Griffon Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. Amounts are in U.S. dollars; figures below are rounded to millions unless stated otherwise. Griffon’s continuing operations comprise Consumer and Professional Products (CPP, AMES) and Home and Building Products (HBP, Clopay). Defense Electronics (DE, Telephonics) was classified as discontinued operations after Griffon announced it was exploring strategic alternatives, including a sale.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue, continuing operations | $2,270.6 million | $2,066.5 million |
| Gross profit / gross margin | $641.1 million / 28.2% | $584.0 million / 28.3% |
| Income before tax, continuing operations | $111.2 million | $68.7 million |
| Income from continuing operations | $71.2 million | $42.4 million |
| Diluted EPS, continuing operations | $1.33 | $0.94 |
| Net income, including discontinued operations | $79.2 million | $53.4 million |
| Cash from continuing operating activities | $71.0 million | $107.8 million |
Continuing revenue rose 10%. CPP revenue increased 8% to $1,229.5 million and segment Adjusted EBITDA rose 11% to $115.7 million (9.4% margin). HBP revenue increased 12% to $1,041.1 million and segment Adjusted EBITDA rose 18% to $181.0 million (17.4% margin). These segment Adjusted EBITDA figures are non-GAAP measures.
Adjusted income from continuing operations was $90.6 million, or $1.70 per diluted share, versus $60.6 million, or $1.35 per diluted share, in FY2020, excluding the filing’s specified restructuring, debt-extinguishment, acquisition and tax items. The GAAP effective tax rate was 35.9%, compared with 38.2%.
Liquidity, debt and cash flow
- Cash and equivalents were $248.7 million at year-end, compared with $218.1 million. Continuing operating cash flow declined $36.8 million, principally due to higher working capital, especially inventory.
- Inventory increased to $472.8 million from $320.2 million. Investing cash outflow was $56.2 million, including $37.0 million of capital expenditures; financing cash outflow was $28.2 million.
- Reported total debt was approximately $1,060.5 million; debt net of cash was $811.9 million. The $1,000 million senior notes bear 5.75% interest and mature in 2028. The revolving credit facility matures in 2025, with $13.5 million drawn and $370.9 million available, subject to covenants.
- Management reported compliance with debt covenants and net debt to EBITDA of 2.8x under the credit agreement’s definition. Griffon paid $0.32 per share in dividends during FY2021; the board declared a subsequent $0.09 per-share dividend.
Material changes and unusual items
- FY2021 continuing revenue growth reflected higher sales at both segments. HBP benefited from favorable pricing and mix, while CPP reported foreign-exchange benefits and volume gains internationally, partly offset by U.S. supply, labor and transportation constraints.
- Gross margin was broadly stable year over year. Increased material, distribution and shipping costs, delayed recovery of price increases and COVID-related inefficiencies weighed on results.
- Restructuring charges were $21.4 million in FY2021, versus $13.7 million in FY2020. The CPP global business-platform project is expected to finish by calendar year-end 2023; management estimates annual cash savings of $30–$35 million and inventory reduction of $30–$35 million at FY2020 operating levels. Estimated total implementation charges and capital investment are each approximately $65 million.
- DE, reported separately as discontinued operations, generated FY2021 revenue of $271.1 million and income from discontinued operations of $8.0 million. Revenue fell 21%; the result included a $5.3 million pre-tax gain on the sale of SEG. DE also recorded $5.6 million of charges, primarily for exiting older weather-radar product lines. Telephonics assets of $273.4 million and liabilities of $80.7 million were classified as held for sale.
- FY2020 included a $7.9 million loss on extinguishment of debt and the issuance of 8.7 million shares, which increased the weighted-average share count and affects per-share comparisons.
Outlook, commentary and principal risks
Management said FY2021 order patterns were normal or better than pre-pandemic levels and facilities were operational, but did not provide numerical FY2022 revenue or earnings guidance in the provided filing text. It cited ongoing supply-chain disruption, labor shortages, constrained capacity and elevated commodity costs, with uncertainty about the timing and extent of customer price recovery. The Telephonics strategic-alternatives process and the CPP platform initiative are significant ongoing developments.
Key risks include exposure to housing, renovation and commercial construction cycles; weather-sensitive demand; substantial customer concentration (Home Depot accounted for 19% of consolidated revenue); supplier and raw-material availability and pricing; trade and tariff exposure, including China sourcing; and execution of restructuring and acquisition integration. Additional considerations include debt covenants and refinancing, contingent environmental and legal matters, and potential operational disruption from COVID-19 or other events. Griffon stated that the resolution of known legal and environmental matters was not expected to materially affect consolidated results, financial position or cash flows.
Important facts for investors to verify
- Progress and final terms of the Telephonics strategic-alternatives process, and how a transaction may affect reported debt, cash flow and continuing operations.
- Whether working capital—particularly the $152.6 million year-over-year inventory increase—converts to cash and whether supply constraints and cost inflation ease.
- Actual restructuring and capital spending against the estimated $65 million each, and delivery of projected savings and inventory reductions by the stated 2023 completion date.
- Debt-covenant headroom, revolver availability and the timing and funding of subsidiary debt maturities, including 2022 facilities.
- Continuing effects of customer concentration, particularly Home Depot, and the potential impact of changes in major-customer orders.