Q1 2021 Griffon Corp Earnings Call
Greetings and welcome to the Griffon Corporation first quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Analysts that would like to ask a question may do so by pressing star one on their telephone keypad.
For 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 Mr. Brian Harris Chief Financial Officer. Thank you Sir you may begin.
Thank you Donna and good morning, everyone with me on the call is Ron Kramer, our chairman and Chief Executive Officer, our 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 comments will include forward looking statements about the company's performance based on our views of Griffin's businesses and the environments in which they operate such statements are subject to inherent risks and uncertainties that can change as the world changes for you for.
The cautionary statements in today's press release and in our various Securities and Exchange Commission filings finally flow in today's remarks will adjust for those items that affect comparability between 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 morning, everyone. We're off to a great start to fiscal 'twenty, one with our first quarter revenue, increasing 11% adjusted EBITDA up 35 per cent and adjusted EPS up 56 per cent compared to the prior year quarter.
We saw a strong demand across all our consumer product categories supported by a robust housing market and a healthy repair and remodel activity.
Our portfolio repositioning strategic initiatives and operational improvements continued to drive enhanced free cash flow generation as well as margin expansion and our cash performance for the quarter was exceptional during the first quarter all three of our segments increased adjusted EBITDA and EBITDA margin compared to.
For the prior year quarter.
This improved performance also resulted in significantly improved free cash flow generation recall, our first quarter typically results in cash usage due to the seasonality of our businesses. This year, we increased our free cash flow by 40 million generating $9 million in cash compared to a cash usage of <unk>.
31 billion in the prior year period.
Our net leverage is now 3.1 times EBITDA compared to three four times at September 32020, and is down by 1.7 turns when compared to the four eight times leverage at the end of the first quarter and fiscal 'twenty 'twenty.
We've made good progress with the Ames strategic initiative, which remains on schedule and on budget. This investment will consolidate operations increase automation support ecommerce growth and create a new data and analytics platform for Ames globally by the end of 'twenty 'twenty three we expect this to further improve margins.
In the years ahead and.
In the quarter. We also executed two strategic portfolio actions first we closed the divestiture of our systems Engineering Group C. J, which was non core for telephonics, our primary business for defense electronics products and systems sale of S. C. G creates immediate value to griffon shareholder.
<unk> allows telephonics to focus more of its resources on growing its core defense electronics and systems product lines and provides a C. G with the benefit of being part of a parent organization. That's more focused on government technical services. The S. C. G team did an outstanding job growing this business as part of <unk>.
L a phonics and we wish them well in their future.
Our second portfolio action in the quarter was the acquisition of Quatro designed in Australia, a leading manufacturer and supplier of large landscaping products made from glass fiber reinforced concrete. These products are used in residential commercial and public sector projects helping to diverse.
For our Ames, Australia operations with an expanded set of products and new sales channels. This is our sixth acquisition in Australia and in the last seven years expect more.
Our health and safety updates since the onset of the COVID-19 pandemic last March ensuring the health and safety of our employees and our customers has been continues to be our top priority. We have proactively implemented health and safety measures across all of our global facilities and as local and national.
Thirties of circulated and incorporated additional guidelines for employee health and safety, we reacted immediately decisively and we've spared no expense in dealing with the COVID-19 risk all of our facilities are operational. However, we remain mindful of the continued seriousness of the situation and.
Both Europe, and the United States and the previous shut down all of our U S facilities were deemed essential businesses and we expect that to continue.
Turning to the segments consumer and professional products. We saw continued retail demand across all geographies, including early spring orders from customers in North America and increased demand in Australia.
The Ames strategic initiative remains on schedule for completion by the end of 'twenty to 'twenty three.
And we reiterate our expectation to realize annual cash savings of 30 to 35 million and inventory reductions at the same magnitude when the benefits of the initiatives are fully realized Brian will provide more detail about the status of the initiatives during his comments.
Moving to home and building products segment, we continue to see healthy demand for both residential and commercial door products and a favorable mix for rolling steel products in particular in defense electronics, Telephonics revenue and profitability increased over the prior year and order demand was strong in the quarter with a book to bill of almost one point.
Three times backlog increased as well ending the quarter at 389 million Telephonics is taking actions to improve its operational efficiencies by streamlining its organization and consolidating facilities, which Brian will also discuss in a little more detail turning to the balance sheet. We're in an excellent fit.
<unk> position with ample liquidity to fund our growth in all of our segments, while pursuing opportunistic acquisitions and with leverage down to three one times.
Finally earlier today, our board authorized an eight cent per share dividend payable on March 18th 2021 to shareholders of record on February 18th 'twenty 'twenty. One this marks the 38th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated.
Weighted in 2012, let me turn it over to Brian will take you through some of the financials.
Hi, Gerard.
Sorry for highlighting our first quarter consolidated performance revenue increased 11% for $609 million and adjusted EBITDA increased 35% for $75 million broken comparisons with the prior year quarter.
Normalized growth gross profit for the quarter was 177 million increasing 16% over the prior year quarter, while gross margin expanded 120 basis points to 29%.
First quarter normalized selling general and administrative expenses were $117 million or 19, 2% of revenue compared to a $114 million or 28% in the prior year quarter.
First quarter GAAP net income was $29 5 million or 55 per share compared to the prior year period of $10 6 million or <unk> 24 per share exclude.
Excluding items that affect comparability from both periods current quarter. Adjusted net income was $29 8 million or <unk> 56 per share compared to the prior year of $15 6 million for 36 cents per share corporate.
Corporate and unallocated expenses, excluding depreciation were $12 million in the quarter in line with the prior year first quarter effective tax rate, excluding items that affect comparability for the quarter was 32% compared to 32, 2% for the full fiscal year 2020 capital spending was $12 million in the first quarter compared to $13 million in the prior year.
<unk> depreciation and amortization totaled $15 3 million for the first quarter compared to $15 8 million in the prior year first quarter.
Regarding our segment performance revenue for C. P. P. H B P D increased over the prior year with increases of 21%, 4% and 3% respectively.
EBITDA for CPP HBV. Indeed E also increase over the prior year with increases of 49%, 19% and 25 per cent respectively.
As Ron said earlier, the extended names initiative announced in November 2020 will extend the project by one year with expected completion now by the end of 2023 when fully implemented. These actions will result in annual cash savings of $30 million to $35 million with an equivalent reduction in inventory both based on fiscal 2020 operating levels.
The court simple implement this new business platform will include one time charges and capital investments of approximately $65 million each day.
During the first quarter Ames incurred pre tax restructuring related exit costs of approximately 3 million supporting the Ames strategic initiative capital expenditures supporting initiatives for $2 million in the quarter.
And Telephonics, we began executing on our efficiency initiatives and footprint consolidation in the fourth quarter last year, we implemented a voluntary employee retirement plan and had a subsequent reduction enforced announced in the fourth quarter last year, which resulted in total head count reduction of 90 people in the first quarter, we incurred seven charges severance charges of $2 1 million.
Coupled with an additional charge of $5 6 million, primarily related to valuing inventory I expected recovery amounts due to exiting older weather radar product lines.
Additionally, we are working on consolidating three long island based facilities into two company owned facilities. These total cost the total cost for the facility consolidation will be approximately $4 million, which primarily consists of capital expenditures occurring in 2021.
Regarding our balance sheet and liquidity as of December 31, 2020, we had net debt of $815 million and leverage at three one times is calculated based on our debt covenants.
This reflects one seven turns of Delevering from the prior year first quarter, our cash and equivalents for $234 million in debt outstanding was $1 5 billion borrowing availability under the revolving credit facility was $370 million subject to certain loan covenants.
Regarding our 'twenty, one financial guidance as most of you know we give guidance once a year during our November earnings call and do not update that guidance during the course of the year.
The guidance provided at our last November call with revenue of approximately $2 4 billion and adjusted EBITDA, excluding unallocated and onetime charges related to Ames in telephonics initiatives of $285 million or better.
With our first quarter behind us for looking through January 21, we continue to believe there is upside potential to our guidance now I'll turn the call back over to Ron.
Thanks, Brian.
First I'd like to highlight that we recently published our commitment to an environmental social and governance program on our website. We believe ESG practices are important to drive sustainable long term growth. We will continue to enhance our ESG reporting and communication and are in the process of further organizing and formalizing our.
Efforts expect to hear more from us on this topic.
I'd like to emphasize that Griffin's top priority continues to be ensuring the health and safety of our employees, our customers and our communities might give a special thanks to our 7500 employees, who as a team have helped us to continue business operations, while maintaining a safe working environment.
And their efforts are incredibly appreciated.
And in closing Griffon is in excellent shape in a very uncertain world. We have strengthened our balance sheet, we've taken strategic actions to streamline and enhance our portfolio. We continue to believe the diversity of our businesses our emphasis on U S manufacturing and our focus on leading brands in our central product.
<unk> has created a platform for growth and sustainable competitive advantages griffon continues to be a compelling investment story, we realize the margin potential embedded in our strategic initiatives, coupled with deploying cash on the balance sheet to capitalize on opportunistic acquisitions.
We're creating a clear and actionable path to significantly increase shareholder value. Our best is yet to come operator, we'll take any questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time, a confirmation tone will indicate your line is in the question queue.
You may remove yourself from the queue by pressing star two and the interest of time, we are asking analysts to limit themselves to one question and one follow up once again that is star one to register a question at this time.
Our first question. This morning is coming from Bob <unk> of CJS Securities. Please go ahead.
Good morning, Congratulations on a great start to fiscal 'twenty one.
Thanks, Bob.
So for the first question.
Wanted to ask if we could dig in a little bit you've had.
Significant margin expansion in both C. P P and H B P M.
Really impressive on CPP, obviously, you have the Ames initiative to come on top of this but what's been the primary drivers behind H B P margins and C. P. Pes current strength as well just give us a kind of sense of where that's been and you know are they sustainable do you still have levers to pull to keep going and how you're thinking about.
The strong margins you showed.
Oh, I'll remind you that our our margin improvement story has been evolving over the last several years and this has been a steady.
A continuation of things that we've been talking about for the last several years. So you know pre COVID-19 or businesses were doing well, we have laid out a continuous improvement about improving margins.
And in both the Ames business in the Clos pay business, we were integrating significant acquisitions.
The purchase of closet made into Ames and the purchase of Cornell cooks and into co pay that story has been evolving quarter over quarter.
This is.
Starting to showcase a lot of the things that were already in process over the last two years and we've been talking about this being a multi year journey of margin improvement and we're nowhere near finished with both businesses and getting to levels.
We want to get too over the next few years.
Okay, Great and then just kind of taking that over to Telephonics. You said book to Bill was approached one three times can you just talk about the kind of drivers behind the strong bookings and and where.
Where margins.
It can go in that business as well.
Sure I'll take this on jobs. So we have a healthy pipeline in telephonics.
Evidenced by a good bookings quarter.
As far as the margins we continue to believe that we will exit this year at an annualized 10% margin.
As we've mentioned in the last call and it continues to be the case several.
More challenging programs are sunsetting, some sunset last June sunset Sunset this year that coupled with the initiatives, we've taken married reduced head count and optimize the business.
Will we.
We should see continued improvement in margin throughout the year.
Thank you. Our next question is coming from.
Romero of Sidoti and company. Please go ahead.
Hey, good morning.
Good morning, good morning.
I wanted to dig a little more into H B P.
You know you are tracking well above your 15% EBITDA margin target there and I think it's been that way for a couple of quarters and I know you've called out some of the drivers are in the past and I.
I think Ron I heard you mentioned that you still think theres upside to margins in H B P. Maybe.
Maybe if you could just talk about.
You know what potentially could continue to bring margins up going forward in HBV.
We continue to see robust demand across both the residential and the commercial business.
We obviously are still in the early days of the integration of the Cornell Cookson business into the Clos pay a footprint of manufacturing.
We're going to continue.
Continue to make the investments in the business to support the demand that we see for both homebuilding repair and remodel.
As well as commercial and you know the margin improvement story is going to be one that is going to evolve based on both volume mix and there'll always be issues.
Like the price of steel.
That will be a pass through item for us and for most of corporate America.
There's input cost pressures that are building.
There's inflation.
We take that as a positive for recovering economy and.
And you know the ability to mitigate those input costs continue to pass.
Pass along price increases as a result is what the balance of this year is going to look like and are we continue to believe that we can do that successfully maintain and improve our margins by doing it.
Yeah, I would just like to add to that we saw.
Grid product mix, particularly on our commercial side this quarter.
Which is really.
The result of the investment we made in expanding the mountain top facility by.
By 50%.
And the reason we did that was to be not only core demand, but to allow us to support the rollout of new products that we can cause products are being accepted well by the marketplace such things like our entry defender product.
Got it and I guess for my follow up if you could just talk about the Quadro design acquisition.
Any color on to the margin profile there and then just a quick refresher on what attracts you to the Australian market in general Thanks.
Sure. So in general we've been investing in the Australian market for the last for about eight years since that works for seven or eight years since we started expanding there.
It went from a 10 million or so dollar business too.
Business, that's Australia dollars for through business approaching.
250 for 300 million Australian business.
It's an excellent marketplace.
In this case Victor acquisition Diversifies, our customers. So this customer is more of a construction or the government.
Our residential buildings that get built they put large pots and planters and park benches.
At their facilities.
Yes, the margin of the business generally at least at the beginning and we will improve it and always in line generally with our margins in our other businesses.
Thank you. Our next question is coming from Josh Chan of Baird. Please go ahead.
Hi, Good morning, Ron and Brian Congrats on a good quarter.
How are you doing Josh.
Yes.
So my first question is on the Ames business very strong growth could you talk a little bit about.
Sell through rates versus sell in and any sense of where retail inventories is that at the channel currently.
Sure So in general.
Demand is very high index outstripping supply so sell through rates have been very strong.
Generally I would say inventory in AR at the home centers and out in the marketplace is relatively low.
Alright.
That's good to hear so that presumably there'll be kind of a an opportunity in the coming quarters as you kind of refill question apologize.
Exactly yes, we continue to see as you saw not only in the first quarter, but even through January we continue to see strong demand.
And in the business and restocking should be occurring and continue to occur as those things go in and then back out to customers.
Through the remainder.
The core of the second quarter, if not beyond.
Alright, that's great and then my I guess my follow up question is and Ron kind of alluded to this earlier about the steel pricing and could you just kind of just walk through you know how long it takes for them for the highest steel prices they kind of hit your P&L and to what extent do you think that the pricing business to match the timing there.
There'll be a lag you just kind of walk through the day.
Some businesses and what when do you expect that dynamic there okay sure.
Hours by product and by product line, but in general there.
We'll be a little bit of a lag in there.
There has been in the past, but we do expect that we'll be able to pass through price increases and a reasonable amount of time and we don't expect at this point for a significant impact as a result of the price increases because well.
Steel price increases as we will pass through price increases.
And at least reasonable amounts of time.
And I'd just add to it is as you know are.
Building up throughout the economy.
The component prices are part of the recovery as both fiscal policy.
Darts to put people back to work and as our infrastructure spending which has been talked about for the better part of the last decade actually starts to come to fruition. We believe the demand side for products is going to continue to improve and we'll do everything we can.
With increased input cost to pass them along to our customers will ultimately will pass them along to the consumer and the consumer is going to have to.
Get the stimulus and the the recovery and we're very optimistic about what we see going on.
Thank you. Our next question is coming from Justin Bergner of G. Research. Please go ahead.
Good morning, Ron Good morning, Brian.
Justin Good morning.
Nice quarter, just wanted to delve into a couple of things other analysts have asked about on home and building products you mentioned that the commercial business mixed strong in the portfolio is that the rolling steel doors business that you acquired with Cornell cooks in or is that.
You know typical doors just sold into the commercial setting because if it's the Cornell hooks in business. That's obviously much if it mixed up that would be much higher than the margin in card.
Yes, so we are seeing improved margins in the Cornell cooking business.
And it's being driven by the new products are.
Both by the integration of the businesses and the overall improvement of operations as well as the new Cornell cushion products that had been rolled out.
Over the last year or so.
Okay, and I guess, what would cause you to lift the 15% plus margin target for home and building products at some point in the future.
Realize there might be some hesitancy to publish too high of a number but would you consider raising that target at some point.
Oh, I'm, sorry Airport book.
We're never done improving our businesses.
And we will continue to make the investments build for long term and you know the margin expansion story you know it was one that happens overtime, we bought Cornell cooks and I think when we bought it we had talked about it running at eight eight or 9% EBITDA margin.
Moving now.
Our story is about operational improvement you know we're in a world that has more capital than opportunity and our edge is our is our ability to buy businesses.
Fix them and operate them increasingly better and the story of what we've done with Clos pay not just you know.
This quarter in that over the last year, but over the last 10 plus years, it's been about investing in building the business, adding on acquisitions. The margin improvement story is still ahead of US and you know you Mark moments in time getting to a 15% target a few years ago was.
Exploration will you know, we're clearly above that at the moment.
We continue to believe there's upside to that business it'll be slow it will be steady.
But we are.
Spending the time and the money to make each of these businesses better.
Thank you. Our next question is coming from Keith Hughes of Truth. Please go ahead.
Thank you kind of building on some questions here on your commercial doors talk some positive comments on VIX, but total units and commercial doors, how did they compare to prior year.
So in the commercial business units vary and how are you.
Look at those so overall the units were up slightly but the mix was much stronger.
So there was some volume benefit, but mostly mix benefited that sign up for business.
Okay.
And if we go to the residential side of doors, we've all seen them for the storage for homebuilding in the pick up.
For the orders for home is picking up have you do you feel like in this quarter did you feel.
Any of the influence of this surge of orders or is that something to come in the future and when do you think you would feel it if that's the case.
We continue to see good demand in that business, it's been going on for quite a few quarters and continues through the first quarter and into January so.
Certainly the housing market strength and the need for housing and the fact that home prices are steady and growing really are those all.
Contribute to a healthy garage door and for that matter overall economy, and it helps our consumer and professional products business as well.
Okay. Thank you.
Once again that is star one to register a question at this time.
Our next question is coming from Trey Grooms of Stephens. Please go ahead.
Hi, Good morning. This is actually know them accounts go on for Trey.
Just wanted to say congrats on a great quarter.
Thank you.
So my first question here I wanted to dig in a little bit more on the Ames in CCP sales growth, 20% organic was really impressive you've talked about I believe if I heard correctly strong sell through an.
The opportunity to continue to fill the retail channel I'm just wondering if you can kind of free.
Do you think any of that was demand pulled forward or do you still feel really good about.
The growth for that business going forward.
So we see a very good demand for the products overall.
You can't put a finger, whether it's demand pull for it or not but the demand for our products actually started before the overall marketplace is strong our urban to suburban.
Moving to other cities into the suburbs started before the pandemic are stronger during their current dynamic and we believe will continue.
Household formations are up people investing in their homes when home prices are up they have confidence to invest in their homes. All those things we expect to continue.
And I'd just add to it a recovering economy infrastructure spending all of those things better.
To happen when we come out of Covid.
We are going to be incremental demand drivers. So I I don't by the pull forward argument for us or for most of the economy.
Yeah.
Alright that makes sense and then a quick follow up here you know theres been a lot of talk about steel cost inflation, but im wondering if youre seeing any other.
Buckets of inflation in either the Ames or co pay business, whether it's other materials freight labor.
Or anything like that.
So in a word yes.
Yes.
And there is always there is always something so labor is clearly both.
Scarce and expensive and that's you know.
That's something that we've been dealing with over many years.
That's part of the initiative to streamline and automate.
In facilities.
Freight.
You know is something that is an ongoing challenge.
And so input costs across the board have been building.
Building, that's part of the mitigation that you try to do each year and then pass through of those.
Those costs as part of the ongoing.
Challenge for us.
As we go into the balance of this year.
Yes.
Ladies and gentlemen that brings us to the end of our Q&A session. Mr. Kramer I'd like to turn the floor back over to you for any closing comments.
Thanks, everyone stay safe stay healthy.
Bye bye.
Ladies and gentlemen, thank you for your party.
Disconnect your lines and log off the webcast at this time and have a wonderful day.
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