GFF - Earnings call transcript Q2 2018

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Operator

Good day, and welcome to the Griffon Corporation Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Brian Harris, Chief Financial Officer. Please go ahead.

Brian Harris

Thank you, Kevin. everyone. afternoon, Good the Chief on Ron our Kramer, With Officer. call and Executive Chairman me is

Our recorded our is details earlier call being of playback, available today. which the for are in press issued and release will be

world risks in change operate. statements the Please forward-looking today's subject Such changes. views Griffon's statements company's will environments as the inherent our about businesses on are and the and in cautionary past, and based Exchange in the As can statements comments release of filings. press include the our uncertainties our that performance Securities which various see to Commission they in and

non-GAAP remarks reporting our press reconciliations Finally, today's will some between for release. affect periods. those of are items items comparability our included that These in adjust in explained

over I’ll Ron. the Now, call to turn

Ron Kramer

us Good strong a and solid and for afternoon thanks today’s call. A strategic quarter, on an acquisition. excellent outlook joining

the XX executed to actions over build continue last upon the We transformational months.

increased expected over Telephonics. prior Building offset our Our consolidated organic segment acquisitions XX% in reduced revenue the by driven partially second as year which by Home Products growth & and both was revenue in quarter quarter,

expect revenue throughout remainder to this We orders the continue year. improve defense of to and

sectional strategic from EBITDA and $XXX transaction, Our consolidated has Products into our approximately XX% and of The a commercial We’ve into announced leading After allocation. revenue Building door our quarter the million generate for to $XXX expected capital for from $XX.X benefits rolling industrial, $X.XX CornellCookson CornellCookson to months price subsidiary definitive and Company of per operations segment is and premium steel designed acquisition door door grille offering commercial, entered complements we agreement adjusted been $XXX institutional and the $XX.X the purchase busy. earnings acquisition. I’d actions continuing share effective first acquire resulting million. commercial high-level and after to account like on manufacturer is some Today, residential a Clopay products of taking our million of the to CornellCookson, comments during increased tax our million. million. XX use, compared of business. retail year the broadens prior to provide

bring is financial a that strategic to our CornellCookson shareholders, the the business. transaction. Beyond immediate is to this attractive value complementary aspects truly Clopay there value business Door to

rolling this believe have together We worked Our the strengths that on our bids of facilitate companies and required years history steel respectively. that over in panel integration. each will doors, doors

company of distributor February increasing be outdoor pre-tax a We each Berry products garden the completed Ireland, business. UK $XXX business million. competitor to to and cash decorative for for of and the $XX $XXX leading retailers we centers, of our that bought will gain are a sold recorded combined Plastics formidable manufacturer of Global the On XX, in a value On we Kelkay, and grocers UK optimistic X, million February and we landscaping the million. sale in

the with build ability combined and leadership their has and AMES of to the and former to distribution, saw demonstrated complementary we sourcing immediately Mike, of with customers, and while combine the purchased the the of company. Present in identifying warehousing accretive. revenue we capabilities. October After uniquely Sarrica We and manufacturing of expect combination opportunity first will the management it and an improve qualified strong the March XXXX, and $XX his be to companies XX, full teams of opportunities of to operations companies ClosetMaid On improve in ClosetMaid for we year two he’s Mike profitability, now during evaluate the ClosetMaid, announced President efficiencies to structure million ownership AMES. growth. lead

as we profitability geography. continue expect and We growth both and to expand products

allocation. capital to Moving

a announced shareholders dividend do share. also we return we a of which special $X our through to was seek quarter, one-time second shareholder drive value. persistence of cash The a variety to the per special way our and represents to to dividend cash During means

XX. dividend ownership XX the to announced most employees price approximately through we’ve repurchased of quarter, for X.X special of benefit record XX.X Earlier Griffon during provided May today, of million in currently representing million second per XXXX, total our $X.X which we our shareholders employee share $XX.X $X.XX $XXX common share. per million. stock million of plan of dividend $XX.XX quarterly million million U.S. shares. at X.X an of payable repurchased addition, of Additionally, regular our as holds average we shares stock June the a of And to our Since shares

authority XX, Board March of repurchased XXXX of the authorization. remains XXXX, $XX August million under As

Next, organic in Building and both I’d little recent the an I from adjusted provide increase EBITDA million update like to to benefits by sales million the XX% turn improved more a this Home it acquisitions & Products; before growth. to Brian in detail. $XXX by go revenue. increased to XX% over to to due segment Segment $XX bit through driven segment’s

in continue housing with U.S. underlying strength market to the housing recovery. We see multi-year the steady

are Doors new to ownership capture increased Our businesses home rising well construction supports tool rates activity while AMES’ positioned business. ClosetMaid and and remodeling

broaden revenue its improve, has With in to XX past expanded growth As profitability. customer AMES’ base around transactions the base reach with continued of and global house, inclusion acquisitions the commercial and enhanced CornellCookson’s and further solutions. will see our its both economy the bolt-on and expanded we over broadened its Griffon months, continues geographic in footprint its ClosetMaid customer and the with

we our brands. global as demonstrated growth and We’re very we profitability business integration pleased further of build that our our and with for abilities are poised team portfolio

million. Fiscal million, the was revenue quarter quarter of Turning up over year to million. of $XX Though first prior Telephonics. below second $XX revenue is $XX XX% revenue

September better recently improving for of trends of budget, quarter signed long-term contributing a ended and rates, to backlog million backlog year and million to optimistic X.X million. our quarter $XXX the we and fiscal Telephonics in Second With were backlog defense compared remain book-to-bill the $XXX sequential X orders to prospects. million $XXX $XXX ratio last of order

fleet, of sales on see Brian. expanding remain We transit across opportunities to warfare, I’ll the highly in well over from see building positions foreign quarters. to foundation electronic and we and upon expansions as mobile continue existing all over international focused initiatives expect including We integrating Navy of market to direct opportunities an and security military border businesses sales U.S. the our customers key as on and commercial margin systems. it coming our the of to turn and strategic all our revenue expansion

Brian Harris

Thank you, Ron.

of Increased revenue revenue driven the XX% million. revenue strong in Higher compared XXXX segment & million quarter year by quarter performance growth acquisition was to Telephonics to increase. Products the partially $XXX was increased both to Second and period lower revenue. contributing our by organic with HBP offset Home the in prior $XXX Building

of year. $XX.X Second quarter an the operations continuing increase EBITDA XX% XXXX over prior was million, segment adjusted from

Looking primarily Building spring Quarter and at prior volume, revenue. winter $XX.X of to Harper impact segment include weather Path, segments. and improved compared revenue to & our million. adjusted Products of growth second to was attributable results unfavorable increased quarter by as The the AMES’ business. XX% second favorable Tuscan acquisition as at driven Building prior the Products Home to Home million and year mix to revenue in on La & period of year, increased quarter Kelkay $XX.X EBITDA and the compared $XXX well Hacienda, $XXX the XX% million higher acquisitions CBP. our AMES price million of ClosetMaid,

Turning to Telephonics.

quarter. of year XXXX $XX prior expected, at second At $XXX in to compared year million March XX, As Segment was adjusted decreased revenue million million million. the XX, $X million and $XX.X $XXX to September decreased segment the XX, million compared quarter XXXX. backlog second December $XXX prior to XXXX, EBITDA of at $XX compared million to

backlog basis, quarter compared the with prior We On expect and the to quarter continue basis improve to second $XXX.X in margin million. XX.X% decreased the to the the XX.X%. compared half to prior gross Gross the year million points consolidated year $XX.X profit year. XX second a of was of revenue in period of for

or that were of year quarter affect $X.XX both million million per Current comparability, administrative operations or share. Second diluted quarter to or $XXX general million income XX.X% excluding and the year prior were selling, sales of second $XX $X XX.X% and continuing expenses, from compared of prior period sales. items

tax was $X.X certain operations from affect that of or items million $X.X other a and from Excluding comparability per compared continuing quarter income both to $X.XX million share share. current year $X.XX periods, period or prior the

$X.X Second the year million. million compared quarter prior of was capital spending $XX.X to

to fiscal 'XX, spending million. we expect be approximately capital For $XX

to certain for cash our of position had billion of covenants. XX, net had we $XXX revolving $XXX available and in $XXX million We million. total outstanding As XXXX, under million subject debt a $X.X facility, March credit borrowing of resulting in loan debt

expect we we high a EBITDA continue particularly improvements Home normal of XXXX the & to result in expect Telephonics. as and seasonality $XXX to XXXX in EBITDA segment in adjusted performance half our back million, Lastly, of Products segment Building of fiscal continue

Now, I’ll over to the turn Ron. call back

Ron Kramer

Thanks, Brian.

fiscal with and in we’re poised the our midpoint We’re our through year profitability of half. grow and pleased second revenue performance to our the

generation initiatives a the I have Griffon with from cash to XXX the years trajectory Our want end the strategic ahead. family. our transformed significantly to employees in welcoming businesses higher CornellCookson by free portfolio flow of

for We’re operator, build With success. up it on very our about that to continuing open excited we’ll questions.

Operator

Thank you. [Operator Instructions].

Labick Bob Securities. Please our take ahead. first will with We go from CJS question

Lee Jagoda

Lee for actually Bob. It’s Hi. Good Jagoda afternoon.

Ron Kramer

Lee. Hi,

Lee Jagoda

So, you AMES? seasonality talk spring to originally was have bought the today a internationally. start, Ron, heavily about really when are that you versus to just business you job of weighted done the AMES good what U.S. guys it Can how season? you And diversifying today

Ron Kramer

seasons We’ve Australia to bought which Hemisphere. in of Western number countercyclical the a is businesses in

start So international defining America. not going to we’ve going excuse now is that properly at that’s of Australia and business. that have XX% expansion way, would the La in the in a be to us. The and not an UK, are Kelkay. We with set bought our outside know North of managing a expectations look expansion today we we’re and is our we way two how Hacienda say us revenue for we as in there; Weather both navigate fact. It’s volatility our to now businesses weather I

a see the and United company. the are Kingdom continue AMES’ Canada be part of United continue of to Australia, being markets: brands that States, to going We our in to strategy growing leading

know been to through its going clearly is an have and bad. way manage issue And this weather extraordinary both we good variability. think cycles to We how the So winter. our has

been couldn’t perform. about happier has team to I how and ourselves be position So our able

Lee Jagoda

as quarter to And quantify I being the amount lost quantify as don’t result weather of until you and like was the going either a or to want it use revenue you an is next or that touch I there severe have weather? excuse. delayed you to to next do just – pretty said, of on That know try might

Ron Kramer

No.

Lee Jagoda

margins the a maybe be whether So for comment next, then was or Clopay was you turning that today they give acquisition an with negotiated? sense towards what business? the your it as us EBITDA can it in auction might combine on the And time you privately business over and process

Ron Kramer

in Look, wonderful we business. transaction. is us able leading We are be leading that moment business was door negotiated sourced always serendipity us complement residential to wonderful is a a commercial for acquisition door privately a think for our with active opportunities. looking strategic at relationship a to This this this that

So this a us that years to able that to about be and footprint of we’ve something into. for was for expand desirous talked fits a out number

running with Andrew private to this have his and be manner that conversation was We who we pleased Cornell a in a been are sole-sourced. business to which very And have through family done dates to has able this in XXXX. back been

said, less both business will Products In better improvement terms we than in. in within its profitability, in the we business as today, And most that’s revenue, now XX% where Kelkay we’ve to be is grow room ability this sold a than margins the Building & continue component flow we We’ve but you’re own revenue. blended the their our Griffon what generation the that in $XXX and million company is a changed our Plastics will and prospective we margins Building We cash a forward. we’ve to is place for I going Home it. fiscal variety of not for quite wanted the revenue have to want what smaller acquisitions. are free in CapEx management that capabilities it’s accretive not importantly and It’s go this scale, it both margins EBITDA be think & margins Home the a dramatically of we Products story to and improved. both and be. the Strategically, And EBITDA our operate clearly having for there or immediately to bought going eliminated see to but EPS have first us the that it’s And ultimately tuck-in operations us has ability see increase year dramatically. but have that’s high for direction replaced us. we the the and Cornell, of to really in that

Lee Jagoda

And acquisition accounting synergies. doesn’t of accretion future Is and include include I $X.XX that assume the correct? doesn’t any

Brian Harris

correct. That’s

Ron Kramer

We always hope them bake synergies. We into guidance. forward don’t for our

Lee Jagoda

Perfect. you. Thank

Operator

Thank you.

& We from Please question go will Romero take ahead. next Company. our with Sidoti Julio

Julio Romero

afternoon. Good Hi.

Ron Kramer

Hi, Julio.

Brian Harris

Julio. Hi,

Julio Romero

is color wanted part price that Any know growth? but volumes, doors. XX% increases. drove could year-over-year garage called that on I about it, driving assume start the to what what’s Just give Can you Am to Clopay what’s with driving of some talk out price? inflation you I cost you that.

Brian Harris

Sure.

mixture price. and a it’s mix volume, of So

seeing out coming of the very are good business. mix We

to seeing or We stepping up we’re of products. doors. call doors. what seeing panel of it for We’re insulated better people the certain simple call And doors, we’ll our less Intellicore

Julio Romero

cost increase can of was just driven by the down customer? the you Just strength inflation how from break end versus much price

Ron Kramer

can’t. I No,

Julio Romero

and And other out dealer to you fair. strengthen but Products? deal. big on how moving it relationship the CornellCookson channel, the the release see leverage you your picture a with that I benefitting called you Building press you just & to how that’s just Okay, your can about on talk businesses know Home expect in

Ron Kramer

the business their see increase through this. our dealers to And are off currently have the we business over to this is time to and sales side materials is from able our a their grow that raw door really buy how our in continue and to retail This leverage both about offering. and the be is complementary more footprint This ability efficiently, in of industrial to that ability commercial, we both is to Cornell residential commercial both channels. think going

is & very on AMES and this branded business. segment, Within Home much adding about ClosetMaid So Clopay to our doors. Products Building a separate consumer are

Julio Romero

know think lastly, a leverage it, long-term you ratio? just term? of Got then expectation remind understood. would how the us what I you’re leverage the transformation, long portfolio be just about in can And target in for a you fair but a middle maybe

Ron Kramer

it. why don’t Brian, take you

Brian Harris

with it, with very flow usual our leverage X expect cash down for from front our businesses, that manageable little we’re call period. three Currently, higher to a Sure. is expecting we current than a to but that it’s Ultimately in X.X, of us. the a I’ll go five-year leverage to something in

Julio Romero

Perfect. for guys. questions, taking my Thanks

Brian Harris

you. Thank

Ron Kramer

Thank you.

Operator

go Company. to We’ll go Justin Gabelli & you. with Thank ahead. Bergner Please next

Justin Bergner

good Ron; afternoon, afternoon, Brian. Good

Ron Kramer

you are How Hi. doing?

Justin Bergner

Good. How are you?

Ron Kramer

Fine.

Justin Bergner

size what define XX-K your they’re today? that’s Are on the you to of the currently operating market incremental any on you’ve And I think side? commercial market the in First in CornellCookson. in that would markets sort how you question your of as out market just called size that addressable

Brian Harris

this size for it market a currently to more gives offering the grille growing to is is effectively What us don’t steel complete us gives and a the in that with. go same. does market totality we and portfolio have us So

at currently to together products have market product because we times we and commercial go for have overlap offering So Cookson the requirements. line we in complete together don’t but

the has rolling sales have and we doors commercial they’re doors CornellCookson but sectional So themselves.

Ron Kramer

commercial existing door relatively is business small. our But

Brian Harris

Correct.

Ron Kramer

will filling the to that out revenues and strategic commercial going forward. have the the a enhanced think door residential by profitability this leading And is for we So leading company about really business. enhanced Clopay door for complement direction adding business that

Justin Bergner

that going the year, And the in accretion in & year expense the amortization then full amortization first expense? Products Okay, is of full above $X.XX that there margins in that And be does extent terms the to average? does first that to that the sense. are assume of makes include Building Home

Brian Harris

does to It related include amortization deal. the

things for like like things that, and So yes. customer relations

Justin Bergner

that XX% you’ll be that surmise full in it first does the then And above Okay. year? margin

Brian Harris

that period. towards short it to reasonably that towards to will margins & we we below call Products our a We’ll but Building be slightly years. able overall expect two Initially, move within be Home and

Justin Bergner

Okay. Clopay I to are raw material seeing existing you today headwinds the gears guess business, from switching prices?

Ron Kramer

are as Yes. of steel, whether this into this we Clearly costs. going energy whether it’s year. expect In whether spite that going costs it’s up what input it it’s view labor, we

So we markets the buoyancy recovering near continue to see the and we the is peak. housing nowhere but near nowhere that view would volumes

improving that it has labor recovery. gone our energy a to been steady no So of costs we able business gone up. about question the has mix offset But up, up, steel see commodity still see higher gone costs. has which have there’s We

Justin Bergner

And on it is what between? the LIFO or Clopay, me that’s Okay, accounting? in just FIFO something helpful. remind Is or

Brian Harris

LIFO. not We do use

Justin Bergner

It is you FIFO. sorry, FIFO. I’m said

Brian Harris

That’s correct, FIFO.

Justin Bergner

Okay, for me. great. it Thanks. That’s

Ron Kramer

Okay.

Operator

[Operator Instructions].

question take next from Bank. Andrew Please our ahead. Deutsche go will Casella We with

Andrew Casella

Hi. during Thanks ClosetMaid. to know but EBITDA. I for it million taking guys about break you out the you acquisition the said had brand, ask the know I kind guys of $XX wanted don’t questions. contribute would like by I of million, EBITDA just quickly $XX about

was like what annualized kind if basis? Thanks. you rate disclose run contribution curious contribution if Just of could it reached on the or that you’ve an

Brian Harris

Sure.

business run the On we expectations. are at seeing our ClosetMaid, the

Ron Kramer

Slightly above.

Andrew Casella

thinking this are revolver you this? replenish when about overall liquidity guess at looking or Just capital to think $XXX whatnot, asset, April. markets went you we flow think dividend math the cash enough. the funding end and and quarter, funding are are how million I the then cash? fair in at just help potentially then for the you free you so when anticipating I the about about special funding And Okay, have guys And again for of think drawing guys was out curious my the of we and cash upon door if

Ron Kramer

use revolver no the like and have revolver, we and still to it. have undrawn ample We but for liquidity

Brian Harris

In addition Ron. – sorry,

is In our in of half the majority generate addition the we second of when year cash. the

the cash. use we half first of The year

of first the we year half generate half Second of in the cash of the excess well year.

Andrew Casella

much. the it. got back in queue. get Thanks Okay, so I’ll

Operator

up Please & Company. a go Next, with from we have Justin follow Gabelli Bergner ahead.

Justin Bergner

Thanks again.

the AMES acquired On the you growth can the business, in is growth quarter? what organic the break out versus

Brian Harris

AMES revenue organic The approximately in was growth wise Sure. X%.

Justin Bergner

quarters still secondly, I that done the congratulations or for then you Are the that on acquisitions? focused hunt are you’ve of And the you deal now earlier. sort integrating CornellCookson on on should said coming have and additional Okay. sort of over

Ron Kramer

plate integrating just time. Kelkay, all Tuscan but to The unpredictable. Hacienda, our is is got to businesses CornellCookson not well. be opportunities us our for ability the going spending quite full which our we being We’ve La existing we’re Harper, as going place that of Path, always see source But

we’ll and right months last as now as and and revenue both significant we’ve the continue pleased done what well. want we profitability in in for improvement look. we with there’s So just But just increasingly continue to have always the we have to room that XX businesses to a very execute we’re well running

for then in really our of present see the certainly future. balance the and themselves focus opportunities that’s we’ll what So XXXX

Justin Bergner

again. you, Thank Okay.

Operator

no further remarks. this any at closing Kramer questions additional Q&A for the There Ron over are to conference End time. to of I’d back like turn or

Ron Kramer

joining Thanks for us.

we’ll achieved year deliver continue be over excited really excellent the what hard about Bye-bye. and working to to We’re results. we’ve last

Operator

Ladies this your conference. participation. conclude and does you today’s gentlemen, for Thank

You may disconnect. now

Griffon (GFF) 3 May 182018 Q2 Earnings call transcript