Q4 2020 Griffon Corp Earnings Call
Greetings and welcome to the Griffon Corporation fourth quarter 2020 earnings Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Brian Harris Senior Vice.
As it didn't chief financial Officer. Thank you you may begin.
Thank you Maria.
Good afternoon, everyone with me on the call is Ron Kramer, our chairman and Chief Executive Officer.
Call is being recorded and will be available for playback the details of which are in our press release issued earlier today.
As in the past our common.
I will include forward looking statements about the company's performance based on our views of Stephens businesses and the environments in which they operate.
Such statements are subject to inherent risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our various securities and Exchange Commission filings.
Finally during today's remarks, well just for those items that affect comparability between reporting periods. These items are explained in our non-GAAP reconciliations included in our press release now I'll turn the call over to Ron.
Thanks, and good afternoon, everyone.
Griffin entered this year from a position of strength both up.
Internationally, and competitively or 2018 pivot out of the capital intensive commodity driven plastics business and continued focus on branded domestically manufactured products set the stage for strong revenue earnings and cash flow growth.
We've also captured additional market share.
There's we continue to realize synergies across our businesses innovate new products maintain our exceptional product quality and deliver superior service to our customers.
Our businesses are performing well before the pandemic and the performance of our product portfolio has continued to show strength throughout.
This unprecedented year as consumers organize their living spaces repaired and upgraded their homes and spent more time outdoors, our strong fourth quarter and fiscal year results reflect these trends as well as the actions we've taken over the last several years through our portfolio reshaping.
We finished the year with.
Revenue up 9% adjusted EBITDA up 18% and adjusted EPS up 50% compared to the prior year results. We also generated strong free cash flow of 88 million in 2020 compared to 69 million in 2019, we continue to see.
Consumers investing in home projects, such as closet renovations tending to their lawns and gardens enhancing their enjoyment of the outdoors and upgrading the exterior of their homes, including their garage doors. We took action this year to fortify our already strong balance sheet in August we completed a public offering of eight points.
<unk> million shares of common stock with net proceeds of 178 million.
This equity offering coupled with its pending maturities on our unsecured bonds to 2028, and our credit facility to 2025 will help us execute on our growth strategy and continue to invest in our businesses and.
So reduce leverage while providing sufficient liquidity to weather any near term effects of the pandemic or other market uncertainties to that end, achieving a leverage ratio of three and a half times was one of our key priorities coming into the year.
And we're pleased to have executed on this target as our strong financial.
Performance in free cash flow conversion during the year, coupled with our equity offering brought our net debt to EBITDA leverage to 3.4 times.
At the onset of the Cove at 19 pandemic, ensuring the health and safety of our employees and our customers has been and continues to be our top priority.
Since early March we have proactively implemented health and safety measures across all of our global facilities as local and national authorities have circulated additional guidelines for employee health and safety Weve, incorporating those as well we reacted immediately decisively and have spared no expense in.
He will bring with the COVID-19 risk and we'll continue to do so.
All of our facilities are currently operational however, we continue to be mindful of elevated case counts in Europe and now in the U.S. again in the previous shut down all of our U.S. facilities were deemed essential businesses and we expect that to continue should another.
Steel rod shutdown occur.
Turning to the market update our segments, beginning with the consumer and professional products. We saw a strong fourth quarter demand for seasonal lawn and garden products tools storage and organizational solutions at major retailers in home centers across all of our geography.
Griffey's, U.S., Canada, Australia, UK and Ireland.
Were excited about the progress we've made in our previously announced aim strategic initiative. We recently broaden this strategic initiative across all of our aims businesses and will now include all the North American facilities Ames.
Knighted Kingdom aims Australasia and our manufacturing facility in China. They.
The expanded focus of this initiative Leverages the same three key development areas being executed within our U.S. operations first multiple independent information systems will be unified into a single data and analytics platform.
<unk>, which will now serve aims globally second certain global operations will be consolidated to optimize facilities footprint and talent third strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations and support our growing E.
Commerce initiative.
Expanding the rollout of the new business platform beyond aims you asked to include our global operations will extend the project by one year with completion now expected by the end of calendar year 2023.
When fully implemented these actions will result in annual cash.
Savings of 30 to 35 million, which is 15 million more than we planned with the original initiative and a 30 to 35 million reduction in inventory, which is 10 million more than we planned and then the original initiative.
These improvements are based on our fiscal 2020 operating results.
Moving to home and building products segment in 2020, we had strong residential section garage door demand, resulting from the same drivers around investing in homes as our consumer and professional products segment. Our commercial door business also had strong demand driven by the benefits of being combined with CLO pay.
Ecommerce warehouse construction and demand for security products Telephonics 2020 revenue increased over the prior year and order demand was strong in the fourth quarter, increasing 22% compared to the prior year fourth quarter backlog ended the year at 380 million. We continue to have a good pipeline of opportunities.
These bose both domestically and internationally, we also announced today that telephonics implemented it initiative to improve its operational efficiencies through streamlining its organization and consolidating facilities, Brian will discuss this more as he goes through the financial details finally.
I knew there today, our board authorized an eight cents per share dividend payable on December 17th 2020 to shareholders of record on November 25th 2020. This marks the 37th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17%. So.
Let's we initiated it in 2012.
We're continuing to focus on managing our cost structure, and improving operating efficiencies strengthening our balance sheet and increasing value to our customers through better service and a broader branded product portfolio. We believe our 2020 results demonstrate we can do that successfully.
And more to come in 2021 with.
With that let me turn it over to Brian to take you through a little more detail Brian.
Hi, John.
I'll start by highlighting our fourth quarter consolidated performance revenue increased 15% to 661 million and adjusted EBITDA increased 8% to 63 million.
And both in comparison to the prior year quarter.
Normalized gross profit for the quarter was 175 million, increasing 10% over the prior year quarter.
While gross margin contracted 180 basis points to 26.4% fourth quarter normalized selling general and administrative expenses were 126 million or 19% of revenue compare.
The 115 million or 20.1% in the prior year fourth quarter fourth quarter GAAP income from continuing operations was 20.1 million or 41 cents per share compared to the prior year period of 16 million or 37 cents per share.
Excluding items that affect comparability from both periods current quarter adjusted net income from continuing ops.
Operations were 22 million or 44 cents per share compared to the prior year and 17 million or 40 cents per share.
Turning to our full year results consolidated revenue increased 9% to 2.4 billion and adjusted EBITDA increased 18% to 236 million.
In comparison to the prior year.
Normalized.
Gross profit for the year was 646 million, increasing 11%, while gross margin increased 41 basis points to 26.8%.
2020, normalized selling general and administrative expenses were $474 million or 19.7% of revenue compared to 449 million or 20.3.
Spend in the prior year.
2020, GAAP income from continuing operations was $53 million or $1.19 per share compared to the prior year period of $46 million or $1.60 per share.
Again, excluding items that affect comparability from both periods Twentytwenty adjusted net income from continuing operations was $73 million.
Or $1.62 per share compared to the prior year $46 million or $1.80 per share.
Corporate and unallocated expenses, excluding depreciation were $12 million in the fourth quarter.
$47 million for the full year.
Effective tax rate, excluding items that affect comparability for the full fiscal year was 32 point.
For 2% compared to 34.3% in the prior year.
Capital spending was $14 million in the fourth quarter compared to $18 million in the prior year quarter.
For the full year capital expenditures is $49 million compared $45 million in the prior year.
The current year.
Included 70 million of capital expenditures.
As related to the Ames strategic initiative.
Depreciation and amortization totaled 15 million for the fourth quarter and 62 million for the full year.
Regarding our balance sheet and liquidity as of September Thirtyth 2020, we had a net debt position of 825 million and debt to EBITDA leverage at 3.4 X. is calculated based.
Based on our debt covenant.
This reflects one and a half turns of deleveraging from the prior year period, our cash and equivalents and equivalents for 218 million and total debt outstanding was 1.05 billion.
Borrowing availability under the revolving credit facility was dangerous 70 million subject to certain loan covenants.
Regarding Q1 and 2021.
Regarding guidance like many other companies, we withdrew our guidance in our fiscal second quarter because of uncertainties arising out of the COVID-19 pandemic.
We reinstated it in our fiscal third quarter haven't gained a clearer picture of the effects of the pandemic impact for this fiscal year.
Our quarter, our regular practice has been to give guidance once a year and not to update that guidance. During interim periods. We are returning to our practice. We are pleased that we exceeded both our revenue and adjusted EBITDA guidance.
Our full year 2020 revenue guidance was approximately 2.3 billion and we achieved $2.4 billion.
Full year 2000.
20, adjusted EBITDA before unallocated expenses guidance is 270 million plus and we achieved 283 million.
It is also worth noting that our reinstated guidance in the third quarter was significantly higher than our original guidance provided back in November 2019 that guidance was 2% to 3% revenue increase compared to 29.
<unk> and adjusted EBITDA before unallocated expenses of 250 million plus.
Regarding our 2021 annual guidance, providing guidance for 2021 is particularly challenging given the unprecedented events in 2020 and the continued global uncertainty we all face as we entered 2020.
Nevertheless, we intend to follow our policy of providing guidance. We feel is achievable at the beginning of the year and not provide an update to the guidance. Afterwards, we expect gryphons overall revenue in 2021 to be approximately 2.4 billion.
Terms of profitability, we expect fiscal year 2021, adjusted EBITDA to be 200.
$85 million or better excluding both unallocated costs of $47 million and onetime charges related to the aims and telephonics initiatives.
As Ron stated earlier, the expanded Ames initiative will extend the project by one year and we now expect completion by the end of calendar 2023 when.
When fully implemented these actions will be.
Walking annual cost savings of 30 to 35 million and a reduction in inventory of 30 to 35 million both based on fiscal 2020 operating levels.
The costs to implement this new business platform will include onetime charges of approximately 65 million, which increased from $35 million under the original initiatives and capital.
Results of approximately $65 million increase from 40 million under the initial regional initiative.
The onetime charges are comprised of $46 million of cash charges, which includes $26 million of personnel related costs.
Such as training severance and duplicate personnel costs as well as $20 million of facility and lease exit costs.
Thats the remaining 19 million of charges are non cash and primarily related to asset write downs.
During the fourth quarter Telephonics initiated a voluntary employee retirement plan, which was filed with the reduction in force in order to streamline the organization and improve efficiency.
These actions will cost approximately 4.5 million two point.
<unk> million $2.1 million of which was recognized in Q4 and the remainder will be recognized in the first quarter fiscal 21 tell.
Telephonics is also consolidating it three long island based facilities into two company owned facility.
Cost of the facility consolidation will be approximately 4 million, which primarily consists of.
Total expenditures occurring in 2021.
Total capital expenditures for 2021 are expected to be $65 million, which includes 15 million supporting the initiative and 4 million supporting the telephonics facilities consolidation.
Depreciation and amortization is expected to be $64 million of which.
$7 million amortization.
We expect to continue to generate free cash flow in excess of net income inclusive of the capital investments and other investments we are making that aim and telephonics we.
We expect net interest expense of approximately 63 million for fiscal 2021.
Our expected normalized tax.
It will be approximately 32% as is always the case geographic earnings mix and any legislative action, including new guidance on tax reform matters may impact rates.
As a final comment with our guidance for fiscal 21.
Attempts to factor in external variability the potential impact from a global increase in KOVA 19.
Teen cases, and the related potential shutdowns to come back that spread of the virus as.
As well with a challenging global macroeconomic environment and the uncertain us political environment.
Make all make providing guidance challenging.
Our guidance also assumes that we will be able to offset wage in commodity inflation through a combination of cost mitigation action.
Tim pricing.
Now I'll turn the call back over to Ron.
Thanks, Brian.
Griffin's 2020 total year performance is something we're proud of considering how much what's been achieved in just a few years. Since we began the portfolio repositioning and then adding the impact of the disruptions from the Cove at night.
Yes, I mean pandemic and 2020.
We expect that the portfolio actions would provide opportunities for topline growth and margin expansion through the realization of efficiencies during the integration process of our acquired companies further we expect it to become stronger competitively by providing increased value to our customers.
In terms of our broader product offerings improved service levels and enhanced efficiency.
Our results for 2020 are consistent with achieving those opportunities total year revenues grew 9% adjusted EBITDA increased 18% and earnings per share increased 50% free cash flow totaled 88 million.
We strengthened our financial position through better cash performance and paying down debt, achieving our net debt to EBITDA leverage goal with September 20.
September 32020 leverage of 3.4 times, we continue to believe the diversity of our businesses our emphasis on domestic manufacturing and our focus.
Yes on a leading brands provides a strong foundation for growth and a competitive advantage. We've made progress, but we know there is still considerable opportunity for improving the performance of all of our existing businesses. In addition, we remain committed to finding strategic acquisitions that expand and strengthen our product portfolio.
Within each of our home markets closing I'd like to thank our workforce, which is shown exceptional dedication and perseverance throughout this challenging period. We appreciate the importance of their work in order to deliver these excellent results. We know we will continue to face obstacles in our monitoring any new developments on.
Over 19, but we're committed to the safety and welfare of our 7400 employees as well as our customers and all of our communities with that operator, we're happy to take any questions.
At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press.
On car one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if you would like to remove your question from the Q.
So our participants using speaker equipment, it may be necessary to pick up your handset for pressing the star keys, one moment, please while we poll for questions.
Our first question is from Bob Labick with.
With CGS Securities. Please proceed with your question.
Thank you good afternoon, and congratulations on a nice quarter in a very strong year.
Thanks, Bob as Bob.
Yeah, because I want to start with the aims and so it's exciting that you're expanding it.
You know what looks to be strong incremental returns as well the whole project looks really strong.
You talked a little bit about one of the outcomes being enhancing your ecommerce capabilities wondering if you could just tell us a little bit about what you're doing in that regard, where you are now and where they'll be and is this front facing is it all.
I'll kind of on the backend and logistics or a combination of both.
Let me start by saying I think its a.
Our E Commerce initiative is supporting the growth of each of our individual customers. So it's our ability to.
Build the.
First structure in order to accommodate the order entry program as well as the automated delivery of product to the end customer.
It's something that we believe is going to continue to be part of the growth of people like home depot, and Lowe's Menards and.
Our ongoing support for people that are emerging like the wayfairs and ultimately the Amazons of the world, but we really look at ourselves as a branded product manufacturer and when there is a broad ability for us to be able to distinguish the type of leading market share.
Her essential products, and then to be able to interface with the evolving retail or in E commerce to be able to deliver those directly to the consumer.
Brian you want to give some details on some of the other pieces of Bob's question.
Yeah, I would just add to that.
And.
No.
ER completing orders are for E. Commerce are generally are different than doing it for large home center start you'll have just one set of products going to one individual.
And our new automation and on that just.
Inside as well as the manufacturing side will help us fulfill those orders while continuing to maintain excellent service to the larger customers such as the home centers.
Got it really helpful. Thank you and then shifting gears, a little bit, but obviously somewhat topical given.
What most people would say is the biden presidency, that's coming.
Does that have any impact on telephonics and can you give us an update on the international outlook for telephonics as well on how the <unk> that's ramping.
You know telephonics has been going through a multiyear impact that that goes back.
To the sequestration.
Programs that went from a the Obama administration the turn a in defense spending that really was the 2017 budget gives us visibility in that business clearly the predictability of foreign military sale.
So its happening slower than we would have liked but in the in the core products that telephonics represents intelligence.
Surveillance and reconnaissance there's no question that there is an ongoing global demand for us allies and the domestic.
Funding for the programs that we're involved in we continue to believe are strong so while the five year cycle is not something that we're at all happy with seeing you know our revenues go down profits or go down in the business. It's a business that we've owned for very long time, we have a very.
Aid and appreciation for its cyclicality and we believe that the five year cycle in front of US is going to get US you know significantly back towards the level of both revenue and profitability that we were at.
Before we went through this c. Quinn sequestration.
Cycle, So we view the the ongoing political movement.
As being you know factual the reality is we make essential products that are.
Cost effective battle proven and for the U.S. Navy and for Allies, We we believe will.
Continue to be a supplier.
Got it okay, Great and then last one for me and I'll jump back in queue.
Last year was you know generally a pretty weak snow season, particularly.
Northern and northeastern U.S. and everything I'm, just wondering I know you have significant market share in.
Snow shovels and the like.
This is going to create any lumpiness in terms of inventory or anything like that going ahead or how do you plan on work through.
Yes seasonal changes like that.
Yeah, I I would answer it that snow is just a category of a very diversified globally.
Barry.
Once and it's a very different company a than the names that you know go going all the way back 10 years that we've owned the business.
That you know snow is just not the not nearly as seasonal and impact.
As it was the the company is far more diversified farm.
Our balanced in its global counter cyclical and you know on any given you know season <unk>, both the spring or winter, there's an impact of incremental demand, but what we're seeing and have been seeing is you know we have the leading market share in every product.
We sell not just snow, but a lawn and garden.
Storage and organization and all of those different products gives us a far different impact on being able to control the outcome of any one snow season or any one spring.
Lanting season, but we've we've enjoyed robust demand throughout this year Oh to the point that we'll get we're not the least bit concerned about or you know any of the near term seasonal snow issues.
Got it okay Super Thank you very much.
Our next question is literally a Merrill Lynch Sidoti and co. Please proceed with your question.
Hey, good afternoon, everyone I'm on the expansion of the aim strategic initiative.
How much restructuring should we layer into.
And models for fiscal 21.
Sure I'll answer it I know we are.
We're expecting about 15 million of expenses as well as 15 million of capital expenditures.
Okay got it and.
I guess.
Could you delve a little bit.
Deeper into some of the.
Some of the offsets and consumer professional products in in the quarter, specifically to COVID-19 related inefficiencies and is that kind of expected to kind of linger into the first and second quarters of this year.
Sure. So yes, we have seen inefficiencies related to our keeping our facility.
Safe.
And that will continue as long as the pandemic is continuing.
We had some direct cost in the year about 5 million square CTP business and 8 million across all of our businesses.
Those costs will.
Diminish because most of the programs we put in place are in place and we're expecting about.
Our 6 million of cost on an annualized basis after direct cost of annualized on an annualized basis to keep our eyes.
Our protocols in place and our employees safe.
[noise] Julio I, just add to that.
So that you know we were clearly doing well and you know going into the pandemic and we haven't been you know the least bit concerned about what it costs. All we've been focused on is making sure that we were able to take care of our employees take care of our customers and you know when whatever that it's going to impact.
And financially I assume it's going to keep going because our view of this is that while there's you know a lot of very positive things on the horizon and ultimately this will be the triumphs of science and being able to deliver the vaccine into until it until that happens.
Pat its you know we're still you know a in the same crisis and as you know we treated that way on a daily basis.
Yep.
Absolutely and I.
I guess, just switching gears to the guidance.
I guess when I think about.
Well, you're guiding for I mean, you're already at your kind of target.
Hi, good margin you're exceeding your targeted margin range in the garage door business I believe so I guess is the implication.
That for 21, you might expect a little bit of a pullback on the margins in that segment and then you might see some some margin improvement in the consumer and professional products would that be a fair assumption.
<unk>.
<unk> I wish it were that easy to give guidance and be clear, where we are we've been operating in the most extraordinary period that anyone has ever operated the business. As you know is faced with so when you talk about trying to you know give guidance you know we we start.
By saying well, we'd always like to.
Under promise and over deliver and that's what our track record has been over all the years that we've given guidance. We have so many things going on on a daily basis that are going to impact what the next year, but we're six weeks into our <unk>.
Fiscal year and all the trends that were positive last year are still <unk>.
<unk> doing the same thing in fiscal 21, so we try to be conservative we try to set you know expectations, but you know the the the broader comment that I made over all the years that we've given guidance.
[noise] remains the same which is that the earnings power of these businesses is far greater than any near term guidance that we give and you know our goal isn't giving guidance is to set the bar more for our credit investors and our equity holders. We continue to believe that this.
It's a compelling value story, we continue to believe that we have a lot of good things going our way and that the margin improvement story, particularly around aims and particularly around the recovery in telephonics is still ahead of us how much more the margins and our home and building products.
Group will be able to achieve you know it's still early days on the integration of the Cornell Cookson business into CLO pay a we continue to believe that the commercial door opportunity that we saw or going back five years ago is going to play out it's accelerated as.
As a result of the change in retailing and the movement to E Commerce and I'll remind you that every time you know there's a a package getting shipped to your door, it's coming out of a warehouse those warehouses have you know rolling steel doors. So the growth part of our business and home and building products is going to change.
Enjoy over the next several years, we expect that we continue to invest in it and you know in the margins are clearly a reflective of all the good things that have gone on by Steve Lynch and his team in that business over the last several years, we think there's plenty more to come and so.
I think the big story for US is we said we set guidance. Then we clearly are saying next year is going to be better than this year and this year turned out to be a lot better than the guidance that we set a year ago.
Understood. Thanks for taking the questions.
Thank you.
Thanks.
Our next question is from Josh Chan with Baird. Please proceed with your question.
Hi, good afternoon, Ron and Brian Congrats on a good quarter low thank you.
Yes.
Hi, Yes, I wanted to ask about the strong momentum in Asia.
Those and I'm wondering if you know you kind of continuing to see that momentum continuing into into the current fiscal year just because.
Recognizing that it's probably getting away from the the lawn and garden season, but at the same time, you will you have some inventory kind of be filling pipe.
Opportunities.
Yes, you are actually says.
Got cards are a week, we continue to see the trends in our business being strong you know to start this fiscal year and you know and I'm going to go back and you know in simply make the comment that you know the well the at home trend.
Is clearly accelerating you know a lot of demand over a lot of categories. We we still believe the housing recovery is ahead of us in the United States that this is not a you know anywhere near the levels of both of those consumer spending that.
That will come out of two things that I believe are on the horizon. One is a stimulus bill and two is an infrastructure spending bill. So we have so many people in this country that are going to get back into the workforce that the ability you know to have wage increases as a result of a the recover.
Robbery that will happen once the vaccine and one's life goes into something resembling what was Ah you know what was occurring before the pandemic started in March those positive trends and as the you know the the aim side of our business and consumer.
Again these are essential products and we have the leading brand leading market share in every product that we sell so we feel really good about the trends that were going on in our business. We don't believe that there was any magic.
Magic, you know too that and it was all.
It is part of what we had been positioning over a period of years and you know the cove it effect of accelerating a people's spending in and around the house is a trend that we believe is going to continue even once we start to reengage.
Okay. No that's good to hear and then on the on the cost side could you update us on sort of the phasing of the cost savings now that you know you're expecting kind of a higher number but you know taking that there's no year to accomplish the other piece of this initiative.
Sure so a the original.
While timeframe was we'd be done with fee.
First well now call. The first phase of the initiative by the end of calendar 2002, and we still expect to hit that 15 to 20 million by that time with the balance of it to come into the year after.
Okay, and along the way, we'll see incremental benefit.
Okay.
And then I guess my last question is on the on the guidance. So 2.4 billion last year and 2.4 billion. This year. So I I mean, I'm sure that could be rounding there, but you know does the guidance kind of contemplate a little bit of a tougher comp in the back half of the year I guess could you just walk us through kind.
Kind of other revenue line, what what you're thinking there in terms of the upside case and the downside case.
Sure. So we have better visibility for the first half of the year, Yeah waters I read your EPS. We just mentioned are starting off in the year, well and we see good demand when we get there I was just.
Evan we agree when you get to the second half of the year, we do see tougher comps and there's a lot of unknowns how long the virus is going to last how successful and the vaccine may be and the economic impacts of other items.
No no we looked at a time.
We like to be conservative.
Understood. Thanks, a lot. Thank you.
Thank you.
Our next question is with Justin Bergner from.
From GE Research. Please proceed with your question.
Oh, good afternoon reduction Brian.
Hi, Jeff.
I got dropped so I missed some of the opening prepared remarks, so apologies if I hit one or two redundancies could you just remind me and there might be others that got dropped as well in terms of what the revenue and adjusted EBITDA guidance for fiscal year 2021.
Sure.
Revenue was 2.4 billion.
And adjusted EBITDA excluding.
Corporate unallocated costs.
Is 285 million.
And corporate is that whether he unallocated is expected to be 47 million.
47, you said there.
Yes, okay. Thank.
Thank you maybe.
Maybe switching to the defense business I guess why now on this I.
I guess restructuring facility consolidation program for defense electronics and the.
As a child.
Changing presidential administration lessen your appetite for M&A in Telephonics.
Well I think the two two parts to the question one is getting the facilities rightsized for the level of business and to be able to capture.
Priest margin as we expect a recovery in both revenue and then the obvious you know a proportionate a profitability that'll come from a better aligned a more efficient operating footprint and you know the M&A piece to it.
As you know I wish it were as easy for us to find a business as good as the one we have at a price that wouldn't make any sense for us to add.
Telephonics, so we like the business, we would love to grow our defense Electronics segment. Unfortunately, so would a you know most.
Most of the primes and an unlimited amount of private equity capital. So the competition for for value in that space or is something that well, where we'd love to find opportunities.
For us it's about managing the business, we have increasingly better and in doing that.
Being able to continue to generate good returns on invested capital and an incremental free cash flow.
Okay understood that makes sense and I'm, sorry, if I missed it did you quantify the expected savings in the restructuring and facility consolidation program or is that going to come later.
Hi, Bob.
And whether you can expect a warner so no one that once you know you on that.
Okay.
And then just shifting back to the home and building products.
Oh, sorry, sorry to the consumer professional products business.
It seems like your.
Kurt spending an additional 30 million of you know onetime cash cost an additional 30 million of Capex in the new plan and that is you know generating a relatively modest level of incremental savings of sort of.
Annual cash savings of 15 million and 10 million and reduction in inventories. So you know it's sort of like a.
I guess three to four times sort of spend per return should I interpret that as you want to go forward with this you know extra part of the program, even though the returns.
Friends aren't as great because there are still good enough or should I interpret that as the existing program was you know running a bit over time and budget, perhaps because of coated or macro considerations.
So couple of things that impact.
The initial program.
He is running on time on budget has not been affected significantly by cold or anything else.
As far as returns returns aren't that much different from our original project.
We look at it that we are making sort of an acquisition, but we're investing in ourselves in a business, we know very well.
<unk>, we have gained good insight from prior year.
She needs to be done both at Cloquet, and I I co pays our original facility and try and the mountain top expansion that we did last.
Last year or end of last year.
And we think this is a really good investment.
Secondly on the.
Good savings that we put out there are things, we can touch and our direct things we can calculate.
Beyond that we are going to be able to service our customers better we're going to have better data.
Both for ourselves as to when to manufacture where inventories should be located and how much of it we should have.
As well as how our customers should.
Take on inventory and having you have to my time as well those things are harder to know how much benefit we will get from it but.
But it will be above and beyond the benefits we've stated.
Okay that all makes a lot of sense.
Just lastly, any idea in terms of the sell through type of demand in consumer professional products versus that you know staggering, 29% organic growth number.
I'm not sure exactly what you meant but yes point of sale has been very strong if that's what you're asking yeah.
Yeah.
Pre sale will continue we continue to see that trend.
Continuing.
Okay, So maybe not quite as high as 29, but still very strong.
Yes.
Okay. One leads to the other [laughter] right all right. Thanks, and good luck with all the initiatives. Thank you. So thanks Justin.
Our next question is with Keith Hughes with Trust. Please proceed with your question.
Thank you one of the questions that I have from investors around this good home related business, if it's going to fall off as we go into next year.
It's a wonderful wonderful numbers on top line from consumer.
Fastener products, but you know what the guidance, it's sort of foretell something no other business retracting understand being conservative but is that something you expect and consumer professional products into your goes along.
No we.
Said.
We saw very good trends in our business going.
Into the pandemic, we clearly have seen accelerating trends as a result of the pandemic.
We you know and we're clearly telling you that we're off to a very good start for 2021.
The whole process for us of setting expectations is.
Well to be able to be at a level that we're comfortable that.
That we're going to be able to meet all of the demand that's out there and our view is that there is a an ongoing recovery you know the timing and the pro.
Predictability of what's going to happen as a result of the unprecedented situation that we're in just makes US look at this and say, we view 2021 as being better than 2020, and I'll remind you that a year ago, we went into the year.
So you know looking at guidance at 250 plus million for this year we saw.
Suspended guidance you know in the depth of the crisis, we re initiated in August at 270 million you know and we ended the year at 283 million. So you know.
And if you go back to the you know the time when we sold the plastics business bought Closetmaid bought Cornell cooks, and we talked about being on a path to get from I believe at the time was 225 million of EBITDA to 300 million over a five year period, well, we're two years into it.
And we're going to be knocking on the door of 300 million in the not distant future whether that happens in 2021 that that's just not how we run the business. We run the business to continue to grow both margins, a build and invest around the products and the young brands.
That you know we've been able to put together and you know the earnings power of our business is really ahead of US peak, earning power of our business is really ahead of us.
We've done very well during very difficult times, we truly believe that theres better times coming and the broader consumer economy.
And when that happens you will see that in both our margins and incremental profitability.
Okay and look just another question I consider fashion products, you talked about some of the things that happened in the quarter I mean, when I back out in the cold and cough. The margins were were still down but year over year. Despite the strong revenue.
Are those issues going to persist into the the December quarter as well.
No. So in the quarter, we saw inefficiencies related to their facilities consolidations, you know close around one distribution center and combining with another as well.
As it inefficiencies related to quietly areas that were hit by natural disasters, often what happens with those situations and you don't end up sending out full trucks because your semi out.
Smaller items to directly to stores are smaller areas and that causes inefficiencies.
He's in the distribution system, so no we're not expecting things to occur.
Okay. That's all from me thank you.
Thank you.
<unk>.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
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Our next question is with Trey Grooms with Stephens. Please proceed with your question.
Hi, good afternoon, Thanks for taking my question.
So the I.
I guess the first one for me.
You mentioned picking up some share.
Believe you were talking about CP.
He specifically there.
Are there any specific products, where you're seeing an outsized market share gain or was it pretty broad base there.
Hi, It was pretty broad based we're seeing.
Those results are across all of our product line.
Okay got it and then.
On the on the garage door business. So you.
Clearly you guys are in both.
Residential and then some commercial and you touched on something that I think is it sounds like a big opportunity for you guys is the.
You know fulfillment centers and things like that.
Did that is that helping you guys or has it helped you in your fiscal 20 that that kind of dynamic of build out of the fulfillment centers.
And or is that more on the come here as we enter 21, just your thoughts around the commercial side there.
We're predominantly a residential business and we've always talked about the ability to build our commercial door business.
That was the big strategic initiative behind the purchase of Cornell cookson to expand or ability to do both rolling steel sectional out.
Commercial.
That that is still small and it's still a you know incrementally beneficial it's an architectural sales channel different than the a big box retailer in the dealer network that we have but we continue to see that.
As being a big part of our growth opportunity for the future in both replacement cycle and new construction.
You know the partition Ah you know the security level products that are clearly going to be part of what what comes out of line.
Life.
After Cove it all.
All are very good long term drivers of incremental demand, but no. None of that is played out meaningfully in 2020, that's really about the future.
Got it and thanks for that and then.
You mentioned.
And I guess one of your I.
Yes. It was a response to one of the other questions.
That you you kind of shoot for setting expectations to be at a level, where you can meet all of the demand that's out there. So I guess that got me thinking about you know.
Are there any.
Pat.
City constraints or is there any concern there whether it be on your end or from any of your suppliers since.
Since we have had such strong demand you know getting that incremental demand are those incremental shipments is that is that our.
Concern of yours or risk as we look into 21.
Uh huh.
I would more call it that it's to the challenge is always to be able to meet demand and we see unlimited demand in our product categories and were working.
Every day to make sure that we can be as efficient and manufacturing and distributing to each.
For our customers. So we feel good about the environment and the expectation part of it but the comment is just being level set that you know the things change and Ah you know this year more.
More than ever it shows you know that things get thrown at you.
You know that.
Her unexpected, but you know in the way we try to run our businesses and you know I know Trey you're new to covering US and you know we we really look at trying to be is open and transparent about setting the expectations for guidance.
We we will have always.
Met or exceeded any levels that we've given out and we see the world that we're in as being the most uncertain time that anyone's ever operated a business and so we believe our earnings capability is far higher than any of our near term guidance.
And overtime that will prove itself out, but it's one quarter at a time when you're at a time and for US setting the the bar at we expect 2021 to be a better year than 2020, but from where we're sitting at you know it's been an exceptional year and if we.
We do know worse at the EBITDA line than we did this year, we're going to generate a significant amount of free cash again, we're going to de lever ourselves even worse than we already have we have no debt to pay down our bonds have a 2028 maturity.
So we're going to continue to build cash on the balance sheet. The bigger part of our story is we are aggressive buyers of businesses and you know our ability to deploy capital the substantial amount of both cash CRE.
Credit we have a 400 million dollar revolver.
And our proven ability to go and grow through acquisition is really that part of our story that over time, you will be able to see as we continue to find opportunities.
Understood I appreciate all the color I'll pass it on thank you.
Thank you.
Okay. Thank you.
Our next question is with the Justin Bergner with GE Research. Please proceed with your question.
Oh, Thanks, I had two quick follow ups, the one to 2 million in savings for the defense electronics was that just on.
The restructuring spend or the restructuring and facility consolidation spend.
Oh that was referencing the facilities are on the other side, we'll see a couple of million from that as well.
Okay, great. Thanks, and then the other question is can you just remind us have you articulated recently.
The what the medium term EBITDA margin guidance for home and building products is.
So can you refresh our memory.
Sure. So we have <unk> guidance out there a 15 plus obviously this year, we outperformed that Oh, yeah wearing unusual times that they believe thing there's a lot of uncertainty in general.
Only macroeconomics.
As well as from yeah directly from Covidien as well as macroeconomic so were going to continue to work on that plus.
And.
You know continue to where we'd like to elaborate we haven't been there very very long and we expect that there's still opportunity.
You need to improve the margin in that business.
Great. Thank you.
We have reached the end of our question and answer session I would like to turn the floor back over to Ron Kramer, Our Chief Executive officer for concluding comments.
Thank you take care.
Stay safe B will we look forward to following up with you in January Bye bye.
This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.
Okay.
Yeah.