Q1 2022 Griffon Corp Earnings Call
Speaker 1: Hello and welcome to the Griffin Corporation first quarter 2022 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Hello, and welcome to the Griffon Corporation first quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.
And answer session will follow the formal presentation. We ask you. Please ask one question and one follow up then return to the queue. If anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to introduce your host Brian Harris CFO . Please go ahead.
Speaker 1: We ask that you please ask one question and one follow-up, then return to the queue.
Speaker 1: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Brian Harris, CFO . Please go ahead.
Speaker 2: Thank you, Kevin. Good morning, everyone. With me on the call is Ron Kramer, our chairman and chief executive officer, and Bob Mamel, our president and chief operator, you know.
Thank you Kevin and good morning, everyone with me on the call is Ron Kramer, our chairman and Chief Executive Officer, and Bob <unk>, Our President and Chief operating Officer.
Speaker 2: Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today.
Our call is being recorded and will be available for playback the details of which are in our press release issued earlier today.
Speaker 2: As in the past, our comments will include forward-looking statements about the company's performance, based on our views of Griffin's business and the environment in which they are.
As in the past our comments will include forward looking statements about the company's performance based on our views of <unk> businesses.
And the environments in which they operate.
Speaker 2: 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 from in our various securities and exchange commission file.
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.
Speaker 2: Finally, some of today's remarks will just for those items that affect comparability between the recording theories. These items are explained in our non-gap reconciliation included in our press release. Now I'll turn the call over to Ross.
Finally, some of today's remarks will adjust 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.
Speaker 2: Thanks and good morning everyone. We're very pleased with our results this quarter. We're off to an excellent start to fiscal 2022. Griffin first quarter revenue increased 9% over the prior year as we source sustained demand across our consumer products categories, a robust housing and commercial construction market and healthy repair and remodel activity.
Thanks, and good morning, everyone. We're very pleased with our results. This quarter, we're off to an excellent start to fiscal 2022 Griffin first quarter revenue increased 9% over the prior year as we sort of sustained demand across our consumer products categories, a robust housing and commercial.
<unk> market and healthy repair and remodel activity.
Speaker 2: Despite the challenging macroeconomic backdrop, consumer demand and homeowner activity continue to be strong.
Despite the challenging macroeconomic backdrop consumer demand and homeowner activity continue to be strong.
Speaker 2: our adjusted EBITDA, trail the prior year, but as we indicated on our fourth quarter call, we expected margin compression in our first quarter as we continued to work with customers and suppliers to normalize price to cost parity across our business.
Our adjusted EBITDA trailed the prior year, but as we indicated on our fourth quarter call. We expected margin compression in our first quarter as we continue to work with customers and suppliers to the warm realized price to cost parity across our businesses I'm pleased to say that we've made good progress with this initiative in the first quarter.
Speaker 2: I'm pleased to say that we made good progress with this initiative in the first quarter. And we're on track to reach our target of achieving prices of cost parity by the end of our second quarter.
And we're on track to reach our target of achieving price to cost parity by the end of our second quarter.
Speaker 2: Last week, we announced the exciting news that we closed on our acquisition of the Hunter fan company, the leading residential ceiling fan brand in the United States. Hunter is an icon in the marketplace with 135 year heritage and a well-learned reputation for innovation, superior quality, and craft.
Last week, we announced the exciting news that we closed on our acquisition of the Hunter fan company, a leading residential ceiling fan brand in the United States.
<unk> is an icon in the marketplace with a 135 your heritage and a well earned reputation for innovation superior quality and craftsmanship Hunter.
Speaker 2: Hunter is a fantastic acquisition to our consumer and professional product segment. The strong alignment of the two businesses will strengthen our relationships with our key retailers, expand our product offerings, provide compelling opportunities for outsized growth, augment our global sourcing model, and will accelerate the sales of our products through ReCommerce Channel.
Hunter is a fantastic acquisition to our consumer and professional products segment. The strong alignment of the two businesses will strengthen our relationships with our key retailers expand our product offerings provide compelling opportunities for outsized growth augment our global sourcing model will accelerate.
The sales of our products through E Commerce channels. The Hunter team will also now be able to leverage the broad infrastructure of the consumer and professional products segment, and we will realize benefits from our Ames strategic initiative.
Speaker 2: The Hunter team will also now be able to leverage the broad infrastructure of the consumer and professional product segment. And we'll realize benefits from our aim, strategic initiative.
Speaker 2: With the finance de-factosition, we wanted the flexibility to rapidly reduce our leverage with low cost interest, so we chose a term-long D facility to finance the under-acquisition.
To finance this acquisition, we wanted the flexibility to rapidly reduce our leverage with low cost interest. So we chose a term loan b facility to finance the Hunter acquisition.
Speaker 2: We saw extraordinarily high demand when marketing this term loan be, as lenders recognize the strength of the hunter business and the compelling strategic alignment of hunter with grip.
We saw an extraordinarily high demand when marketing this term loan b as lenders recognize the strength of a hunter business and the compelling strategic alignment of Hunter with Griffin because of this extraordinarily strong demand we were able to upsize the amount of our term loan b facility by $50 million to 800 million while.
Speaker 2: Because of this extraordinarily strong demand, we were able to upsize the amount of our terminal and B facility by $50 million, to $800 million, while simultaneously achieving favorable interest rates.
Tiniest Lee achieving favorable interest rates.
Speaker 2: Let me shift back to the segments and provide some additional commentary regarding the performance of our two segments as well as telephonic.
Let me shift back to the segments and provide some additional commentary regarding the performance of our two segments as well as telephonics.
Speaker 2: In consumer and professional products, we saw a continuous strength in retail demand across all geographers.
Consumer and professional products, we saw a continued strength in retail demand across all geographies.
Speaker 2: Volume was up in all of our international markets, but was down in the US due to the ongoing labor, transportation and global supply chain disruptions. Pricing was stronger, reflecting the ongoing actions we've been taking across the segment's products, and we also saw favorable product mix.
AUM was up in all of our international markets, but was down in the U S. Due to the ongoing labor transportation and global supply chain disruptions pricing was stronger reflecting the ongoing actions we've been taking across the segments products.
And we also saw a favorable product mix.
Speaker 2: EBITDAH FCPP reflected the margin compression we expected, as pricing and other actions were being taken to catch up with increased costs.
EBITDA at C. P. P reflected the margin compression, we expected that's pricing and other actions are being taken to catch up with increased costs. Some pricing actions materialized earlier than expected and this along with increased international volume helped offset some of these effects we've continued to make stuff.
Speaker 3: Some pricing actions materialized earlier than expected, and this along with increased international volume helped offset some of these effects.
Speaker 3: We have continued to make steady progress with our AIM strategic initiatives and remain on track in terms of the timing and the expected benefits. As part of this initiative, we recently announced that AIMs will be closing its manufacturing facility located in Reynau, some Mexico and Distribution Center in Farrotech.
Progress with our Ames strategic initiatives and remain on track in terms of the timing and the expected benefits as part of this initiative. We recently announced that aims will be closing its manufacturing facilities located in Reynosa, Mexico and distribution center in Pharr, Texas. These operations will be consolidated into <unk>.
Speaker 3: These operations will be consolidated into other aid facilities in the U.S. and are expected to be completed by the end of our fiscal third quarter.
They're aimed facilities in the U S and are expected to be completed by the end of our fiscal third quarter.
Speaker 3: Further, Hunter will benefit from the AIMS initiative, including from our investments in East and West Coast e-commerce fulfillment facilities, as well as our business intelligence and enterprise system.
Further hunter will benefit from the Ames initiatives, including from our investments in East and West Coast E Commerce fulfillment facilities as well as our business intelligence and enterprise systems. We also look forward to leveraging our international footprint to further distribute hunter fans.
Speaker 3: We also look forward to leveraging our international footprint to further distribute Hunter fans.
Speaker 3: Home and Building Products, or HBP, had another strong quarter as the commercial door business, and in particular, our rolling steel product offerings, continue to see increased volume and strong pricing. On the residential side, water activity continues to be strong, but labor and supply chain challenges continue to generate production headwinds, resulting in lower sales volume and a high level of water backlog.
Home and building products or H B P had another strong quarter as the commercial door business in particular, our rolling steel product offerings continue to see increased volume and strong pricing on the residential side order activity continues to be strong, but labor and supply.
Chain challenges continue to generate production headwinds, resulting in lower sales volume at a high level of order backlog.
Speaker 3: combination of strong price and strong product mix driven by commercial sales resulted in HPP sales increasing 23% over the prior year for a squire backlog in the business continues to be significantly higher than what we would consider to be normal level
Combination of strong pricing strong product mix driven by commercial sales resulted in H P. P sales, increasing 23% over the prior year first quarter backlog in the business continues to be significantly higher than what we would consider to be normal levels.
Speaker 3: Adjusted EBITDA at HBP exceeded the prior year by 16%, driven by increased revenue, which was offset by substantial increases in material costs. We expect the pricing actions underway will allow HBP to reach price cost parity by the end of our fiscal second quarter.
Adjusted EBITA at H B P exceeded the prior year by 16% driven by increased revenue, which was offset by substantial increases in material costs. We expect the pricing actions underway will allow H b P to reach price cost parity by the end of our fiscal second quarter.
Speaker 3: Turning to telephonics on September 27th. We announced the exploration of strategic alternatives for this business, and we're now treating the business as a discontinued operation in our report at results. The sale process, lent by Lazard, is ongoing, and we expect that more to report by the end of March.
Turning to Telephonics on September 27th we announced the exploration of strategic alternatives for this business and are now treating the business as discontinued operation in our reported results. The sale process went by Lazard is ongoing and we expect to have more to report by the end of March.
Speaker 3: Telephonics Revenue, excluding SCG, which was sold in December 2020 in the first quarter, decreased by 12% year over year, driven by the timing of work on certain surveillance system programs, as well as the recognition of the legal settlement in the prior year of quarter that benefited rent.
Telephonics revenue excluding F C J, which was sold in December 2020 in the first quarter decreased by 12% year over year, driven by the timing of work on certain surveillance system programs as well as the recognition of the legal settlement in the prior year quarter that benefited.
Speaker 3: EBITDA decreased in the quarter due to the lower revenue, however margins were consistent due to the better program performance. We expect increased sales and profit, including strong margin improvement as the company progresses through fiscal 2022. Before turning the call over to Brian for financial details and our guidance update, let me provide a few comments about our balance sheet and dividends.
EBITDA decreased in the quarter due to the lower revenue. However margins were consistent due to the better program performance, we expect increased sales and profits, including strong margin improvement as the company progresses through fiscal 2022.
<unk>, turning the call over to Brian for financial details and our guidance update let me provide a few comments about our balance sheet and dividends.
Speaker 3: At the end of December 2021, Griffin leverage was 3.3 times and does not include the expected benefits from the telephonic sale or the purchase of Hunter fans.
At the end of December 2021 question leverage was three three times and does not include the expected benefits from the telephonic sales or the purchase with Hunter fan.
Speaker 3: This increased leverage from year-end is in line with our seasonal cash usage and working capital bill. As in the past, the second half of our year, we'll see strong free cash flow generation and with a reduction in our leverage.
This increased leverage from your N is in line with our seasonal cash usage of working capital build as in the past the second half of our year will see strong free cash flow generation and with a reduction in our leverage our continued strong free cash flow generation combined with our focus on deleveraging the business over the past.
Speaker 3: Our continued strong free cash flow generation combined with our focus on deleveraging the business over the past three plus years directly resulted in our strong balance sheet which positioned us to pursue the Hunter acquisition with high confidence and strong investor support.
Reply shares directly resulted in our strong balance sheet, which positioned us to pursue the hunter acquisition with high confidence and strong investor support.
Speaker 3: Finally, yesterday, our board authorized a $0.09 per share dividend payable on March 23, 2022 to shareholders of record on February 23, 2022. This marked the 42nd consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since our dividend program was started.
Finally yesterday, our board authorized a nine cents per share dividend payable on March 23, 2022 to shareholders of record on February 23rd 2022. This marks the 14th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17%.
Since our dividend program was started.
Speaker 3: Let me turn it to Brian to provide more financial detail and our full year guidance.
Let me turn it to Brian to provide more financial detail on our full year guidance Brian .
Speaker 2: Thank you, Ron. I'll start by highlighting our first quarter consolidated performance on a continuing basis.
Thank you Ron I'll start by highlighting our first quarter consolidated performance on a continuing basis.
Speaker 2: Revenue increased 9% to $592 million. Adjusted EBITDA decreased 13% to $60 million, with the related margin decreasing 250 basis points to 10.1%, reflecting the margin compression from increased costs Ron referenced a few moments ago.
Revenue increased 9% to 592 million.
<unk> EBITDA decreased 13% to $60 million.
Related margin decrease in 250 basis points to 10, 1%, reflecting the margin compression from increased cost Ron referenced a few moments ago.
Speaker 2: Gross profit on a gap basis for the quarter was 166 million, increasing 1% compared to the prior first quarter, with gross margin decreasing 230 basis points to 28.1%.
Gross profit on a GAAP basis for the quarter was 166 million, increasing 1% compared to the prior year first quarter with gross margin decreasing 230 basis points to 28, 1%.
Speaker 2: First quarter gap, so in general administrative expenses were $127 million compared to $112 million in the prior year.
First quarter, GAAP, selling general and administrative expenses were 127 billion compared to $112 million in the prior year quarter.
Speaker 2: Excluding items that impact comparability, selling the general and administrative expenses were 121 million or 20.5% of revenue compared to 109 million or 20.2% in the prior year quarter with the increased dollars primarily driven by distribution, transportation and labor costs.
Excluding items that impact comparability, selling general and administrative expenses were $121 million or 25% of revenue compared to $109 million or 22% in the prior year quarter with the increased dollars, primarily driven by distribution transportation and labor costs.
Speaker 2: First quarter gap income from continuing operations was $17 million or $0.31 per share compared to the prior year period of $25 million or $0.48 per share.
First quarter GAAP income from continuing operations was 17 million or 31 per share compared to the prior year period of $25 million 48 per share excluding.
Speaker 2: Excluding items that affect comparability from both periods, current quarter adjusted income from continuing operations was 21 million or 39 cents per share compared to prior year of 27 million or 50 cents per share.
Excluding items that affect comparability from both periods current quarter adjusted income from continuing operations was $21 million or 39 cents per share compared to prior year of 27 million or 50 cents per share.
Speaker 2: Corporate and unallocated expenses excluding depreciation of 13 million and a quarter in line with the prior year quarter.
Corporate and unallocated expenses, excluding depreciation of $13 million in the quarter in line with the prior year quarter.
Speaker 2: Our first quarter tax rate excluding items that affect comparability was 31.5% compared to 33.7% in the prior quarter.
Our first quarter effective tax rate, excluding items that affect comparability was 31, 5% compared to 33, 7% in the prior year quarter.
Speaker 2: Capital spending was $11 million in the first quarter compared to $9 million in the prior year quarter. Depreciation and amortization totaled $13.1 million compared to $12.6 million in the prior year quarter.
Capital spending was $11 million in the first quarter compared to 9 million in the prior year quarter, depreciation and amortization totaled $13 1 million compared to $12 6 million in the prior year quarter.
Speaker 2: The AIMS initiative continues to be on plan and we expect and continue to expect the business to improve to a 12% plus EBITDA margin, excluding the impact of Hunter as the initiative concludes. To date, we have spent $37 million of the expected $65 million of costs and have invested $19 of the expected $65 million in capital expenditures.
The Ames initiative continues to be on plan and we expect and continue to expect the business to improve to a 12% plus EBITDA margin, excluding the impact of Hunter initiative concludes today.
We had spent $37 million of the expected $65 million at cost and have invested 19 at the expected 65 million in capital expenditures. The remaining amounts will be spent approximately evenly over the remaining two years of the project.
Speaker 2: The remaining amounts will be spent approximately evenly over the remaining two years of the project.
Speaker 2: Regarding our balance sheet and liquidity as of December 31, 2021, we had net debt of 902 million with leverage of 3.3 times as calculated based on our debt coverage.
Regarding our balance sheet and liquidity as of December 31, 2021, we had net debt of $902 million with leverage of 3.3 times is calculated based on our debt covenants.
Speaker 2: Our cash and equivalents were $151 million and debt outstanding was $1.05 billion.
Cash and equivalents of 151 million and debt outstanding was 1.15 billion.
Speaker 2: Our availability under the credit facility was $365 million, subject to certain loan conditions.
Borrowing availability on the credit facility was $365 million.
Subject to certain loan covenants.
Speaker 2: The Term 1B financing for the Hunter transaction was very successful with commitments of over six times the amount borrowed, allowing for an attractive interest rate, initial interest rate of 3.25% and 225 basis point rate stepdowns tied to future reductions in leverage.
The term loan B financing for the Hunter transaction was very successful with commitments of over six times the amount borrowed allowing for an attractive interest rate initial interest rate of 3.25% and 225 basis point rate step downs tied to future reductions in leverage.
Speaker 2: This shows the credit market supported both the Hunter deal and Griffin's overall strategy.
It shows the credit markets supported both the Hunter deal and Griffin's overall strategy.
Speaker 2: Moving on to guidance, on a continuing operations basis, excluding the contribution from telephonics, but including the contribution of Hunter to the remainder of this year, we expect revenue of $2.75 billion and segment adjusted EBITDA of $355 million for fiscal 22.
Moving onto guidance on a continuing operations basis, excluding the contribution from telephonics, but including the contribution of Hunter. The remainder of this year, we expect revenue of $2 75 billion and segment adjusted EBITDA of 355 million for fiscal 'twenty two.
Speaker 2: The EVADOT guidance excludes an allocated cost of $49 million and one-time charges of approximately $15 million related to the AIMS initiative, as well as charges related to the proxy contest and Hunter-related acquisition expenses.
The EBITDA guidance excludes unallocated costs of $49 million in one time charges of approximately $15 million related to the Ames initiative as well as charges related to the proxy contest and Hunter related acquisition expenses.
Speaker 2: Our guidance reflects that we continue to be on target with our initial guidance provided in the fourth quarter of $2.5 billion of revenue and $300 million of segment-adjusted EBITDA, which excludes unallocated costs. The incremental Hunter contribution for the remaining eight months of fiscal 22 is expected to be $250 million of revenue and $55 million of EBITDA, excluding the effects of acquisition-related costs and purchased accounts.
Our guidance reflects that continues to be on target with our initial guidance provided in the fourth quarter of $2 5 billion of revenue and $300 million of segment, adjusted EBITDA, which exclude unallocated costs.
The incremental Hunter contribution for the remaining eight months of fiscal 'twenty, two it's expected to be $250 million of revenue.
<unk> 5 million of EBITDA.
Screen the effects of acquisition related costs and purchase accounting.
Speaker 2: As a reminder, for the first full fiscal year of ownership, we expect Hunter to contribute $400 million of revenue and $90 million of EBITDA.
As a reminder for the first full fiscal year of ownership, we expect <unk> to contribute $400 million of revenue and 90 million of EBITDA.
Speaker 2: As Ron mentioned before, we expect to reach price-cost parity within the CPP and HBP segments by the end of the second quarter, which results in margins back expansion in the second half of the year.
That's why I mentioned before we expect to reach price cost parity with M. D. C. P P and H B P segments by the end of the second quarter, which result in margin expansion in the second half of the year.
Speaker 2: Total capital expenditures for fiscal year 22 are expected to be $70 million, which includes $25 million supporting the AIMS initiative, and approximately $5 million for the addition of Hunter. Depreciation and amortization is expected to be $72 million, of which $20 million is amortization.
Total capital expenditures for fiscal year 'twenty, two are expected to be $70 million, which includes 25 million supporting the Ames initiative and approximately 5 million for the addition of Hunter.
Depreciation and amortization is expected to be $72 million of which $20 million as amortization.
Speaker 2: These are inclusive of 6 million of depreciation and 11 million of amortization related to Hunter. Note the impact of Hunter on depreciation and amortization is subject to completion of purchase accounting analysis.
These are increases of crucial about 6 million of depreciation getting 11 billion of amortization related to hunter.
Note the impact of Hunter on depreciation and amortization was subject to completion of the purchase accounting analysis.
Speaker 2: We expect to generate free cash flow in excess of net income, inclusive of the capital investments and other investments we are making at AIMS for the full fiscal year.
We expect to generate free cash flow in excess of net income inclusive of the capital investments and other investments we are making it aims for the full fiscal year.
Speaker 2: As in prior years, we expect a similar pattern of cash flow with significant cash usage in the first half, followed by a strong second half cash generation. As a result of margin compression in the first quarter and the timing of price cost parity, expected to be reached in the second half of the year, our first half cash usage exceeded historical, will exceed the historical level.
As in prior years, we expect a similar pattern of cash flow with significant cash usage in the first half followed by a strong second half cash generation.
As a result of margin compression in the first quarter and the timing of price cost parity expected to be reached in the second half of the year, our first half cash usage exceeded historical will exceed their historical levels.
Speaker 2: We expect net interest expense inclusive of the financing for Hunter for approximately 83 million for fiscal 22. This does not include the benefit of selling telephonics and any related debt reduction.
We expect net interest expense inclusive of the financing for Huntsville for approximately 83 million for fiscal 'twenty, two which does not include the benefit of selling telephonics and any related debt reduction.
Speaker 2: Our expected normalized continuing operations tax rate, including Hunter, will be approximately 31 percent. As is always the case, geographic earnings mix and any legislative action, including new guidance on tax reform matters, may impact rates. Now I'll turn the call back over.
Our expected normalized continuing operations' tax rate, including Hunter will be approximately 31% as is always the case geographic earnings mix and any legislative action, including your guidance on tax reform matters may impact rates now I'll turn the call back over to Ron.
Speaker 3: Thanks. Before we wrap up the call, I'd like to summarize actions we've been taking with respect to our governance, and more broadly, the strengthening of our ESG focus and reporting in response to interest from our shareholders.
Thanks, before we wrap up the call I'd like to summarize actions, we've been taking with respect to our governance and more broadly the strengthening of our ESG focus and reporting in response to interest from our shareholders as I've mentioned earlier each year, we reach out to institutional shareholders to discuss there.
Speaker 3: As I've mentioned earlier, each year we reach out to institutional shareholders to discuss their views on a variety of subjects, including our governance practice.
Our views on a variety of subjects, including our governance practices over the last five years, we have refreshed approximately half of our independent directors, adding diversity and relevant expertise to our board to continue to build value for shareholders and support the company's continued growth as we execute on our <unk>.
Speaker 3: Over the last five years, we have refreshed approximately half of our independent directors, adding diversity and relevant expertise to our board to continue to build value for shareholders and support the company's continued growth as we execute on our evolving strategy.
<unk> strategy.
Speaker 3: Our board has adopted two amendments to our Certificate of Incorporation for submission to our shareholders at our 2022 annual meeting. The first amendment will declassify the board over a three-and-a-half-year transition period, beginning immediately after the amendment becomes effective.
Our board has adopted two amendments to our certificate of incorporation for submission to our shareholders at our 2022 annual meeting of first Amendment will declassify the board over three and a half year transition period, beginning immediately after the amendment becomes effective the second will reduce the percentage of voting power in messenger.
Speaker 3: The second will reduce the percentage of voting power necessary to call a special meeting of shareholders.
Barry to call a special meeting of shareholders. These amendments will become effective upon the approval of our shareholders at our 2022 annual meeting our board has also undertaken a commitment to further diversify with an objective that by 2025, 40% of our independent directors will be women or persons of color.
Speaker 3: These amendments will become effective upon the approval of our shareholders at our 2022 annual meeting. Our board has also undertaken a commitment to further diversify with an objective that by 2025, 40% of our independent directors will be women or persons of color.
Speaker 3: We're pleased to nominate one new director, Michelle Taylor, who comes to us from Trane. She's an expert on quality control, supply chain management, and she'll join three current directors, Lou Grabowski, Bob Mamel, and Cheryl Turnbull to the board this year.
We're pleased to nominate one new director, Michelle Taylor, who comes to US from train she's an expert on quality control supply chain management and she'll join our three current directors are little Graboski, Namal and Cheryl Turnbull to the board. This year all four of this year.
Speaker 3: All four of this year's board nominees have senior leadership experience and operations management skills. Additionally, three of the four are independent.
As board nominees have senior leadership experience in operations management skills. Additionally, three of the four are independent. In addition, I'm pleased to announce that we will be publishing our inaugural Griffin ESG report during this fiscal year. We expect this report will become an important new resource for investors seeking more detail.
Speaker 3: In addition, I'm pleased to announce that we will be publishing our inaugural Griffin ESG report during this fiscal year. We expect this report will become an important new resource for investors seeking more detailed information about our ESG focus and the related actions that we've been taking within our businesses.
Information about our ESG focus and the related actions that we've been taking within our businesses. Overall, we expect these enhancements and refinements to our corporate governance practices and our ESG reporting will further align our interests with those of our shareholders and will contribute to maximizing long term shareholder.
Speaker 3: Overall, we expect the enhancements and refinements to our corporate governance practices and our ESG reporting will further align our interests with those of our shareholders and will contribute to maximizing long-term shareholder value.
<unk> value.
Speaker 3: This quarter marks another pivotal period in our company's history. During the quarter, we announced the acquisition of HunterFan and closed on this transaction January 24.
This quarter marks another pivotal period in our company's history during the quarter, we announced the acquisition of Hunter fan and closed on this transaction January 24.
Speaker 3: Hunter is the largest acquisition. Griffin has completed today, and one we believe will take our consumer and professional products to the next level. The response from Griffin investors and lenders has been overwhelmingly positive, as evidence most recently by the extraordinarily strong response we saw when marketing our term loan B facility to complete the transaction.
Hunter is the largest acquisition in Griffin has completed to date and one we believe we will take our consumer and professional products to the next level. The response from Gryphon investors and lenders have been overwhelmingly positive as evidenced most recently by the extraordinarily strong response, we saw when marketing Bart.
<unk> loan B facility to complete the transaction.
Speaker 3: Hunter has strong strategic alignment with Griffin, and we are the natural and logical owner of the business. Hunter fits Griffin's operating model, our philosophy regarding partnering with our suppliers and satisfying our customers, our focus on leading brands and essential products, and our desire to continue to grow the company and improve our profitability.
Hunter has strong strategic alignment with Griffin and we are the natural and logical owner of the business fits Griffin's operating model, our philosophy regarding partnering with our suppliers and satisfying our customers our focus on leading brands in our central products and our desire to continue to grow the company in <unk>.
Prove our profitability the timing is great as well since hunter will be able to slipstream into the Ames initiative and we'll realize the benefits of our efforts it's worth while to reflect for a moment on what we've accomplished in the past, which now enables us to take these exciting steps forward.
Speaker 3: timing is great as well since Hunter will be able to slip stream into the aims initiative and will realize the benefits of our efforts.
We repositioned our portfolio back in 2018, divesting our capital intensive plastics business that we knew would be a challenge to grow and improve further under our ownership given our size and resources, we reallocated our resources that time towards strengthening the Ames business through the acquisition of <unk>.
Does it make which broadened the ames portfolio into home storage and organization products and strengthened our businesses with our key customers. During that time. We also added a critical array of new commercial products to our Clos paint business with the acquisition of Cornell Cookson, which allowed the copay team to gain market leadership position.
Spoke to residential sectional doors and commercial rolling steel doors. The copay team continues to do a fantastic job with the realization of additional sales and operational improvements in the Clos paid business is now poised to continue to expand and diversify leveraging its strong foundation in <unk>.
<unk> as a market leader after griffins portfolio repositioning our focus on improving profitability and cash flow generation resulted in a reduction of net leverage by three full turns in just three years that leverage reduction and gave us the opportunity to explore transformational acquisitions.
And we were able to execute on Hunter, our announced sale of telephonics. Another important step in Griffin's continued process to increase shareholder value. When completed we will be able to realize the value of this business and focus our resources to reduce our leverage and ultimately create optionality from work.
Pat like strategic actions.
Regarding our fiscal 2022 guidance I'll reiterate what I've said before supply chain disruptions inflationary trends and labor shortages will remain challenges for all of us.
Covid is not over it's certainly better.
However, the strength of our consumer demand that we see the strength of our brands and the competitive differentiation, we have with our products gives us confidence in our outlook to close I'd like to recognize our global workforce, which continues to show exceptional dedication and perseverance under stuff.
Currently challenging global circumstances, we appreciate the importance of their work in order to deliver our excellent results also I'd like to welcome the new members of our team from Hunter fan to Griffin, we're looking forward to working with you and growing this great company together, operator, we'll take any questions.
Certainly it will now be conducting a question and answer session. We ask you. Please ask one question and one follow up then return to the queue if you'd like to ask a question today. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
Once again Thats star one to be placed into the queue. We ask you. Please ask one question and one follow up then return to the queue. Our first question today is coming from Bob <unk> from CJS Securities. Your line is now live.
Good morning, and congratulations on a great start to fiscal 'twenty two.
Thanks, Bob Good morning, absolutely or so yeah. Thanks for the color on kind of volume versus price by segment I think it's really helpful. And you know we've been seeing a lot of volume headwinds in the quarter from a number of companies mostly related to you know labor supply chain logistics and stuff like that and it sounds like that's the case for you.
So my question is what does it take to get the bottlenecks to subside how long do you think that takes and how do you gauge the underlying demand.
Given that there's these bottlenecks that are impacting volume.
Sure Bob.
Brian This morning, How're you doing very.
Very well.
You know overall.
Continue to see strong demand from our customers as far as the bottlenecks in the supply chain and related.
Labor and transportation bottlenecks.
We see it has already started to normalize and ease a little bit and we expect it to continue to get better as we get into the second half of our year and that along with our pricing actions that we expect to be done by the end of our second quarter.
So our second half of the year seeing normalized more margins more in line with Dolby saw in the first half of fiscal 'twenty one.
For the second half of fiscal 'twenty, two with that you'll see significant cash flow generation and our second half.
Okay.
Okay got it and then just kind of as my follow up.
You know obviously.
The inflation is not unique to Griffin.
Everyone's dealing with it you have leading brands, who were able to pass through prices, but maybe talk a little bit about how like how you're thinking about price increases and how do you you know gauge increase.
Increasing enough price to offset raw material, but not impacting demand and how it how you're going about is it blanket across all segments is it product by product.
How do you go about the the price increases in order to get that margin the margins back to where you want them in the second half.
Sure so far.
As far as our products under demand, we continue to see strong demand our products are not so expensive that the price increases have affected <unk>.
Demand if someone goes to the store and they were planning on buying a shovel and its $5 more than perhaps they expected. They will so buyback shovel. They have a project to do whether they're a professional or a consumer.
So.
We have not yet we've been able to pass through price increases to our customers. They understand that we have increased costs and the ultimate consumer where the professional or a regular consumer has continued to.
Need our products and the demand remains strong.
All right Super Thank you very much I'll get back in queue as instructed.
Thank you next question is coming from Josh Chan from Baird. Your line is now live.
Hey, good morning, everyone on a good quarter.
Thank you.
Yeah. Good morning, I just saw on the on the C. P. P business I guess I was wondering I.
I guess can you told us the volume decline, but could you give us a little bit more color about retail point of sale trends some metric like that that they can give us a gauge on underlying demand you know I guess my question is you know what volume could have been if it wasn't for the constraints that you're facing in CPP.
Sure. So as I mentioned, you know demand continues to be strong from our customer to retailers and other customers that we have.
It's hard to say exactly what we've been able to sell a cause of course orders are in line with what we have to supply to our customers.
However, we continue to see good sell through at.
At the point of sale at our on our customers to the ultimate consumer.
And we don't expect that to change the housing market remains strong repair and remodel remains strong.
You know the supply chain issues remained for us and for anyone else.
Working with our economy in similar spaces.
As I mentioned, we expect to see that to get we expect to see that to improve as the year continues to be better actually get into the second half of the year.
Alright, that's helpful and then I guess for my follow up.
Spot steel prices have started to come down in recent weeks could you just kind of talk about what would happen. If if the skilled declines continue or they hold what you. When you expect to see the benefit from the lower cost and what what might happen not the price.
Sure.
I would start with you know there was a lag.
You know we're in the timing of still going through our our cost structure, but more importantly feel is just a portion of our overall cost structure. We continue to see increased costs generally we yeah.
I've seen silver down wherever we see increased costs generally with labor.
Transportation.
Freak health costs insurance costs. So it's one component of our costs in any case as we put price or continue or complete the pricing.
We have been putting through by the end of our second quarter and worked through our backlog again, we expect our second half of the year to see that margin improvement.
Yes.
Thank you. Our next question today is coming from Julio Romero from Sidoti and company. Your line is now live.
Okay.
Well your perhaps your flu you're on mute.
Or how can you hear me now there you go. Please go ahead yeah.
Yeah. Good morning, everyone. So I guess my first question is you know it seems like you did not see as much margin compression and H B P. At least relative to what I was modeling you outperformed my expectations. There can you just talk about what's going right and H B P is it just.
Just a matter of pricing actions materializing earlier than expected maybe talk about you know how much mix was better than expected I know you called out the 33% growth.
Growth in mixing pricing, if there's any way to rank order. The two and then also talk about any additional contributing factors, helping an H B P.
Sure Suraj awful things it's.
Go ahead, Brian .
Oh, sorry, yeah. So a couple of things one you know we saw a very strong international revenue and demand.
Sales.
Which helped our overall.
For the quarter pricing.
Occurred a little bit faster than we originally anticipated and lastly, and really more importantly, we saw very good mix. So.
The strength of our brands and selling.
Products that play into better and the best of the good better best continuum continues to benefit us with it.
And I'd just add to that that the commercial business continues to be an avenue of growth for us that we had planned for.
Going back to the Cornell Cookson acquisition, we saw that as being strategic and long term and.
This is yet one more example, even in a difficult.
Set of a commodity.
<unk> trends the demand side of the commercial business.
Has grown and we expect it to continue to grow.
Got it that's helpful and I guess for my follow up as we head into what is typically your seasonally weakest quarter for H B P at least historically.
Maybe how do you expect more just the trend there given you're seeing better pricing and mix than you maybe expected, but perhaps you know maybe heading into a weaker quarter because of seasonality. How do you see margins trending sequentially for that segment.
Well I'll start with we go into this quarter with the biggest backlog the company has ever had and so our visibility is far greater than it has been historically, but this is continued strong housing market.
Continued growth in the commercial market.
And coming off of the backlog.
I think we've got some very good visibility on that business.
Ryan.
Yeah, I would just add to that.
We did start the year off better than anticipated. So we expect our first half to be a little better than anticipated, but with the ongoing.
On the crime and supply chain issues that continue we expect that that will certainly offset in the second half and our guidance remains.
And with what we originally stated.
Thank you. Our next question today is coming from Justin Bergner from Gabelli funds. Your line is now live.
Good morning, Ron Good morning, Brian .
Good morning, good morning, Justin.
One question about guidance and then so.
One other question on the guidance front.
Within your unchanged revenue guide and I realize you don't really update it should one assume that maybe there's a little bit more price mix and a little bit less volume in there is we've seen some competitors that supply into your types of end markets suggest and then did the capex increase.
From your prior Guy I'm not sure if my prior notes were correct, but I thought it seemed like it had gone up.
Sure. So I'll start with the Capex one yes. It went up we added $5 million related to the Hunter acquisition, which runs around 2% of their revenue.
Yes, it went up to that.
As far as volume yeah, as we spoke about it even at our last quarter's call and we continue to see in the C. P. P.
Segment, we expect volumes to be below last year's volume.
The first half of this year with the supply.
<unk> the labor the transportation all the things we've spoken about.
First half is going to be below last year's first half, we expect to see improvement in the second half with volume.
The demand is still there it's a matter of a normalization in labor supply chain and transportation.
And ACP business, you know as Ron mentioned, we continue to have record backlog and we expect volume to be good, particularly in the commercial side of the pit.
Great. Thank you. So the other question related to Hunter fan she mentioned last quarter that.
Some of your customers or diversify and suppliers.
Is that a play for the fan market as well.
And does that work its way into the ecommerce sales through some of those major customers.
Okay.
So hunter fan has actually not had.
Issues in supplying their customers. They were ahead of the supply chain disruptions back roughly a year ago now.
And <unk> been able to as I said thats why their customers. So their cut yeah, we have not seen any diversification regarding hunter fan.
You're referring to is what we stated about our consumer and professional products that process is ongoing.
Ultimately, we expect the strength of our brands.
And our manufacturing logistics capability.
To be an advantage for us and ultimately allow us to play in higher or lower.
The items that will change or in the lower end of the opening price point market and we continue to see strength in our better best.
Products.
Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Noah Mark Who's calling from Stephens. Your line is now live.
Hi, Good morning, Thanks for taking my question and congrats on a good quarter.
Thank you very much.
First I wanted to dig in maybe a little bit on the.
You know clearly.
Supply chain issues have been.
Affecting the legacy business, but what does that look like for Hunter. You know are they seeing the same raw material inflation and transportation et cetera.
And are they also raising prices like youre doing in your legacy businesses.
Yeah. So hunter has certainly seen increase in their cost as everyone else have seen and yes. They are pass through price increases to offset that cost.
They have had.
Less impact from transportation and also the supply chain as I mentioned before they got ahead of it.
A year ago and remain.
And a good inventory position to supply customers.
A lot there.
Sales are ecommerce space.
44%.
Right, 40% are there shows the ecommerce space and the E Commerce.
Yeah couple of day.
Fulfillment remains in place and we don't see any significant issues in that business.
Great that makes sense and then for my follow up I think you mentioned you youre heading into two Q here with the highest backlog you've ever had an H B P.
Does that backlog flows through the model is that all realize this season or is that going to take longer than.
And then that to work through that backlog.
Yeah, we would expect that to take longer than this year to work through it.
And that's all.
Iterations or in our guidance.
Thank you we've reached end of our question and answer session I would like to turn the floor back over to Ron for any further closing comments.
This quarter exemplifies the resilience of our businesses and the operating strength of our management team.
All we've done and excited about continuing to build long term shareholder value. Thank you be well everyone.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.