Griffon Corporation — Q1 FY2024 Form 10-Q
Business context and period. The quarter ended December 31, 2023 (Griffon’s fiscal first quarter). Griffon operates through Home and Building Products (HBP), including garage and rolling-steel doors, and Consumer and Professional Products (CPP), including tools, fans, and home-organization products. Unless otherwise stated, financial amounts below are in millions of dollars; the filing reports most figures in thousands.
Financial performance and position
- Revenue: $643.2, down 1% from $649.4. HBP revenue was $395.8, approximately flat; CPP revenue was $247.4, down 2%.
- Profit and margins: Gross profit was $236.6, with gross margin of 36.8% versus 36.0%. Operating income was $83.8, with operating margin of 13.0% versus 12.5%. Net income was $42.2 versus $48.7; diluted EPS was $0.82 versus $0.88. Adjusted net income, a non-GAAP measure, was $55.3 and adjusted diluted EPS was $1.07, versus $47.4 and $0.86.
- Segment results: HBP adjusted EBITDA was $124.7 versus $124.1, at a 31.5% margin versus 31.3%. CPP adjusted EBITDA improved to $5.5 from a loss of $1.8, at a 2.2% margin versus negative 0.7%. Consolidated adjusted EBITDA was $116.4 versus $108.6; these are non-GAAP measures.
- Cash flow: Operating cash flow was $146.1 versus $75.5, supported by lower working capital, including lower inventory and receivables and higher payables and accrued liabilities. Investing activities used $13.5, including $14.3 of capital expenditures. Financing activities used $123.9, including $32.4 of net debt repayments, $81.4 of treasury-share purchases and employee tax withholding, and $10.0 of dividends. Cash increased to $110.5 from $102.9.
- Debt and liquidity: Gross debt was $1,458.7 and net debt was $1,348.2 at December 31. The company had $110.5 of cash and $465.5 available under its $500 million revolver, subject to covenants. Reported gross leverage under the credit agreement was 2.5x; Griffon said it complied with its debt covenants. Quarterly interest expense was $25.3.
- Balance sheet: Total assets were $2,393.3 and shareholders’ equity was $285.0. Current assets were $962.6 and current liabilities $391.7 at quarter-end.
Changes versus prior-year quarter
- Revenue declined modestly, reflecting lower CPP volume, while HBP revenue was essentially unchanged. HBP cited improved orders and favorable pricing and mix, offset by lower volume; CPP cited weaker North American consumer demand.
- Gross and operating margins improved. CPP’s adjusted EBITDA moved to a profit, primarily as North American production costs fell, partly offset by lower volume.
- GAAP net income and EPS declined, but comparability was affected by the prior-year $10.9 building-sale gain, compared with a $0.5 gain this quarter, and by current-quarter restructuring costs. Adjusted net income and adjusted EPS increased.
- Operating cash flow increased substantially, while investing cash flow shifted from a $4.5 inflow to a $13.5 outflow, partly because prior-year investing proceeds included a building sale.
Outlook, commentary, and notable matters
- CPP restructuring: The global-sourcing shift is expected to be completed by the end of calendar 2024. Griffon expects to reduce CPP’s facility footprint by about 1.2 million square feet (approximately 15%) and headcount by about 600. The final planned facility closure, in Grantsville, Maryland, was expected by March 2024.
- The restructuring is expected to incur $120–$130 million of charges, including $50–$55 million cash charges and $70–$75 million primarily non-cash charges, plus $3–$5 million of capital investment. Griffon said expected real-estate and equipment-sale proceeds should largely offset cash charges. Quarter charges were $12.4 million, including an $8.5 million non-cash inventory impairment; cumulative charges since inception were $104.9 million. The filing excludes potential transition inefficiencies from its charge estimates.
- Management said the asset-light strategy is intended to support a 15% CPP EBITDA margin, improved working capital, and lower capital expenditures. This is a stated target, not company-wide financial guidance; the filing provides no overall revenue or earnings forecast.
- The Home Depot accounted for 11% of consolidated revenue, 16% of CPP revenue, and 8% of HBP revenue. Griffon warned that changes in major-customer orders or loss of a significant customer could materially affect results and liquidity.
- Environmental matters include the Peekskill site, where an insurer is paying for the investigation under a reservation of rights, and the Memphis site, for which management states liability is probable; the filing does not provide a clear quantified exposure for these matters. Management believes the matters will not materially adversely affect consolidated results or financial position.
- Other risks identified include demand and housing-market conditions, input costs and tariffs, interest rates, foreign exchange, competition, seasonality, supplier reliance, and the ability to achieve restructuring benefits and service or refinance debt.
Important facts for investors to verify
- Progress, realized savings, transition costs, asset-sale proceeds, and any additional charges associated with CPP’s restructuring and 15% EBITDA-margin target.
- Whether lower CPP demand persists and whether HBP volume, pricing, and mix sustain segment profitability.
- Cash-flow durability after the working-capital benefits this quarter, and the scale and pace of future share repurchases and dividends.
- Debt maturities, variable-rate borrowing costs, revolver availability, and continued covenant compliance.
- Any updates to the Memphis and Peekskill environmental matters, including potential exposure and insurance coverage.