Griffon Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2021. Amounts are in U.S. dollars; financial figures below are in millions unless stated otherwise. Griffon is a diversified holding company operating through Consumer and Professional Products (CPP), Home and Building Products (HBP), and Defense Electronics (DE).
Financial results and position
| Metric | Three months ended June 30, 2021 | Prior-year quarter | Nine months ended June 30, 2021 | Prior-year period |
|---|---|---|---|---|
| Revenue | $646.8 | $632.1 | $1,890.9 | $1,746.8 |
| Gross profit / margin | $170.1 / 26.3% | $165.0 / 26.1% | $510.6 / 27.0% | $467.0 / 26.7% |
| Operating income / margin | $44.5 / 6.9% | $51.5 / 8.1% | $136.6 / 7.2% | $109.2 / 6.3% |
| Net income | $16.7 | $21.8 | $63.3 | $33.3 |
| Diluted EPS | $0.31 | $0.50 | $1.19 | $0.76 |
| Adjusted EBITDA | $64.8 | $69.5 | $207.2 | $172.6 |
- Nine-month operating cash flow was $42.0, versus $55.9; capital expenditures were $33.9, implying cash flow after capital expenditures of approximately $8.1, versus $21.2.
- Cash and equivalents were $220.7. Total debt was $1,071.1 and debt net of cash was $850.4. The company reported $362.2 available under its revolving credit facility, subject to covenants, and compliance with its debt covenants.
- Working capital was approximately $760.4; current assets were $1,226.9 and current liabilities $466.5. Inventory increased to $510.3 from $413.8 at September 30, 2020.
Material changes and segment performance
- Quarterly revenue rose 2% (4% excluding prior-year SEG revenue), but net income and diluted EPS declined. Quarterly adjusted net income was $22.8, or $0.43 per diluted share, versus $25.9, or $0.59, after the company’s specified adjustments.
- For the nine-month period, revenue increased 8% and adjusted net income rose to $78.0 from $51.5. This comparison includes restructuring costs, a $5.3 gain on the SEG sale, prior-year debt-extinguishment and acquisition charges, and tax items; adjusted measures are non-GAAP.
- Quarterly segment revenue and adjusted EBITDA: CPP $324.8 and $29.4; HBP $259.4 and $42.2; DE $62.6 and $4.1. CPP EBITDA fell 21%, with lower volume, higher distribution and material costs, delayed price realization, and COVID-related inefficiencies. HBP revenue increased 18% and EBITDA 7%, supported by volume, mix, and pricing, partly offset by cost pressures. DE revenue fell 25% (18% excluding SEG), while EBITDA was broadly flat year over year.
- Nine-month revenue increased 12% at both CPP and HBP, while DE revenue decreased 18% (12% excluding SEG). DE’s lower revenue reflected timing of work and deliveries; the SEG business was sold in December 2020 for $15.0, generating a $5.3 pretax gain.
Outlook, commentary, and risks
- Management said all facilities were operating and orders were normal or better than the prior-year period, and believed available cash, operating cash flows, and other liquidity sources were sufficient. The filing does not provide formal earnings guidance.
- The expanded CPP business-platform initiative is expected to be completed by the end of calendar 2023. Management estimates annual cash savings of $30–$35 and inventory reduction of $30–$35, based on fiscal 2020 operating levels; anticipated one-time charges and capital investments are each approximately $65. These are forward-looking estimates, not assured outcomes.
- Key exposures include COVID-related disruption, raw-material and transportation costs or availability, price competition, seasonality, foreign-exchange movements, defense-contract timing and funding, and dependence on significant customers. Home Depot represented 17% of consolidated nine-month revenue; the U.S. Government represented 7% overall and 67% of DE revenue.
- Environmental matters include the Peekskill site, now on the EPA National Priorities List, and further investigation at the former Union Fork and Hoe site. Griffon stated it does not acknowledge responsibility for Peekskill remediation and believes the resolution of disclosed legal and environmental matters will not materially affect the company; outcomes remain uncertain.
- Restructuring charges were $22.4 for the nine months. The company also disclosed $375.0 of funded backlog, with approximately 66% expected to be recognized within one year. A quarterly dividend of $0.08 per share was declared after quarter-end.
Important facts for investors to verify
- Whether inventory growth and weaker operating cash flow reverse, and whether price increases offset material and distribution cost inflation.
- Progress against the CPP initiative’s cost, capital-spending, savings, inventory-reduction, and 2023 completion estimates.
- DE contract awards, backlog conversion, delivery timing, and program cost performance, particularly for radar systems.
- Debt, covenant headroom, and liquidity availability, including the timing of upcoming subsidiary facility maturities.
- Potential financial exposure from environmental and other contingencies, and continuing reliance on Home Depot and U.S. Government business.