GFF - Earnings call transcript Q4 2019

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Operator

Greetings and welcome to the Griffon Corporation’s Fourth Quarter Fiscal Year 2019 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Brian Harris, Griffon’s Chief Financial Officer..

You may begin.

Brian Harris

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

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

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

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

the Ron. I’ll call Now, to over turn

Ron Kramer

and I’m everyone. our fourth quarter strong pleased full-year our fiscal with welcome, Thanks, growth. and results for very

driven portfolio Building Our was growth XXXX demand X%, Defense Home & strong increased our our XX%, revenue Products business. both by across Electronics and organic in

We during operating XXXX, reshaping generated integration benefits the activities. which cash Griffon’s and of flow free coupled with solid results reflects million in $XX portfolio

Our improved to to net from of goal us to times times. has free down profile X.X EBITDA times. down end to the focused flow which is year of on our allowed X.X prior debt X.X lower remain cash We driving leverage

updates. some strategic through Let’s go

some businesses further the goal comments CornellCookson announced to an these initiative for We let enhance business and operations. to a profitability. and facility U.S. an the So The update, development few enhance on ClosetMaid spend our project. me competitiveness earlier including the of providing efficiency expansion today first, the next-generation our and of platform a the is growth, ClosetMaid AMES AMES minutes for on update businesses and operational

tracking, improve data enterprise. of factors analytics the platform with to improved a and ability external will AMES times. initiative, will improve and which U.S. entire unified faster information This multiple decision-making lead will enable platform, systems AMES’ independent As business single predict be and to part this serve respond into

and seasonal our allow our us businesses, the AMES up velocity of enhancements and the improve Given of service in weather-dependent and prediction the tracking operations. nature speed will to these

initiative and this investments at sites. better our consolidate distribution, leveraging addition, the manufacturing in In and infrastructure will talent key

also will a cost We facilities benefits from see reduced and fixed streamlined footprint.

$XX million To face million Deploying initiative, final charges capital piece We plant investment to on solid and cash fast-flow in competitive distribution growing will be it remain annualized operational of an expected high-mix, fully million and approximately us U.S. the by next-generation $XX savings this onetime expenses. foundation of to manufacturing keeps our channels, customer completed million and as reduction a of This in activity a a this competition, is XXXX. being execute to products. global necessary $XX noncash platform automation. and to The the e-commerce initiative we cash supporting we the approximately of $XX of is the for automation incur $XX committed million calendar When expect the inventory strategic implemented, million. provides end in manufacturer and $XX of of invest strategic in latest channel. U.S. including

is cash flow. In competitive free intended efficiency addition this operating our expand and benefits, margins to the initiative enhance growth, and to our

to Moving CornellCookson.

bring efficiencies the our expansion growth, $XX increase will market. this on remains year. improve completed This Our to of to previously capacity to products announced facility and end at track calendar million operational be support Mountaintop, new Pennsylvania manufacturing volume project

sheet substantial performance the actions enabled progress This Let’s from we’ve to integrate balance profile move taken work us made. debt-to-EBITDA. as and strategic allocation towards has the net benefited to reshape flow to our that our X.X the operating we times story. Griffon’s has and make capital free portfolio cash acquisitions towards solid deleveraging the

We to in to to be flexibility maintain strategic source focused value-enhancing bolt-on growth. long-term accretive. drive continue acquisitions acquisition that ample and our evaluate disciplined immediately on approach would ensuring remain and any We and are

announced share has XX, dividend per dividends As to XX% our eighth earlier since November on shareholders XXXX. increasing rate authorized an Board of a record in XXXX. to at annualized shareholders, today, This XXXX, of initiated XX, we year $X.XXX December consecutive marks of the on compound paid payable which the grown

of some additional Before operating over Brian, to turning it each segments. our comments provide I’ll on

Let’s Home increased contribution by foreign pricing, XX% acquisition, volume year the and Full by somewhat exchange. of to mix and the billion, with CornellCookson unfavorable & revenue start increased favorable offset Building $X.X products. driven the

full affecting diversity. our grew from backdrop the products uncertain demand to the continue year macroeconomic and sales for by XXXX, organically home are product Despite our global across benefits steady fiscal and For our we segment see realizing market markets, X%.

with margin goal. the EBITDA acquisition. XX Adjusted XX% from for efficiency improved steady the EBITDA our along $XXX driven CornellCookson year by to of year-over-year, and the grew initiatives, million, increased EBITDA basis plus by points contribution revenue towards reflecting XX% progress XX.X%

business. was decrease which to X% Adjusted continuing reduced operating operation from million. full compared program to Turning in $XX EBITDA million $XX offset to was Electronics with prior year. partially was $XXX Defense Returned growth, to mix, by our Telephonics, attributable the million This expenses. increasing year to revenue

Radar million supporting $XX from we Martin and contract program. spares Lockheed cockpit, LAMPS the the for Multi-Mode During common received the helicopter quarter, electronics award

we modernization continued to for the across are IFF the marks we with of portfolio from We for support seeing of and Huneed million XXXX traction contract fiscal contract pleased an diversified also second product, Telephonics’ the products Korea’s system announced global naval customers. South $XX program. the This Technologies and are this

ratio September full million, of were the million, $XXX the from at end book-to-bill $XXX X.XX. increase period. resulting Bookings a in year X% a for prior was of year Backlog the XX

be We’re awarded XXXX. sizable to program given expected in India expecting we that awards pleased with are systems that for from results, fiscal particularly now these are Greece and MH-XXR

and in the remain ahead, our Electronics both Looking to pipeline opportunities of in continues business, expand applications. and Defense foreign we confident domestic for our outlook

We’re what we in about Telephonics. excited going very on see

some Brian details financial turn for With over I’m the it more that, going to on to results.

Brian Harris

you, Ron. our to all quarter. gross to highlighting million, fourth in to X% which million, margin points We quarter. in X% comparison Gross organic, the profit reported of I’ll increasing both $XXX by the and increased year $XXX Thank consolidated revenue was basis XX.X%. start increasing XX prior to performance

the excluding to Fourth affect and primarily quarter million, expenses, were comparability, due that selling, administrative from acquisitions. year, X% up general $XXX prior items

prior of that affect adjusted quarter. items comparability with in As SG&A a percentage line sales, the year for were

per of $X million continuing $XX prior $X.XX the period share GAAP XXXX quarter was per operations year to income Fourth from compared or or share. million $X.XX

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

year $XX $XX see mix Capital Our generate the XX.X%. effective by Over spending increased was The million negatively $XX tax geographic fiscal expect the tax million rate, prior XXXX in our was rate year. compared were prior to profitability, in excluding items to Capital to in affect we was expenditures decrease. compared quarter. comparison our XXXX for comparability, the rate $XX our XX%. year full million the expectation impacted that quarter revenue of million to and in for businesses as time,

$XX totaled for million Depreciation year. and amortization quarter the million full fourth $XX and for fiscal the

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

excluding were expenses, unallocated year. the and Corporate million depreciation $XX million $XX quarter and in the in

to like our turn would to guidance. I Now annual

revenue $XXX excluding increase X% initiative. $XX unallocated We charges million to XXXX or the expected better, fiscal X% both AMES total cost expect fiscal XXXX of be year Fiscal for and strategic to XXXX. compared to is EBITDA million adjusted onetime to relating to

flow cash expect investment of to strategic to income to initiative. spending of net inclusive continue and capital We AMES in excess generate the related free

amortization. Capital the expected Depreciation expenditures strategic be million, for initiative amortization year $XX AMES million is expected $XX of and to fiscal investment. million, including are again $XX is which to XXXX be

approximately million interest for XXXX. We expense of net expect fiscal $XX

Our expected approximately XXXX. will XX% be normalized in tax rate

As the matters guidance tax is legislative mix always action on the including impact any reform geographic, earnings and case, rate. may new tax

in I’d both expectation. exceeded our our results note fiscal like internal our XXXX guidance and that to

guidance year, restraint, fiscal last home some affecting uncertainty macroeconomic which global similar the given XXXX, reflects Our our to warranted we for feel market. is

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

Ron Kramer

Thanks, Brian.

Our after fiscal XXXX operation repositioning year was of Griffon’s the businesses. full first of portfolio

cash was times. shareholder income to objective flow. In margins generating by enhance flow million free million generated leverage continuing to net from free cash X.X stronger we in net XXXX, reducing times while of $XX improving Our $XX on and X.X value significantly

X%. to an We by over margin, EBITDA organic costs, Our year. improved revenue by XX XX.XX%, points while excluding increased excellent basis unallocated had

pipeline business their our plan opportunities. of us, exciting work growing for our for significant efforts off driven CornellCookson the shareholders by them at dedication have employees, backlog building we’ve ahead up initiatives and are we growth to Telephonics We support. the momentum I’d bottom-line the opportunities like opportunities These and a of AMES outlined, with as their X,XXX-plus and that kicked new the and top hard of year-over-year at all of thank such continued and and

ahead. about what exceptional We excited our shareholders continue year, returns accomplished to to are we’ve to this prospects deliver years of the we’re proud and our in

take we’ll Operator, any questions.

Operator

from Bob Labick Your CJS Thank Please first you. ahead. Instructions] comes with [Operator go question Securities.

Bob Labick

on Congratulations a nice and fiscal afternoon. good quarter and you, Thank XXXX.

Brian Harris

Bob. Thanks,

Bob Labick

I for Obviously, I a guidance know you that this. a bit. mentioned conservative just and in just XXXX. exceeded strong could wanted XXXX expectations, you you ask a bit your had little expand appears year if to really

restraint some mentioned there. You

things you and of the you maybe headwinds don’t if out could upside where think. conservative So potential the potential be some through as turn might may you there that some out see you us just walk bad then as of

Ron Kramer

feel of potentially a over guidance clearly showing live we think on shaping up XXXX higher XXXX across be and year. are our We’ve said In better any we balance was. We our year. been is risks a of period and outperformed a XXXX, always businesses performing year opportunities. guidance. we consistently is the to give believe what we in uncertain than times, We to power guidance balance years. all in Look, one once than try well. our businesses is significantly always the We that that we that earnings We’ve all

hard. our We working are have teams that expectation every

go of starts react once, still out that We been are fiscal unsettled. the issues there. that bar importantly, are trade October tariffs a last and moving. year The we that set still to you on year. things into there X are over But each have year a Most landscape

able that cycle the take to to have going we worst-case we went planning be year to be it’ll exceed be you’re able hopeful guidance, guidance. We’re going the view. this we’re you’re But scenario our summer started to if going to confidence X, and you in into resolved. when give October should And

So pleased ahead now, we for And the long the a in very there’ll next XXXX. of the election I’ll we’ve November but is we’re our call we time an up, did us year We got about XXXX. year. be you, to shaping year-end until go by have remind way way like what

So the us, on under we overperform. to side, and conservative being promise rather

Bob Labick

it. Got

Okay.

for then years I’m new great. of and what you’re risks really a about sure And a payback it you’re sounds plans in giving to initiative this done. that’s you talk it’ll have some Now – risk terrific be of big like Can mitigate changes? guys this exciting. of And do AMES change making to when announcement couple a you any seems it. the implementing the these yourselves the Obviously, afternoon you about

Ron Kramer

think over at a number in relative of it I a period businesses. to of record track to different years look you Look, have our

at looking We at are ourselves. very good

year a We’ve headquarter talking two here integrated about looking And has the something The room for always to new into corporate to Orlando, AMES talked was fully owned satisfied. Consolidating of ClosetMaid into in enhancements AMES. ClosetMaid acquisition only years. now ClosetMaid potential whole refinements you for We ago. a we for our never unlocked Florida. We’re improvements, I’m AMES sit we’re ClosetMaid with and company. AMES series that improvement. from

free the expand the We And years pipeline ability I’ll the products And of it’s with before. from pieces out Where generation of goal garage here is with defensive. the customer we this company. a today. we the the in profitable the And this we remind crisis, of and it’s depth we the been service we next having our take evolution. in building this at efficient in that nothing most the of significant ClosetMaid we’ve cash business say opportunities. represent. offensive. that five the grow think time, positioning next that XX a that the degrees flow of do being combined we revitalization, both talent where I’ll business for about see more and with the that’s with all about innovation, benefits consolidated platform of the went the business in all, the significantly have costs same of the is plan, what are company about all you of it’s This and brands goal footprint about range plants, is through AMES both expanding building parts the terms to There’s business, the attracting the see housing about starting essential improvement, enjoy step were end difficulty, and that leading process than We and a at we’re simply manufacturer the of strategic the to margin door of ago of years. of company redundant we

Bob Labick

it. Got

last Okay, on then kind is me perfect. product for And the side. of one

You’ve and it I think, you well, some been, initiatives to And mix? of the organic better mix you out mix. terms about where over some recently year just products going and continue product multiple in kind drive years. talk how the going certainly, last got to But feel product of about you new the as enhancing you in the are forward? past margin Can of growth current what’s upgrading and

Brian Harris

Sure.

and investing products. innovating in we So are products constantly our our

that’s to really mix our all expect and We continue over improve time, businesses. across to our

So in some CornellCookson for products. we instance, business, launched recently our

like entry We micro CornellCookson defender line also aesthetic it. of and our why They have our defender the a called a in that’s something and that’s very big been storm with we of expanded CornellCookson And the grill facility. hit part reason architects.

and innovate, well our helps we continue want as So do well. we innovation, to products the them do it will customers sell

Bob Labick

Great, Thank all much. you right. so

Brian Harris

Thanks, Bob.

Operator

with Your next Co. & question comes ahead. Sidoti Please go Romero from Julio

Julio Romero

everyone. afternoon good Hi,

Ron Kramer and Brian Harris

Hi, Julio.

Julio Romero

The first X% I to is rate walk which bucket in. likely the maybe maybe question But can which built into there’s guidance. outlook? us conservatism to revenue potentially try XXXX us you so? do I businesses fiscal growth Can to X% and – had through that that businesses above you less was may certainly do on know some that

Brian Harris

Sure.

First, our a we see X% across to X% businesses.

that. as simple as it’s So

Julio Romero

mentioned maybe year’s for. looking procurement the enough in outperformed procurement of of terms from year wire in you to is you going purchasing, XXXX? that purchasing. to performance, what the into quantify for and past big you saw drivers one Fair obviously, us savings, wood Okay. the going Can were this try And you you be steel purchasing, benefit

Ron Kramer

to – operating time happened commodities. no years it’s laid operational We being the of two I’m transaction ClosetMaid this There’s No. think that see that improvement. CornellCookson story that that. to expansion pattern the ago we not subsequent sure about bought about more improvements margin related the at and as I out we that

sides the on us for days our of integration early of is business. segment story this that So on both

improving. is unremarkable, view now about improvement last the we’ve repair and remodel. continuing downturn housing for The about conditions So, and of last obsession that continuing to business the in the while continue the inaccurate said conversation ahead housing to we have at in over decline more housing, we markets remain looked remodel the the strong. year. part the it recession and slow, really be be repair business the said that the trends housing trends were a we’ve couldn’t and And market, business. have saying consistently good. the consistently see of markets in The the about our been of the still this more in years, headlines and several our is it our we in the best trends year-over-year own consumer now us, And is in were quarter-over-quarter and the been We screaming think recovery

I’ll if on would’ve go it not better of Look that to how to So, how this the trade hurt we impact I’m those way. is having the and done not one-timers. topic, cost tariff, now anything, deal If commodity much one-time year, this about us as with any for the at much other effect.

Julio Romero

strategic helpful. I Okay, there’s initiatives additional the reduction assume give there? SKU maybe out. just give going I that if mean reductions, inventory thing onto color you on But Thank was of inventory. that some you And do. maybe less be that eyes the be numbers Can initiative rolled to the One could you’re looking understood. my some would any us color, to some carrying you. us caught

Brian Harris

Sure.

produce is they being efficient see the better systems our levels SKU data and still information always we to seen manufacturing customers count, things able at and our yet – that being same consolidated allow inventory more about that really to will our serve have at us lower level of but this having from they in So look produce now.

Julio Romero

Okay.

more So, system-driven there. type information efficient of kind of work

Brian Harris

there be That of and in us Correct. And to as place consolidation help we some one smaller places. footprint things will have mentioned, multiple instead as well. warehouse will

Julio Romero

much. Thanks I’ll in queue. very Okay. hop back

Brian Harris

Thank you.

Operator

question next Please with from go comes G. Research. ahead. Justin Your Bergner

Justin Bergner

Good Ron. Brian. afternoon, afternoon, Good

Brian Harris

Justin. Hi,

Ron Kramer

Hi, Justin.

Justin Bergner

Nice the to finish year.

Ron Kramer

you. Thank

Justin Bergner

Sure. To corporate $XXX guide details million may start one plus below two off, you guidance. I actually the of the or Did that for EBITDA? segment in cost missed have

Brian Harris

Yes. $XX million.

Justin Bergner

going initiative that run of safe to excluded million cost adjusted it to that through strategic $XXX be the say the of is P&L that And Okay. in EBITDA? will plus are the

Brian Harris

$XXX The costs. Yes, that’s excludes correct. those million

Justin Bergner

And incurred? Okay, frame will time over be costs great. what those

Brian Harris

Yes.

will incurred evenly. time period, three frame the be over three-year years the the less is and cost So, or more

Justin Bergner

Or front-loaded? more Similarly the cash with cash?

Brian Harris

even more well. be will less or That as

Justin Bergner

mix, pretty a more big Okay, was XXXX, from If element that either of benefit obviously of look from we nuanced away an there’s some questions. those great. and a guide revenue or won’t price got and price lower how to you Stepping need that lag. through on repeat? and much mean the tariffs or fact or of just through the tariffs less inflation I passing reflects the in inflation price back immediately

Brian Harris

includes so many one factor. I factors pinpoint Our guidance many, can’t overall to that it

overall, the going X% all we we’re to considering pricing, to considering what is or So economy, in a amount. gains sell, our feel X% changes considering prudent

Ron Kramer

And pricing cost environment the be to you all teams much an in with take about about being of I’d of the the is management is able the issues and the mitigation it’s also as of This as pricing the impact to lag. that costs, a say adapt the increased not out outlined. to of about able it’s business

more this own the than efficiency about it pass-through. about operating is our So is price

Justin Bergner

number will delivered materially coming guide X% to from perhaps Sure. price/mix guidance come think just I revenue did at is But I it the levels? of revenue, this about decelerating should modestly Products of volume – X% the mean be I this volume if and year’s share to volume compare going what X% your sort the guess, of from view? this in I Building your Home look down that materially in X% in of down year, X% that to of obviously to year, Or so more & also that sort growth your it lion’s and you you

Brian Harris

We’re seeing the X% look into volume a we both and to XXXX. X% of as being combination mix

volume continuing – some see expect to improve. and we we with So improvement, mix steady volume

it’s So improving. both

Justin Bergner

the path path? to up then in at sort And cause you this context lastly, it. open be the the got of delevering bolt-on to Okay, you continuing would what acquisition would size delevering deviate point? And of what from

Ron Kramer

We’ve been clear. very

have faster we cash the this a ago. will have a delever allow value-enhancing on generation are operating that and we earnings deleveraging plans to which free year of improve strategic capability be we’ve that in, proved our that operations balance any year. sheet, been environment stockholder natural out could than based expectation a there there strategy our could in We outlined, flow appreciation to the us The very clear

in let’s we we acquisition better, with profitability already start cash X.Xx at businesses enhance their businesses that long-term XXXX result, year. you about And going things for to while So to positioning into about and this increasingly capacity plan running executing the we and leading are for what of growth. this significantly the remember, doing buy have running we’re it own a and back And were flow sheet us like as to years the we free is story bring we investing balance enhance the levered going have things, business AMES The already the is beyond. that we I’ll positions in own the the plenty in. already company that to we

year So, terms that the $XX that over million the to to ability expect us and possibly a best outside. a returns to we $XX million go a the is profile in to able to be looking result year as acquisition invest generate cash $XX in for period of of of can ever have million

own better, grow of get the profile the the desire leading of performed now performed us. still that’s our is an expect that earnings in a cash full equity the And flow to increasingly with going story well result well sum right valuation higher generation nice with is of be cycle on growth holders X% better per And a our flow. be best The and we not free top improvement grow to of of our and earnings flow and significantly a to to leading to even us we to for business to line that So, we the company cash market. we to X% very the the for the very appreciation generating is what the parts. already of very growth, cash that able based share ahead part deleveraging,

Justin Bergner

you. Okay, understood. Thank

Operator

next [Operator with Please question Baird Robert Instructions] Tim W. Wojs Your ahead. comes go & Co. from

Tim Wojs

Nice afternoon. to gentlemen. the Hey, finish year. Good

Ron Kramer

you. Thank

Brian Harris

you. Thank

Tim Wojs

on just the Telephonics Maybe, business.

in you’ve fourth have In the terms Have over both winning of from those convert seen looked you the I larger was to You revenue, how would backlog bookings more to kind are those you sort with at or are orders, the is orders conversion to what any precedent a of convert revenue? quarter. did time months? little your maybe, changes last, of that of Or couple bit of pretty mention XX a bookings that say nice take and any versus consistent – you think you to deviations seen for historical historically? XX terms might in

Brian Harris

In seen going year be in in mid-XXs through consistent. for It forward. we’ve mid-XXs the general, conversion the it runs the

Tim Wojs

you be? – or Okay. me the And remind can frame could how big how orders big MH-XXR

Brian Harris

Greece we million we’ve year. and that this plus, is India referenced that and expect $XX orders The in fiscal

Tim Wojs

Okay, then… great. and

Ron Kramer

And the then we the the timing FMS see Ending is of of them going this month-over-month. quarter-over-quarter, multiyear is are think We forward. contracting and buildup backlog me ISR sales defense you’ve we attention to look year before for book the we’re really to next Pay the in portion in in see turn XXXX, you’re direction years It that predictability the biggest excited the what the about heard backlog year. and going several like say happen to and growth. the it change. of doesn’t business an in a side last thought the would that with increase in we our But world.

Tim Wojs

kind to Okay, growth in year of Great. get on you just be the think then leverage we the about – should how should Telephonics revenue And okay. incremental in return how think as able of this drop-through to do terms sales? you you kind of the about business,

Brian Harris

years now on go get to And a but give revenue. expect for do formula have XX% margin next we sales a several margin than We historically. margin higher we’ve our improved back seen up. a the XX%, lower plan over to We it, as particular the is don’t

Tim Wojs

savings so, make I kind clarification over said initiatives fiscal want just just Great. to from think that, couple Brian, through strategic of next that question, will okay. And then I AMES of the XXXX. includes years. come ratably sure that Okay, the one you the

Brian Harris

I we it was But the benefits see we’ll No, XXXX. starting would in will see before. And be annualized in XXXX. savings year expense that referencing full

Tim Wojs

Okay, you Appreciate okay. very Thank time. much. the Great.

Brian Harris

you. Thank

Ron Kramer

Thank you.

Operator

Mr. end We session. back for to call will Kramer of remarks. closing the the have now Ron turn the question-and-answer I over reached

Ron Kramer

much. very you Thank

even We’re to we an accomplished very excited and work make about hard XXXX in what year. at we’re better XXXX,

all. you Bye-bye. thank So

Operator

you at and participation. conference Thank today’s lines your may you concludes time. for This disconnect this your

Griffon (GFF) 13 Nov 192019 Q4 Earnings call transcript