Griffon Corporation

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Griffin Corporation's fiscal second quarter 2025 earnings conference call. At this time, all participants are in a recent only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Ryan Harris, CFO for Griffin Corporation. Thank you, and may it begin.

Thank you. Good morning, and welcome to Griffin Corporation's second quarter fiscal 2025 earnings call. Joining me for this morning's call is Ron Kramer, Griffin's chairmanship executive officer. Our press release was issued earlier this morning and is available on our website at .griffin.com. Today's call is being recorded, and the replay instructions are included in our earnings release. Our comments will include forward-looking statements about Griffin's performance, the statements of suspects, who risked some uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and then our SEC filing. Finally, some decisions and remarks toward draft items that affect comparability between periods. These items are explained in our -draft-like affiliations included in our press release. With that, I'll turn the call over to Ron.

Thanks, Ryan. Good morning, everyone, and thanks for joining us. We're at the halfway point of our fiscal year, and I am pleased to report that both of our segments have performed within our expectations. Our home and building products segment, HVP, has maintained a better than 30 percent, if it's on margin, through the first half, driven by steady residential performance and favorable mix. As we expected, we saw a -over-year reduction in revenue in the quarters, as our doors business returned to a seasonal cycle that is more aligned with historical pre-pandemic norms. HVP continues to assert itself as the leading garage door provider, with a differentiated set of innovative product offerings that separate us from the competition. Cloquet was recognized as the best of IBS across the entire building products industry at the February 2025 NAHB International Builders Show for its groundbreaking Vertisac Avanti garage door. The Vertisac door utilizes a unique patented design featuring glass panels that stack compactly above the door opening. This design eliminates the need for overhead tracks, creating the sleek aesthetic which maximizes available space and light. We've received strong interest in Vertisac, and we expect this product will revolutionize how doors are incorporated into both commercial and residential projects. This is the first in what we believe is a long pipeline of future innovations that will continue to keep Cloquet as the leader in both residential and commercial doors. Let's shift to the consumer and professional product segment, CPP. It continues to improve its epitaph performance on a -over-year basis. This is driven in large part by the transition of our U.S. operations from an asset-wide business model, which has increased our flexibility and reduced our operating costs through leveraging our global sourcing capabilities. We also have solid performance in Australia, including from the contribution of the Pope acquisition, which has performed well as a part of our Aims portfolio. I know that all of you on the call are focused on the potential effects of changes in the U.S. trade policy, especially given the uncertain economic operating conditions, and would like you to know how we see these factors affecting Griffin through the rest of the year. Given that our performance is on track, we're maintaining our financial guidance for fiscal 2025. It's important to keep in mind that approximately 85% of Griffin's total segment epitaph is generated by our home and building products business. HVP manufactures this product domestically and sells over 95% of those products within the United States. Despite HVP's U.S. concentration, in today's world no business is completely insulated from changes in trade policy. However, we're confident that we're able to manage any increased costs through pricing actions and cost reduction efforts. CCP currently represents approximately 15% of Griffin's total segment epitaph. It's important to note that only a portion of CCP is impacted by the recent changes in .S.-China-related tariff policies. We have substantial operations outside of the United States in Australia, Canada, and the United Kingdom. Even within the U.S., not all of our products will be materially affected by tariffs because of where those products are sourced. We expect CCP to mitigate the inflationary effects of trade policy and other headwinds during the remainder of the fiscal year through supplier negotiations, cost management, leveraging existing inventory, and when necessary, taking price actions. Turning now to capital allocation. During the second quarter, we repurchased 31 million of stock, or 420,000 shares, at an average of $72.64 per share. At March 31, 360 million remained under the repurchase authorization. We continue to believe our stock is a compelling value. Since April 2023 and through March, we've repurchased 498 million of stock, or 9.9 million shares, at an average price of $50.09. These repurchases have reduced Griffin's outstanding shares by .4% relative to the total shares outstanding at the end of the second quarter of fiscal 2023. Yesterday, the Griffin Board authorized a regular quarterly dividend of $0.18 per share payable on June 18 to shareholders of record on May 30, marking the 55th consecutive quarterly dividend to shareholders. Our dividend has grown at an annualized compounded rate of more than 18% since we initiated dividends in 2012. These actions reflect the strength and resiliency of our businesses, as well as our continued confidence in our strategic plan and outlook. I'll turn it over to Brian to go through some of the financial details. Thank you, Ron. Second

quarter revenue of $612 million decreased 9%, and it just evened out before an allocated amount of $153 million decreased 11%, both in comparison to the prior year quarter. Evening out margins before an allocated amount was 21.8%, a decrease of 40 basis points. Gross profit on the gap basis for the quarter was $252 million compared to $271 million in the prior year quarter. It's an event that affects comparability from the prior year period. Gross profit was $252 million in the current quarter compared to $272 million in the prior year. Normalized gross profit increased -over-year by 80 basis points, to 41.2%. Second quarter gap selling general administrative expenses were $151 million compared to $157 million for the prior year. Excluding adjusting items in both periods, SQ&A expenses were $150 million, or .5% of revenue, compared to the prior year of $153 million, or .8% of revenue. Second quarter gap net income was $57 million, or $1.21 per share, compared to $64 million in the prior year quarter of $1.28 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income was $58 million, or $1.23 per share, compared to the prior year of $68 million, or $1.35 per share. Corporate and unallocated expenses, excluding depreciation in the quarter, were approximately $15 million, consistent with the prior year. Free cash flow during the quarter was $3 million, compared to $21 million in the prior year. During the quarter, net capital expenditures were $13 million, compared to $18 million for the prior year. Regarding our segment performance, as we expected, revenue for home-building projects exhibited a seasonal decline in residential volume in the second quarter, similar to what we typically experienced during our second quarters prior to the pandemic. Revenue in the quarter of $368 million, decreasing the prior year by 6%, driven by a decreased volume of 7%, which was partially offset by 1% improvement from May. Recall that last year, HBG did not see the same seasonal behavior because of benefits from certain factors, including terrible weather, which resulted in unusually strong activity. The juxtaposition of jobs for HBG of $109 million, increased by 15% compared to the prior year quarter. The main drivers were decreased revenue and the related impacts of that reduced revenue on overhead absorption. We also incurred increased labor and distribution costs, which were partially offset by reduced material costs. Consumer professional products revenue decreased 15% from the prior year quarter to $243 million, due to decreased volume of 15%, driven by reduced consumer demand in North America and the United Kingdom, partially offset by increased organic volume in Australia. The probe acquisition contributed 2% to volumes in Australia. Farm currency exchange was unstable by 2% per quarter. CQT adjusted these about an increase by 18% from the prior year quarter to $24 million, primarily due to the positive effects from our global sorting expansion initiative and increased volume and improved margin in Australia. This was partially offset by the unfavorable impacts of reduced North American and UK volume. Farm currency exchange had a 1% unfavorable impact. Regarding our balance sheet liquidity, as of March 31, 2025, we had net debt of $1.4 billion and net debt to even out leverage of 2.6 times as calculated based on our debt covenant, which had 2.8 times leverage at the end of last year's second quarter. Our net debt leverage are in line with our year end, September 2024, evened out through returning $96 million to shareholders through dividends and stock buybacks during the first half of the year. As Ron mentioned during his comments, we are maintaining our fiscal 2025 guidance of $2.6 billion of revenue and $575 million to $600 million of savings just to deduct, which includes unallocated costs and certain other charges that affect comparability, also free pass loads taking net income for the year. While the changes in US trade policy are clearly top of mind for most of us, the expected impact of tariffs increases on Crip and Zedot for the years to be manageable, given most of our utilized generated HBP, which manufactures and sells most of its products in the US. For CPP on the annualized basis, approximately $325 million, or about one third of its revenue, is currently affected by China-based tariffs and comprised primarily of CPP fans and Longart products. For the remainder of the first two years, we expect CPP will be able to mitigate the impacts of all tariffs through supplier negotiations, cost management, leveraging existing inventory, and when necessary, taking price action. Now I'll turn the call back over to Ron. Thanks, Brian.

Our fiscal 2025 remains on track with continued solid operating performance at HBP and continued improved profitability at CPP. As we stated before, most of our evidence on free cash flows generated by Griffin businesses that are either unaffected or only modestly impacted by current tariff policy. For the balance of our business, we expect to be able to mitigate the impact of current tariff policy through supplier negotiations, cost management, leveraging existing inventory, and when necessary, taking price action. With respect to our capital allocation, we remain committed to using the strong operating performance and free cash flow of our businesses to drive a capital allocation strategy that delivers long-term value for our shareholders. This portion of our strategy includes investing in our businesses, opportunistically repurchasing shares, and reducing debt. Finally, I'd like to express my appreciation to our Griffin team around the world, whose dedication and perseverance has driven our operational and financial success. Their ability to remain focused on executing our strategy while competing in such a dynamic environment is unparalleled. I see opportunity in our future, and I'm looking forward to working with our team to build on these accomplishments. Operator, we're ready for any questions.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 under telephone keypad. A confirmation tone will indicate your line is in the question queue. If at any time you wish to remove your question from the queue, please press star 2. We ask this to limit your questions to one with one follow-up so that others may have an opportunity to ask questions. You may re-enter the queue by pressing star 1. For participants using secret equipment, it may be necessary to pick up your handsets before pressing the star keys. Our first question is from Trey Grooms with Stevens.

Hey, good morning, everyone. Morning, guys. So, just want to make sure I heard the last comment correctly, Ron. I've gotten down here to see you mentioned 325 million of CCP revenue is kind of exposed to China or Chinese tariffs. Did I get that number right?

Yeah, that is correct. So, we're clear that's an annualized 125 million.

Right, right, right. Okay, good. That's just from my lens, that's a much smaller number than I would have expected. So, I guess kind of looking and it's encouraging to have you guys, you know, reiterate the guide for the full year. Clearly, chose the confidence there in this, you know, despite kind of the challenging operating environment in the Paris and such. But if we come with longer term with that backdrop of, you know, further tariffs impacts, you know, kind of going forward and maybe more of that impact on an annual basis next year, is it still reasonable to think that the longer term than a 15% adjusted even dog margin target is still on the table for CCP? Yes, there's

no question that it's on the table. The issue is going to be timing of, you know, what happens to the US economy in the future. But I think you have to separate out that, you know, there's still a very strong US economy that, you know, is going through a transition period as part of a purposeful negotiation to accomplish two things, increased prosperity and increased security. So, let's, you know, remember, you know, we've built a business over a very long period of time. Our HBC business, and you know, we really want to come back to this, you know, 85% of our EBITDA comes from a business that's largely unaffected by tariffs. The housing market in the United States still is many millions short in new construction, and that will come in, and if the goal of increased prosperity comes as a result of the economic policies that are currently under negotiation. So, our CPP segment, you know, at a billion of revenue, our target for that business is to get it to a 15% margin. We went through a global sourcing model. We continue to believe that the asset-right business model for the US gives us flexibility to move manufacturing to wherever the best value proposition for price for our customers. We have leading brands. We have design and logistic capability. So, yes, 15% for CPP, and you know, we have a general business in HBC that's a 30% margin that is getting misvalued based on the combination with the consumer products business, where people are doubtful of, you know, what the impact of tariffs is going to be and what the long-term margins for this business is going to be.

Right.

Thank you. Our next question comes from Colin.

Good morning. Thank you for taking my questions here. I'd like to dig a little bit more into the tariff impact. How do you think we'll mitigate the impact in fiscal year 2025? I guess any hope in quantifying what the current incremental tariff costs would look like immediately and just on an annual basis as we move beyond fiscal year 25? I guess I'm just trying to get a sense of like what this could look like and what kind of cost actions you need to take as we move past some of the inventory that you have, pre-paramount inventory you have on your balance sheet.

I think it's really premature to talk about 26 when we're still in the middle of 25. The bottom line to this is very clear that we're not going to sit still as a result of tariffs and not mitigate whatever increase is going to happen in pricing. And, you know, we have multiple levers of management to be able to deal with whatever the impact of the final tariff policy turns out to be. So speculating about what 26 is going to look like is really not appropriate.

Understood. And I guess just maybe dig into the strategy here and how it might differ between the fan business and either the long-handled tool business just given sort of the supply chain, current supply chains and in color if it's just what the, any differences in the strategy for mitigating these tariffs would be?

Sure. So, you know, we began our supply chain for the U.S. expansion of global supply chain across the two years ago. We completed it at the end of last fiscal year. That was mostly focused on the lawn and garden tool business. With that complete, we are now sort of in the second phase. We are now leveraging the full global supply chain where we originally went through the suppliers we already knew. We expect to have that mitigated by the end of the fiscal year. So as we enter next fiscal year, we will have a different supply chain away from China from a tariff standpoint start, mitigate the tariff tariff. The fan business, we knew since we bought that business, we've always been looking for or considering alternatives to where we supply because the majority of that is supplied from China. And we expect to have alternate supply and trade study in this calendar year, really accelerating plans as we began several years ago.

Thank you for your question. Our next question is from Bob Ledes with CJS Security.

Hey, it's Lee Giotta for Bob this morning.

Hi,

Lee. Good morning. Good morning. So starting with the CTC business line, can you just talk about your market position in your various product lines in that segment and your ability to use price as a lever? And then just as a follow up, are there products in that portfolio that can benefit from price increases on a trade down? Yeah, so as far as

price, we in our retail partners are sensitive to the impact of price on the consumer. We do play generally in the high end of tools, but still the consumers and professionals are sensitive. So we are working on plans to mitigate significant tariff related price increases by pivoting that supply chain away from China, as I mentioned. Negotiating with our existing non-China suppliers, other car factions that will allow us to provide our customers with high quality affordable branded products. You know, with that in mind, the current environment actually presents an opportunity for us to work with our customers to help them transition to this uncertain tariff environment because of our ability to transition our supply chain to

lower costs. And then just on the fan business

specifically, I know you're saying you plan to diversify some of that supply out of China. To this point, I'm assuming most of the mass market fans are made in China and then shipped to the US. So are you aware of if there's any other competitors trying or looking to do the same thing that you are? Yeah, I'm not as far as I'm aware, but I assume

they are. But to your point, it's not just concentrated. It's from our understanding of this industry, all of the fans that are sold in the United States are being sourced out of the same area in China. And our diversification is with our existing supply partner who's working to move factories outside for competitive and for cost reasons prior to tariffs. So our ability to navigate the global supply chain is part of the abstract right model and it's part of the underlying confidence in the long-term 15% target for the business. We are already at or above that level in the fan business. We have a very profitable business in Australia, in Canada. The core of our historical margin problems was in the US, which is why we went through an asset right model years ago and we're starting to enjoy the benefit of it. We'll navigate through this and that's just one more challenge in a business that we have been repositioning as we've now gone through financial crisis to pandemic, to now tariffs negotiation. It's just part of the course of running the company and positioning it for future growth.

Thank you. Our next question is from Tim Mortis with Baird.

Hey guys, good morning. Thanks for all the details. Maybe just on HBC, I think the business, I think Cloquet, maybe as well as the industry, had put through some price in March and April. I think it was something like a mid-single digit type of price increase. When you see those, I think it's been kind of the first one we've seen in a couple of years. When we think about that type of price increase, what would you guys normally see as an effective realization within that business?

Yeah, we generally see good realization on our price increases. We have a position in the market where we provide not only products, but a complete package of service to our customers and generally realize good effectiveness on the price increase. Okay.

Did you see your competitors do the same thing?

Yes, we did. Okay.

Then I guess just secondly on HBC, we did see kind of that return to seasonality that you kind of spoke about in the fiscal second quarter. Can you just remind us what the seasonality should now kind of look like in the back half of the year as we kind of think about resident EBITDA? Do we kind of get back to growth and EBITDA and there's an expansion really in the back half of HBP?

Sure. In general, Q4 and Q1 are our strongest quarters on the residential side of the business. Q2 is generally the seasonal lowest quarter and from Q1 to Q2, you would see a 10 to 15% reduction in volume and then Q3 starts the trend upward from Q2. So where we sit now, we're expecting, even compared to our original guidance, better volume than we originally anticipated. And that likely will offset what could be some pressure from the contiguous, slowly rep consumer from the CPP side.

Thank you. Our next question is from Jose Romero with Cibode & Company. Julia?

Good morning. This is Jose Romero for Julio.

Oh,

good

morning. Maybe starting on free cash flow, how do you expect the cadence of free cash flow to progress over the remaining quarters of the year? And secondly, is the full year free cash flow

outlook primarily a function of net income growth? Yes, we do generally expect free cash flow to be greater than net income. We've had a good start to the year on free cash flow and we expect the second half, as usual, to be good

free cash flow generating period. Great, thanks. And then, can you provide more detail on CPP demand

trends by geography, specifically what you're seeing in North America, the UK and Australia? Sure. In North America, we're seeing continued leakage from the consumer and demand for our CPP products generally. UK is similar, continued leak demand. And in Australia, demand has been good, both on an organic basis and we're seeing good take on the post-application product.

Thank you.

As a reminder, to ask a question, please press star 1. Our next question is from Jeff Stevenson with Luke's Capital Markets.

Hi, thanks for taking my questions today. Were you able to build inventories ahead of the liberation day for products such as fans, wheelbarrows and shovels produced in China? And then correct me if I'm wrong, but last time we had Chinese tariffs, residential fans were exempted. Has there been any movement on potential exemptions from the administration in areas such as fans that are predominantly manufactured in China?

Sure. Yeah, so we will be leveraging the inventory to help us manage free tariffs through the balance of this year. And as we mentioned, we expect to have the lawn and garden supply chain substantially diversified at the end of fiscal 26 and fans by the end of the calendar year. From an exemption standpoint, we certainly will make our case, but we have not heard any exemption details to date.

Great, thanks for that Brian. And then in residential garage stores, I'll be free. You know, focus on primarily on the mid and higher end market, which has remained strong. You know, that said, is there any concern that tariffs have all been softening consumer sentiment? You know, there could be some deterioration in the higher end market, or do you believe that market is going to remain resilient, you know, throughout this period of uncertainty? Yeah,

so from what we see through March and really through April, demand has remained healthy and we expect it to be ahead of last year's second half. The high end consumers remain resilient and we have continued to bring products to the marketplace that consumers have wanted. And from a, you know, people are staying in their homes and they're doing projects in their homes, and from a renovation standpoint, garage door is relatively inexpensive and has a great ROI, give or take 200% return every dollar and you get $2 out some value of your home. And that volume, you know, we expect to see that volume continue. And I'll just

add that we continue to believe that Clopay is the market leader, that we're gaining market share, and that's a result of both the strength of our product offering, their ability to deliver on a timely basis, the quality of the product that we manufacture and the service that we are able to provide, and the housing markets in the United States are still waiting for lower interest rates to increase volume and volume of transactions will create incremental activity for repair and remodel. And the new home construction, you know, that will happen at some point in this next cycle is going to benefit us and we're positioned to continue to innovate and bring new products and to go and to compete for business. And Clopay has been an extraordinary success story over a long period of time and we think it's positioned for even

further growth in the future. Ladies and gentlemen, we have reached the end of the question and answer session

and I would like to turn the call back to Ron Cranmer for closing remarks.

We'll be working hard to deliver continued results and

see you in August. Bye-bye. Thank you. This concludes today's conference. You may now disconnect your lines.