Griffon Corporation (NYSE: GFF) — Form 10-Q
Reporting period: Fiscal second quarter and first six months ended March 31, 2024. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless stated otherwise. Griffon operates through Home and Building Products (HBP) and Consumer and Professional Products (CPP).
Financial results
| Metric | Three months ended March 31, 2024 | Prior-year quarter | Six months ended March 31, 2024 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $672.9 million | $711.0 million | $1,316.0 million | $1,360.4 million |
| Gross profit / margin | $270.7 million / 40.2% | $194.5 million / 27.4% | $507.3 million / 38.5% | $428.3 million / 31.5% |
| Operating income (loss) | $113.4 million | $(65.8) million | $197.3 million | $15.3 million |
| Net income (loss) | $64.1 million | $(62.3) million | $106.3 million | $(13.6) million |
| Diluted EPS | $1.28 | $(1.17) | $2.10 | $(0.26) |
| Adjusted net income / adjusted EPS | $67.5 million / $1.35 | $66.9 million / $1.21 | $122.8 million / $2.42 | $114.4 million / $2.07 |
| Adjusted EBITDA | $134.2 million | $136.9 million | $250.6 million | $245.4 million |
| Operating cash flow | Not separately reported for quarter | Not separately reported for quarter | $185.9 million | $161.6 million |
Quarterly revenue declined 5%, chiefly from an 11% decrease at CPP; HBP revenue fell 1%. For the six-month period, revenue declined 3%. The substantial improvement in GAAP profit and gross margin partly reflects the prior-year quarter’s $100 million intangible impairment and $74.6 million of restructuring charges in cost of goods and services; adjusted net income and EBITDA provide additional comparisons excluding specified items.
HBP quarterly adjusted EBITDA decreased 2% to $128.9 million, with lower revenue and higher labor and distribution costs partly offset by lower material costs. CPP quarterly adjusted EBITDA increased 2% to $20.1 million despite weaker sales, reflecting improved North American production costs and lower discretionary spending. For six months, CPP adjusted EBITDA rose 44% to $25.7 million, supported by improved Australian margins, lower North American production costs and lower discretionary spending.
Cash, debt and liquidity
- Cash and equivalents were $123.0 million at March 31, 2024, versus $102.9 million at September 30, 2023. Operating cash flow of $185.9 million exceeded the prior-year $161.6 million; capital expenditures increased to $33.3 million from $11.8 million.
- Cash used in financing was $132.0 million, including $222.4 million for share purchases and employee tax-withholding shares, and $21.7 million of dividends; net debt proceeds were $112.3 million. Cash used in investing was $32.0 million.
- Total debt was $1.604 billion and debt net of cash was $1.481 billion, up from $1.490 billion and $1.387 billion, respectively, at September 30, 2023. Management reported gross debt to EBITDA of 2.8x and compliance with loan covenants.
- The $500 million revolving facility had $169.5 million drawn, $13.0 million in standby letters of credit and $317.5 million available, subject to covenants. Interest rates at March 31 were 7.70% on the $459 million Term Loan B and 7.43% on SOFR-based revolver borrowings.
- Current assets were $1.007 billion and current liabilities $361.7 million. Shareholders’ equity fell to $202.2 million from $315.2 million, while the company repurchased 3.44 million shares for $187.0 million during the six months.
Outlook, risks and unusual items
- CPP restructuring: The global sourcing transition is expected to be completed by the end of calendar 2024. Griffon expects to reduce CPP’s footprint by approximately 1.2 million square feet (about 15%) and headcount by approximately 600. The company estimates total charges of $120–$130 million, including $50–$55 million cash charges and $70–$75 million primarily non-cash charges, plus $3–$5 million in capital investment. Real estate and equipment sale proceeds are expected to largely offset cash charges; transition inefficiencies are excluded from the estimate. CPP’s stated objective is to achieve 15% EBITDA margins, not a consolidated earnings forecast.
- Six-month restructuring charges were $14.8 million, including $8.5 million of non-cash inventory write-downs. Certain closed CPP properties, with a $24.2 million net book value, were classified as held for sale.
- There is no quantified full-year revenue or earnings guidance in the provided filing text. Management says interim results may not indicate full-year performance, in part because the businesses are seasonal.
- The Home Depot represented 11% of consolidated revenue for the six months. Management warns that changes in orders or loss of a significant customer could materially affect results and liquidity.
- Environmental matters include the Peekskill site investigation, for which an insurer is paying RI/FS costs subject to a reservation of rights, and potential contamination at the Memphis site. The filing says liability is probable for the Memphis matter, but does not provide a clear estimated amount; management states that resolution of these and other matters is not expected to have a material adverse effect.
- Other risks identified include housing and consumer demand, raw-material costs and availability, interest and currency movements, competition, supply-chain reliance, restructuring execution, debt service and refinancing, and litigation or environmental developments. The company reported effective disclosure controls.
Investor verification priorities
- Track CPP restructuring charges, cash costs, asset-sale proceeds, transition disruption and progress toward the stated 15% segment EBITDA margin objective.
- Reconcile reported GAAP improvement with prior-year impairment and restructuring charges; assess adjusted measures alongside their stated exclusions.
- Monitor debt, variable-rate interest expense, revolver availability and leverage, including the 2028 notes and credit-facility maturity provisions.
- Review the scale and price of repurchases, the remaining $120.2 million authorization, and the effect of buybacks on liquidity and equity.
- Seek updated information on the Memphis environmental exposure, customer concentration and CPP demand trends.