U.S. Markets open in 5 hrs 37 mins

Griffon Corporation Announces Second Quarter Results

NEW YORK--(BUSINESS WIRE)--

Griffon Corporation (GFF) (the “Company” or “Griffon”) today reported results for the second fiscal quarter ended March 31, 2019.

Consolidated revenue was $549.6 million, an increase of 15% from the prior year quarter. Home & Building Products (“HBP”) increased 20%, while Defense Electronics ("Telephonics") revenue decreased 9%, compared to the prior year quarter.

Income from continuing operations was $6.5 million, or $0.15 per share, compared to $2.0 million, or $0.05 per share, in the prior year quarter. The current year quarter results included discrete tax benefits, net, of $0.1 million. The prior year quarter results included acquisition costs of $0.8 million ($0.4 million, net of tax, or $0.01 per share) and a net tax provision for discrete and other certain tax items that affect comparability of $0.4 million or $0.01 per share. Excluding these items from the respective quarterly results, income from continuing operations would have been $6.4 million, or $0.15 per share, compared to $2.7 million, or $0.06 per share, in the prior year quarter.

Segment adjusted EBITDA was $53.7 million, an increase of 23% from the prior year quarter primarily driven by HBP revenue growth. Segment adjusted EBITDA is defined as net income excluding interest income and expense, income taxes, depreciation and amortization and unallocated amounts (mainly corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable.

Ronald J. Kramer, Chairman and CEO, commented, "We are pleased to report a solid second quarter, highlighted by a 15% increase in revenue and 23% growth in Segment adjusted EBITDA. Our enhanced operating performance was attributable to the success of our portfolio reshaping over the last two years, starting with the divestiture of the plastics business and the acquisitions of ClosetMaid and CornellCookson. These newly acquired businesses are performing well and contributed to our increased Home and Building Products Segment profitability. Telephonics continues to improve its manufacturing efficiencies in anticipation of a growing backlog for its core intelligence, surveillance and communications solutions."

Kramer continued, "We are in the early stages of unlocking the full earnings potential of our businesses, and expect to drive incremental value to shareholders as we execute our strategic plans. Additionally, increased U.S. defense and infrastructure spending should further accelerate our revenue growth and profitability. We are optimistic about our future."

Segment Operating Results

Home & Building Products

Revenue was $474.5 million, an increase of 20% when compared to the prior year quarter. Clopay Building Products Company, Inc. ("CBP") benefited from the acquisition of CornellCookson on June 4, 2018, which delivered approximately $48.1 million of revenue, as well as from favorable pricing, partially offset by unfavorable volume and mix. At the AMES Companies, Inc. ("AMES"), favorable weather conditions drove increases in U.S. lawn and garden products, and the launch of new product programs drove increased revenue for U.S. pots and planters and for wire storage and organization. These increases also were supplemented at AMES Australia as previously delayed orders materialized in the quarter. Organic growth was 8%.

Segment adjusted EBITDA was $48.8 million, an increase of 23% compared to the prior year quarter driven by the increased revenue as noted above, partially offset by increased material and tariff costs at both AMES and CBP.

Defense Electronics

Revenue was $75.1 million, a decrease of 9% from the prior year quarter, primarily due to decreased maritime surveillance radar revenue offset in part by a $1.6 million benefit from the adoption of revenue recognition guidance effective October 1, 2018. The impact of the revenue recognition guidance is expected to be immaterial to full year results.

Segment adjusted EBITDA was $4.9 million compared to $4 million, an increase of 24% from the prior year quarter, driven by reduced operating expenses and timing of research and development initiatives. The impact from the adoption of revenue recognition guidance effective October 1, 2018 was not material. The impact from the adoption of the revenue recognition guidance is expected to be immaterial to full year results.

Contract backlog was $378 million at March 31, 2019, compared to $374 million at September 30, 2018, restated for the adoption of revenue recognition guidance effective October 1, 2018, with approximately 73% expected to be fulfilled within the next twelve months. During the quarter, Telephonics was awarded several new contracts and received incremental funding on existing contracts approximating $87 million, which translates into a book to bill ratio of approximately 1.15.

Taxes

In the quarter ended March 31, 2019, the Company recognized a tax provision of $3.2 million on Income before taxes from continuing operations of $9.7 million, compared to a tax provision of $1.2 million on Income before taxes from continuing operations of $3.2 million in the comparable prior year quarter. Excluding all items that affect comparability, the effective tax rates for the quarters ended March 31, 2019 and 2018 were 34.0% and 32.6%, respectively.

Discontinued Operations

During the quarter ended March 31, 2019, Griffon recorded an $11.0 million charge ($7.6 million, net of tax) to discontinued operations. The charge consisted primarily of a purchase price adjustment to resolve a claim related to the $475 million plastics divestiture and included an additional reserve for a legacy environmental matter.

Share Repurchases

In August 2016 and 2018, Griffon’s Board of Directors authorized the repurchase of up to $50 million of Griffon’s outstanding common stock. Under these programs, the Company may purchase shares in the open market, including pursuant to a 10b5-1 plan, or in privately negotiated transactions. During the six months ended March 31, 2019, Griffon purchased 37,500 shares of common stock under these repurchase programs, for a total of $0.4 million or $9.92 per share. At March 31, 2019, $58.0 million remained under existing Board authorizations.

Balance Sheet and Capital Expenditures

At March 31, 2019, the Company had cash and equivalents of $58 million and total debt outstanding of $1.22 billion, net of discounts and issuance costs, resulting in a net debt position of $1.16 billion. $176 million was available for borrowing under the revolving credit facility, subject to certain loan covenants. Capital expenditures were $9 million in the current quarter.

Conference Call Information

The Company will hold a conference call today, May 2, 2019, at 4:30 PM ET.

The call can be accessed by dialing 1-877-407-0792 (U.S. participants) or 1-201-689-8263 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference or provide conference ID number 13689636. Participants are encouraged to dial-in at least 10 minutes before the scheduled start time.

A replay of the call will be available starting on Thursday, May 2, 2019 at 7:30 PM ET by dialing 1-844-512-2921 (U.S.) or 1-412-317-6671 (International), and entering the conference ID number: 13689636. The replay will be available through Thursday, May 16, 2019 at 11:59 PM ET.

Forward-looking Statements

“Safe Harbor” Statements under the Private Securities Litigation Reform Act of 1995: All statements related to, among other things, income (loss), earnings, cash flows, revenue, changes in operations, operating improvements, industries in which Griffon operates and the United States and global economies that are not historical are hereby identified as “forward-looking statements” and may be indicated by words or phrases such as “anticipates,” “supports,” “plans,” “projects,” “expects,” “believes,” “should,” “would,” “could,” “hope,” “forecast,” “management is of the opinion,” “may,” “will,” “estimates,” “intends,” “explores,” “opportunities,” the negative of these expressions, use of the future tense and similar words or phrases. Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, among others: current economic conditions and uncertainties in the housing, credit and capital markets; the Griffon's ability to achieve expected savings from cost control, restructuring, integration and disposal initiatives; the ability to identify and successfully consummate and integrate value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon’s operating companies; the ability of Griffon’s operating companies to expand into new geographic and product markets, and to anticipate and meet customer demands for new products and product enhancements and innovations; reduced military spending by the government on projects for which Griffon’s Telephonics Corporation supplies products, including as a result of defense budget cuts and other government actions; the ability of the federal government to fund and conduct its operations; increases in the cost or lack of availability of raw materials such as resin, wood and steel components or purchased finished goods, including any potential impact on costs or availability resulting from tariffs; changes in customer demand or loss of a material customer at one of Griffon's operating companies; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon’s businesses; political events that could impact the worldwide economy; a downgrade in the Griffon’s credit ratings; changes in international economic conditions including interest rate and currency exchange fluctuations; the reliance by certain of Griffon’s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon’s businesses, which could impact margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation, regulatory and environmental matters; unfavorable results of government agency contract audits of Telephonics Corporation; Griffon’s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain Griffon’s operating companies; possible terrorist threats and actions and their impact on the global economy; Griffon's ability to service and refinance its debt, and the impact of recent and future legislative and regulatory changes, including, without limitation, the Tax Cuts and Jobs Act. Such statements reflect the views of the Company with respect to future events and are subject to these and other risks, as previously disclosed in the Company’s Securities and Exchange Commission filings. Readers are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date made. Griffon undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

About Griffon Corporation

Griffon is a diversified management and holding company that conducts business through wholly-owned subsidiaries. Griffon oversees the operations of its subsidiaries, allocates resources among them and manages their capital structures. Griffon provides direction and assistance to its subsidiaries in connection with acquisition and growth opportunities as well as in connection with divestitures. In order to further diversify, Griffon also seeks out, evaluates and, when appropriate, will acquire additional businesses that offer potentially attractive returns on capital.

Griffon currently conducts its operations through two reportable segments:

  • Home & Building Products segment consists of two companies, AMES and CBP:

AMES, founded in 1774, is the leading North American manufacturer and a global provider of branded consumer and professional tools, landscaping products, and outdoor lifestyle solutions. In 2018, we acquired ClosetMaid, a leader in wood and wire closet organization, general living storage and wire garage storage products for homeowners and professionals.

CBP, since 1964, is a leading manufacturer and marketer of residential and commercial garage doors and sells to professional dealers and some of the largest home center retail chains in North America. In 2018, we acquired CornellCookson, a leading U.S. manufacturer and marketer of rolling steel door and grille products designed for commercial, industrial, institutional, and retail use.

  • Defense Electronics segment consists of Telephonics Corporation, founded in 1933, a globally recognized leading provider of highly sophisticated intelligence, surveillance and communications solutions for defense, aerospace and commercial customers.

For more information on Griffon and its operating subsidiaries, please see the Company’s website at www.griffon.com.

Griffon evaluates performance and allocates resources based on each segment's operating results from continuing operations before interest income and expense, income taxes, depreciation and amortization, unallocated amounts (mainly corporate overhead), restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable ("Segment adjusted EBITDA", a non-GAAP measure). Griffon believes this information is useful to investors.

The following table provides a reconciliation of Segment adjusted EBITDA to Income before taxes from continuing operations:

 
GRIFFON CORPORATION AND SUBSIDIARIES
OPERATING HIGHLIGHTS
(in thousands)
(Unaudited)
   

For the Three Months Ended
March 31,

For the Six Months Ended
March 31,

REVENUE 2019   2018 2019   2018
Home & Building Products:
AMES $ 287,732 $ 258,196 $ 504,206 $ 474,938
CBP 186,799   138,112   410,094   292,348  
Home & Building Products 474,531 396,308 914,300 767,286
Defense Electronics 75,102   82,252   145,855   148,577  
Total consolidated net sales $ 549,633   $ 478,560   $ 1,060,155   $ 915,863  
 

Segment adjusted EBITDA:

Home & Building Products $ 48,753 $ 39,789 $ 100,613 $ 79,246
Defense Electronics 4,936   3,997   9,721   8,196  
Segment adjusted EBITDA 53,689 43,786 110,334 87,442
Net interest expense (17,305 ) (16,044 ) (33,636 ) (32,686 )

Segment depreciation and
amortization

(15,353 ) (13,199 ) (30,304 ) (26,051 )
Unallocated amounts (11,347 ) (10,541 ) (22,745 ) (20,977 )
Acquisition costs (814 ) (3,999 )
Cost of life insurance benefit       (2,614 )

Income before taxes from continuing
operations

$ 9,684   $ 3,188   $ 23,649   $ 1,115  
 

The following is a reconciliation of each segment's operating results to Segment adjusted EBITDA from continuing operations:

 
GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
BY REPORTABLE SEGMENT
(in thousands)
(Unaudited)
 
 

Three Months Ended
March 31,

 

Six Months Ended
March 31,

    2019   2018 2019   2018
Home & Building Products:
Segment operating profit $ 36,021 $ 28,478 $ 75,566 $ 56,229
Depreciation and amortization 12,732 10,504 25,047 20,637
Acquisition costs   807     2,380
Segment adjusted EBITDA 48,753 39,789 100,613 79,246
 
Defense Electronics:
Segment operating profit 2,315 1,302 4,464 2,782
Depreciation and amortization 2,621   2,695   5,257   5,414
Segment adjusted EBITDA 4,936 3,997 9,721 8,196
 
All segments:
Income from operations - as reported 25,721 16,886 55,013 31,041
Unallocated amounts 11,347 10,541 22,745 20,977
Other, net 1,268 2,346 2,272 2,760
Acquisition costs 7 1,619
Cost of life insurance benefit       2,614
Segment operating profit from continuing operations 38,336 29,780 80,030 59,011
Depreciation and amortization 15,353 13,199 30,304 26,051
Acquisition costs   807     2,380
Segment adjusted EBITDA from continuing operations $ 53,689   $ 43,786   $ 110,334   $ 87,442
 

Unallocated amounts typically include general corporate expenses not attributable to any reportable segment.

 
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(Unaudited)
   
Three Months Ended March 31, Six Months Ended March 31,
2019   2018 2019   2018
Revenue $ 549,633 $ 478,560 $ 1,060,155 $ 915,863
Cost of goods and services 412,129   357,181   779,605   673,705  
Gross profit 137,504 121,379 280,550 242,158
 
Selling, general and administrative expenses 111,783   104,493   225,537   211,117  
 
Income from operations 25,721 16,886 55,013 31,041
 
Other income (expense)
Interest expense (17,517 ) (16,806 ) (34,046 ) (33,645 )
Interest income 212 762 410 959
Other, net 1,268   2,346   2,272   2,760  
Total other expense, net (16,037 ) (13,698 ) (31,364 ) (29,926 )
 

Income before taxes from continuing
operations

9,684 3,188 23,649 1,115
Provision (benefit) from income taxes 3,194   1,237   8,406   (23,667 )
Income from continuing operations $ 6,490   $ 1,951   $ 15,243   $ 24,782  
 
Discontinued operations:

Income (loss) from operations of
discontinued operations

$ (11,000 ) $ 113,376 (11,000 ) 124,842
Provision (benefit) for income taxes (3,354 ) 25,047   (3,354 ) 28,355  
Income (loss) from discontinued operations $ (7,646 ) $ 88,329   (7,646 ) 96,487  
 
Net income (loss) $ (1,156 ) $ 90,280   $ 7,597   $ 121,269  
 
Income from continuing operations $ 0.16 $ 0.05 $ 0.37 $ 0.59

Income (loss) from discontinued
operations

(0.19 ) 2.13 (0.19 ) 2.31
Basic earnings per common share $ (0.03 ) $ 2.18   $ 0.19   $ 2.91  
 
Weighted-average shares outstanding 40,949   41,477   40,849   41,700  
 
Income from continuing operations $ 0.15 $ 0.05 $ 0.36 $ 0.58
Income (loss) from discontinued operations (0.18 ) 2.07 (0.18 ) 2.24
Diluted earnings per common share $ (0.03 ) $ 2.11   $ 0.18   $ 2.82  
 
Weighted-average shares outstanding 42,832   42,765   42,376   43,062  
 
 
Net income (loss) $ (1,156 ) $ 90,280 $ 7,597 $ 121,269
 

Other comprehensive income (loss), net of
taxes:

Foreign currency translation adjustments 2,885 19,714 (2,851 ) 18,425
Pension and other post retirement plans 184 247 368 9,806
Change in cash flow hedges (189 ) 440   (87 ) 528  

Total other comprehensive income (loss), net
of taxes

2,880   20,401   (2,570 ) 28,759  
Comprehensive income, net $ 1,724   $ 110,681   $ 5,027   $ 150,028  
 
 
GRIFFON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
  (Unaudited)  

March 31,
2019

September 30,
2018

CURRENT ASSETS
Cash and equivalents $ 57,979 $ 69,758
Accounts receivable, net of allowances of $10,025 and $6,408 344,049 280,509

Contract costs and recognized income not yet billed, net of progress payments of $5,300
and $3,172

83,904 121,803
Inventories 457,071 398,359
Prepaid and other current assets 45,778 42,121
Assets of discontinued operations 324   324
Total Current Assets 989,105 912,874
PROPERTY, PLANT AND EQUIPMENT, net 332,852 342,492
GOODWILL 439,118 439,395
INTANGIBLE ASSETS, net 364,740 370,858
OTHER ASSETS 15,192 16,355
ASSETS OF DISCONTINUED OPERATIONS 2,901   2,916
Total Assets $ 2,143,908   $ 2,084,890
 
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $ 10,807 $ 13,011
Accounts payable 223,188 233,658
Accrued liabilities 120,532 139,192
Liabilities of discontinued operations 11,657   7,210
Total Current Liabilities 366,184 393,071
LONG-TERM DEBT, net 1,206,195 1,108,071
OTHER LIABILITIES 94,938 106,710
LIABILITIES OF DISCONTINUED OPERATIONS 2,307   2,647
Total Liabilities 1,669,624 1,610,499
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Total Shareholders’ Equity 474,284   474,391
Total Liabilities and Shareholders’ Equity $ 2,143,908   $ 2,084,890
 
 

GRIFFON CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 
Six Months Ended March 31,
2019   2018
CASH FLOWS FROM OPERATING ACTIVITIES - CONTINUING OPERATIONS:
Net income $ 7,597 $ 121,269
Net (income) loss from discontinued operations 7,646 (96,487 )

Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:

Depreciation and amortization 30,577 26,271
Stock-based compensation 6,355 4,920
Provision (recovery) for losses on accounts receivable 316 (201 )
Amortization of debt discounts and issuance costs 2,841 2,754
Deferred income taxes (865 ) (23,136 )
Change in assets and liabilities, net of assets and liabilities acquired:

Increase in accounts receivable and contract costs and recognized income not
yet billed

(47,669 ) (16,631 )
Increase in inventories (37,852 ) (48,295 )
Decrease in prepaid and other assets 2,323 2,613
Decrease in accounts payable, accrued liabilities and income taxes payable (28,945 ) (21,021 )
Other changes, net 2,670   844  
Net cash used in operating activities - continuing operations (55,006 ) (47,100 )
CASH FLOWS FROM INVESTING ACTIVITIES - CONTINUING OPERATIONS:
Acquisition of property, plant and equipment (17,418 ) (21,628 )
Acquired businesses, net of cash acquired (9,219 ) (246,230 )
Proceeds from sale of business 473,977
Insurance proceeds (payments) (10,604 ) 8,254
Proceeds from sale of assets 62 454
Investment purchase (149 )  
Net cash provided by (used in) investing activities - continuing operations (37,328 ) 214,827
CASH FLOWS FROM FINANCING ACTIVITIES - CONTINUING OPERATIONS:
Dividends paid (6,847 ) (5,872 )
Purchase of shares for treasury (1,478 ) (32,861 )
Proceeds from long-term debt 143,101 347,898
Payments of long-term debt (48,169 ) (229,941 )
Financing costs (945 ) (7,451 )
Contingent consideration for acquired businesses (1,686 )
Other, net 83   126  
Net cash provided by financing activities - continuing operations 84,059 71,899
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Net cash used in operating activities (3,438 ) (15,080 )
Net cash used in investing activities (10,762 )
Net cash used in financing activities   (22,541 )
 
Net cash used in discontinued operations (3,438 ) (48,383 )
Effect of exchange rate changes on cash and equivalents (66 ) (2,468 )
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (11,779 ) 188,775
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 69,758   47,681  
CASH AND EQUIVALENTS AT END OF PERIOD $ 57,979   $ 236,456  
 

Griffon evaluates performance based on Earnings per share and Net income excluding restructuring charges, loss on debt extinguishment, acquisition related expenses and discrete and certain other tax items, as well as other items that may affect comparability, as applicable. Griffon believes this information is useful to investors for the same reason. The following table provides a reconciliation of Income from continuing operations to Adjusted income from continuing operations and earnings per share from continuing operations to Adjusted earnings per share from continuing operations:

 
GRIFFON CORPORATION AND SUBSIDIARIES
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS
TO ADJUSTED INCOME FROM CONTINUING OPERATIONS
(in thousands, except per share data)
(Unaudited)
 
 

For the Three Months
Ended March 31,

 

For the Six Months Ended
March 31,

2019   2018 2019   2018
Income from continuing operations $ 6,490 $ 1,951 $ 15,243 $ 24,782
 
Adjusting items, net of tax:
Acquisition costs 378 2,726
Cost of life insurance benefit 248

Discrete and certain other tax provisions
(benefits)

(97 ) 368   370   (22,650 )
 
Adjusted income from continuing operations $ 6,393   $ 2,697   $ 15,613   $ 5,106  
 

Diluted earnings per common share from continuing
operations

$ 0.15 $ 0.05 $ 0.36 $ 0.58
 
Adjusting items, net of tax:
Acquisition costs 0.01 0.06
Cost of life insurance benefit 0.01

Discrete and certain other tax provisions
(benefits)

0.01 0.01 (0.53 )
 

Adjusted earnings per common share from
continuing operations

$ 0.15   $ 0.06   $ 0.37   $ 0.12  
 
Weighted-average shares outstanding (in thousands) 42,832   42,765   42,376   43,062  
 

Note: Due to rounding, the sum of earnings per common share and adjusting items, net of tax, may not equal adjusted earnings per common share from continuing operations.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190502005889/en/