{"id":754258,"date":"2023-05-03T08:59:25","date_gmt":"2023-05-03T12:59:25","guid":{"rendered":"https:\/\/www.marketnewsdesk.com\/index.php\/griffon-corporation-announces-second-quarter-results-3\/"},"modified":"2023-05-03T08:59:25","modified_gmt":"2023-05-03T12:59:25","slug":"griffon-corporation-announces-second-quarter-results-3","status":"publish","type":"post","link":"https:\/\/www.marketnewsdesk.com\/index.php\/griffon-corporation-announces-second-quarter-results-3\/","title":{"rendered":"Griffon Corporation Announces Second Quarter Results"},"content":{"rendered":"

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Griffon Corporation Announces Second Quarter Results<\/b><\/p>\n

NEW YORK–(BUSINESS WIRE<\/a>)–
\nGriffon Corporation (\u201cGriffon\u201d or the \u201cCompany\u201d) (NYSE:GFF) today reported results for the fiscal 2023 second quarter ended March 31, 2023.<\/p>\n

\nRevenue for the second quarter totaled $711.0 million, a 9% decrease compared to $779.6 million in the prior year quarter. Adjusting for the period Griffon did not own Hunter Fan Company (“Hunter”) in the prior year quarter, organic revenue decreased 12%.<\/p>\n

\nDuring fiscal 2023 second quarter, Griffon recorded $132.8 million, net of tax, or $2.40 per share, of charges related to impairment of intangible assets and an expansion of its global sourcing strategy, both in the Consumer and Professional Products (“CPP”) segment. These items, as well as other items that affect comparability, resulted in a loss from continuing operations of $62.3 million, or $1.17 per share. Prior year second quarter income from continuing operations was $58.2 million, or $1.09 per share. Excluding all items that affect comparability from both periods, adjusted income from continuing operations was $66.9 million, or $1.21 per share in the current year quarter compared to $72.7 million, or $1.36 per share in the prior year quarter (see reconciliation of Income (loss) from continuing operations to Adjusted income from continuing operations for details).<\/p>\n

\nAdjusted EBITDA from continuing operations for the second quarter was $136.9 million, a 2% decrease from the prior year quarter of $139.3 million. Adjusted EBITDA from continuing operations, excluding unallocated amounts (primarily corporate overhead) of $14.6 million in the current quarter and $13.1 million in the prior year quarter, totaled $151.5 million, decreasing 1% from the prior year of $152.3 million. Adjusted EBITDA is defined as net income excluding interest income and expense, income taxes, depreciation and amortization, strategic review, restructuring charges, non-cash impairment charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (for a reconciliation of \u201cAdjusted EBITDA\u201d, a non-GAAP measure, to income (loss) before taxes from continuing operations, see the attached table).<\/p>\n

\n\u201cGriffon\u2019s financial results through the first half of 2023 exceeded expectations, driven by the performance of our Home and Building Products (“HBP”) segment. HBP\u2019s strong results reflect growth in commercial volume and favorable pricing and mix. In addition, we are expanding business development efforts and further improving productivity as HBP’s residential sectional door backlog and lead times have returned to normal levels,\u201d said Ronald J. Kramer, Chairman and Chief Executive Officer.<\/p>\n

\n\u201cOur Consumer and Professional Products (“CPP”) segment’s performance continues to reflect reduced consumer demand, elevated customer inventory levels, and an increasing customer focus on value products,\u201d continued Mr. Kramer. \u201cTo address these evolving market conditions, CPP is expanding its global sourcing strategy to include certain product categories that are currently manufactured and sold in the U.S. market. Strategically sourcing these products will enable us to return these product lines to profitability, and will enable us to remain competitive in an increasingly price sensitive marketplace by better managing costs, efficiently meeting variable demand, and reducing operational complexity. These actions are a continuation of the evolution of CPP, and positions the segment to achieve 15% target EBITDA margins, supporting value creation for our shareholders.<\/p>\n

\n\u201cAs a result of our overall strong performance in the first half, we are raising full-year EBITDA guidance from $500 million to $525 million. In addition, earlier today we announced a 25% increase to our regular quarterly dividend, which complements our previously announced $2.00 per share special dividend and the increase in our stock buyback authorization to $258 million. These actions demonstrate our commitment to enhancing both immediate and long-term value to our shareholders and reflect the confidence Griffon\u2019s Board and management have in our strategic plan and outlook.\u201d<\/p>\n

Segment Operating Results<\/span><\/b><\/p>\n

Consumer and Professional Products (“CPP”)<\/b><\/p>\n

\nCPP revenue in the current quarter of $314.3 million decreased 24% compared to the prior year period due to a 29% reduction in volume across all channels and geographies driven by reduced consumer demand, customer supplier diversification in the U.S., and elevated customer inventory levels, coupled with an unfavorable foreign exchange impact of 2%. These items were partially offset by $21.6 million of Hunter revenue, or 5%, for the portion of the current quarter in which Hunter was not owned by Griffon in the prior year quarter, as well as price and mix of 2%. Hunter contributed $76.2 million in the current quarter.<\/p>\n

\nFor the current quarter, Adjusted EBITDA was $19.6 million, compared to $47.8 million in the prior year quarter. The variance to prior year was primarily due to the unfavorable impact of the reduced volume noted above, and its related impact on manufacturing and overhead absorption, and increased material costs in Australia and Canada. This was partially offset by $3.3 million from the Hunter acquisition for the portion of the current quarter in which Hunter was not owned by Griffon in the prior year quarter and reduced discretionary spending. EBITDA reflected an unfavorable foreign exchange impact of 1%. Hunter contributed $12.2 million in the current quarter.<\/p>\n

CPP Global Sourcing Strategy Expansion<\/b><\/p>\n

\nIn response to market conditions, Griffon\u2019s CPP segment will expand its global sourcing strategy to include long handle tools, material handling, and wood storage and organization product lines for the U.S. market.<\/p>\n

\nBy transitioning these product lines to an asset-light structure, CPP\u2019s operations will be better positioned to serve customers with a more flexible and cost-effective sourcing model that leverages supplier relationships around the world, while improving its competitive positioning in a post-pandemic marketplace. These actions will enable CPP to achieve 15% EBITDA margins, while enhancing free cash flow through improved working capital and significantly lower capital expenditures.<\/p>\n

\nThe global sourcing strategy expansion is expected to be complete by the end of calendar 2024. Over that period, CPP expects to reduce its U.S. facility footprint by approximately 1.2 million square feet, or 30%, and its headcount by approximately 600. The affected U.S. locations will include Camp Hill and Harrisburg, PA; Grantsville, MD; Fairfield, IA; and four wood mills.<\/p>\n

\nImplementation of this strategy over the duration of the project will result in charges of $120 to $130 million, including $50 to $55 million of cash charges for employee retention and severance, operational transition, and facility and lease exit costs, and $70 to $75 million of non-cash charges primarily related to asset write-downs. Capital investment in the range of $3 to $5 million will also be required. These costs exclude cash proceeds from the sale of real estate and equipment, which are expected to largely offset the cash charges, and also exclude inefficiencies due to duplicative labor costs and absorption impacts during transition.<\/p>\n

\nIn both the quarter and six months ended March 31, 2023, CPP incurred charges of $78.3 million related to the expansion of its global sourcing strategy consisting of cash charges of $19.2 million and non-cash, asset-related charges of $59.1 million.<\/p>\n

Home and Building Products (“HBP”)<\/b><\/p>\n

\nHBP revenue in the current quarter of $396.7 million increased 8% from the prior year period, due to favorable pricing and mix of 14% driven by both residential and commercial. Total volume decreased 6% due to decreased residential volume, partially offset by increased commercial volume.<\/p>\n

\nHBP Adjusted EBITDA in the current quarter was $131.9 million, increasing 26% compared to the prior year period. Adjusted EBITDA benefited from the increased revenue noted above and reduced material costs, partially offset by increased labor, transportation, advertising and marketing costs.<\/p>\n

Taxes<\/span><\/b><\/p>\n

\nThe Company reported pretax loss from continuing operations for the quarter ended March 31, 2023 compared to pretax income from continuing operations for the quarter ended March 31, 2022, and recognized the effective tax rates of 30.9% and 29.8% for the quarters ended March 31, 2023 and 2022, respectively. Excluding all items that affect comparability, the effective tax rates for the quarters ended March 31, 2023 and 2022 were 29.5% and 28.5%, respectively.<\/p>\n

Balance Sheet and Capital Expenditures<\/span><\/b><\/p>\n

\nAt March 31, 2023, the Company had cash and equivalents of $175.6 million and total debt outstanding of $1.51 billion, resulting in net debt of $1.33 billion. Leverage, as calculated in accordance with our credit agreement, was 2.5x net debt to EBITDA. Year-to-date March 31, 2023 free cash flow of $161.6 million reflects the strong operating results through the first half of 2023. Borrowing availability under the revolving credit facility was $356.3 million subject to certain loan covenants. Capital expenditures were $7.1 million for the quarter ended March 31, 2023.<\/p>\n

\nOn April 20, 2023, Griffon announced that the Board of Directors approved an increase of its share repurchase authorization to $258 million from the prior unused authorization as of March 31, 2023 of $58 million. There were no share repurchases during the quarter ended March 31, 2023.<\/p>\n

2023 Outlook<\/span><\/b><\/p>\n

\nWe now expect 2023 revenue of $2.7 billion (prior $2.95 billion) reflecting decreased CPP revenue, primarily driven by reduced consumer demand and ongoing elevated levels of customer inventory, partially offset by increased HBP revenue driven by commercial volume increases and improved residential volume expectations.<\/p>\n

\nAdjusted EBITDA in 2023 is now expected to be at least $525 million (prior $500 million), excluding unallocated costs of $56 million, and charges related to the strategic review process of $22 million (prior $16 million) and AMES\u2019s global sourcing expansion. Increased Adjusted EBITDA expectations reflect strong HBP results partially offset by the reduced CPP volume noted above, and its related impact on manufacturing and overhead absorption.<\/p>\n

\nOther guidance remains unchanged for 2023, including free cash flow to exceed net income, capital expenditures of $50 million, depreciation of $50 million and amortization of $22 million, interest expense of $103 million, and a normalized tax rate of 29%.<\/p>\n

Conference Call Information<\/span><\/b><\/p>\n

\nThe Company will hold a conference call today, May 3, 2023, at 8:30 AM ET.<\/p>\n

\nThe call can be accessed by dialing 1-888-886-7786 (U.S. participants) or 1-416-764-8658 (International participants). Callers should ask to be connected to the Griffon Corporation teleconference or provide conference ID number 49851739. Participants are encouraged to dial-in at least 10 minutes before the scheduled start time.<\/p>\n

\nA replay of the call will be available starting on Wednesday, May 3, 2023 at 11:30 AM ET by dialing 1-844-512-2921 (U.S.) or 1-412-317-6671 (International), and entering the conference ID number: 49851739. The replay will be available through Wednesday, May 17, 2023 at 11:59 PM ET.<\/p>\n

Forward-looking Statements<\/span><\/b><\/p>\n

\n\u201cSafe Harbor\u201d 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, the impact of the Hunter Fan transaction, the industries in which Griffon Corporation (the \u201cCompany\u201d or \u201cGriffon\u201d) operates and the United States and global economies that are not historical are hereby identified as \u201cforward-looking statements\u201d and may be indicated by words or phrases such as \u201canticipates,\u201d \u201csupports,\u201d \u201cplans,\u201d \u201cprojects,\u201d \u201cexpects,\u201d \u201cbelieves,\u201d \u201cshould,\u201d \u201cwould,\u201d \u201ccould,\u201d \u201chope,\u201d \u201cforecast,\u201d \u201cmanagement is of the opinion,\u201d \u201cmay,\u201d \u201cwill,\u201d \u201cestimates,\u201d \u201cintends,\u201d \u201cexplores,\u201d \u201copportunities,\u201d 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; Griffon\u2019s ability to achieve expected savings and improved operational results from cost control, restructuring, integration and disposal initiatives (including, in particular, the expanded CPP outsourcing strategy announced in May 2023); the ability to identify and successfully consummate, and integrate, value-adding acquisition opportunities; increasing competition and pricing pressures in the markets served by Griffon\u2019s operating companies; the ability of Griffon\u2019s 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; 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\u2019s operating companies; the potential impact of seasonal variations and uncertain weather patterns on certain of Griffon\u2019s businesses; political events that could impact the worldwide economy; a downgrade in Griffon\u2019s credit ratings; changes in international economic conditions including inflation, interest rate and currency exchange fluctuations; the reliance by certain of Griffon\u2019s businesses on particular third party suppliers and manufacturers to meet customer demands; the relative mix of products and services offered by Griffon\u2019s businesses, which impacts margins and operating efficiencies; short-term capacity constraints or prolonged excess capacity; unforeseen developments in contingencies, such as litigation, regulatory and environmental matters; Griffon\u2019s ability to adequately protect and maintain the validity of patent and other intellectual property rights; the cyclical nature of the businesses of certain of Griffon\u2019s operating companies; possible terrorist threats and actions and their impact on the global economy; effects of possible IT system failures, data breaches or cyber-attacks; the impact of COVID-19, or some other future pandemic, on the U.S. and the global economy, including business disruptions, reductions in employment and an increase in business and operating facility failures, specifically among our customers and suppliers; Griffon\u2019s ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, changes in tax laws. 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\u2019s 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.<\/p>\n

About Griffon Corporation<\/span><\/b><\/p>\n

\nGriffon Corporation 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 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.<\/p>\n

\nGriffon conducts its operations through two reportable segments:<\/p>\n