be helpful to us on valuation and just our relative ability to transact.
So we’re pretty bullish on that and feel good about the robust pipeline that we see.
Jeremy (Analyst at CJS Securities)
Great, thank you.
Joe Armes (Chairman, Chief Executive Officer and President)
Thanks, Jeremy.
OPERATOR
Our next question is from Tim Wojs with Baird. Please proceed with your question.
Tim Wojs (Analyst at Baird)
Hey, everybody. Good morning. Nice job.
Joe Armes (Chairman, Chief Executive Officer and President)
Morning, Tim.
Tim Wojs (Analyst at Baird)
Hey, I think I know the answer to this question, but I’m going to ask it anyway. A couple of the HVAC OEMs, the equipment OEMs, just over the last couple of months have had trouble putting pricing into the market. I think it’s kind of related to the size of the tariffs and it’s mostly on the equipment side. But is that anything that you’ve heard in terms of your pricing increases and your ability to pass through price, acknowledging that’s not always easy?
But has there been any change in the customer acceptance of price in your eyes?
Joe Armes (Chairman, Chief Executive Officer and President)
You know, Tim, we hear about the affordability and the price increases that have been harder for the OEMs. I would just remind you — and you know well — our products are so much lower-priced, low cost, high value, a very small portion of the total cost of a replacement or a new system. And so we don’t seem to have the same dynamics that the OEMs have on price increases. So it’s not a material issue for us at this point. And so it’s always easier from my office to pass along the price increase than it is from Jeff’s. But no, we don’t see that as a concern at this point.
Tim Wojs (Analyst at Baird)
Okay, okay. And then, I mean, this is kind of in the weeds, but the side-discharge units have gotten a lot more prominent, I think, in the industry. Do you have any differences in content as you think about those types of units versus a standard vertical-discharge unit?
James Perry (Executive Vice President and Chief Financial Officer)
Yeah, Tim, I’ll let Jeff chat with you later on about specifics there. We haven’t seen anything dramatically different, but I think Joe and I might get over our skis if we get too detailed on that. I know you asked that with some of the OEMs this week, and I learned a little bit from that as well. But why don’t we let Jeff address that with you offline as well?
Tim Wojs (Analyst at Baird)
Okay. Okay, I’ll sneak another one in then. Just the acceleration in double-digit — the acceleration, it looks like, in volume. How much of that would you guys ascribe to just the industry getting a little bit better sequentially versus your initiatives incrementally gaining some steam? Thanks.
James Perry (Executive Vice President and Chief Financial Officer)
Yeah. I’ll say a few things, Tim. Yeah, I think we saw things were healthier this year. As we pointed out in my remarks, 75% of our businesses are replacement and repair, and I think that’s remained pretty healthy. Only 25% is new housing focused right now. And so, you know, we’re able to lean into what people are buying. People are repairing their units. They’re replacing when they need to. Not as much on the new construction, obviously, as you well know.
So I think the market’s in a healthy place. I’ll remind you, last year, organic growth was negative. So it doesn’t hurt that the comp gets a little bit easier. And then as Joe pointed out in his remarks, these acquisitions have given us a lot of cross-selling opportunities and how important our legacy customers want to buy more product from us. So adding Aspen, adding Mars — those type things. Mars wasn’t quite organic yet, but it will be here in four more days. But those type products, we did a lot of product rationalization and moved some of the Mars product line over to RectorSeal, the legacy business, which is organic.
So a lot of that cross-selling is important and that really supercharges our growth opportunity, which is why we have confidence in maintaining our return to organization.
Joe Armes (Chairman, Chief Executive Officer and President)
Yeah, I would just add, yeah, I think our team’s doing an outstanding job, and I would absolutely give them credit for really outperforming and that cross-selling and wallet share growth gains. Really, really impressive and just a great job by the team.
Tim Wojs (Analyst at Baird)
Awesome. Thanks everybody.
James Perry (Executive Vice President and Chief Financial Officer)
Thanks, Tim.
OPERATOR
Our next question is from Tomo Sano with J.P. Morgan. Please proceed with your question.
Tomo Sano (Analyst at J.P. Morgan)
Hi, good morning everyone.
James Perry (Executive Vice President and Chief Financial Officer)
Good morning, Tomo.
Tomo Sano (Analyst at J.P. Morgan)
Thank you. Maybe just on Specialized Reliability Solutions, margins reached 21.5% this quarter, already above your long-term target of 20%. How should we think about the sustainability of that margin level? Is there further upside as you realize synergies or was there some unusual favorable mix this quarter?
James Perry (Executive Vice President and Chief Financial Officer)
Yeah, Tomo, this is James. Thanks for being on as always, appreciate your coverage. Nothing unusual this quarter. The team’s doing a great job. You know we had some restructuring back in our fiscal fourth quarter, calendar first quarter. That’s fully embedded now. Both acquisitions are just about fully integrated. We got everything in our facility out here east of Dallas on the Rockwall plant that you’ve seen before, Tomo. And we’re picking up those synergies, picking up the benefit of the integrations.
Team’s doing a great job. They’ve got good demand in their business. We talked about earlier this month that we had our biggest-ever order quarter, but orders remained solid. Pricing has come through now with those price increases we had. We’ll remind you there’s some seasonality — this next quarter tends to soften just a little on the top line and bottom line. Not too dramatic. It softens just a little bit in both SRS — really across the board, all three segments have a little bit of a winter seasonality. But overall we’re very confident in the long-term 20+% margins. Now you’re at 21.5% this quarter, and we would tell you that overall, yes, there’s upside here.
Mark and his team are doing a great job running that business. The customers really rely on them around the globe for product, which with the supply chain issues is a key factor right now in our ability to push through price, push through freight costs as we need to — those type things. So yeah, we would tell you that there’s room to continue to grow that margin line.
Tomo Sano (Analyst at J.P. Morgan)
Thank you, James. And on EBS excluding Greco, the backlog sounds healthy and you’ve talked about the improving backlog quality, but margins were still 19.3% this quarter. What needs to happen to get margins back into the low 20s and when should we start to see the benefit from higher-margin products in the backlog?
James Perry (Executive Vice President and Chief Financial Officer)
Sure. Tomo, again, great question. Yeah, the team’s doing a great job. You know the commercial construction market, you look at ABI and any kind of metric and it remains pretty soft. So the team’s doing a great job keeping that book-to-bill above one at a 1.05 on a trailing four-quarter basis. The backlog is doing well. Scott and his team are really, really putting forth good efforts getting things in. You’re still working through some projects that weren’t priced quite as strongly necessarily, and with some rising commodity prices that hit you a little bit.
You know, we’ve said the long-term goal there is for 20%. Last year you were a little above 20 this quarter. Last quarter you were a little above. You know that’s a relatively small business and you’ve got a few projects that can make a big difference in the margin. You put out a couple million-dollar project in a quarter, or a million-dollar project in the quarter with really good margins or a little weaker margins, that can move the needle quite a bit.
So you’re hovering around that 20% conversation consistently now, which was our goal. And we would tell you we still have all the confidence that medium and long term you’re going to be above 20% and growing from there as the business continues to pick up good projects, and as the commercial construction market does come back at some point, you’ll really have a nice tailwind.
Tomo Sano (Analyst at J.P. Morgan)
Great. Thank you, James. And then congrats on the quarter.
James Perry (Executive Vice President and Chief Financial Officer)
Thank you, Tomo.
OPERATOR
Our next question is from Susan McClary with Goldman Sachs. Please proceed with your question.
Charles Perunin (Analyst at Goldman Sachs)
Thank you. Good morning, everyone. This is Charles Perunin for Susan.
Joe Armes (Chairman, Chief Executive Officer and President)
Hey, Charles.
Charles Perunin (Analyst at Goldman Sachs)
Hi, guys. Good morning. I guess my first question, I just want to talk a little bit more about what you’re seeing in terms of Contractor Solutions. Are you seeing maybe a little bit more shift to repair versus replacement given the macro environment that we’re in today? And what does that mean for your business if you’re seeing some of that?
Joe Armes (Chairman, Chief Executive Officer and President)
Well, yes. I mean, I think we’ve been seeing that for some time now. Several quarters we have commented that our acquisitions, which increased our exposure to the repair market, were really well timed, and the increased focus on repair—folks wanting to repair versus replace because of the cost increase, as we mentioned was discussed earlier, of the OEM equipment—we’re really well positioned in that regard. As James quoted, a 75% repair and replace versus new residential construction.
So we like the portfolio where it is right now. It provides resilience through the cycles, and there will be another cycle. And so we do want some exposure to the replacement and to the new resi construction. But I think what you’re seeing here is really, really resilience in a portfolio that’s well balanced and allows us to thrive through kind of any cycle.
James Perry (Executive Vice President and Chief Financial Officer)
Charles, I’ll remind you, Jeff said this before and reminds us: if you can repair, you’re going to repair. If you can get away with a hundred-dollar repair or a $1,000 repair, you’re going to do that over replace. So that shift is real, but you’re almost always going to pick that option in that scenario. That’s why, as Joe said, we lumped together repair and replace at 75% because that can move back and forth.
Charles Perunin (Analyst at Goldman Sachs)
Got it. That’s very good color. Thank you for that, guys. I guess my follow-up is, in referring, Mark, you talk about your continued effort to drive productivity across the business to further expand your margins over time. Can you provide a little bit more details about some of the initiatives that are going on right now and how do you think about the potential upside that it could provide to margin?
James Perry (Executive Vice President and Chief Financial Officer)
One thing I would say, and Joe says this a lot and we’ve really subscribed to this with last year’s billion dollars of acquisitions: just because we grow at the top line doesn’t mean we need to add overhead or anything like that within the facility or the corporate or kind of business segment type level. So I think we’re doing a great job with cost discipline. The team is always looking to get more efficient. The team in Vietnam does a tremendous job with their efficiency goals.
Every year we get readouts all the time on their initiatives there, how they’re getting more efficient in that facility, working with the labor pool that they have, getting more through that plant. The dozens of containers a week we bring over here is a testament to that and what a good job they’re doing in that facility. We have freed up a lot of capacity since we bought that company almost six years ago now. But I’d say across the board every business right now, all three of our business leaders are challenging themselves and their team to find ways to get more productive. As I said, when you grow organically or through acquisition, not necessarily adding the overhead that you might need—doing more with the same amount of folks you have. And as we grow that top line, a billion three and beyond on a run-rate type basis, I think you’ll see margin opportunity continue to be there for us.
Charles Perunin (Analyst at Goldman Sachs)
All right, thank you so much for your time, guys, and good luck with the quarter.
James Perry (Executive Vice President and Chief Financial Officer)
Thank you, Charles.
OPERATOR
Our next question is from Sam Reed with Wells Fargo. Please proceed with your question.
Eric (Analyst at Wells Fargo)
Hi, this is Eric on for Sam. Thanks for taking the question. Just want to ask about—you’ve got volume growth in CS and SRS. I’m just curious if you’re seeing anyone take preloading ahead of the price increases that you’ve already taken. It sounds like there’s more coming, so if people are just trying to get ahead of that, and sort of what you’re seeing from the channel inventory levels.
James Perry (Executive Vice President and Chief Financial Officer)
Yeah. Eric, thanks for being on. This is James. Appreciate that. I’d say this—I’ll separate the two. In SRS, you’ve had four price increases this year. You had three in a row back in the spring and early summer, and then we just put one forth a couple weeks ago, and we haven’t seen that. I talked about we had our biggest order day ever earlier this month that was a couple weeks ahead of the price increase, but Mark and the team tell us that they don’t really see that.
People either need the product or they don’t, and so it’s not that big a thing. Contractor Solutions, we had our price increase back in July. We just announced this week another price increase for later this calendar year. Like I said, that’s a little earlier than normal to cover the costs that we’ve had, that we’ve gotten hit with on the freight—both domestic and ocean—as well as commodity costs and ongoing tariffs. But that’s normal. Normally that might have been maybe January. We’re doing it a little bit earlier this year.
But people aren’t buying product months ahead of time that would have gone through this last quarter for that. So occasionally the week before you may see people take a little product, but you didn’t see an impact of that in the quarter. No.
Eric (Analyst at Wells Fargo)
Great. That’s good color. And just on—you talked about the cross-selling opportunities and some of the acquisitions expand market wallet share opportunities. Wonder if you can just dive in a little more of what you’re seeing from the increase in wallet share. And on Mars you also raised the synergy target—I believe this is the fourth time now you’ve done it. You can just talk about where you’re getting the incremental upside from and is there any further upside from here?
James Perry (Executive Vice President and Chief Financial Officer)
Yeah, I’ll talk about Mars. I think we’ll always say that we’re looking for efficiencies and synergies. We won’t report that anymore now that we’re at the one-year anniversary. We will tell you that our internal goal was always well ahead of $10 million, but we were proud to announce 15. And I’ll say we didn’t necessarily intend to talk about it this quarter, but the team kept finding synergies so we wanted to update that for you from last quarter.
Yeah, so they’ll become organic here in a few days as we hit the one-year anniversary, so what becomes the synergies versus productivity efficiencies gets pretty blended at that point. But really proud of the work the team has done there to get those synergies, some of those ahead of schedule. We said we thought 10 in the first year. We’ve already hit 15. I don’t think we thought we’d hit 15 in the first year. That was a little further out. So really proud of that.
In terms of cross-selling and wallet share, that’s just an ongoing piece we have. We just had midyear reviews with all the teams, and Jeff and the team at Contractor Solutions talked about new business opportunities we had with existing customers—wins we had in the first half, wins that are coming in the second half that have been committed. Joe talked about winning the plumbing partner of the year over at Home Depot. That’s a part of that, too. We bought a small plumbing company a couple years ago, and the team that came with that really knows how to sell to the retail channel, found more and more legacy products that they could sell into the retail channel, and that went into that award that we received. And so folks like Home Depot, folks like our distribution customers want to continue to buy more of our products. We’ve got to figure out the best fit for them, be sure they understand where the distribution centers are, build those relationships.
Those are often years-long sales cycles because we’re displacing somebody else. But we continue to see win after win from that team and really proud of the work they’ve put in.
Eric (Analyst at Wells Fargo)
Thanks, appreciate all the color.
James Perry (Executive Vice President and Chief Financial Officer)
You bet. Thank you, Eric.
OPERATOR
We have reached the end of the question and answer session. I would like to turn the floor back over to Joe Armes for closing comments.
Joe Armes (Chairman, Chief Executive Officer and President)
Yes, thank you, Jasmina. I just wanted to thank everybody for joining us. Really, really proud of the outstanding quarter and the financial results that we hit today, and look forward to our next time to do this next quarter. So thank you for your support.
OPERATOR
This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
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