Griffon Corp 2026 Q3 Earnings Call

Good morning, and welcome to Griffon Corporation's third quarter fiscal 2026 earnings call. Joining me for this morning's call is Ron Kramer, Griffon's Chairman and Chief Executive Officer. Our press release was issued earlier this morning and is available on our website at www.griffon.com. Today's call is being recorded, and the replay instructions are included in our earnings release. Our comments will include forward-looking statements about Griffon's performance. These statements are subject to risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our SEC filings. Finally, some of today's remarks will adjust for items that affect comparability between periods. These items are explained in our non-GAAP reconciliations included in our press release. With that, I'll turn the call over to Ron.

Thanks, Brian. Good morning, everyone, and thanks for joining us. Griffon has executed particularly well this quarter, which is reflected in today's solid operational and financial results. In the quarter, revenue increased organically by 7% and EBITDA by 2%, while generating strong year-to-date free cash flow of $194 million. Given our performance for the first nine months of the fiscal year, we're maintaining our revenue and EBITDA guidance for the year of $1.8 billion and $458 million, respectively. Our team's performance remains outstanding, showing resiliency, managing through dynamic global economic conditions, including soft U.S. housing and commercial construction markets. Regarding our strategic actions, earlier this week, we were very pleased to announce the closing of the joint venture for our Australasia business. At closing, we received $181 million in cash, a $49 million note receivable, and a 49% equity interest.

The closing of the Australasia transaction concludes a series of strategic actions that have transformed Griffon into a pure-play building products company. From these transactions, we received a total of $281 million in cash, $210 million in 10% PIK notes, while retaining minority interest with a book value of $139 million and an opportunity for further value creation. Turning to capital allocation, during the third quarter, we repurchased $53 million of our stock, or 626,000 shares, at an average price of $85 per share. At June 30, $194 million remained under the repurchase authorization. We continue to believe our stock is a compelling value. Since April 2023 and through June, we've repurchased $664 million of stock, or 12.1 million shares, at an average price of $54.86.

These repurchases have reduced Griffon's outstanding shares by 21% relative to the total shares outstanding at the end of the second quarter of fiscal 2023. Subsequent to the June quarter, we repaid the remaining term loan B balance of $285 million using the combination of proceeds from our strategic actions and our revolver. Yesterday, the Griffon board authorized a regular quarterly dividend of $0.22 per share payable on September 16th to shareholders of record on August 31st, marking the 60th consecutive quarterly dividend to shareholders. Our dividend has grown at an annualized compounded rate of 19% since we initiated dividends in 2012. These actions reflect the strength of our business, the successful execution of our strategic initiatives, and our continued confidence in our strategic plan and outlook. I'll turn it over to Brian for more details on the financial results.

Thank you, Ron. Third quarter revenue of $481 million represents an increase of 7% compared to the prior year quarter, benefiting from favorable price and mix of 6% and increased volume of 1%. Third quarter adjusted EBITDA of $125 million increased 2% compared to the prior year quarter, benefiting from the increased revenue, partially offset by increased material and SG&A costs. EBITDA margin was 25.9%. Gross profit for the quarter was $226 million, with a 47% gross margin, compared to $219 million in the prior year quarter, with a gross profit margin of 48.7%. Third quarter adjusted selling, general, and administrative expenses were $111 million, or 23% of revenue, compared to the prior year of $106 million, or 23.7% of revenue.

Third quarter GAAP income from continuing operations was $66 million, or $1.47 per share, compared to a loss from continuing operations of $109 million in the prior year quarter, or $2.40 per share, primarily due to prior year third quarter goodwill and intangible impairment charges. Excluding items that affect comparability from both periods, current quarter adjusted net income from continuing operations was $68 million or $1.51 per share, compared to the prior year of $64 million or $1.39 per share. Year-to-date free cash flow from continuing operations was $194 million, compared to $202 million in the prior year. Year-to-date net capital expenditures were $24 million, compared to $32 million in the prior year. We expect free cash flow continuing operations for the full fiscal year will be in excess of income from continuing operations.

Regarding our balance sheet and liquidity, as of June 30, 2026, we had net debt of $1.2 billion and net debt to EBITDA leverage of 2.2 times, as calculated based on our debt covenants, compared to 2.5 times leverage at the end of last year's third quarter. During the first nine months of the fiscal year, we returned $135 million to shareholders through dividends and stock buybacks, while reducing leverage from 2.4 times in September 2025 to 2.2 times at the end of June. All leverage amounts exclude notes receivable from the transaction. Pro forma for the closing of the Australia transaction on July 31, our net leverage is approximately 2.0 times. With the strategic initiative substantially complete and the term loan B paid off, our new net debt to EBITDA leverage target range is 1.5x-2.5x.

Regarding our expectations for the year, we are maintaining our fiscal 2026 revenue and EBITDA guidance based on the results we have seen year-to-date. We continue to expect revenue of $1.8 billion for fiscal 2026 on a continuing operations basis, and adjusted EBITDA of $458 million, which excludes certain charges that affect comparability. We continue to expect free cash flow from continuing operations to exceed net income from continuing operations. We also continue to expect capital expenditures to be $50 million, depreciation to be $27 million, and amortization to be $15 million. Fiscal year 2026 interest expense is now expected to be $80 million, reflecting a $13 million reduction from prior guidance, resulting from debt paydown and the benefit of interest income from the transaction PIK note receivable. Normalized tax rate is expected to be 28%. I'll turn the call back over to Ron.

Thanks, Brian. Our fiscal 2026 remains on track with our guidance. Our teams are executing well, as evidenced by our solid operating performance this quarter and year-to-date. We remain confident in our financial outlook. We're optimistic that residential and commercial markets will return to growth, and expect to realize substantial operating leverage as activity improves. With respect to capital allocation, we are committed to using our strong operating performance and free cash flow to drive a capital allocation strategy that delivers long-term value for our shareholders. This includes supporting our quarterly dividend, opportunistically repurchasing shares, and reducing debt. As always, I'd like to recognize the outstanding efforts of the teams across our business. It's their dedication and performance that drive our success. We're grateful for all of their contributions. Operator, we'll take any questions.

We remain more than capable to fulfill demand that is out there. We continue to perform well in the market and trust our dealers, our customers, to install our products well and continue to benefit from that.