Griffon CorporationGFFNYSE
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Operator: Greetings, and welcome to Griffon Corporation's Fiscal Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Griffon Corporation's CFO, Brian Harris. Please go ahead, sir.
Brian G. Harris: Thank you. Good morning, and welcome to Griffon Corporation's Third Quarter Fiscal 2025 Earnings Call. Joining me for this morning's call is Ron Kramer, Griffon's Chairman and Chief Executive Officer. Our press release was issued earlier this morning and is available on our website at www.griffon.com. Today's call is being recorded, and the replay instructions are included in our earnings release. Our comments will include forward-looking statements about Griffon's performance. These statements are subject to risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our SEC filings. Finally, some of today's remarks will be adjusted for items that affect comparability between periods. These items are explained in our non-GAAP reconciliations included in our press release. With that, I will turn the call over to Ron.
Ronald J. Kramer: Thanks, Brian. Good morning, everyone, and thanks for joining us. During the third quarter, our Home & Building Products segment continued its strong performance. For the first 9 months, HBP profitability has exceeded our expectations with an EBITDA margin of 31.4%, driven by favorable price and mix. In the third quarter, our Consumer and Professional Products segment was significantly impacted by weak demand, coupled with increased tariffs disrupting historical customer ordering patterns, particularly at Hunter Fan. Notwithstanding the decrease in sales volume for the first 9 months, CPP EBITDA margin has improved 270 basis points year-over-year. This profitability improvement reflects the hard work of our AMES U.S. team, who successfully transitioned our manufacturing operations to an asset-light business model, thus increasing our flexibility and reducing our operating costs through leveraging our global sourcing capabilities. We've also seen solid performance from our team in Australia, including the contribution from our acquisition of Pope in July of 2024. Given our overall year-to-date performance, we are reaffirming full year EBITDA guidance of $575 million to $600 million, while reducing our revenue expectations by $100 million to $2.5 billion as a result of the ongoing consumer weakness at CPP. Turning now to capital allocation. During the third quarter, we repurchased $40 million of our stock or 581,000 shares at an average price of $69.28 per share. At June 30, $320 million remained outstanding under the repurchase authorization. Since April 2023 and through June, we've repurchased $538 million of stock or 10.5 million shares at an average price of $51.15. These repurchases have reduced Griffon's outstanding shares by 18.4% relative to the total shares outstanding at the end of the second quarter of fiscal 2023. Also yesterday, the Griffon Board authorized a regular quarterly dividend of $0.18 per share payable on September 16 to shareholders of record on August 29. This is our 56th consecutive quarterly dividend to shareholders. Our dividend has grown at an annualized compound rate of more than 18% since we initiated dividends in 2012. These actions reflect the strength and resiliency of our businesses as well as our continued confidence in our strategic plan and outlook. I'll turn it over to Brian for more details of the financial results.
Brian G. Harris: Thank you, Ron. Third quarter revenue of $614 million decreased 5% and adjusted EBITDA before unallocated amounts of $148 million increased 5%, both in comparison to the prior year quarter. EBITDA margin before unallocated amounts was 24.1%, an increase of 240 basis points. Gross profit on a GAAP basis for the quarter was $265 million compared to $249 million in the prior year quarter. Excluding items that affect comparability from prior year period, gross profit of $265 million was consistent with the prior year. Normalized gross margin increased year-over-year by 230 basis points to 43.2%. During the third quarter, we recorded a pretax charge of $244 million for impairment on goodwill and indefinite-lived intangible assets related to the acquisition of Hunter Fan. This charge was caused by ongoing weak consumer demand, coupled with the impact of increased tariff disrupting historical customer ordering patterns. Third quarter GAAP selling, general and administrative expenses were $391 million, excluding items that affect comparability from the current and prior year quarters, SG&A expenses were $147 million or 23.9% of revenue compared to the prior year of $155 million, which also reflected 23.9% of revenue. Third quarter GAAP net loss was $120 million or $2.65 per share compared to net income of $41 million in the prior year quarter or $0.84 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $69 million or $1.50 per share compared to the prior year of $61 million or $1.24 per share. Corporate and unallocated expenses, excluding depreciation in the quarter were $13 million compared to $15 million in the prior year quarter. Free cash flow during the quarter was $115 million compared to $120 million in the prior year quarter. During the quarter, capital expenditures were $9 million compared with $15 million in the prior year quarter. Regarding our segment performance, revenue for Home and Building Products of $400 million increased 2% from the prior year, driven by favorable price and mix of 3%, partially offset by decreased volume of 1%. Adjusted EBITDA for HBP of $129 million increased by 9% compared to the prior year quarter, driven by increased revenue and reduced material costs partially offset by increased labor costs. Consumer Professional Products revenue of $213 million decreased 16% compared to the prior year quarter primarily driven by decreased volume of 19% due to reduced consumer demand across all geographic regions, except Australia, and disrupted historical customer ordering patterns in the U.S. due to increased tariffs. CPP benefited from price and mix of 2% and incremental revenue from the Pope acquisition contributed 1%. CPP adjusted EBITDA decreased by 14% from the prior year quarter to $19 million, primarily due to the revenue decrease noted above, partially offset by the benefits from the U.S. global sourcing expansion initiative, improved margins across all geographic regions and reduced administrative expenses. Foreign currency had a 1% unfavorable impact. Regarding our balance sheet and liquidity, as of June 30, 2025, we had net debt of $1.3 billion and net debt-to-EBITDA leverage of 2.5x as calculated based on our debt covenants compared to 2.7x leverage at the end of last year's third quarter. Our net debt and leverage are less than our year-end September 2024, even after returning $145 million to shareholders through dividends and stock buybacks during the first 3 quarters of the year. Regarding our outlook, we now expect revenue to be $2.5 billion versus the prior expectation of $2.6 billion. The $100 million reduction is attributable to our CPP segment, which reflects ongoing weak consumer demand, coupled with the impact of increased tariffs disrupting historical customer ordering patterns, in particular for Hunter. We are reaffirming segment adjusted EBITDA guidance of $575 million to $600 with the upper end of the range reflecting potential incremental volume. We now expect HBP segment margin in excess of 31% versus prior guidance of in excess of 30%. For CPP, we now expect margin of approximately 8% versus our prior guidance of an excess of 9% due to the reduction in volume impacting revenue and the related effect on overhead absorption. Regarding the remaining elements of our 2025 guidance, we now expect net interest expense to be $95 million versus our prior guidance of $102 million, capital expenditures of $60 million versus our prior guidance of $65 million. We continue to expect free cash flow to exceed net income, depreciation of $42 million, amortization of $23 million and a normalized tax rate of approximately 28%. Now I'll turn the call back over to Ron.
Ronald J. Kramer: Thanks, Brian. We continue to generate solid profitability and free cash flow through 3 quarters despite CPP seeing weak consumer demand and tariff-related disruptions and customer buying patterns. With respect to our capital allocation, we remain committed to using the strong operating performance and free cash flow of our businesses to drive a capital allocation strategy that delivers long- term value for our shareholders. This portion of our strategy includes investing in our businesses, opportunistically repurchasing shares and reducing debt. So far this year, we've returned $145 million to shareholders in the form of dividends and share repurchases while simultaneously reducing debt by $76 million and reducing our overall leverage to 2.5x. And, I reiterate that we continue to expect to generate a total of over $1 billion of free cash flow during this fiscal year and the next 2. We're encouraged by the strong momentum in key growth areas and remain optimistic about the opportunities that lie ahead. We view our stock as a compelling value. Finally, I'd like to express my appreciation to our Griffon team around the world who have been able to remain focused on executing our strategy while competing in this challenging and dynamic environment. Operator, we're now ready for questions.
Operator: [Operator Instructions] The first question we have comes from Bob Labick of CJS Securities.
Lee M. Jagoda: It's actually Lee Jagoda for Bob this morning. Ron, can you start just on CPP and maybe talk to your pricing strategy there and whether price has gone in for tariffs and how the retailers have reacted?
Brian G. Harris: Yes, I'll take it. Yes, we have, in certain instances, put through price. However, given the sensitive nature of ongoing customer discussions and our mitigation actions, we're not in a position to really give much more detail.
Lee M. Jagoda: Okay. And then obviously, given the guidance, it's impacting the sell-in. Can you talk to the sell-through trends that you're seeing at retail?
Brian G. Harris: Yes. Retail continues to see reduced POS. During this past quarter, certainly in the Northeast, weather was a bit of a factor, along with the ongoing weak consumer and also people pulling back further from the concerns about tariffs and inflation.
Operator: The next question we have comes from Robert Schultz of Baird.
Robert J. Schultz: Just wanted to first ask on HBP. I saw that you called out price/mix was positive. And I think you guys have put some price increases there. But just curious how price realization is tracking relative to your initial expectations?
Brian G. Harris: Generally, it's tracking in line. In that business, when we put price increases through, they are generally taken by the market.
Robert J. Schultz: Got it. And then on HBP demand, what are you seeing between the different end markets there just on the residential, commercial and then new construction side?
Brian G. Harris: Sure. New construction is a small part of our business, less than 10% of HBP. And we play mostly in the higher end of the market and in the repair and remodel side. Generally, commercial continues to be soft compared to years past, but our business overall, if you look at it from pre-pandemic until now, is up significantly. On the residential side, the high-end consumer continues to be active, and our products continue to do well, where the lower end and the new construction side is somewhat weaker.
Operator: Next question we have comes from Trey Grooms of Stephens Inc.
Trey Grooms: So the CPP business, we were kind of thinking, I guess, as we entered this year anyway that maybe we could start to see some pickup at least in consumer and the consumer weakness maybe shifting a little bit towards the back half of this year. Clearly, that's been extended for everybody for understood reasons. But -- and I know it's tough to have any kind of a crystal ball at this point. But how are you guys thinking about timing of maybe a potential rebound on the CPP side of the business from a -- just from a demand standpoint?
Brian G. Harris: It's hard to really project when the consumer will come back. I would say once tariffs settle into a more known area, which we're slowly getting more information about now, but we don't have complete information yet that the consumer will see and start to feel more confident and come back to spending again. To give you an exact time is not realistic for me to do.
Ronald J. Kramer: Trey, it's Ron. I'll just add to it that we have the best brands, and we're committed to our global sourcing asset-light model, which we think gives us flexibility. So we have a business that particularly on the Hunter side is at a low point, and it will recover. How long it will take to recover, your guess is as good as ours. But these are solid brands and businesses that, over time, we expect to generate significantly more revenue and profitability from.
Trey Grooms: Yes. Fair enough. Fair enough. And on -- I guess on that point, could you give us an update kind of where we are on the global sourcing initiative as far as timing? Is that still on track with your expectations? And CPP margins clearly showing some signs of improvement, but any update on how you're thinking about the longer-term margin targets there and maybe the timing as far as hitting those targets on CPP?
Ronald J. Kramer: Yes. We're committed to the global sourcing. All of the actions are behind us. We have optionality on where we're going to be sourcing from. And long term, our target is 15% margins in that business.
Operator: [Technical Difficulty]
Collin Verron: [Audio Gap] HBP. You called out that material cost tailwind in the press release, I believe. Can you just talk about what drove that, sort of how those costs are tracking to the fiscal fourth quarter and maybe give a little bit of extra color on the impact of steel here. And then with the updated guide, just how should we think about the long-term EBITDA margin in the HBP business?
Brian G. Harris: Sure. From a material standpoint, yes, we did have a tailwind this quarter compared to last year's quarter. Right now, steel, we believe from here forward, we will be roughly stable from a pricing standpoint. And if you look at steel over the last 3 years on average, in each year, though there's been ups and downs during that time, steel has actually been in a pretty tight band. As far as margins in the business, we have a long-term target of better than 30%. We don't see any change to that. In the shorter term, for the remainder of this year, we see 31% or better.
Ronald J. Kramer: Imagine what the business will be like when the housing market gets good.
Collin Verron: Exactly. Okay. And then I guess pivoting to the CPP side, I mean, the demand obviously or environment is obviously weak. But I think it would be helpful just to understand like if margins can expand from the 9% levels you just reported and maybe the 8% you're expecting for the full year, if you don't see improvements in the demand backdrop. I guess I'm just trying to get a sense of how much of the global supply chain initiatives that you've taken is already in margins versus how much more is to come, just given sort of changes in inventory and things like that.
Brian G. Harris: Yes, there's still benefits to be had as we diversify the supply chain itself. But to get to our 15%, we're going to need the consumer to come back.
Operator: The next question we have comes from Josh Wilson of Raymond James.
Joshua Kenneth Wilson: Just a couple of housekeeping ones for me. And sorry if I missed these earlier, but is your corporate guidance still $55 million for the year in the EBITDA calculation?
Brian G. Harris: Yes, it is.
Joshua Kenneth Wilson: Okay. And then your inventory days picked up a fair amount year-on-year. How much of that was related to cost inflation versus buildup from the order patterns being disrupted or other factors?
Brian G. Harris: Yes. Inventory is a little higher than we would really generally expect as the consumer has slowed down, which, of course, in turn, has our customers ordering less.
Operator: Next question we have comes from Julio Romero of Sidoti & Company.
Alex Hantman: This is Alex on for Julio. First question was, just given the revised revenue guidance, could you talk about your confidence around the drivers of the full year EBITDA guidance?
Brian G. Harris: Well, performance year-to-date is -- gives us the confidence, particularly in the Home Building Products segment, which continues to perform well. Our margin in that business is ahead of our original guide of 30% or better. We now see 31% or better for the year, and that's a significant pickup. Conversely, on the CPP side, the weak demand is affecting our margin as well as our expected results.
Alex Hantman: And as a follow-up to that, are there any new cost optimization or automation initiatives underway that are kind of at work behind the scenes to protect margins?
Brian G. Harris: Yes. Well, it's really an ongoing process. We are regularly investing in automation and efficiency projects. We do have an ongoing project, in particular, on the Home Building Products side that's been going on for about 2 years now, which involves automation and new equipment, preparing us for future demand.
Ronald J. Kramer: And I'll just add that Clopay is the leader in the both residential and commercial door business. It's got innovation and technology in its pipeline and its ability to continue to grow its products, its diversification and expansion of its commercial business is ongoing and the strength of our dealer network, positioning of the brand, we're nowhere near full peak earnings of that business.
Operator: Ladies and gentlemen, we have reached the end of our question-and-answer session. And I would now like to turn the call back over to Ron Kramer for any closing remarks. Please go ahead.
Ronald J. Kramer: Thank you. We look forward to working hard and continuing to deliver excellent results, and we'll speak to you this fall.
Operator: Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.