Griffon Corporation (NYSE:GFF) (the “Company” or “Griffon”) today
reported results for the third fiscal quarter ended June 30, 2018.
Revenue was $516.6 million, an increase of 44% from the prior year
quarter. Home & Building Products (“HBP”) revenue increased 59% and, as
expected, Telephonics Corporation (“Telephonics”) revenue decreased 6%
compared to the prior year quarter.
Income from continuing operations was $7.4 million, or $0.18 per share,
compared to $4.5 million, or $0.10 per share, in the prior year quarter.
Current quarter results included acquisition related costs of $3.6
million ($2.3 million, net of tax, or $0.06 per share), special dividend
ESOP charges of $3.2 million ($2.1 million, net of tax, or $0.05 million
per share), secondary equity offering costs of $1.2 million ($0.8
million, net of tax, or $0.02 million per share) and a tax benefit, net,
for certain items which affect comparability (see tax section below) of
$1.4 million, or $0.03 per share. The prior year quarter results
included a discrete tax benefit, net, of $2.5 million, or $0.06 per
share. Excluding these items from the respective quarterly results,
income from continuing operations would have been $11.3 million, or
$0.27 per share, compared to $1.9 million, or $0.04 per share, in the
prior year quarter.
Segment adjusted EBITDA was $58.8 million, an increase of 47% 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, “This is an excellent
quarter and reflects the beginning of the benefits we expect from our
transformative portfolio reshaping. We are continuing to improve margins
across all of our businesses as we integrate our recent strategic
acquisitions. There are significant opportunities to create revenue
growth and improved profitability to drive our organic growth and to
build long-term shareholder value. I am very pleased with our
performance and optimistic about our outlook for the future.”
Segment Operating Results
Home & Building Products
Revenue was $440.1 million, an increase of 59% compared to the prior
year quarter due to the acquisition of ClosetMaid, AMES’ acquisitions of
La Hacienda, Tuscan Path, Harper and Kelkay, and Clopay Building
Products’ (“CBP”) acquisition of CornellCookson, as well as improved
volume, favorable mix and price at CBP, and at AMES, increased North
American sales and price. Organic growth for the quarter was 13%.
Segment adjusted EBITDA was $50.0 million, an increase of 51% compared
to the prior year quarter driven by the increased revenue as noted
above, partially offset by increased input costs.
On June 4, 2018, CBP completed the acquisition of CornellCookson, a
leading US manufacturer and marketer of rolling steel door and grille
products designed for commercial, industrial, institutional and retail
use, for $180 million, subject to certain post-closing adjustments.
After taking into account the net of the estimated present value of tax
benefits under current tax law resulting from the transaction, the
effective purchase price is approximately $170 million. The acquisition
of CornellCookson substantially expanded CBP’s non-residential product
offerings, and added an established professional dealer network focused
on rolling steel door and grille products for commercial, industrial,
institutional and retail use. CornellCookson is expected to generate
approximately $200 million in revenue and $0.15 of EPS in the first full
year of operations.
Telephonics
Revenue was $76.4 million, a decrease of 6% from the prior year quarter,
primarily due to decreased surveillance radar systems revenue.
Segment adjusted EBITDA was $8.8 million compared to $6.8 million in the
prior year quarter due to favorable program mix and reduced costs.
Contract backlog was $346 million at June 30, 2018, compared to $351
million at September 30, 2017, with approximately 67% 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 $64.5 million.
Taxes
In the quarter ended June 30, 2018, the Company recognized a tax
provision of $1.6 million on Income before taxes from continuing
operations of $9.0 million, compared to $0.1 million on Income before
taxes from continuing operations of $4.5 million in the comparable prior
year quarter. Excluding all items that affect comparability, the
effective tax rates for the quarters ended June 30, 2018 and 2017 were
33.9% and 57.5%, respectively.
U.S. Tax Reform: On December 22, 2017, the U.S. government
enacted comprehensive tax legislation commonly referred to as the Tax
Cuts and Jobs Act (the “Tax Act”). The Tax Act reduces the federal
corporate tax rate on U.S. earnings to 21% and moves from a global
taxation regime to a modified territorial regime. As Griffon has a
September 30 fiscal year-end, the lower tax rate will be phased in,
resulting in a U.S. statutory federal rate of approximately 24.5% for
the fiscal year ending September 30, 2018. Subsequent fiscal years will
reflect the 21% federal tax rate. However, there are offsets to the
lower federal tax rate, including the loss of the domestic manufacturing
deduction, deductibility of certain incentive compensation for
executives and the impact of foreign jurisdictions that have tax rates
in excess of the U.S. rate. Griffon will continue to assess the impact
of the Tax Act through the balance of fiscal 2018.
Clopay Plastics Sale
On November 16, 2017, Griffon announced it entered into a definitive
agreement to sell Clopay Plastic Products Company, Inc. (“PPC”) and on
February 6, 2018, completed the sale to Berry Global, Inc. (NYSE:BERY)
(“Berry”) for $475 million in cash, subject to certain post-closing
adjustments. All periods reflect PPC as a discontinued operation.
Balance Sheet and Capital Expenditures
At June 30, 2018, the Company had cash and equivalents of $64 million,
total debt outstanding of $1,136 million, net of discounts and issuance
costs, and $264.9 million available for borrowing under its revolving
credit facility, subject to certain loan covenants. Capital expenditures
were $11.5 million in the current quarter.
Share Repurchases
In August 2016, 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 three and nine months ended June 30, 2018, Griffon purchased
650,500 and 2,088,739 shares, respectively, of common stock under the
August 2016 Board authorized program, for a total of $12.7 million and
$41.1 million, respectively, or $19.51 and $19.68 per share,
respectively. At June 30, 2018, $8.3 million remained under existing
Board authorizations.
From August 2011 to June 30, 2018, Griffon repurchased 22,518,037 shares
of its common stock for a total of $302.7 million or $13.44 per share.
Conference Call Information
The Company will hold a conference call today, August 1, 2018, 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 13681700. 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 Wednesday, August 1,
2018 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: 13681700. The
replay will be available through Wednesday, August 15, 2018 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 of raw materials such as resin, wood and steel; 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; and possible
terrorist threats and actions and their impact on the global economy.
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.
Headquartered in New York, N.Y., the Company was founded in 1959 and is
incorporated in Delaware. Griffon is listed on the New York Stock
Exchange and trades under the symbol GFF.
Griffon currently conducts its operations through two reportable
segments:
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 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 for
the same reason.
The following table provides a reconciliation of Segment adjusted EBITDA
to Income before taxes from continuing operations:
GRIFFON CORPORATION AND SUBSIDIARIES
(Unaudited)
The following is a reconciliation of each segment’s operating results to
Segment adjusted EBITDA from continuing operations:
Unallocated amounts typically include general corporate expenses not
attributable to any reportable segment.
Nine Months Ended
June 30,
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:
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.
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