GFF - Earnings call transcript Q2 2020

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Operator

Greetings and welcome to Griffon Corporation’s Second Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

It is now pleasure to introduce your host, Mr. Brian Harris, Chief Financial Officer. ahead. go Please

Brian Harris

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

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

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

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

call Now, to I’ll turn the Ron. over

Ron Kramer

Thanks and everyone. afternoon good

I of by are unprecedented all Let position a safe saying, an competitive healthy. basis. you families COVID-XX Griffon and me hope entered this operational and strength and from your a that start on pandemic of

in our momentum, and and long-term continuing sheet, manage business shareholder a to us of strengthened near-term positive necessary along execute plan liquidity effects enable the investments current make to the environment, with to strategic the while growth balance Our our enhanced value. drive

priority across measures customers. early safety March, Since workforce. has to be proactively of our and health ensuring global will and top been Our continue safety we've and employees the health our and our implementing been

circulated we've incorporated those As additional for safety, national and as local guidelines and authorities employee have well. health

enhancing travel across facilities, schedules increasing visitor of broad the facilities, our samplings to of work our the been access we've implementing taken all protect our travel. of unnecessary canceling possible, wherever external additional include: and our measures maintaining operation and remain and home all critical all actions the to all between and are of of have distancing from operational, facilities the programs our workers, and our to of production while employees almost sanitation air work As cleaning hours adjusting frequency and restricting promote safety workplace, open These businesses operations.

job In manufacturing working sites, award of been to distribution on program as job, entire also exceptional an our on outstanding keeping the while our to for for lines critical our has just at the We strain are country. running, an keeping them workforce, everyone simultaneously employees facing. also we front but done our but and gratitude, difficulties supporting that put mid-March, recognition they've operations hourly owe situation safe. not began our an This doing a tremendous appreciation they've U.S. operations

ClosetMaid, go facilities. AMES, Professional supporting businesses. national products infrastructure. of and and all our the are U.S., Building Canadian operational. specific businesses facilities critical Each all This and Consumer includes some In these of products of through Australian Home and and CornellCookson provide Let's Clopay products

To practical, we to employees work in extent these the our remotely. are permitting segments

to our and I manufacturing at the distribution safety before, have protocols workplace. while employee of all strict implemented health As mentioned facilities ensure and

in directives late what our to be expect time end of are have we operating this the to United the not March, June. directed at accordance until government employees a home UK Kingdom UK been in stay AMES In re-opening with facilities, and

is in authorities. imminently. operations Canada our closed facility This of at and Mexico, April In direction and in expected ClosetMaid the Mexican ClosetMaid resume U.S. manufacturing to facility principally the supports earlier sales

military supporting the all Telephonics, manufacturing U.S. and to our defense and provides at operate are sites, electronics its security. business, essential for services, our operations its it as maintaining continues national critical of

retailers saw and and seasonal a quarter quarter through and Products. America garden storage and lawn at tools across starting We performance, home update Australia. Professional Consumer Let centers through products, for and major the an in and me second go demand on steady North the with organizational entire solutions

UK for doors residential Building demand Products was shutdown. strong of related Home COVID the and commercial the quarter. by continued and March through sectional In impacted The the end

in steel increasing the quarter. saw for products also We demand rolling

the Martin booking was in Telephonics, program the long MH-XXR FMS the initial $X $XX part which received contract. Telephonics an March, India with production in anticipated from expected At of first Lockheed million bookings total is million signed. this

be We this balance the fiscal of year. this expect to contract booked in

chain support of Across we sufficient date. Currently, able been major and to interruptions. material any suppliers meaningful operations all sustain segments, not hand on us have and have largely without components supply our experienced issues we've to our our to

our talk Let's sheet. about balance

I has clearly business pandemic of some update, developments. recent call our out typical COVID-XX to the While want eclipsed the attention to

XXXX January facility additional term feature. to the revolver XXXX. million $XX revolving of $XXX extended of and the an credit expanded million the increased In to our we availability have We $XXX capacity through by accordion and its million

Shortly last X.XX% on thereafter, XXth, call placement due our private bonds with XXXX. a Substantially we January on our registered X.XX% On notes million XXXX our exchanged April in of on portion for of to refinancing of Xth, our bonds all were February $X we of bonds refinance discussed in intent $XXX due bonds. billion completed XXXX the XXnd. these

with our liquidity the these us reinforcing for weather transactions our the pleased These to and by unpredictable sheet future. conditions timing operating We're balance our extend offering enhance maturities, bond of and the actions in and today. revolver and the we're a how success expansion, position

of shareholders how we Lastly, it We dividend understand the to in to our program. resilience continue difficult and reflects times. is business expect even important dividend our our

consecutive XXth has grown rate of XXst shareholders dividend This payable to To that June marks on XXXX. compound the we Board which XXXX. since it shareholders, authorized quarterly today an at initiated end, our May per XXth dividend earlier to annualized of record XX% in $X.XXX a XXXX share on

for me Brian? look closer a Let it Brian the at turn to over results.

Brian Harris

increased and to I'll compared results. to $XXX quarter EBITDA XX% Revenue performance million. prior to Ron. highlighting adjusted our by our you, Thank X% second start consolidated quarter $XX increased million

of quarter strategic AMES to the $X.X Gross initiative. which was related charges for the profit $XXX million includes million,

gross Excluding was million, this basis gross with $XXX margin increasing XXX XX% increasing profit points. charge,

of Second strategic M&A of of administrative end related the postponed related quarter $X.X the and initiative activity at and including charges costs to million and million, Apta to QX. acquisition selling, AMES general expenses $XXX

SG&A these million, Excluding expenses were charges, X%. $XXX increasing

for charges expenses As SG&A of to basis consulting, increased XXX related percentage XX.X% sales, compensation. the adjusting and COVID points a due to and

share million GAAP of $XXX,XXX quarter XXXX Second per prior year net share. or income or per $X.XX period was to compared $X.X the $X.XX

$X.X periods, per share both that share, quarter affect share $XX on from or was to an of adjusted increase items or $X.XX basis. $X.XX a compared Excluding comparability million per year XX% income net million of prior the per current

excluding the tax date affect the year. was for that prior period quarter, comparability line with quarter, the XX.X%. amortization XX.X% was the million in $XX and million. effective items was rate, for Depreciation and $X in second spending Our it quarter Capital was year to for

segments, $XXX on second impact X% current well due an decreased to quarter year UK, the load-ins as driven prior impact and and to Consumer our exchange unfavorable Products of the decreased revenue by Professional X%. million, volume COVID-XX as quarter Regarding new product of foreign

from sales This X%. Apta million, contribution pricing XX% the to $XX contribution and incremental is reduce partially tariffs, EBITDA of Adjusted by and favorable offset partially Apta. decreasing offset mix was acquisition from due the and by

in a impact. to unfavorable also the margin year foreign EBITDA quarter. X.X% X% quarter had prior EBITDA exchange Adjusted The X.X% was compared

PA Falls of we and Nebraska, the by year. initiative on strategic expect and plan Belle continues exit to AMES City, the facilities fiscal The Vernon, end

million, Home Products by in XX% XX.X% and quarter. efficiencies. favorable margin increased increased driven million, quarter revenue XX% EBITDA and compared year the EBITDA increased was driven Building current Adjusted increased $XXX $XX to XX.X% mix second pricing. and volume to operational revenue quarter improved to in the by prior and Adjusted

impacted million, period due EBITDA the to $X.X Defense during increased compared XX, the volumes. and period prior Electronics XXXX million $XX proposal quarter Backlog of compared $X.X first bid was million primarily $XXX of of mix at was million. by quarter revenue timing the costs. $XX and March to is to prior million, Adjusted

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

XXXX balance as in of to resulting $X.XX position net March our in debt billion and liquidity, a billion, covenants. X.X debt as times cash our leverage in total outstanding of of had debt net $XX a sheet Regarding of and million and defined XX, EBITDA $X.XX we debt

benefits the $XX Act and million CARES cash other XXXX and ‘XX. to to fiscal from provide inflow legislations Further, fiscal to plus we $X expect plus million

through to COVID-XX the pandemic. We manage liquidity have ample

interest mentioned, we new bonds the XXX billion previously X.XX% bonds is this $X of coupon year. for of As our fiscal a expense maturity refinanced The approximately of million through $X.X of with X.XX%, adding XXXX, ‘XX.

Also during the $XX $XXX XXst Griffon XXXX. the increased with revolving maximum to XXXX million, borrowing to and credit $XXX March million extended at by its amount available million facility quarter

month of started continues its end year. a Also generation has In of note as feature. cash that Griffon the the million $XXX which addition, accordion entered facility period seasonal typically through fiscal the April,

XX-month our of million. unallocated months Griffon's first fiscal of trailing $XX as million adjusted with XXXX six were EBITDA the before expenses to year $XXX $XXX compared million, to up strong

production QX, expect considered remain essential. of distribution Regarding our our the and we as facilities vast operational, is to majority

our cash in all the to second We have our the challenges. business, ample flow year. of through fiscal the debt, anticipate of support and near-term with we This, liquidity strong serves maturities free extended half as navigate along

with economic business enhanced factors and impact COVID-XX this several interruptions, conditions evolving of appreciation there related and These depth awards. are at Notwithstanding, factors modified safety, the ultimate duration production include cost and unpredictable and time. are on associated that are global measures its

it We and the normal decided COVID-XX uncertainty and makes these a normally a that not to guidance. give as provide our extremely resulting result, are XXXX guidance guidance update year, during times. we suspend guidance difficult have The but year to do not from once

adjusted making $XXX expenses, achieving our of EBITDA unallocated can you indeed at results, from million of on ahead see we're that are our plan. progress guidance of good before and we least As

strategy Our times remains X.X goal debt EBITDA and long-term unchanged. deleveraging to net of

Beginning commentary CPP. our you regarding the me six Let observed have we last over some weeks. businesses what with give across

markets. continue demand in Australian North see steady America and We to

However, currently until not AMES resume UK operations July. expect does to

seen sectional Home Clopay steady. volume to volumes In have during of XX% the but Building residential XX% declines month commercial April, door approximately and Products, are doors of

on seen expecting and a material impact We QX. Electronics Defense revenue not are have through not

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

Ron Kramer

had our year. Brian. was ahead last solid a and We Thanks, second of year-to-date well quarter performance

long-term we elements growth remains current strategy and our our long-term strategic follow the plans. adjust to on through conviction key of have to circumstances, the the intact While we

our maintenance half investments and growth will half of other original operations, that expenditures promoting our to are related roughly with million. $XX capital guidance competitiveness. for capital continue Recall Our the our to

will We make these AMES our initiative. strategic all of to continue including investments,

our million shares. As will currently remaining And program. under mentioned we do program, we Board to buyback continue approved our while repurchase dividend we earlier, share have intend I $XX not

balance our flow generate seasonality fiscal and net goal our focus deleveraging year to times of the free reaching our to our half businesses. on significant X.X Second continue of years. few debt the cash sheet with due We'll EBITDA on to next

I'd of all has through to an our Our our proactive. this their through this continue importance the and crisis. up of build dedication we way health management workforce work infrastructure to exceptional this appreciate as We safety, better it that their to pandemic, be our and global critical measures supporting is and we’ll persevere home team I'm work, markets. shown to just will confident taking throughout a maintain to We're bigger tomorrow. like challenge, say We’ll we that the

take whatever let's Operator, questions.

Operator

session. first go from of a CJS Thank conducting is Please Bob [Operator now ahead. be Securities. question-and-answer question We'll Instructions] Your Labick you.

Lee Jagoda

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

Kramer Ron

afternoon. How are Good doing? you

Lee Jagoda

AMES the business. with starting Just

As of - gardening it could you at seeing retail dare seeing sell-through? you be to even into say I April, benefit what stay look terms are mean, home at people relating a and are that there in anything I and you

Ron Kramer

people money around are and that an home adjustment through are seeing We their spending economy this home incredible who as set circumstances, are the are the house. as clearly to of goes and at this people in

are beneficiary that. of a We

that itself our ability e-commerce to our their expect partners We to retail manifest business. in and support

of liquidity are going a unemployment waving and home spend is to is of AMES, that a trend of not of unfortunate, megatrends to in people still tremendous the that's through, out retail range homeowners to there's not what at the investment, going restaurants, be the that products that's and of still home, are to tremendous represent going provided, is while are The that normal spot that shop level of that money within there's number terribly we it's that amount of and adjusting and believe within the the people are their We a be US. new and in patterns. sweet going brands how obviously clearly

us the the the and the that that our gives recovery going of are things impact I'll the fiscal the one other significant trillion people $X is hope and make into policy, back that to of is into And the unemployed get have that both pumped point that's monetary to some million XX that system become workforce. one going particularly get

urbanization for AMES single The to home result and is means what with around ownership, this likely underlying broadly trends are positive. more speaking an

Jagoda Lee

increased residential periods slowdowns? forward, has in in garage you home, sense us the for investment going And a economic can what on of typically happened side give door the

And as tailwinds to then that, potential to seeing headwinds? steel the prices particular, giving you just of up follow related commodity are volume a to the offset any you're some in

Kramer Ron

case, whatever there's the was by through that last a in a And there. saying a is result natural start decline that, in crisis, calamity. currently of let is distinction financial couple it. a me a the Yes, we're But economic disaster. cause the questions victim of of home homeownership me of the is this let the In housing going

to so prior this compare is informational trying cycle And any to only.

way early know of the We're any of good March were end business. certainty the in to of this what volume, year seeing last ahead we ultimate the too with the is side residential certainly to But in be. through going impact

the part our of and is biggest business repair Remember, remodel.

get there's a construction, home only going we to which when that New believe into we is imbalance ultimately supply clear accelerate phase. recovery the demand this

impact too to way it's about So is. early what talk the

we're XX% we sectional cycle see orders I XX% are the April. think used of The that sitting, is repair expected the of and number From remodel month where means still to door XX%, down that XX% Brian business, continues. and in. coming of Residential in

much So and a place very in that shelter that's downs is an spite place. going, all necessary safety there heartbeat have economy lock in put of precautions of still the with states the in

other to and how ultimately into the week up way, go again and to seen. then start open that's prospectively June So remains May we to as this going be

brand. network. door through garage business commercial leading business. the on volumes the have seen We CornellCookson, had our retailers dealer of commercial the we the bought we best drop in in and best business believe We best the We're in no sold door side had we off the

economic the the as we're will to, relatively re-engage but is politics, what here about forecasting or So how positive is trends to and the about about how ultimately testing we it's to remain long quickly about sitting people isn't how views science going in of recovers. lead this impact this going vaccination April, much last and and economy

broader around that to to The we're and one of thing are that certain in of of likely is and are the products the house, garden not is trends function U.S. economy benefit continue garage where to our strategy part just but going the the that is on. that functioning from

Jagoda Lee

Brian? then And the in side commodity

Harris Brian

sure. Yes,

saw to or some So your days question. last address We over changes commodities commodity in the XX so.

with However, awards. appreciation to have not testing the related the COVID costs itself to the we also increased cleaning, facilities and mention of the

down. not up, is structure cost our overall So

Lee Jagoda

you. Helpful. Thank

Operator

Romero The Company. Sidoti go Please of next question & is ahead. from Julio

Julio Romero

are you Hey. doing and well. Good hope afternoon all

Kramer Ron

You too, Julio.

Romero Julio

to wanted on start I CPP.

all reduced you your utilization Are discuss facilities Mexico are UK there you reduced color shifts. rates? the Can hours, mentioned minus help. Any had would and You having the operational.

Harris Brian

Sure.

the are are and operational. way in have see to orders. facilities We they really operating, So But fulfilling distancing. operate some social facilities are the the enhance we fully shifts facilities normal do the

Romero Julio

margins with what -- there? itself Home on home And volume be elevated may going in Products lend that you and helpful. and seeing and process just assuming look that like decline, the do about that's would Okay, thinking installers to Home risk Building the sales believe, that that there Products, there I into Building would

Brian Harris

need actually, all. your you at go don't inside don't doors interaction much for residential So They selling house. garage

Kramer Ron

That's Yes. the outside house.

Harris Brian

like. particularly our deal will through a also can to And or door, door portal the dealers the house, at with look what that's of software online Right. MyDoor the a customers showing they through have called that picture the showing online they distance design

needs directly. and credit anywhere install don't can then show we up at and Nobody the give with They to interact them. their near house it. We cards anybody get

process So is that operational. fully whole

Romero Julio

say I that prepared that your did you in be Ron, would hear or your I million remarks is half And about of guess, maintenance. $XX CapEx so? Okay.

Ron Kramer

did… You

Harris Brian

Generally I'll CapEx investment for maintenance business versus one. and terms about our so of XX-XX take Yes, runs that in expansion.

$XX have million there year that's CapEx of XX-XX. the would guidance. that to say So is this that we in out million roughly $XX after the there If is of balance related initiative. I AMES and helpful.

Romero Julio

Got it.

stay for questions Thanks the healthy. taking and Yes. understood. Okay,

Brian Harris

you. Thank

Ron Kramer

too. You

Operator

question Bergner next from The is of Research. ahead. Please Justin G go

Bergner Justin

Good Ron. Brian. afternoon, afternoon, Good

Harris Brian

Justin. Hi,

Kramer Ron

Justin. Hi,

Justin Bergner

Could to the heard of correctly. March to what Just revolver repeat was comments unused start at had I XX? questions two the revolver or make you portion sure clarification your I availability guess

Harris Brian

Sure.

million So begins working as like now, $XXX peak our million revolver. balance. accordion revolver cash end through XX, are at the at April And cash end March right comes free through the the strong credit available generation our March that which at reduce have And the of to and expect under we cycle feature right do in of we had in addition year. and And will our year end our flow we the the the of we fiscal goes point a year, $XXX facility. of also to add, I'd capital

Justin Bergner

that ratio need what that is to be of covenant And the revolver? leverage for Understood. you mindful

Brian Harris

Currently, X.XX peak. which X.X, our our the we're at at for covenant times is is and actual

Ron Kramer

accordion. And there of another remind is you, million $XXX revolver of I'll our

Justin Bergner

Okay.

XX% XX% garage just was wanted comment April, to in that to second, The residential I clarify. doors. down The to specific

Harris Brian

Correct.

out coming of the seeing business, side to orders that April. decline month the of residential of sector. the the So in in XX% was we XX% were Generally Clopay of retail

door. imagine, being network pretty an aisle very at for dealer strong into we see home center to our garage in not could a are there as going not and order long much degradation a standing But So all. you people

Justin Bergner

and makes That on comment how April? trend Okay. sense. Products Any Professional Consumer in

Brian Harris

U.S. should North I throughout say and good Australia, steady that period. volume, saw actually Sure. volumes We America, in or the normal

course, Of operating UK now. not right is

business. that's early July. we to expect only in So in exception the UK But be operational that

Bergner Justin

that - you're But there, Okay. demand just talking not about production?

Brian Harris

I'm and normal is said, what talking well. production I demand just as our about

Bergner Justin

good. great. - And then what sorry. That's Okay,

Brian Harris

ahead. go No,

Bergner Justin

could give just my through? million come benefits terms the in was, to you this million clarity in you those benefits. maybe as fiscal the of fiscal guess just Could I last and $X year Act little CARES -- year, the $XX where question us a next

Harris Brian

Sure.

many are Act, potentials. But of through the could related defer go benefit is the there now, want employer benefits the CARES So we rule don't all end works where you in calendar payments the security, of social from the the see those I what to the right and deferring year. portion through

that So QX we year XX% expect $X it December is That December repayable years. years each see. 'XX fiscal of in in two by fiscal for that's will next and to benefit expect we fiscal the QX that of in and in be XXXX those - us, 'XX this $XX and and QX million - million

math 'XX the of million and 'XX. $X.X December December in in that $X.X doing So, is

Bergner Justin

Okay, hop thanks. I'll back in the queue.

Operator

The go Wojs Instructions] [Operator Tim Please Baird. question ahead. is from next of

Wojs Tim

afternoon. you Hey, Hope safe. Good everybody. are guys

Kramer Ron

How are doing you too. You Tim?

Wojs Tim

year. year you weakness kind how into normal how back questions of a a I summer would the half cycle? would working the maybe relative follow you of that see and I relative you. capital do if guess of back you think - through manage to down half relative relative you the Thank to think guess about volume to or persist How Good. for production the of normal, the to couple up would just me. in

Harris Brian

Sure.

continue in watch accordingly less we'll we particularly based fact will to our residential months. door some we demand in our We'll that collections, So, the the coming we we fall the capital, continue watch adjusted the to already our to shifts, and volume. our working facility - in have that see have adjust on accommodate of business

Wojs Tim

Okay.

it this capital in working fair normally would - that you would demand there would release is - be environment? you from So lower if inventory normally

Harris Brian

Yes, correct.

Wojs Tim

And Okay. then...

Harris Brian

year see will our naturally in normal cycle. of per We second our the decrease half working capital

working In sheet. sales capital down come the if generally addition, in balance the - sheet additional out of we'll decrease, see come balance

Tim Wojs

that Okay. in the That changes a businesses the quarters. still in the seen through businesses, relatively makes then any thus think more would quarter. mix in mix guess And of second solid was US about you few uncertain over the how sense. in consumer, April? I far Have various any next U.S. price you

Brian Harris

Sure.

you it's some So actually project that what anecdotal would to be. little items. difficult give a I can

better side, anyway. than of change garage I So business, AMES on in I don't of in And channel. out retail any out see we door the the anticipate our we dealers foresee our do generally, mix, that could mix

Wojs Tim

in discretionary Okay. versus And would sort replacement? then business, how just, much break estimate the residential one door garage fix it's last of you some

Harris Brian

new see It's very is exactly. business repair - we estimate remodel repair it difficult to by and more than is far construction. What generally the is do

that So replacing be a resistant will generally, of to people downturn regular have as doors. cycle

Tim Wojs

Okay.

for the time. Good Thanks luck the good. on guys. year back of Sounds half the

Kramer Ron

Thanks.

Brian Harris

you. Thank

Operator

Research. Next Please Bergner of G from is Justin a ahead. follow-up go question

Justin Bergner

again. clarification in you mentioned defense press I guess those a to sort those Are on of follow-ups here. - proposal associated what costs of going their Two you release the Any for continue with? guess Thank while? magnitude and costs. the I

Harris Brian

Sure.

named: are and they bid as they exactly costs. proposal So are

will we on. second don't do are strong go to front half and before of the the already of expect us be good and we the a cost that's We we bidding year have have necessarily activity very the opportunities But very have for has seen as that lot continue work pipeline. of outside to business in occurred. a that really after lot of We us, we a

Justin Bergner

different were going enter? you that Okay, Martin contract? to helpful. that's were the costs to related India Lockheed opportunities, Those Those weren't

Harris Brian

Different Correct. opportunities. different - generally

Bergner Justin

mean, potentially operates defense portfolio? the the And the recession think then high defense political its gets question for a long-term bit the on the I difficult, for most alter for uncertainty place at in the leverage would about has options does the strategic business. the more company defense you different company part Obviously picture. how And little how was lifetime. second Okay. big the if during consider

Ron Kramer

We've owned a time. Telephonics long for very

asset its It We we for its growth what in comfortable very see see a is about near-term are with We plan. going we and future. core very strategic excited its are backlog. on

Justin Bergner

the you Thank for great. Okay, follow-up.

Operator

question-and-answer closing turn Executive Officer the Chief the concludes for to I would comments. session. floor This back Kramer, to like over Ron

Ron Kramer

able we've future. and these through very call make excited everybody believe goodbye. I times. positioned. you're hope and very company going it within be all I'm of the to what's to continue incredibly about our turbulent been Well, to We speaking optimistic about on to confident healthy, we on well safe, this quarter. the To you Thank and the we forward end look after again you and

Operator

teleconference. This today’s concludes

your this you You time. Thank may participation. at disconnect your for lines

Griffon (GFF) 28 Apr 202020 Q2 Earnings call transcript