Griffon Corporation

Greetings and welcome to Griffin Corporation's fiscal third quarter 2025 earnings conference call. At this time all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Griffin Corporation's CFO, Brian Harris. Please go ahead, sir.

Thank you. Good morning and welcome to Griffin Corporation's third quarter fiscal 2025 earnings call. Joining me for this morning's call is Ron Kramer, Griffin's chairman and she's executive officer. A press release was issued earlier this morning and is available on our website at .grippan.com. Today's call is being recorded and replay instructions are included in our earnings release. Our comments will include forward-looking statements about Griffin's performance. These statements are subject to risks and uncertainties that can change or the world changes. Please see the cautionary statements in today's press release and in our SEC filing. Finally, some of today's remarks will be adjusted for items that affect comparability between areas. These items are explained in our -GAP-less affiliations included in our press release. With that, I will turn the call over to Ron.

Thanks, Brian. Good morning, everyone, and thanks for joining us. During the third quarter, our home building product segment continued its strong performance. For the first nine months, HBP profitability exceeded our expectations with an EBITDA margin of .4% driven by a favorable price and mix. In the third quarter, our consumer and professional product segment was significantly impacted by weak demand coupled with increased tariffs disrupting historical customer ordering patterns, particularly at Hunter fans. Notwithstanding the decrease in sales volume, for the first nine months, CPP EBITDA margin has improved 270 basis points year over year. This profitability improvement reflects the hard work of our AIMS-UF team who successfully transitioned our manufacturing operations to an asset-like business model, thus increasing our flexibility and reducing our operating costs through leveraging our global sourcing capabilities. We've also seen solid performance from our team in Australia, including the contribution from our acquisition of POPE in July of 2024. Given our overall -to-date performance, we're reaffirming full-year EBITDA guidance of $575 million to $600 million, while reducing our revenue expectations by $100 million to $2.5 million as a result of the ongoing consumer weakness at CPP. Turning now to capital allocation, during the third quarter, we repurchased $40 million of our stock for 581,000 shares, and that was priced at $69.28 per share. At June 30, $320 million remained outstanding under the repurchase authorization. Since April 2023 and through June, we've repurchased $538 million of stock, or 10.5 million shares, at an average price of $51.15. These repurchases have reduced Griffin's outstanding shares by 18.4 percent, relative to the total shares outstanding at the end of the second quarter of fiscal 2023. Also yesterday, the Griffin Board authorized a regular quarterly dividend of $0.18 per share, payable on September 16 to shareholders of record on August 29. This is our 56th consecutive quarterly dividend to shareholders. Our dividend has grown at an annualized compound rate of more than 18 percent 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 outlook. I'll turn it over to Brian for more details of the financial results. Thank you, Ron.

Third quarter revenue of $614 million decreased 5 percent, and the adjust dividend before unallocated amounts of $148 million increased 5 percent, both in regards to the prior year quarter. Dividend margin before unallocated amounts of 24.1 percent, an increase of $244 million. Gross profit on the gap basis for the quarter was $265 million compared to $249 million in the prior year quarter. Excluding items that affect comparability from prior year periods, gross profit of $265 million was consistent with the prior year. Normalized gross margin increased year over year by $230 basis points to 43.2 percent. During the third quarter, we recorded a tax charge of $244 million for impairment on goodwill and indefinite lives and handle assets related to the acquisition of Hunter fans. This charge was caused by ongoing weak consumer demand, coupled with the impact of increased tariff disrupting historical customer order and patterns. Third quarter gap selling, general and mini-shares expenses were $391 million, excluding items that affect comparability from the current and prior year quarters. SC&A expenses were $147 million or 23.9 percent of revenue compared to the prior year of $155 million, which also reflected 29.9 percent of revenue. Third quarter gap net loss was $120 million or $2.65 per share compared to net income of $41 million in the prior year quarter or $84 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income of $69 million or $1.50 per share compared to the prior year of $61 million or $1.24 per share. Corporate and unallocated expenses, excluding depreciation in the quarter, were $13 million compared to $15 million in the prior year quarter. Free cash flow during the quarter was $116 million compared to $120 million in the prior year quarter. During the quarter, capital expenses were $9 million compared to $15 million prior year quarter. Regarding our second performance, revenue for home building products of $400 million increased 2 percent from the prior year driven by a stable private mix of 3 percent, partially offset by decreased volume of 1 percent. Attempted easing off of HBP of $129 million, increased by 9 percent compared to the prior year quarter, driven by increased revenue and reduced material costs, partially upset by increased labor costs. Material and professional products revenue of $213 million decreased 16 percent compared to the prior year quarter, primarily driven by decreased volume of 19 percent due to reduced consumer demand across all geographic regions except Australia and disrupted historical customer ordering patterns in the U.S. due to increased tenor. CCTs benefited from a price and mix of 2 percent and incremental revenue from the Pope acquisition contributed 1 percent. CCTs adjusted EBITDA decreased by 14 percent from the prior year quarter to 19 million primarily due to the revenue decrease numbers above, partially offset by the benefits from the U.S. global source and expansion initiative, improved margins across all geographic regions and reduced administrative expenses. Foreign currency had a 1 percent unfavorable impact. Regarding our balance sheets and liquidity, as of June 30, 2025, we had net debt of $1.3 billion and net debt to EBITDA leverage of 2.5 times was calculated based on our debt covenant compared to 2.7 times leverage at the end of last year's third quarter. Our net debt and leverage are less than our year end, September 2024, even after returning $145 million to shareholders' dividends and brought by back during the first three quarters of the year. Regarding our outlook, we now expect revenue to be $2.5 billion versus the prior expectation of $2.6 billion. The $100 million reduction is attributed to the bowl through our CPP segment, which reflects ongoing weak consumer demand coupled with the impact of increased tariffs resulting in historical customer order and pattern, in particular for Hunter. We are reaffirming segment adjustities without guidance of $575 million to $600 million, with the upper end of the range reflecting potential incremental volume. We now expect HCP segment margin in excess of 31% versus prior guidance of an excess of 30%. For CPP, we now expect margin of approximately 8% versus our prior guidance of an excess of 9% due to the reduction of volume and impact on revenue and related impacts on overhead absorption. Regarding the remaining elements of our 2025 guidance, we now expect that it spends to be $95 million versus our prior guidance of $102 million, capital expenditure $60 million versus our prior guidance of $65 million. We continue to expect free cash flow to exceed net income, depreciation of $42 million, amortization of $22 million, and a normalized tax rate of approximately 28%. Now I'll turn the call back over to Ron.

Thanks, Brian. We've continued generate solid profitability and free cash flow through three quarters, despite CPP seeing weak consumer demand and tariff related disruptions in customer buying patterns. 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. So far this year, we've returned $145 million to shareholders in the form of dividends and share repurchases, while simultaneously reducing debt by $76 million and reducing our overall leverage to two and a half times. As I reiterate, that we continue to expect to generate a total of over $1 billion of free cash flow during this fiscal year and the next two. We're encouraged by the strong momentum in key growth areas and remain optimistic about the opportunities that lie ahead. We view our stock as a compelling value. Finally, I'd like to express my appreciation to our Griffin team around the world, who've been able to remain focused on executing our strategy while competing in this challenging and dynamic environment. Operator, we're now ready for questions.

Thank you, sir. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you would like to remove yourself. Please note, participants are asked to limit their questions to one question and one follow-up. The first question we have comes from Bob Ladek of CTS Securities. Please go ahead.

Hi, it's actually me, Gagota, for Bob this morning. Good morning. Ron, can you start just on PPP and maybe talk to your pricing strategy there and whether, you know, price has gone in for tariffs and how the retailers have reacted?

Yeah, I'll take it. Yeah, we have in certain instances put through price. However, given the sense of the nature of ongoing customer discussions and our mitigation actions, we're not in a position to really give much more detail.

Okay, and then obviously, you know, given the guidance, you know, it's impacting the sell-in. Can you talk to the self-through trends that you're seeing at retail?

Yeah, retail continues to see reduced POS. During this past quarter, certainly in the northeast, weather was a bit of a factor. The ongoing weak consumer and also people pulling back further from concerns about tariffs and

inflation. Thank you, sir. The next question we have comes from Robert Shultz

of BAD. Please go ahead.

Hey guys, thanks for taking the question. Just wanted to first ask on HBT. I saw that you called out price mix was positive and I think you guys have put some price increases there, but just curious how price realization is crafting relative to your initial expectations?

Generally, it's tracking in line. In that business, when we put price increases through, they are generally taken by the market.

Got it. And then on HPC demand, what are you seeing between the different end markets there, just on the residential, commercial, and that new construction side?

Sure. New construction is a small part of our business, less than 10% of HPP. And we play mostly in the higher end of the market and in the repair and remodel side. Generally, commercial continues to be soft compared to years past, but our business overall, if you look at it from pre-pandemic until now, is up significantly. On the residential side, the high-end consumer continues to be active and our products continue to do well, where the lower end of the new construction side is somewhat weaker.

Thank you. Next question we have

comes from Trey Groves of Stephen Inks. Please go ahead.

Hey, good morning everyone. Thanks for taking the questions. So, you know, the TPP business, we were kind of thinking, I guess as we entered this year anyway, that maybe we could start to see some pick-up, at least in the consumer business, maybe shifting a little bit towards the back half of this year. Clearly, that's been extended for everybody, for underserved reasons. But, you know, I know it's tough to have any kind of a crystal ball at this point, but how are you guys thinking about, you know, timing of maybe a potential rebound on the TPP side of the business, just from a demand standpoint?

It's hard to really predict when the consumers will come back. I would say once powers settle into more known areas, we're slowly getting more information, but we don't have complete information yet. The consumer will start to feel more confident and come back to spending again. But, yeah, to give you an exact time, it's not really...

Yeah, good. Trace, Ron, I'll just add to it that, you know, we have the best brands and we're committed to our global sourcing at that light model, which we think is a flexibility. So, we have a business that, you know, particularly the hunter side is, you know, at a low point it will recover. How long it will take to recover, you know, your guess is as good as ours. But, you know, these are solid brands and businesses that over time we expect to generate significantly more revenue and profitability from.

Yep, fair enough, fair enough. And on, I guess on that point, you know, could you give us an update on where we are on the global sourcing initiative as far as timing? You know, is that still on track with your expectations and, you know, CPP margins clearly showing some signs of improvement, but any update on how you're thinking about the longer-term margin targets there and maybe the timing as far as getting those targets on CPP?

Yeah, we're committed to the, you know, the global sourcing. All of the actions are behind us. We have, you know, optionality on where we're going to be sourcing from, and long-term our target is 15 percent

margins in that business. Operator? I'll call it, can we hear from, go ahead. Hi, I'm HDP. We've

been called out on material costs tailwind in the press release of the week. Can you talk about what drove that for how those costs are tracking to the fiscal quarter and maybe give a little bit of extra color on the impact of steel here? And then with the updated guide, how should we think about the long-term even down margin in the HPP business?

Sure, from a material standpoint, yeah, we did have a tailwind this quarter compared to last year's quarter. Right now, you know, steel, we believe from here forward, will be roughly stable from a pricing standpoint. And if you look at steel over the last three years on average, in each year, though there's been ups and downs during that time, steel has actually been in a pretty tight band. As far as margins in the business, you know, we have a long-term target of better than 30 percent. We don't see any change for that. In the shorter term, some of the major this year, we see 31 percent or better.

Imagine what the business will be like when the housing market jumps good.

Exactly. Okay. And then I guess pivoting to the CPP side, I mean, the demand is obviously, environment is obviously weak. But I think it would be helpful just to understand, like, if margins can expand from the 9 percent level you just reported, or maybe the 8 percent you're expecting for the full year, if you don't see improvements in the demand background. I guess I'm just trying to get a sense of how much of the global supply chain and issues that you've seen are already in margins versus how much more is just given for the changes in inventory and things like that.

Yeah, there's still benefits to be had as we diversify the supply chain itself, but to get to our 15 percent, we're

going to need to be true mercenaries and come back. Thank you. The next question we have comes from Josh Wilson of Raymond James. Please go ahead.

Good morning. Thanks for taking my questions.

Morning,

Josh.

Just a couple of housekeeping ones for me. And sorry if I missed these earlier, but is your corporate guidance still $55 million for the year in the E-Vanoid calculation?

Definitely.

Okay. And then your inventory days picked up a fair amount year on year. How much of that was related to cost inflation versus buildup from the order patterns being disrupted by the order of the factors?

Yeah, inventory is a little higher than we would really generally expect as the consumer has slowed down, which of course in turn has our customers ordering less.

Thank you. Next question we have comes from Julio Romero of

Sagatium Company. Please go ahead.

Good morning. This is Alex on for Julio. Thanks for taking questions.

Morning, Alex.

First question was, you know, just given the revised revenue guidance, could you talk about your confidence around the drivers of the four-year EBITDA guidance?

Well, performance, you know, the changes gives us the confidence, particularly in the home building product segment, which continues to perform well. Our margin in that business is ahead of our original guide of 30% or better. We now see 31% or better for the year and that's significant pickup. Conversely on the CPP side, you know, the weak demand is affecting our margin as well as our expected results.

Thank you. And as a follow-up to that, you know, are there any new cost optimization or automation initiatives underway, you know, that are kind of at work behind the scenes to protect margins?

Yeah, well it's really an ongoing process. We are recordably investing in automation and efficiency projects. We do have an ongoing project, in particular, on the home building product side that's going on for about two years now, which involves automation and new equipment preparing us for future demand.

And I'll just add that, you know, Clopay is, you know, the leader in the both residential and commercial, you know, door business. It's got innovation and technology in its pipeline and its ability to continue to grow its products, its diversification and expansion of its commercial business. It's ongoing and the strength of our dealer network for positioning of the brand, we're nowhere near full

peak earnings of that business. Thank you, sir. Ladies and gentlemen, we have reached

the end of our question and answer session and I would now like to turn the call back over to Ron Kramer for any closing remarks. Please go ahead.

Thank you. We look forward to working hard and continuing to deliver excellent results and we'll speak to you this fall.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.