Q3 2021 Griffon Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to the incorporation of third quarter fiscal 2021 earnings conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
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I would now like to turn the conference over to Brian Harris CFO. Please.
Please go ahead.
Thank you good afternoon, 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.
Thank you for the past our comments will include forward looking statements about the company's performance based.
On our views of revenue.
And the environments in which they operate.
Such statements are subject to inherent risks and uncertainties and changes of the world changes. Please see the cautionary statements in today's press release and in our various securities and Exchange Commission filings.
Some of today's remarks will adjust for those items that affect comparability.
All of the between reporting periods. These items are.
As explained in our non-GAAP reconciliations included in our press release for.
In our investment and.
That's the presentation, which will be available on our website now I'll turn the call over to Ron.
Good afternoon, everyone. We're pleased with our third quarter performance, which was slightly above of our.
Patients revenue increased 2% over the prior year quarter of 4%, excluding the impact of the SCG disposition.
Adjusted EBITDA was 76 million, excluding unallocated costs and adjusted EPS was <unk> 43.
<unk> well in the very complex operating.
And the environment.
1 of the spend a minute discussing it before moving to the segment.
Demand remains very healthy across our product categories supported by strong housing market repair and remodel activity and consumer spending.
We're currently carrying record levels of backlog in both of the C. P.
And the H B P segment due to transportation disruptions in tight labor availability, which limited our ability to catch up with demand, we implemented price adjustments and continually work through efficiency programs to mitigate rapidly rising input costs will continue to work with our suppliers.
The reason customers implement further price adjustments.
Our business has proven to be resilient and we are reiterating our full year guidance.
Our aim of strategic initiatives that will consolidate operations increase automation support the ecommerce growth and create a new global data and analytics platform for Ames by the end of 2.
'twenty 3 is on track we expect this to further improve margins in the years ahead.
And our expectation to realize annual cash savings of 30 million to $35 million and inventory reductions of the same magnitude when the benefits of the initiative of.
The realized.
As we navigate through the second.
Current year of managing our businesses during the global pandemic, we continue to prioritize protecting our employees even as restrictions in the United States, Canada, The United Kingdom, and Australia are evolving we are closely monitoring the situation due to the spread of the COVID-19 Delta of Varian, and we'll make adjustments as needed to.
The response of the government guidelines and to ensure the safety of our employees and customers turning to the segments and consumer of professional products. We saw a robust demand across all geographies of product lines shipping delays related to the availability of the transportation impact of U S revenue and EBITDA was impacted by.
The implementation of price adjustments, which as expected the input cost increases in the home and building products segment.
To see strong demand for both residential and commercial door products sales increased from the prior year quarter, driven by increased volume and favorable pricing and mix EBIT also increased benefiting.
From the increased sales, partially offset by the timing of price adjustments versus increasing input costs in defense electronics Telephonics revenue decreased from the prior year, primarily driven by reduced volume, resulting from timing of deliveries on communications and radar systems as well as the divestiture of.
Partially offset by volume increases and naval and cyber systems EBITDA increased over the prior year as actions taken to reduce operating expenses took effect in performance of naval and cyber system programs improved.
Backlog in the quarter was $375 million compared to 300 for.
$41 million at June 32020, excluding FCB with trailing 12 month book to Bill of 1.1 times, we continue to see a bright future for the telephone ex intelligence surveillance and reconnaissance products for the years ahead.
Turning to the balance sheet, we continue to have a solid capital structure with excellent.
The stability, we of $221 million in cash and $362 million available on our revolving credit facility, putting us in an excellent position to execute on the organic growth initiatives and to capitalize on an active pipeline of acquisition opportunities while returning to cash.
1 <unk> through our quarterly dividend.
Delever to 2.9 times, marking 1.5 turns of improvement over the prior year period earlier today, our board authorized the <unk> per share dividend payable on September 16th 2021 to shareholders of record on.
Share of 19. This marks the 40 <unk> consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated it in 2012.
Let me turn it over to Brian who will take you through some of the financials.
Thank you Ron.
I'll start by highlighting our third quarter of.
In August the performance revenue increased 2% of $647 million or increased 4% when excluding the divested.
Divestiture.
Adjusted EBITDA decreased 7% for $65 million and adjusted EBITDA margin decreased 100 basis points of 10%.
Gross profit on the GAAP basis for the quarter was 170.
$70 million, increasing 3% compared to the prior year quarter, excluding restructuring related charges gross profit was $171 million, increasing 3.5% competitive product per quarter with gross margin, increasing 30 basis points of 2006 for.
The percentage.
Third quarter, GAAP, selling general and administrative expenses of 102000.
$6 million compared to $114 million in the prior year quarter.
Excluding restructuring restructuring related charges, selling general and administrative expenses of 122 million or 18, 9% of revenue compared to $112 million of 17, 7% in the prior year quarter, primarily driven by restoration of selling and marketing expenditures.
Increased distribution and transportation costs.
Third quarter GAAP net income was $17 million of 31 per share compared to the prior year period of $22 million of <unk> 50 per share excluding items that affect comparability for both periods current quarter. Adjusted net income was 23 million of 43 per share compared to the prior year.
$6 million of 59 per share.
Keep in mind, the equity offering in August 2020 impacted current quarter adjusted EBITDA by approximately <unk> <unk>.
Corporate and unallocated expenses, excluding depreciation were $11 million in the quarter in mind, the prior year third quarter.
The tax rate excluding items that affect comparability.
Ability for the quarter was 31, 2% and for the year to date period was 31, 1%.
Capital spending was $10 million in the third quarter compared to $12 million in the prior year quarter, depreciation and amortization totaled $15.8 million compared to $15.5 million in the prior year quarter.
Regarding our balance.
Balance sheet and liquidity as of June 32021, we had net debt of $835 million and leverage of 2.9 times calculated based on our debt covenants.
This is the 1.5 turn reduction from our prior year third quarter and as the <unk>.
<unk> churn reduction from our 2020 fiscal yearend.
As a reminder of different uses of cash in the first 6 months.
For the fiscal year, which will be more than offset by the generation of significant cash flow in the second half.
Our cash and equivalents of $221 million and debt outstanding was 1 point of <unk> 6 billion.
The borrowing availability under the revolving credit facility was 262 million subject to certain loan covenants.
Regarding our 2020.
The 1 guidance with our third quarter behind US we are continuing to see strong demand for our products across our portfolio recover in consumer activity and the strong housing market of contributing to the constructive macro environment and homeowners continue to focus on outdoor living in the repair and remodel or new projects.
While we are seeing the expect the headwinds from cost.
So the supply chain disruption type of paper Mark.
We are managing through those effects.
<unk> in excess of $2.5 billion of revenue and continue to expect the $20 million of adjusted EBITDA, excluding non allocated and onetime charges.
I'll turn the call back over to Ron.
Brian as we enter the final quarter of our fish.
For the play here, we are seeing strong demand trends across all of our segments. We continue to successfully manage through this dynamic environment driven by the exceptional dedication.
Perseverance and the performance of our 7500 employees.
Over the last 3 years since the sale of our plasma.
Fiscal each business and the purchase of the closet and Cornell Cookson, we fundamentally strengthened Griffin.
During this period of our revenue and adjusted EBITDA increased at a compounded annual growth rate of 11% and 20% respectively adjust.
Adjusted earnings per share of grown from 67.
2 of $1.91 on a trailing 12 month basis, which is the 42% compound annual growth rate.
Importantly over this period, we've generated $212 million in free cash flow and reduced our leverage by almost 3 full turns to 2.9 times.
We are very.
<unk> with our progress, creating long term shareholder value, we expect significant additional benefits the company as we execute on our strategic initiatives to improve margins and take advantage of our balance sheet firepower to invest in our businesses and capitalize on acquisition opportunities. Our best is yet to come.
Operator, we will take any questions.
Thank you we will now begin the question and answer session in the interest of time, we do ask the limit yourself to 1 question and 1 follow up question to <unk>.
Joining the question queue you May press the Star then 1 on your telephone keypad.
Gary Cohn acknowledged.
The only question.
The speakerphone, please pickup your handset for passing any keys.
Your question Please press the star and 2.
We will pause for a moment of callers join the queue.
Yeah.
The first question comes from Bob <unk> with <unk>.
The Securities. Please go ahead.
Good afternoon, and congratulations on another strong quarter.
Thanks, Bob.
So I wanted to start you touched on the so maybe we could dig in a little further.
The raw material and transportation has obviously been a headwind in the near.
T J of and also from your results you can see you have some nice pricing power.
You also said you know we also know it lags over time. So maybe you can just give us a sense of how you see it playing out over the next 6 to 12 months in terms of your margin your ability and the timing of price increases how should we think about the margin progression and you know when you catch up to the.
The other.
Cost of installations that are out there for everybody.
Well as we discussed at the end of the second quarter the.
Pace of increases in raw material costs.
Freight and labor.
Going up and our ability to pass.
The other.
The increase is what's going to happen with the lag.
We are.
Continuing to pass along.
The price increases and we're continuing to try to mitigate the inflationary trends that are going on for us and across all of the.
<unk> and all of our.
Our view is that the consumer is strong the housing market remains strong the demand in our business has never been stronger.
We're going to continue to try to deal with the things that are in our control.
Trying to be more efficient our aims.
The economy in particular was always meant to be about of 300 basis point margin improvement story over a multiyear journey that the.
Still is in front of us so we see this as you know.
Evolutionary for our business.
Going to continue to find ways to pass along price.
The <unk> initiatives.
And take costs out of our business in order to improve our margins and most importantly, we see the demand trends as being strong in our favor.
Yes, I would just add to that Joe the.
Cost after our last call continuing to rise.
The increase rapidly.
We will continue to have the pass through price and we will still have some price cost.
The pressure into the fourth quarter, we expected.
Uh huh.
Profit for the cost.
The continues.
Of course stop horizon.
All of that by early.
We'll go next fiscal year.
Got it okay, great and then in terms of my follow up lack.
But over.
The cash you've obviously had some.
The nice success with the small international kind of type.
Type acquisitions of medium sized ones in that regard you highlighted obviously below 3 turns of leverage now.
And how about the M&A environment, because obviously the lot of asset prices.
So are there things out there you're still looking in the international market or how are you thinking about the M&A environment and what's what's the environment like for you.
The first part is the capital is unlimited and therefore, our competition is.
You talked of leading to increasingly higher prices.
And that's something that's been happening and we expect will continue to happen.
Our strategy has always been to buy things that we can run better and we are improving our own businesses.
And allocating capital and looking at ways to make what we already have incrementally better and that's the best acquisition that we can make.
The the pipeline of acquisitions has never been better and yet.
Disappointed this quarter that we don't have anything to announce.
Because there are a lot of processes that ended up with prices.
We werent prepared to pay or values that we didn't think was incrementally better than what we already own.
We're going to continue to look at things as they come along.
Continue to believe that our ability to.
Capital is ahead of us.
And the significant amount of cash that we have on our balance sheet and heading into our fourth quarter will have even more of its fiscal year end.
Yes.
And a very good position to find things to do with our enhanced.
The liquidity and that will happen over time, we're in no rush.
And until it's clear that we can all be traveling and visiting for the way we buy businesses, we like to be able to get under the hood due diligence at a level that I still uncomfortable that the world is opened.
Deployed we're really understanding the things that we're looking at buying at the level that we want to so we're very content to spend our time just getting the margin improvement story of the free cash flow story and the increasing earnings per share of story that we've been able to deliver.
Over the next several years.
Where.
The next question it comes from Julio Romero with Sidoti <unk> co.
Please go ahead.
Hi, Yes, good afternoon, Ron Brian.
1 thing that we've seen some initial signs of slowing in DIY products.
Sweet.
When I think about refreshed product portfolio as I think about the consumer and professional products.
Products segment at Plaza made would be something that sticks out to me.
DIY exposure can you just talk about how demand is trending in the meeting and broadly across the <unk> segment.
We've seen the same commentary and as we've.
We have backlog levels, let's say just the opposite.
That's encouraging to hear okay.
I guess for me.
For my follow up I guess.
The ACP segment.
Can you maybe give us an update on how some of the new product launches in that.
We've said that business of being received.
Okay.
For our new product launches are continue to perform well we've come out with several things.
Storm Thunder and true defender and the store defender.
Which do just what they say we have the micro grill products that.
It has performed well in the fire suppression.
The fire suppression products.
The market was received well so those.
Products and the expansion we've made in our mountain top facility to supply of people with those products has been a good investment.
The Cornell Cookson acquisition as is every.
We had hoped and we continue to believe that the growth of the commercial business and the innovation pipeline in both commercial and in residential we are in a very very strong position and I believe the since the first quarter.
Flow pays history, where the trailing 12 months where over.
<unk> and revenue.
We're really.
Executing well and we expect that business to continue to show growth.
Great. Thanks very much.
The next question comes from Justin Bergner with Jefferies.
The research.
Go ahead.
Good afternoon, Ron good afternoon.
Hi, Jeff.
Hi.
So just to follow up on the consumer and professional products business.
For the shipping delays put any business at risk.
And with the backlog still have been up in at record levels. If you had not experience of shipping delays.
So I would say for the business at risk, we certainly had revenue of that got pushed off to a later date.
The pressure.
Pressure, we have from transportation.
Not being as available as 1 would like.
The demand has been very strong across.
And of course, HCP as well, it's hard to say exactly what the order patterns because people wouldn't necessarily the order more and so they got their original products.
Fully answer your question, but the basis the baseline demand has been very strong.
Okay and then.
Just to follow up on H B P.
Yes.
Why.
Are you have you seen any deceleration in demand trends there.
It doesn't look it.
And is there any limitation on your ability to put through.
Price I imagine that the commodity prices could start impacting demand, but maybe not just curious your perspective there.
Sure.
The demand has continued to be strong it has not dropped off.
So far the consumer continues to accept price.
It's as simple as that.
Great. Thank you.
Yeah.
The next question comes from Keith Hughes Truest Securities. Please go ahead.
Ed.
Hi, Good afternoon. This is Dennis communities in for Keith Hughes. Thank you for taking my question.
So the first question I'd like to ask is regarding the <unk> pricing, we've seen particularly strong at 13% in the quarter.
So I'm just curious if you can share some of the factors behind that and what are some of the drive fundamentals.
And what's driving that pricing strength in that segment and then for the other question I'd like the asking in general about the.
The priorities in terms of capital allocation.
Particularly if you can give some color as to the cadence of share repurchases going forward and where that falls in the list of priorities.
Sure. So let me start with pricing and mix.
Is that 13% growth could be clear.
And that's about 50.50 between the 2 alright Thats. The result of US on the pricing science of the results of us passing through price for customers to cover.
Rapidly rising input costs of those input costs.
Raw materials, such as steel it's labor it's insurance.
Transportation costs.
And we continue to see the good demand and good mixing that demand where people continue to buy higher.
Level doors.
For their homes and we continue to see the results of our new products on the commercial side.
Or at a higher price and margin.
You want to take the capital market share we have.
$58 million of authorization for share repurchases and we believe our stock is a compelling value we didn't buy any stock this quarter.
Yeah.
Okay. Thank you.
Once again, if you have a question. Please press Star then 1 day.
The next question comes from Trey Grooms with Stephens. Please go ahead.
Hi, good afternoon, Ron and Brian.
Hi, How're you.
Which are.
Thank you.
So I guess, just switching gears a little bit here.
Ron you mentioned on the demand front clearly still very strong.
You mentioned housing.
And R&R and income.
Consumer spending that the ease of all.
All continued to be very very healthy.
And I think <unk>.
First of all it does drive some business on the H B P side can you talk about what youre seeing on commercial specifically as it relates to the HCP business.
Gary.
Strong growth.
And my personal expectation is if we ever get an infrastructure bill will see even more commercial door growth.
Yeah, I'll, just add to add value.
We've seen good residential and commercial growth in this.
In this quarter.
Year to date end of the quarter in this particular quarter commercial was actually even stronger than residential though they were both in growth.
Good day boats as well.
Well that's encouraging.
I guess on 1 other kind of housekeeping, a little bit and just trying to understand the mechanics.
Yeah.
You mentioned of course, both CPP NH VP with very strong backlog.
And with with the shipping delays that we have now I.
I guess, the just trying to get my head around how this typically flows through and then.
Transitions into the or.
Or excuse me translates into.
But now with this kind of dynamic we have on the you know.
The the transportation.
The situation how is that impacting that and when are you expecting that backlog the kind of start to transition into revenue.
Yeah. So the transportation saturation is really the global issue.
Just the hours.
Yes, it's hard to say when.
The backlog will relieve the orders keep coming in.
We are doing everything we can to mitigate the transportation situation.
<unk>.
So we believe the.
The recovery is still ahead of us.
For the.
Bottlenecks.
Seeing in this economy are of which transportation is just 1 of.
Are going to work themselves through the timing and the predictability of it.
You'll see.
Clearly across lots of different products and categories, where we're doing everything we can to meet our backlog.
But the underlying trend that we clearly are saying is demand is strong.
I'll just add 1 thing for that hopefully the lever.
That will give more people to help the transportation situation.
Hopefully that will start clearing by the end of the year.
Yeah, Yeah, I hope you're right [laughter].
I hope Youre right well, thank you very much for taking my questions.
Appreciate it thanks guys right.
This concludes the question and answer.
And the question I would like to turn the conference back over to Ron Kramer for any closing remarks.
Thank you stay well everyone.
Bye bye.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Andrew.
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