Griffon Corporation Announces Third Quarter Results

Griffon Corporation (“Griffon” or the “Company”) (NYSE:GFF) today reported results for the fiscal third quarter ended June 30, 2020.

Consolidated revenue for the third quarter of $632.1 million increased 10% compared to the prior year quarter revenue of $575.0 million.

Income from continuing operations for the third quarter totaled $21.8 million, or $0.50 per share, compared to $14.1 million, or $0.33 per share, in the prior year quarter. Current year third quarter results included a loss from debt extinguishment of $1.2 million ($1.0 million, net of tax, or $0.02 per share), restructuring charges of $1.6 million ($1.2 million, net of tax, or $0.03 per share), and discrete and certain other tax provisions, net, that affect comparability of approximately $1.8 million or $0.04 per share. Prior year quarter results included discrete and certain other tax benefits, net, that affect comparability of $0.7 million or $0.02 per share. Excluding these items, current income from continuing operations would have been $25.9 million, or $0.59 per share, compared to $13.5 million, or $0.31 per share, in the prior year quarter, a 90% increase.

Adjusted EBITDA for the third quarter was $69.5 million, increasing 31% from the prior year quarter of $53.1 million. Unallocated amounts (primarily corporate overhead) in the third quarter of 2020 and 2019, respectively, were $11.1 million and $12.0 million, respectively. Adjusted EBITDA excluding unallocated amounts totaled $80.5 million in the third quarter of 2020, increasing 24% from the prior year of $65.1 million. Adjusted EBITDA is defined as net income excluding interest income and expense, income taxes, depreciation and amortization, restructuring charges, loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Adjusted EBITDA”, a non-GAAP measure).

Ronald J. Kramer, Chairman and Chief Executive Officer, commented, "Our strong results this quarter are a reflection of the operating excellence of our team in challenging times. The resilience of our businesses and the execution of our strategic actions has positioned us for continued growth in revenue, earnings and cash flow. Our team's dedication and extraordinary performance in supporting our customers has driven these exceptional results, while maintaining a safe and healthy work environment for our employees. We are poised to continue to build on our successes in the future."

Segment Operating Results

Consumer and Professional Products ("CPP")

CPP revenue in the third quarter of $328.9 million increased 20% compared to the prior year period, primarily due to increased volume of 19% driven by increased consumer demand for home improvement initiatives in North America and Australia resulting from COVID-19 stay at home orders, favorable price and mix of 1% and incremental revenue from the Apta acquisition of 2%, partially offset by an unfavorable impact of foreign exchange of 2%. Organic growth was 18%.

CPP Adjusted EBITDA in the third quarter was $37.1 million, increasing 55% from the prior year quarter primarily from the increased revenue noted above, partially offset by increased tariffs and COVID-19 related inefficiencies and direct costs. For the quarter ended June 30, 2020, EBITDA reflects an unfavorable foreign exchange impact of 2%. Adjusted EBITDA margin was 11.3% in the current quarter compared to 8.8% in the prior year quarter. Direct COVID-19 related expenses totaled approximately $2.2 million and $2.5 million for the quarter and year-to-date periods, respectively.

On November 29, 2019, AMES acquired Vatre Group Limited ("Apta"), a leading United Kingdom supplier of innovative garden pottery and associated products sold to leading UK and Ireland garden centers for approximately $10.5 million. This acquisition broadens AMES' product offerings in the market and increases its in-country operational footprint.

Strategic Initiative

In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations.

This initiative includes three key development areas. First, multiple independent information systems will be unified into a single data and analytics platform which will serve the whole CPP U.S. enterprise. Second, certain CPP U.S. operations will be consolidated to optimize facilities footprint and talent. Third, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations, and support e-commerce growth.

The roll-out of the new business platform will occur over approximately a three-year period, with completion expected by the end of calendar 2022. When fully implemented, these actions will result in an annual cash savings of $15 million to $20 million, and a $20 million to $25 million reduction in inventory, both based on operating levels at the beginning of the initiative.

The cost to implement this new business platform, over the three-year duration of the project, will include approximately $35 million of one-time charges and approximately $40 million in capital investments. The one-time charges are comprised of $16 million of cash charges, which includes $12 million of personnel-related costs such as training, severance, and duplicate personnel costs, as well as $4 million of facility and lease exit costs. The remaining $19 million of charges are non-cash and primarily relate to asset write-downs.

In addition to the growth, efficiency and competitive benefits, this initiative is expected to increase our operating margin and free cash flow.

In connection with this initiative, during the nine months ended June 30, 2020, CPP incurred pre-tax restructuring and other related exit costs approximating $11.2 million, comprised of cash charges of approximately $6.5 million and non-cash, asset-related charges of $4.7 million; the cash charges included $4.9 million for one-time termination benefits and other personnel-related costs and $1.6 million for facility exit costs. Capital expenditures related to the initiative were $3.7 million through the nine months ended June 30, 2020.

Home and Building Products ("HBP")

HBP revenue in the current quarter totaling $219.2 million decreased 1% from the prior year quarter, due to decreased volume driven by reduced residential sectional garage door orders in April of approximately 18% and a subsequent recovery in May and June.

HBP Adjusted EBITDA in the current quarter was $39.3 million, increasing 16% from the prior year quarter. EBITDA benefited from general operating efficiency improvements, partially offset by the decrease in revenue and COVID-19 related inefficiencies and direct costs. Adjusted EBITDA margin was 17.9% in the current quarter compared to 15.3% in the prior year quarter. Direct COVID-19 related expenses totaled approximately $1.7 million for the quarter and year-to-date periods.

Defense Electronics ("DE")

DE revenue in the current quarter totaled $84.0 million, increasing 5% from the prior year quarter, primarily due to increased deliveries and volume of radar and communications systems, partially offset by reduced volume of airborne surveillance systems.

DE Adjusted EBITDA in the current quarter was $4.1 million, decreasing 43% from the prior year quarter, driven by program mix and program inefficiencies on radar and communications systems. Adjusted EBITDA margin was 4.9% in the current quarter compared to 9.1% in the prior year quarter. Direct COVID-19 related expenses totaled approximately $0.6 million and $0.7 million for the quarter and year-to-date periods, respectively.

Contract backlog was $350 million at June 30, 2020, an $18.7 million increase from the second quarter, with 72% expected to be fulfilled in the next 12 months. During the year, DE was awarded several new contracts and received incremental funding on existing contracts approximating $193 million, which translates into a 0.9 book-to-bill ratio for the trailing twelve months.

Taxes

The Company reported pretax income for the quarters ended June 30, 2020 and 2019, respectively, and recognized tax provisions of 36.7% and 30.7%, respectively. Excluding all items that affect comparability, the effective tax rates for the quarters ended June 30, 2020 and 2019 were 30.8% and 34.0%, respectively. The current year-to-date effective tax rate was 38.7% and the rate excluding all items that affect comparability was 32.6%.

Balance Sheet and Capital Expenditures

At June 30, 2020, the Company had cash and equivalents of $72.0 million and total debt outstanding of $1.13 billion, resulting in a net debt position of $1.06 billion. Borrowing availability under the revolving credit facility was $274.2 million subject to certain loan covenants. Capital expenditures were $12.2 million for the quarter ended June 30, 2020.

During the second and third quarters, Griffon refinanced its $1 billion of senior notes and $400 million revolving credit facility, extending maturities to 2028 and 2025, respectively.

Share Repurchases

As of June 30, 2020, Griffon had $58 million remaining under its Board of Directors authorized repurchase program. There have been no purchases under these authorizations to date in fiscal 2020.

Conference Call Information

The Company will hold a conference call today, July 30, 2020, at 4:30 PM ET.

The call can be accessed by dialing 1-855-327-6837 (U.S. participants) or 1-631-891-4304 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference or provide conference ID number 10010402. Participants are encouraged to dial-in at least 10 minutes before the scheduled start time.

A replay of the call will be available starting on Thursday, July 30, 2020 at 7:30 PM ET by dialing 1-844-512-2921 (U.S.) or 1-412-317-6671 (International), and entering the conference ID number: 10010402. The replay will be available through Thursday, August 13, 2020 at 11:59 PM ET.

Forward-looking Statements

“Safe Harbor” Statements under the Private Securities Litigation Reform Act of 1995: All statements related to, among other things, income (loss), earnings, cash flows, revenue, changes in operations, operating improvements, industries in which Griffon operates and the United States and global economies that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: current economic conditions and uncertainties in the housing, credit and capital markets; Griffon's ability to achieve expected savings from cost control, restructuring, integration and disposal initiatives; the ability to identify and successfully consummate, and integrate, value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets, and to anticipate and meet customer demands for new products and product enhancements and innovations; reduced military spending by the government on projects for which Griffon's Telephonics Corporation supplies products, including as a result of defense budget cuts or other government actions; the ability of the federal government to fund and conduct its operations; increases in the cost or lack of availability of raw materials such as resin, wood and steel, components or purchased finished goods, including the impact from tariffs; changes in customer demand or loss of a material customer at one of Griffon's operating companies; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a downgrade in Griffon’s credit ratings; changes in international economic conditions including interest rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon’s businesses, which impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation, regulatory and environmental matters; unfavorable results of government agency contract audits of Telephonics Corporation; Griffon’s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain of Griffon’s operating companies; and possible terrorist threats and actions and their impact on the global economy; the impact of COVID-19 on the U.S. and the global economy, including business disruptions, reductions in employment and an increase in business and operating facility failures, specifically among our customers; Griffon's ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, the Tax Cuts and Jobs Act of 2017. Such statements reflect the views of the Company with respect to future events and are subject to these and other risks, as previously disclosed in the Company’s Securities and Exchange Commission filings. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

About Griffon Corporation

Griffon Corporation is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.

Griffon currently conducts its operations through three reportable segments:

• CPP conducts its operations through AMES. Founded in 1774, AMES is the leading North American manufacturer and a global provider of branded consumer and professional tools and products for home storage and organization, landscaping, and enhancing outdoor lifestyles. CPP sells products globally through a portfolio of leading brands including True Temper, AMES, and ClosetMaid.

• HBP conducts its operations through Clopay. Founded in 1964, Clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout North America under the brands Clopay, Ideal, and Holmes. Rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the CornellCookson brand.

• Defense Electronics conducts its operations through Telephonics Corporation, founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

For more information on Griffon and its operating subsidiaries, please see the Company’s website at www.griffon.com.

Griffon evaluates performance and allocates resources based on operating results from continuing operations before interest income and expense, income taxes, depreciation and amortization, restructuring charges, loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“Adjusted EBITDA”, a non-GAAP measure). Griffon believes this information is useful to investors.

The following table provides a reconciliation of Adjusted EBITDA to Income before taxes from continuing operations:

* Primarily Corporate Overhead

Griffon evaluates performance based on Earnings per share and Net income excluding restructuring charges, loss from debt extinguishment, acquisition related expenses, discrete and certain other tax items, as well other items that may affect comparability, as applicable. Griffon believes this information is useful to investors. The following tables provides a reconciliation of Income from continuing operations to Adjusted income from continuing operations and Earnings per common share from continuing operations to Adjusted earnings per common share from continuing operations:

Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200730006007/en/