Earnings call transcript Q2 2023

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Operator

Good morning, ladies and gentlemen, and welcome to the Griffon Corporation Fiscal Second Quarter 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded on Wednesday, May 3, 2023.

I would now like to turn the conference over to Mr. Brian Harris, Chief Financial Officer. Please go ahead, sir.

Brian Harris

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

Our being our The detail 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

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

thanks Thanks, Good everyone, Brian. morning, joining us. for and

hosted first initiated we've This review is strategic call process. since the alternatives we earnings our

to have a we lot So, discuss.

by before start me go-forward commenting strategy. process strategic operating review the and for our Let expectations reviewing its year, our conclusion on and results,

and Sachs the process commencement the May our XXXX, committee in of of formed of strategic process Goldman when this actually, our on considerations announced in advisers, we even but XXXX, and earlier began Decker. publicly January engaged We

value a considerations, evaluate committee a comprehensive given of possible our range the solely strategic The Board including strategic which to or of recapitalization. of on to was our sale, with mandate comprised was independent shareholder maximize advisers members merger, to divestiture, alternatives work

a of counterparties of alternatives value and of shareholders. provide alternatives explored that types for goal remainder of strategic variety finding its XXXX, XXXX potential with advisers engaged would the and thoroughly the strategic compelling Griffon Over into Griffon with and many wide

the and the plan on valued value continuing strong result, maximizing concluded best deliberation, Griffon And After unanimously appropriately our shareholder performance alternatives, these none that strategic time. determined is which executing extensive at for as to operating and a Griffon's focus we Board prospects. that this explored unanimously growth of Board approach review the

outlook confidence this nature of Board's the Our the decision of What Griffon's is is to from strategy. year negotiations a details to regarding that Due or conclusion of the financing is specific indicator tell a our during of economic duration can the and how process of cannot conditions. I and you, rapidly process and process, disclose an over however, initiation we the options explored period conducted. reflection confidential changing was comprehensive

value of there to and we a With price the that a fundamental and will our to opportunities provide Further, we to series believe be are to value. while committed now all the intrinsic longer process our we want concluded, value is strategic to exploring and clear consider are alternatives, shareholders. share I actions shareholder be no continue to open additional businesses between we that our enhance disconnect to continue to will proactively of taking

Griffon's Let through exceeded me has operating XXXX first of half to the turn expectations. the results, our performance

and favorable Products the year-over-year decreased to HBP, volume that and Residential across and by expected. growth able were the sectional our address been The what volume was price up Weldon, door by Vic results channels. the team and HBP has of Our segment in performance products which than built led to over two better backlog years. past Home mix all continued see Building commercial driven

longer larger result the also This frees news as of its improving it lead business slowed attention now and and backlog lead times. as up times. are to expand that great It normalized to with allows is the productivity. development down on previously focus HBP team factories efforts team The further operating backlog a our were

by for customers. team and by extraordinary the I steel a our leading want HBP product now ongoing and to offerings. business efforts performance and rolling innovative that commercial residential of thank is received by business. are and product in this additional offerings expanding capture marketing fabulous efforts intensifying their team These their positively complemented leveraging The sectional being commitment are efforts portfolio to building to positions

shifts difficult Products levels. with are Professional channels the which business CPP Performance continues and are and and to Consumer conditions reflect demand elevated market retail reduced by affected geographies customer being the All operating. in we inventory markets consumer The been U.S. in instances decisions, which particularly the storage we organizational supplier weakness challenging and diversification in and seen consumer in where situation exacerbated some lawn has drive garden and in customer have demand. has buying

to operating have unfavorable become impacted market leverage manufacturing absorption to CPP address is in storage unprofitable. and are The CPP's its States overhead and tools, organization that that product long-handled and U.S. in sourcing the combination conditions include manufactured and strategy point wood of United sale currently the States. handling, global these To material reduced the expanding United has some of volumes for lines product evolving lines

this more it cost its capability manage structure an cost-effective global better by leverage efficiently meet customers to to will be and a effectively U.S. future flexible demand model, experience will and sourcing global The asset-light and and extensive enhance sourcing to variable serve to profitability. with transition operations utilizing CPP's CPP manage positioned team enabling

with products, positioning actions consumers our our that strengthening continue brands distribution our These competitive expect. service CPP iconic leveraging enable high-quality will industry-leading to and and customers providing while

positioning margins actions for value segment continuation CPP these shareholders. our evolution and this substantial the XX% of of of are additional addition, targeted In achieve generating to a EBITDA

year. guidance for the Let's turn to

has Our half overall exceeded the first strong our expectation. performance in

earlier $XXX dividend Board addition previous to in we increase authorization XX% full-year $X our million. approved and guidance a least increase the share from to our is by to Also As buyback are this result, dividend, announced in per EBITDA guidance million quarterly was two at Griffon segment our share the the that ago. regular to $XXX weeks raising special our Board $XXX today the of million the

strategic Griffon's the have and These reflect our actions demonstrate immediate our commitment and Management both confidence our Board to in to shareholders outlook. and enhancing value and long-term plan

some to through go over me of to Let financials. the it turn Brian

Brian Harris

Thank Ron. you,

by of by before increasing amounts comparison approximately $XXX our $XXX performance X% Adjusted consolidated both quarter. start decreased in quarter points discussing I'll continuing unallocated by XXX basis margin XX% and of to EBITDA year-over-year. was our million decreased revenue second basis million prior-year EBITDA X%

Gross profit to was $XXX million million in basis quarter quarter. the GAAP for the compared a on year $XXX prior

of Gross Excluding XX.X%. applicable by from profit prior-year restructuring-related X% Gross acquisition charges the XXX million increasing in current quarter, and the basis increased the inventory points write-off and the year-over-year as periods. quarter. margin over prior to was current $XXX

Second compared both excluding of million million prior of year $XXX year of general, in expenses quarter and $XXX the million were Selling, the $XXX million XX.X% expenses $XXX compared were to administrative GAAP revenue. items to from revenue representing selling, general XX.X% periods. administrative prior or adjusting

periods, adjusted the year to continuing and operations global income was share. per charges sourcing from million compared the the intangible primarily $XX expansion million per tenant prior Second was by excluding operations $XX $X.XX from from was per or to per CPP's $XX quarter share. all or period driven impairments, income current year or $X.XX This items prior $X.XX the share comparability million quarter or compared GAAP $X.XX related million decline that of of net both loss affect share asset $XX to

CPP's assets $XX.X year. $XXX indefinite impairment Corporate life below in in In year-to-date were or to of XXXX and for depreciation the compared intangible unallocated the $XX quarter, expectation. million being recorded the we charge expected of a charges excluding quarter $XX.X expenses, net tax. prior million non-cash million results million results, The

prior was year. million Our million XX.X% the and the quarter, amortization year normalized prior $X.X year-to-date effective Capital $XX.X period. items the for for $XX.X tax in in quarter compared for spending to quarter million excluding to second the second adjusting rate, quarter compared and were $XX.X totaled in depreciation XX.X% the million the

volume and geographies primarily prior revenue across soft demand by year, Consumer our XX% organic for Professional performance, elevated revenue with inventory decreasing the to in decreased XX%. all attributable channels and customer consumer levels. segment is The Products driven and Regarding revenue reduction from reduced

to revenue partially items mix. the quarter EBITDA overhead by due Hunter favorable and reduced full from XX% well primarily its and impact price unfavorable revenue year These the as related and adjusted manufacturing prior on CPP offset absorption. decreased volume and as impact by of were of a

costs volume, residential spending These prior-year Building driven decreased full year for quarter, and reduced X% partially the by quarter, to commercial mix costs, Products volume. transportation, Total and a increased increased labor revenue XX% revenue items offset marketing. over discretionary Home offset due by material for volume contribution. EBITDA of pricing Hunter Adjusted favorable were partially products. advertising, increased the and to partially by offset increased and and quarter reduced residential both decreased increased by driven prior and compared commercial by

project The calendar strategy facilities XXXX. forward of sourcing As and includes expanding manufactured four detailed expect and this of sold our is closure by we global earlier project the CPP on press to in end U.S. the mentioned release, for products complete the the note, manufacturing in its

In include of related of $XXX that and charges XX and million costs facility and incur including cash to employee of million charges operational million non-cash period $XX $XX will $XX million for severance to to we transition $XXX charges -- retention to million million asset primarily write-down.

million, real estate of absorption largely to also in We inefficiencies exclude to labor and due of the the million cash to these offset and cost owned also range are expenditures charges during charges of and cash which transition. capital from expect benefit $X $X proceeds the impacts sale expected excluded equipment, duplicative

$XX.X six months ended March cash of XXXX, non-cash pre-tax strategy $XX.X global to of $XX.X million CPP consisting and In charges charges and of sourcing the XX, both quarter million of of expansion the incurred related asset-related million. charges

of XX, Regarding net times billion our our leverage March the EBITDA billion net previous of XXXX, debt Compared debt debt quarter. $X.X covenants. to net liquidity, as and calculated had X.X $X.X of leverage based debt on to balance times of we as sheet and X.X of and

XXXX of increased decreased as our billion expect our guidance $XXX least estimate revenue, CPP now and we previous guidance, least HBP partially by XXXX compared offset of adjusted now billion million expected XXXX EBITDA updating $X.XX of for result we is to of be Regarding at revenue, to revenue at segment-adjusted our $XXX previous million. to compared in expectations a revenue EBITDA, are $X.X

excludes EBITDA of review guidance an costs our $XX of related from $XX Our to prior guidance million, charges. the $XX well strategic charges and unallocated CPPs increase as of expansion as which sourcing million, million global is process

offset partially earlier. reflect mentioned Our by results, HBP the increased strong expectations volume EBITDA CPP reduced adjusted

Guidance for amortization interest depreciation million, flow of unchanged million, of net including $XXX of of rate metrics million, free million, other normalized XX%. to income, for tax capital exceed expense $XX expenditures approximating $XX remain cash $XX XXXX and

share our Griffon's record XX, XX, million, earlier, May XXth. of XXXX, outstanding authorization April increase Board Directors Griffon authorized to total per repurchase $X.XXX Board as On our of authorization increase on of to Ron payable As approved $XXX share million. -- an a dividend to Board to mentioned the quarterly $XXX June bringing XX% shareholders the

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

Ron Kramer

Thanks, Brian.

uncertain of want despite have of in employees our highlight environment, efforts. high them to service thank and our that continuing product customer businesses, navigate quality. each their global I macroeconomic We for maintained an levels to

to our continues initiatives. returned focus the to We on the with normal Products growth Home are now surge, perform is Building very about well pandemic and productivity able future. after confident and operations HBP's business to and

see driven for products. long-term our to healthy and remodeling historically by resilient the continue and for We commercial demand market business our the for repair products tailwinds residential

CPP improved about segment we expect allowing Professional working will environment confident challenging the our business Products CPP Consumer conditions, are over significantly is the through to stabilize also results. and prospects time, financial We currently deliver for while

conviction Griffon's increase and and in outlook by and as our strong stock significant our expanded demonstrated the have dividends authorization. plan strategic buyback Board Management in

long-term We and shareholders. to free operating business to our continue are value of flow use ahead the believe us. will deliver cash to its our days best our We strong performance of

Operator, we'll any take questions.

Operator

with Ladies Kramer. from and Instructions] question-and-answer comes Mr. ahead. Securities. Your [Operator will we begin Labick Please first now go CJS you, Thank session. question the gentlemen, Bob

Bob Labick

morning. Good you to to nice again. It's talk

RonKramer

Good morning, Bob.

Bob Labick

and what the with queue hard a few think we Congratulations materially And on to starting Clearly, HBP, sense next mixed like that has way. and where -- improved the have I'll what's over a the model many for pricing the you've and we the margins last but off good the in performance. back out? can for been instructions over overbuild so the us are maybe year demand new normal efficiencies just operating looking margins a obviously, business. you Obviously, been plus. continued are and give keep doors of questions, get in Has about in how normalized margins this years there period strong charts range cycle and Can garnered performance operating the from maybe brief follow it

RonKramer

years Let business go me we years start journey five-year and gets recognize we in by were a the margins to of have COVID, been bought, plan had working. building pre-COVID, we Cornell of we saying time going that you back building in was lost on that moments improving and five on three the Clopay ago, well company, of had a Cookson we doing that have

come have to expansion managing our done the We've acquisition, our grown already of of out our the balance job COVID, has commercial the an of residential that business extraordinary the business, commercial have. we business integration of leading we team

dependent commercial We residential side. and is positioned on and growth, not are new home it for the a business construction, residential repair remodel our is on

margin while And benefit best quarter be The HBP. in which continue that commercial construction, to ever us. clearly in shortage home New will is continues has country grown, quarter the will had grow. a only to we've business this this in

to shake out that we that that the going sustainability have is the that $XXX the business terms year higher margin. believe finished continue year. a better and guidance business tell of than strength, That's we've forward than confidence will and over last time of see with we sustainability of in of will will defendable this and enjoyed why have EBITDA where be cycles. margins a with in Only raising we We the this but business prior our business resilience million

you that? to want Brian, to do add

Brian Harris

I it unless way. have Bob pretty to additional think you well summarized you questions

Bob Labick

Maybe back that's obviously, that do since the because we've and just CornellCookson and watching super that's, and, I appreciate been step No, I expansion a journey there. taking integration the this and think, helpful everything. --

targeting commercial us now growth you've of of market give maybe you're you're and fully additional sense ready it. been that after and a opportunity So, go the commercial to and where kind in integrated growing, where

Brian Harris

well from market commercial up that the side come the to results with last The strong over with our years. start the and legacy as market as that. I'll been of new see historical products continue that Sure, has good from products of couple we've

out historical into to that, dealers, and much great benefits addition there's of of on In leveraging sectional to commercial of we bringing capture our and product CornellCookson those that still getting in future. are the dealers legacy the the

are to after getting pause on there was as we normalized, our was lead back last are the out backlog that two of Some over backlog that and elevated going years now our be and business. our and times that

most institutional-type like things of is business. course, spaces Of operations we our see warehouse and where

Operator

Thank you.

Your next go from with comes Tim Wojs question Please Baird. ahead.

Tim Wojs

again. morning. good guys, Hi Good to hear from you

RonKramer

Tim. Hi,

Tim Wojs

Hello, just on set maybe as kind relate one on terms that the changes in lands first CPP, where basis. just from the revenue level of a all after maybe kind us it a perspective business to of maybe of normalized

RonKramer

Sure.

XX% revenue the through we end generating see So, we a and be out this level go margin. other come 'XX, as this of billion-plus the side at size as $X that process will business

Tim Wojs

Okay.

flow than this net guess supposed better But a firstly year. cash it's maybe already meaningfully And cash Okay. be I to income. then flow, on of of kind kind just the two-part, better

is I net then where it's stock given stock I meaningfully guess I be to is how the you buyback? aggressive the guess income. pretty mean, possible here, expanded the would that with And relative today, So, just higher it

RonKramer

Sure.

don't have start category. generally the the can income flow under the as pointed flow first much be me our answering falls than cash we of flow, year, year, But question, so we stick income, net are half which in meaningfully Let the out. we seeing by you very net better half stated in it first cash of better with that than especially we're yes, good cash the

Brian Harris

maturity million, me we don't free with cash until sheet, add, and substantial a 'XX have authorized debt have tuned. our balance we've flow, let stay we $XXX start And just

Operator

you. Thank

Noah Your next question comes Stephens. from ahead. Merkousko with Please go

Noah Merkousko

and my questions. Good taking thanks morning, for

RonKramer

Good morning.

Noah Merkousko

are imagine of First, visibility on wanted HBP balance through I that seeing how at an now year, kind your normalized, to limit talk the backlogs least somewhat. demand, update I'd especially get would on the of that just you're

do confidence how get commercial for guess in demand I you and RES the So, R&R? there

RonKramer

Sure.

repair in guidance. side, a resilient expected, where actually we originally remodel we've the and has than residential year, the volume volume market, little raising it's but seen the On last to better our and it been is below leads and

On and after referenced to we our sectional strong commercial business, leveraging products doing us back the side, continue commercial relationship. are volume, well see to legacy CornellCookson going I our

Brian Harris

And the and other point hold. to has we continue I'll make is in our expect pricing it to

Noah Merkousko

the Got global what point strategy maybe you're it. announced 'XX, that CPP That's side your -- then but expanding switching really helpful. gears margins to XX% we and should sourcing at And EBITDA expect in you've

Brian Harris

'XX.

Noah Merkousko

fruit expect to strategy accretive what Okay, bearing start start you to 'XX. this At would becoming margins? -- segment point

Brian Harris

Yes.

remain lines take will and those end as we to move to period 'XX it at expect of roughly to through benefits sourcing come calendar in product transitional So, particular we a over will the these 'XX, model 'XX.

Operator

question [Operator Instructions] James. Raymond with Please next comes Your go from Darkatsh ahead. Sam

Sam Darkatsh

Brian, are Ron. morning, Good morning you? Good how

RonKramer

Doing are Sam? well. you, How

Sam Darkatsh

I'm well.

well, your certainly on a it's As voices good basis. formal to and hear

I'm actually into couple have questions back a queue So, four I'll and possible. three or get of maybe if the

$XXX the is do why while or daily the the an at by could you at to math my on the levels? consider open it you money work market on at wouldn't that a stock take put million current ASR So, tender if years volume, depending authorization, least that

RonKramer

let the we expect I not the able We don't starting will we think believe XX out to go means hours that And it and put but will be until in we consider earnings, Friday all in any us to be market. possibilities, market by. take years and are our on

Sam Darkatsh

is now for that Got going the continue for being? the the be payouts, how strategic or do then least at retention they Brian, you. process review accounted concluded, time to And they are

Brian Harris

Yes.

are over a amounts the to they for payments they those continue are year year, -- specific will And and continue event. years, are quarter year, call they several as each third out those though this next we'll So, after.

Operator

further you. over back Kramer, this are questions to Mr. you. time, Thank no at There

RonKramer

No, Sam I questions. think has some more

Sam Darkatsh

on? Hello. Am I

RonKramer

Yes.

Sam Darkatsh

Hello, Am on? I

RonKramer

on. you're Sam,

Sam Darkatsh

Can me you hear okay?

RonKramer

Yes.

Sam Darkatsh

terrific. Okay,

Sorry which about to sourcing, that. My again is last fascinating. getting CPP the back question

terms are you where the you you plans a how help setup So, that be of put manufacturing standpoint, us is on setup, the specifically point. type with what in do contract sole meat OEM if geographic with from risk Hunter, this have going at of a could moving sourcing like the contemplating little you are that bone manage of to a kind

RonKramer

me an have our a this sourcing globally, of U.K. of continuation of global do already let is evolution China, what that sourcing, our global start in saying that part Well, have with, we sourcing. office and is we work by global is part Australian business we business a facilities we

and The evolution out correctly what's aggressive Hunter the you of it a in relationship consumer manufactured elsewhere our our markets, that and repositioning in for United design States. U.S. to States approach United the in changed our the point operations, distribution based on and is

of attractive high be that on a outsourced what has doing globally, able is done manufacturing an U.S. a view to other to supported our in margins business very model. business successfully we've global I to overhead CPP at we're fix can the So, an very being what sourcing be evolution than that

Brian Harris

will and fact U.S. or that one well one person in using entities in that not and truly further Yes. global sole-sourced to periods add as includes us give even over I'll the means entity global and advantage. it's against more South going themselves just sourcing in Asia, to sourcing as Central be to America, sourcing

Sam Darkatsh

was a why whereby on these Is have times able some to the to knowing thought just you palatable monetize guessing during around sense there around a production especially How potential and based does still move a the that of I'm making some that fill of North for rates was that get an suitor. risk for heavy especially look that to may footprint, potential the CPP I'm an seasonality you production high I to of American long-handle that manage of season. Mexico, is to also to you're impact, tools or might reasons challenged that one there primary issue products? selling the point, business type in of of it how still the at appeal lead some Asia? contemplated trying

Brian Harris

Sure.

So, possibly able our will such we further, it the keep inventory enough of Central America areas service have distribution the as you will past. levels sourcing we and to part same from that touched we on our hand closer provide to ensure to be been of do footprint customers leverage in upon, that and

Sam Darkatsh

you. if I'm Got then And still on.

RonKramer

You are.

Sam Darkatsh

us cut Okay, All terrific. didn't off right. They yet.

RonKramer

while. going. silent been we've No, for Keep a

Sam Darkatsh

It's you The that for publicly terrific to has what debt completed, the business. authorization point either optimally leverage anticipate at again. repo the been able that -- you're do speak after or the

RonKramer

occur. generating depend level will as But shares. get cash will it leverage expect don't to flow those above on of Xx buybacks So, generally, when we much we're buying be type it

Brian Harris

cash, been very undervalued We've got of And of. taking as we've foreseeable a both till we intention as and maturity free we're as can always sheet undrawn cash free generate we've 'XX, to advantage in debt as much the have got no position, stock we've every cash be flow of balance to going we got got for we flow bank acquisition business, a we're future. earlier acquiring the luxurious with continue we've capital, said in I us that

Sam Darkatsh

in. to again, terrific And to hear. hear your voices folks Terrific

in touch So, be soon. we'll

RonKramer

you. Thank

BrianHarris

Thank you.

Operator

Thank you, Sam. questions. There are no further

Ron Kramer

forward you in look next Okay. after August. early all, speaking our you to Well, quarter thank to

Operator

a Ladies thank please day. Have participating and We for gentlemen, your for concludes your call great you disconnect conference you lines. that today. this ask and

Griffon (GFF) 3 May 232023 Q2 Earnings call transcript