Griffon corporation announces second quarter results
New york--(business wire)--griffon corporation (“griffon” or the “company”) (nyse:gff) today reported results for the second quarter of fiscal 2022 ended march 31, 2022. revenue for the second quarter totaled $779.6 million, a 36% increase compared to the prior year quarter revenue of $574.7 million. revenue excluding the hunter acquisition increased 23% to $708.8 million. hunter contributed $70.8 million. income from continuing operations totaled $58.6 million, or $1.10 per share, compared to $18.1 million, or $0.34 per share, in the prior year quarter. current year quarter adjusted income from continuing operations was $73.1 million, or $1.37 per share, compared to $25.1 million, or $0.47 per share, in the prior year quarter (see reconciliation of income from continuing operations to adjusted income from continuing operations for details). adjusted ebitda from continuing operations for the second quarter was $139.6 million, increasing 113% from the prior year quarter of $65.4 million. adjusted ebitda from continuing operations, excluding unallocated amounts (primarily corporate overhead) of $12.8 million in the current quarter and $12.1 million in the prior year quarter, totaled $152.3 million in the current quarter, increasing 97% from the prior year of $77.5 million. adjusted ebitda is defined as net income excluding interest income and expense, income taxes, depreciation and amortization, restructuring charges, loss on debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“adjusted ebitda”, a non-gaap measure, see reconciliation to income before taxes from continuing operations). on april 18, 2022, griffon entered into a definitive agreement to sell telephonics to ttm technologies, inc. (nasdaq:ttmi) ("ttm") for $330.0 million in cash. the transaction is expected to close within the second calendar quarter of 2022, subject to certain closing conditions and regulatory approvals. on january 24, 2022, griffon completed the acquisition of hunter fan company ("hunter"), a market leader in residential ceiling, commercial, and industrial fans, for approximately $845 million. hunter, part of the consumer and professional products segment ("cpp"), complements and diversifies our portfolio of leading consumer brands and products. hunter is expected to contribute approximately $400 million in revenue and $90 million in ebitda in the first full fiscal year of ownership. ronald j. kramer, chairman and chief executive officer, commented, "griffon's record second quarter results are a confirmation of the strength of our strategic plan, resilience of our businesses and the excellence of our operating management. we expect to continue to deliver strong results and build on our momentum." segment operating results consumer and professional products ("cpp") cpp revenue in the current quarter totaling $411.0 million increased 24% compared to the prior year period primarily resulting from a 21%, or $70.8 million, contribution from the hunter acquisition, and price and mix of 15%, partially offset by an 11% reduction in volume, primarily in the u.s., due to reduced consumer demand and customer supplier diversification. fx was 1% unfavorable. for the quarter ended march 31, 2022, adjusted ebitda totaling $47.8 million increased 28% compared to the prior year quarter due to ebitda of $14.3 million from the hunter acquisition. excluding the hunter contribution, ebitda decreased 10% primarily due to the unfavorable impact of reduced u.s. volume and increased material, labor and transportation costs, partially offset by the benefits of price and mix. strategic initiative in november 2019, griffon announced the development of a next-generation business platform for cpp to enhance the growth, efficiency, and competitiveness of its u.s. operations, and on november 12, 2020, griffon announced that cpp is broadening this strategic initiative to include additional north american facilities, the ames united kingdom (u.k.) and australia businesses, and a manufacturing facility in china. today, griffon is announcing an accelerated timeline and reduced scope for the initiative, which will now be completed by the end of fiscal 2022. these changes reflect the rapid progress made with the initiative, and reduced investment in facilities expansion and equipment given recent significant increases in construction and equipment costs. any remaining expenditures, after the end of fiscal 2022, including those related to the deployment of ames' global information systems, will be included in the continuing operations of the business. future investments in equipment, particularly for automation, will be part of normal-course annual capital expenditures. this initiative includes three key development areas. first, certain ames u.s. and global operations will be consolidated to optimize facilities footprint and talent. second, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations, and support e-commerce growth. third, multiple independent information systems will be unified into a single data and analytics platform, which will serve the whole ames global enterprise. when fully implemented and the efficiencies are fully realized, we expect annual cash savings of $25 million (previously $30 million to $35 million). the cost to implement this new business platform, over the duration of the project, will now include one-time charges of approximately $50 million (previously $65 million) and capital investments, net of proceeds from sale of exited facilities, of approximately $15 million (previously $65 million). in connection with this initiative, during the six months ended march 31, 2022 and 2021, cpp incurred pre-tax restructuring and related exit costs approximating $6.5 million and $10.6 million, respectively. since inception of this initiative in fiscal 2020, cumulative charges totaled $41.6 million. since inception of this initiative in fiscal 2020 and during the six months ended march 31, 2022, capital expenditures of $18.1 million and $2.6 million, respectively, were driven by investment in cpp business intelligence systems and e-commerce and distribution facilities. home and building products ("hbp") hbp revenue in the current quarter totaling $368.6 million increased 52% from the prior year quarter, due to favorable pricing and mix for both residential and commercial products. increased commercial volume was offset by reduced residential volume due to labor and supply chain disruptions. hbp adjusted ebitda in the current quarter was $104.5 million, increasing 161% compared to the prior year quarter. ebitda benefited from the increased revenue noted above, partially offset by increased material, labor and transportation costs. taxes the company reported pretax income from continuing operations for the quarters ended march 31, 2022 and 2021, respectively, and recognized tax provisions of 29.5% and 38.0%, respectively. excluding all items that affect comparability, the effective tax rates for the quarters ended march 31, 2022 and 2021 were 28.3% and 31.5%, respectively. the current year-to-date effective tax rate was 29.7% and the rate excluding all items that affect comparability was 29.0%. balance sheet and capital expenditures at march 31, 2022, the company had cash and equivalents of $122.3 million and total debt outstanding of $1.97 billion, resulting in net debt of $1.84 billion. leverage, as calculated in accordance with our credit agreement, was 4.4x times ebitda. borrowing availability under the revolving credit facility was $233.0 million subject to certain loan covenants. capital expenditures were $11.5 million for the quarter ended march 31, 2022. as of march 31, 2022, griffon had $58 million remaining under its board of directors authorized share repurchase program. there were no purchases under these authorizations during the quarter ended march 31, 2022. conference call information the company will hold a conference call today, april 28, 2022, at 8:30 am 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 13729126. 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, april 28, 2022 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: 13729126. the replay will be available through thursday, may 12, 2022 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, the impact of the hunter fan transaction, 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; 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 (including, in particular, integration of the hunter fan acquisition); 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 or 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 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 impacts 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; our strategy, future operations, prospects and the plans of our businesses, including closing of the disposition 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 of griffon’s operating companies; possible terrorist threats and actions and their impact on the global economy; the impact of covid-19 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’s ability to service and refinance its debt; and the impact of recent and future legislative and regulatory changes, including, without limitation, changes in tax law. 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 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. griffon conducts its operations through two reportable segments: consumer and professional products (“cpp”) is a leading north american manufacturer and a global provider of branded consumer and professional tools; residential, industrial and commercial fans; home storage and organization products; and products that enhance indoor and outdoor lifestyles. cpp sells products globally through a portfolio of leading brands including ames, since 1774, hunter, since 1886, true temper, and closetmaid. home and building products ("hbp") conducts its operations through clopay corporation ("clopay"). founded in 1964, clopay is the largest manufacturer and marketer of garage doors and rolling steel doors in north america. residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains throughout north america under the brands clopay, ideal, and holmes. rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the cornellcookson brand. classified as a discontinued operation, defense electronics conducts its operations through telephonics corporation ("telephonics"), 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 operating results from continuing operations before interest income and expense, income taxes, depreciation and amortization, restructuring charges, loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (“adjusted ebitda”, a non-gaap measure). griffon believes this information is useful to investors. the following table provides operating highlights and a reconciliation of adjusted ebitda to income before taxes from continuing operations: (in thousands) for the three months ended march 31, for the six months ended march 31, revenue 2022 2021 2022 2021 consumer and professional products $ 411,012 $ 331,871 $ 694,185 $ 622,913 home and building products 368,605 242,811 677,181 493,292 total revenue $ 779,617 $ 574,682 $ 1,371,366 $ 1,116,205 for the three months ended march 31, for the six months ended march 31, 2022 2021 2022 2021 adjusted ebitda consumer and professional products $ 47,844 $ 37,423 $ 64,058 $ 70,136 home and building products 104,474 40,060 160,771 88,429 total segments 152,318 77,483 224,829 158,565 unallocated amounts, excluding depreciation* (12,750) (12,104) (25,707) (24,733) adjusted ebitda 139,568 65,379 199,122 133,832 net interest expense (21,376) (15,527) (37,024) (31,173) depreciation and amortization (16,252) (13,149) (29,333) (25,739) restructuring charges (4,766) (7,502) (6,482) (10,581) acquisition costs (6,708) — (9,303) — proxy expenses (4,661) — (6,952) — fair value step-up of acquired inventory sold (2,701) — (2,701) — income before taxes from continuing operations $ 83,104 $ 29,201 $ 107,327 $ 66,339 * primarily corporate overhead for the three months ended march 31, for the six months ended march 31, depreciation and amortization 2022 2021 2022 2021 segment: consumer and professional products $ 11,791 $ 8,620 $ 20,397 $ 16,819 home and building products 4,324 4,379 8,662 8,720 total segment depreciation and amortization 16,115 12,999 29,059 25,539 corporate 137 150 274 200 total consolidated depreciation and amortization $ 16,252 $ 13,149 $ 29,333 $ 25,739 griffon believes free cash flow ("fcf", a non-gaap measure) is a useful measure for investors because it portrays the company's ability to generate cash from operations for purposes such as repaying debt, funding acquisitions and paying dividends. the following table provides a reconciliation of net cash provided by (used in) operating activities to fcf: for the six months ended march 31, (in thousands) 2022 2021 net cash provided by (used in) operating activities $ (172,633) $ (44,411) acquisition of property, plant and equipment (22,030) (17,835) proceeds from the sale of property, plant and equipment 32 82 free cash flow provided by defense electronics 8,087 12,418 fcf $ (186,544) $ (49,746) the following tables provide a reconciliation of gross profit and selling, general and administrative expenses for items that affect comparability for the three and six month periods ended march 31, 2022 and 2021: for the three months ended march 31, for the six months ended march 31, (in thousands) 2022 2021 2022 2021 gross profit, as reported $ 260,643 $ 161,206 $ 426,485 $ 325,342 % of revenue 33.4 % 28.1 % 31.1 % 29.1 % adjusting items: restructuring charges 2,455 3,337 2,777 3,878 fair value step-up of acquired inventory sold 2,701 — 2,701 — gross profit, as adjusted $ 265,799 $ 164,543 $ 431,963 $ 329,220 % of revenue 34.1 % 28.6 % 31.5 % 29.5 % for the three months ended march 31, for the six months ended march 31, (in thousands) 2022 2021 2022 2021 selling, general and administrative expenses, as reported $ 157,838 $ 117,559 $ 285,190 $ 229,268 % of revenue 20.2 % 20.5 % 20.8 % 20.5 % adjusting items: restructuring charges (2,311) (4,165) (3,705) (6,703) acquisition costs (6,708) — (9,303) — proxy expenses (4,661) — (6,952) — selling, general and administrative expenses, as adjusted $ 144,158 $ 113,394 $ 265,230 $ 222,565 % of revenue 18.5 % 19.7 % 19.3 % 19.9 % griffon corporation and subsidiaries condensed consolidated statements of operations and comprehensive income (in thousands, except per share data) (unaudited) three months ended march 31, six months ended march 31, 2022 2021 2022 2021 revenue $ 779,617 $ 574,682 $ 1,371,366 $ 1,116,205 cost of goods and services 518,974 413,476 944,881 790,863 gross profit 260,643 161,206 426,485 325,342 selling, general and administrative expenses 157,838 117,559 285,190 229,268 income from operations 102,805 43,647 141,295 96,074 other income (expense) interest expense (21,408) (15,831) (37,089) (31,521) interest income 32 304 65 348 other, net 1,675 1,081 3,056 1,438 total other expense, net (19,701) (14,446) (33,968) (29,735) income before taxes from continuing operations 83,104 29,201 107,327 66,339 provision for income taxes 24,533 11,082 31,851 22,790 income from continuing operations $ 58,571 $ 18,119 $ 75,476 $ 43,549 discontinued operations: income (loss) from operations of discontinued operations 694 (1,341) 3,708 690 provision (benefit) for income taxes (6,424) (334) (5,803) (2,373) income (loss) from discontinued operations 7,118 (1,007) 9,511 3,063 net income $ 65,689 $ 17,112 $ 84,987 $ 46,612 basic earnings per common share: income from continuing operations $ 1.13 $ 0.36 $ 1.47 $ 0.86 income (loss) from discontinued operations 0.14 (0.02) 0.18 0.06 basic earnings per common share $ 1.27 $ 0.34 $ 1.65 $ 0.92 basic weighted-average shares outstanding 51,668 50,838 51,423 50,717 diluted earnings per common share: income from continuing operations $ 1.10 $ 0.34 $ 1.41 $ 0.82 income (loss) from discontinued operations 0.13 (0.02) 0.18 0.06 diluted earnings per common share $ 1.23 $ 0.32 $ 1.59 $ 0.88 diluted weighted-average shares outstanding 53,430 53,264 53,602 53,211 dividends paid per common share $ 0.09 $ 0.08 $ 0.18 $ 0.16 net income $ 65,689 $ 17,112 $ 84,987 $ 46,612 other comprehensive income (loss), net of taxes: foreign currency translation adjustments 6,049 1,739 3,730 13,862 pension and other post retirement plans 140 1,245 808 2,951 change in cash flow hedges (1,240) 1,791 (2,340) 1,103 total other comprehensive income, net of taxes 4,949 4,775 2,198 17,916 comprehensive income, net $ 70,638 $ 21,887 $ 87,185 $ 64,528 griffon corporation and subsidiaries condensed consolidated balance sheets (in thousands) (unaudited) march 31, 2022 september 30, 2021 current assets cash and equivalents $ 122,293 $ 248,653 accounts receivable, net of allowances of $13,500 and $8,787 512,449 294,804 inventories 687,011 472,794 prepaid and other current assets 62,975 76,009 assets of discontinued operations held for sale 264,861 273,414 assets of discontinued operations 497 605 total current assets 1,650,086 1,366,279 property, plant and equipment, net 304,169 292,622 operating lease right-of-use assets 149,587 144,598 goodwill 707,523 426,148 intangible assets, net 949,730 350,025 other assets 22,734 21,589 assets of discontinued operations 3,194 3,424 total assets $ 3,787,023 $ 2,604,685 current liabilities notes payable and current portion of long-term debt $ 25,110 $ 12,486 accounts payable 227,085 260,140 accrued liabilities 222,334 145,101 current portion of operating lease liabilities 32,210 29,881 liabilities of discontinued operations held for sale 73,218 80,748 liabilities of discontinued operations 3,312 3,280 total current liabilities 583,269 531,636 long-term debt, net 1,941,725 1,033,197 long-term operating lease liabilities 122,488 119,315 other liabilities 251,921 109,585 liabilities of discontinued operations 4,406 3,794 total liabilities 2,903,809 1,797,527 commitments and contingencies shareholders’ equity total shareholders’ equity 883,214 807,158 total liabilities and shareholders’ equity $ 3,787,023 $ 2,604,685 griffon corporation and subsidiaries condensed consolidated statements of cash flows (in thousands) (unaudited) six months ended march 31, 2022 2021 cash flows from operating activities: net income $ 84,987 $ 46,612 net income from discontinued operations (9,511) (3,063) adjustments to reconcile net income to net cash used in operating activities of continuing operations: depreciation and amortization 29,333 25,739 stock-based compensation 9,959 9,501 asset impairment charges - restructuring 806 2,690 provision for losses on accounts receivable 578 194 amortization of debt discounts and issuance costs 1,566 1,349 fair value step-up of acquired inventory sold 2,701 — deferred income taxes 2,883 2,215 (gain) loss on sale of assets and investments (118) 151 change in assets and liabilities, net of assets and liabilities acquired: increase in accounts receivable (177,347) (65,398) increase in inventories (106,534) (74,661) (increase) decrease in prepaid and other assets 6,063 (842) increase (decrease) in accounts payable, accrued liabilities, income taxes payable and operating lease liabilities (18,524) 8,702 other changes, net 525 2,400 net cash used in operating activities - continuing operations (172,633) (44,411) cash flows from investing activities: acquisition of property, plant and equipment (22,030) (17,835) acquired businesses, net of cash acquired (851,464) (2,242) proceeds (payments) from investments 14,923 (2,138) proceeds from the sale of property, plant and equipment 32 82 other, net — 27 net cash used in investing activities - continuing operations (858,539) (22,106) cash flows from financing activities: dividends paid (10,091) (8,678) purchase of shares for treasury (10,886) (2,909) proceeds from long-term debt 975,291 14,029 payments of long-term debt (37,906) (7,573) financing costs (16,457) (571) other, net (27) (214) net cash provided by ( used) in financing activities - continuing operations 899,924 (5,916) griffon corporation and subsidiaries condensed consolidated statements of cash flows (in thousands) (unaudited) six months ended march 31, 2022 2021 cash flows from discontinued operations: net cash provided by operating activities 9,846 17,058 net cash provided by (used in) investing activities (1,445) 11,323 net cash provided by discontinued operations 8,401 28,381 effect of exchange rate changes on cash and equivalents (3,513) 1,527 net decrease in cash and equivalents (126,360) (42,525) cash and equivalents at beginning of period 248,653 218,089 cash and equivalents at end of period $ 122,293 $ 175,564 griffon evaluates performance based on earnings per share and net income excluding restructuring charges, loss from debt extinguishment, acquisition related expenses, discrete and certain other tax items, as well other items that may affect comparability, as applicable, a non-gaap measure. griffon believes this information is useful to investors. the following tables provides a reconciliation of income from continuing operations to adjusted income from continuing operations and earnings per common share from continuing operations, a non-gaap measure, to adjusted earnings per common share from continuing operations: (in thousands, except per share data) for the three months ended march 31, for the six months ended march 31, 2022 2021 2022 2021 income from continuing operations $ 58,571 $ 18,119 $ 75,476 $ 43,549 adjusting items: restructuring charges 4,766 7,502 6,482 10,581 acquisition costs 6,708 — 9,303 — proxy expenses 4,661 — 6,952 — fair value step-up of acquired inventory sold 2,701 — 2,701 — tax impact of above items (3,596) (1,897) (5,097) (2,675) discrete and certain other tax provisions (benefits), net (693) 1,417 (1,574) 369 adjusted income from continuing operations $ 73,118 $ 25,141 $ 94,243 $ 51,824 earnings per common share from continuing operations $ 1.10 $ 0.34 $ 1.41 $ 0.82 adjusting items, net of tax: restructuring charges 0.07 0.11 0.09 0.15 acquisition costs 0.12 — 0.15 — proxy expenses 0.07 — 0.10 — fair value step-up of acquired inventory sold 0.04 — 0.04 — discrete and certain other tax provisions (benefits), net (0.01) 0.03 (0.03) 0.01 adjusted earnings per common share from continuing operations $ 1.37 $ 0.47 $ 1.76 $ 0.97 weighted-average shares outstanding (in thousands) 53,430 53,264 53,602 53,211 note: due to rounding, the sum of earnings per common share from continuing operations and adjusting items, net of tax, may not equal adjusted earnings per common share from continuing operations.
