Industrial products company CSW (NASDAQ:CSWI) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 11.9% year on year to $227.9 million. Its GAAP profit of $2.26 per share was also 5.6% above analysts’ consensus estimates.

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Joseph B. Armes, CSW Industrials’ Chairman, President, and Chief Executive Officer, commented, "I am pleased to announce these outstanding results for the fiscal second quarter of 2025. CSWI's record revenue for the quarter was driven by organic volume growth, pricing actions, and our strategic acquisitions of Dust Free and PSP Products. The team also achieved all-time record operating cash flow and record fiscal second quarter net income, earnings per diluted share, and EBITDA for the quarter."

Company Overview

With over two centuries of combined operations manufacturing and supplying, CSW (NASDAQ:CSWI) offers special chemicals, coatings, sealants, and lubricants for various industries.

HVAC and Water Systems

Many HVAC and water systems companies sell essential, non-discretionary infrastructure for buildings. Since the useful lives of these water heaters and vents are fairly standard, these companies have a portion of predictable replacement revenue. In the last decade, trends in energy efficiency and clean water are driving innovation that is leading to incremental demand. On the other hand, new installations for these companies are at the whim of residential and commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, CSW’s sales grew at an incredible 17.7% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows CSW’s offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. CSW’s annualized revenue growth of 9.5% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.

This quarter, CSW reported year-on-year revenue growth of 11.9%, and its $227.9 million of revenue exceeded Wall Street’s estimates by 4.9%.

Looking ahead, sell-side analysts expect revenue to grow 5% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and illustrates the market thinks its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

CSW has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 18.4%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, CSW’s annual operating margin rose by 6.1 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q3, CSW generated an operating profit margin of 22.6%, up 2 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

CSW’s EPS grew at an astounding 21.2% compounded annual growth rate over the last five years, higher than its 17.7% annualized revenue growth. This tells us the company became more profitable as it expanded.

We can take a deeper look into CSW’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, CSW’s operating margin expanded by 6.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

In Q3, CSW reported EPS at $2.26, up from $1.93 in the same quarter last year. This print beat analysts’ estimates by 5.6%. Over the next 12 months, Wall Street expects CSW’s full-year EPS of $7.35 to grow by 20.2%.

Key Takeaways from CSW’s Q3 Results

We were impressed by how significantly CSW blew past analysts’ revenue expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock remained flat at $363.18 immediately following the results.

CSW may have had a good quarter, but does that mean you should invest right now?We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.