Griffon Corporation (GFF) is a diversified management and holding company that has demonstrated its ability to navigate challenging market conditions and deliver consistent financial performance. With a strong portfolio of leading brands and a focus on operational excellence, Griffon has positioned itself as a formidable player in the industries it serves.
Business Overview and History Griffon was founded in 1959 and is headquartered in New York, New York. The company operates through two reportable segments: Home and Building Products (HBP) and Consumer and Professional Products (CPP).
Griffon Corporation was originally incorporated in Delaware and has been listed on the New York Stock Exchange since its inception. Over the years, the company has transformed itself through a series of strategic acquisitions and divestitures. In 2018, Griffon divested its specialty plastics business to focus on its core markets and improve free cash flow. This was followed by the divestiture of its defense electronics Telephonics business in 2022.
The HBP segment, conducted through Clopay, is the largest manufacturer and marketer of garage doors and rolling steel doors in North America. Clopay's residential and commercial sectional garage doors are sold through professional dealers and leading home center retail chains under the Clopay, Ideal, and Holmes brands. The company's rolling steel door and grille products designed for commercial, industrial, institutional, and retail use are sold under the Cornell and Cookson brands.
The CPP segment is a leading global provider of branded consumer and professional tools, residential and commercial fans, home storage and organization products, and products that enhance indoor and outdoor lifestyles. CPP sells its products globally through a portfolio of leading brands, including AMES, Hunter, True Temper, and ClosetMaid.
Griffon has faced various challenges over the years, including market cyclicality, seasonality, and weather impacts on its businesses. The company has navigated these challenges through strategic decision-making, operational excellence, and a diversified business model across multiple industries and geographic markets.
Financial Performance and Strength Griffon's financial performance has been exemplary, with the company consistently delivering strong results even in the face of challenging market conditions. In fiscal year 2024, the company reported revenue of $2.62 billion, a slight decrease from the prior year's $2.69 billion. However, the company's adjusted EBITDA increased by 2% to $513.6 million, and its net income rose to $209.9 million, a significant improvement from the $77.6 million reported in the previous fiscal year.
Financials The company's balance sheet remains robust, with a net debt to EBITDA ratio of 2.6x as of September 30, 2024. Griffon's strong cash flow generation has allowed it to return significant capital to shareholders, with the company repurchasing $309.9 million of its common stock and paying $35.8 million in dividends during fiscal year 2024.
For the most recent quarter (Q4 2024), Griffon reported revenue of $659.67 million, representing a year-over-year growth of 3%. Net income for the quarter was $62.00 million, with operating cash flow of $122.08 million and free cash flow of $107.52 million. The increase in revenue was driven by a 3% increase in the HBP segment and a 2% increase in the CPP segment. HBP benefited from a 2% improvement in mix and a 1% increase in residential volume, partially offset by decreased commercial volume. CPP's revenue increase was due to higher volume in Australia, including a 3% contribution from the Pope acquisition, as well as increased volume in the U.K., partially offset by decreased volume in North America.
Liquidity Griffon's consistent cash flow generation and disciplined capital allocation strategy have contributed to its strong liquidity position. The company's ability to generate free cash flow and maintain a healthy balance sheet provides it with the flexibility to pursue growth opportunities and navigate potential market challenges. As of June 30, 2024, Griffon had a debt-to-equity ratio of 7.59x, cash and cash equivalents of $114.44 million, and a $500 million revolving credit facility, of which $397.06 million was available, subject to certain loan covenants. The company's current ratio stood at 2.66, with a quick ratio of 1.44, indicating a strong ability to meet short-term obligations.
Segment Performance and Strategic Initiatives Griffon's two business segments have demonstrated their resilience and growth potential in recent years.
The HBP segment, which includes Clopay's operations, has consistently maintained strong profitability, with an EBITDA margin exceeding 30% in fiscal year 2024. The segment has successfully navigated the challenges of the pandemic and macroeconomic uncertainty, capturing market share and growing volume in the residential product category, while also maintaining its leading position in the commercial door market.
For the quarter ended June 30, 2024, HBP revenue decreased 2% to $394.21 million compared to the prior year quarter, due to an unfavorable product mix with increased residential volume being offset by decreased commercial volume. Adjusted EBITDA for the segment decreased 12% to $118.52 million, resulting from the decreased revenue and increased material, labor and distribution costs. For the nine months ended June 30, 2024, HBP revenue decreased 1% to $1.18 billion compared to the prior year period, driven by a 1% decrease in volume reflecting lower commercial volume, partially offset by increased residential volume. Adjusted EBITDA for the nine-month period decreased 5% to $372.16 million, primarily due to the decreased revenue as well as increased labor and distribution costs.
The CPP segment has undergone a strategic transformation, with the company announcing in May 2023 that it would be expanding its global sourcing strategy to include long-handled tools, material handling, and wood storage and organization product lines for the U.S. market. This shift to an asset-light structure has allowed CPP to better serve customers with a more flexible and cost-effective sourcing model, leveraging supplier relationships around the world. The successful completion of this global sourcing initiative ahead of schedule has already started to contribute to CPP's profitability, with the segment's EBITDA margin expected to exceed 9% in fiscal year 2025.
For the quarter ended June 30, 2024, CPP revenue decreased 10% to $253.60 million compared to the prior year quarter, primarily due to decreased volume driven by reduced consumer demand in North America, partially offset by increased volume in Australia. Adjusted EBITDA for the segment increased 22% to $22.26 million, due to improved North American production costs and decreased discretionary spending, partially offset by the unfavorable impact of the reduced volume. For the nine months ended June 30, 2024, CPP revenue decreased 8% to $781.78 million compared to the prior year period, primarily due to decreased volume driven by reduced consumer demand in North America and the U.K., partially offset by increased volume in Australia. Adjusted EBITDA for the nine-month period increased 33% to $47.92 million, primarily due to improved margins in Australia, reduced U.S. production costs, and decreased discretionary spending, partially offset by the unfavorable impact of the reduced volume.
In July 2024, the CPP segment expanded its brand portfolio through the acquisition of Pope, a leading Australian provider of residential watering products, for approximately AUD 22 million. This acquisition is expected to contribute approximately $25 million in revenue in the first twelve months.
Outlook and Growth Prospects Looking ahead, Griffon remains well-positioned to continue its growth trajectory. The company expects fiscal year 2025 revenue to be consistent with 2024 at $2.6 billion, with adjusted EBITDA expected to range between $575 million and $600 million, excluding unallocated costs of $55 million and strategic review retention costs of $5 million.
The HBP segment is anticipated to maintain its strong performance, with EBITDA margins expected to exceed 30% in 2025. The CPP segment is also poised to benefit from the ongoing incremental effects of the completed global sourcing initiative, with EBITDA margins expected to exceed 9% in the coming fiscal year.
Griffon's robust financial position and disciplined capital allocation strategy have enabled the company to consistently generate significant free cash flow, which it plans to deploy towards share repurchases, debt reduction, and strategic acquisitions that align with its long-term growth objectives. Free cash flow for fiscal 2025, including $65 million in capital expenditures, is expected to exceed net income. Fiscal year 2025 interest expense is expected to be $102 million, and the normalized tax rate is expected to be 28%.
The garage door and building products industry has seen steady growth, with a CAGR of approximately 5% over the past 5 years. Demand has been driven by growth in residential new construction and repair/remodel activity. The consumer and professional products industry has faced more volatile conditions, with a CAGR of 2-3% over the same period as the industry navigates shifting consumer preferences and macroeconomic uncertainties.
Conclusion Griffon Corporation's diversified business model, strong brands, and proven operational excellence have positioned the company as a formidable player in the industries it serves. With a track record of navigating challenging market conditions, strategic initiatives, and a commitment to delivering value to shareholders, Griffon is well-equipped to continue its growth and solidify its position as a leading diversified industrial conglomerate. The company's solid financial performance, strong cash flow generation, and healthy liquidity position provide a strong foundation for future growth and shareholder value creation.