Ron Kramer - Chief Executive Officer Brian Harris - Chief Financial Officer.

Bob Labick - CJS Securities Justin Bergner - Gabelli & Company.

Good day and welcome to the Griffon Corporation Fourth Quarter and Fiscal Year 2015 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Brian Harris, Chief Financial Officer. Please go ahead, sir..

Thank you, Vicky. Good afternoon everyone. With me on the call is Ron Kramer, our Chief Executive Officer. Before we get into the details, there are certain matters I want to bring to your attention.

First, our call is being recorded and will be available for playback the details of which are in our press release issued earlier today and are on our website as well. Second, during our call, we may make certain forward-looking statements about the Company’s performance.

Such statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed.

For additional information concerning risk factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in today’s press release, as well as the risk factors discussed in other various filings with the Securities and Exchange Commission.

Finally, some of today’s prepared remarks will adjust for those items that affect comparability between reporting periods. These items are laid out in our non-GAAP reconciliations included in our press release. Now I will turn the call over to Ron..

Good afternoon everyone. I am very pleased with our performance.

We had a strong finish to the year with fourth quarter adjusted earnings per share of $0.23 which was up 76% from last year; the quarter profit growth came from strength in our Home & Building product segment and reflected a combination of margin expansion from efficiency initiatives, improved mix and a continuation of the housing recovery.

2015 was an exciting year for Griffon, as we began to see the company’s earnings potential realized with full year EPS of $0.73, which was up 43% versus prior year adjusted EPS of $0.51.

In addition, we had revenue of over $2 billion and 2015 segmented adjusted EBITDA was a record $204.4 million, up 7% over the prior year and exceeded our $200 million guidance to shareholders.

Importantly, we were able to deliver these results despite significant macro headwinds throughout the year, the most significant being foreign currency volatility which adversely impacted our Plastics and Home & Building Products businesses.

We also remained focus on returning cash to shareholders through dividend and share repurchases from August 2011 through September 2015. We have repurchased 16.8 million shares of common stock for a total of $203.1 million representing an average price of $12.13 per share.

This quarter, we repurchased 1.5 million shares of common stock under our plan for 23.8 million and for 2015; we repurchased 5.3 million shares for a total of $80.9 million. At September 30, we had 57.9 million in repurchase authority remaining under our current plan.

We will continue to opportunistically buyback our stock based upon our assessment of the intrinsic value of our business compared to stock market value. In addition, earlier today, we announced the 25% increase to Griffon’s quarterly dividend to $0.05 per share.

I’d like to provide some details and key business highlights by segment before turning the call back to Brian for a more detailed discussion of the financial results. So let’s start with Home & Building products.

Fourth quarter revenue was $244.7 million, compared to $255.5 million in the prior year excluding the unfavorable foreign currency impact, revenue increased 1% which is driven by the Ames Australia business and improved snow tools sales.

We believe the underlying trends for Home & Building products remain quite positive and are pleased to see the multi-year housing recovery which we discussed for some time driving tangible results for both Clopay and Ames and we still believe there is a long way to go.

Last month, we announced and broke ground on a significant expansion to our garage store manufacturing facility in Troy, Ohio. This project is the direct response to higher customer demand and the success of new products we’ve introduced into the market. It reflects our enthusiasm and confidence in the future of our business.

This expansion will upgrade the existing 1 million square foot facility, add an additional 200,000 square feet of space, add new manufacturing equipment, all in support of increased customer demand for our core products. We expect this expansion to be completed in fiscal 2016 and have dedicated capital of approximately $30 million for the project.

We are very pleased with the performance of our doors business and are excited to take the opportunity to build upon this success. Telephonics, fourth quarter revenue was up 9% over the prior year quarter to $126 million marking the second consecutive quarter of revenue growth and the highest quarterly run rate in more than two years.

The growth was despite an uncertain US defense spending environment and will supplement that with increased international revenue. Backlog ended the year with $442 million which is up sequentially from $439 million at the end of the third quarter and down from $494 million from the prior year end.

The decrease from prior year reflects the pursuit of both international opportunities which take longer to develop as well as timing. Telephonics continues to focus on research and development initiatives including work on its next generation radars and we expect this will yield significant future long-term benefits.

Turning to Clopay Plastics, it has been the case throughout 2015, currency continued to be a strong headwind for fourth quarter revenue with a 10% impact contributing to a 15% decrease in revenue versus the prior year to $131 million of volume decrease due to product rationalizations accounted for the remainder of the revenue decline.

Plastics continues to make operational improvements while still investing in capacity and developing new technology and we continue to look at expanding our margins. Overall, I am proud that the Griffon and all of our operating teams were able to effectively manage through a challenging 2015 macro environment and deliver outstanding results.

I’ll turn it over to Brian and he will walk you through the segments in a bit more detail.

Brian?.

Hi, John. In the fourth quarter, revenue of $502 million decreased 4% against the prior year which included a $27 million or 5% unfavorable foreign exchange impact. The current quarter’s segment-adjusted EBITDA improved 8% to $55.4 million. The quarter included approximately $2.5 million of unfavorable foreign currency impacts.

Full year revenue of $2 billion was up 1% over the prior year. Full year revenue excluding a $72 million unfavorable currency impacts was up 5% with 2% organic growth and approximately 3% contribution from the Cyclone and NorthCote acquisitions completed during 2014. Full year segment-adjusted EBITDA was $204.4 million, up 7% over the prior year.

Segment adjusted EBITDA included approximately $7.5 million of unfavorable foreign currency impacts. Home & Building Products current quarter revenue of $245 million, trailed to prior year of $255 million, primarily due to a 5% foreign currency impact. For the full year, revenue increased 7% to $1.1 billion.

Excluding the impact of foreign currency, revenue increased 10% which includes an approximately 5% contribution from 2014 acquisitions. AMES revenue declined 10% in the fourth quarter and grew 6% for the full year both in comparison to prior year period.

Excluding the impact of foreign currency, revenue decreased 1% for the quarter and increased 11% for the year. The full year increase reflects an approximately 10% contribution from the 2014 acquisition. In our doors business, revenue was in line with the prior year fourth quarter and increased 9% for the full year.

The full year increase was due to improved volume and mix. Both the quarter and year included a 1% unfavorable foreign currency impact.

Home & Building Products adjusted EBITDA increased 26% to $27 million and 22% and $94 million for the fourth quarter and the full year respectively reflecting operational efficiency improvements at AMES and a favorable mix in our doors business.

The full year results also reflected the benefits from the 2014 acquisition of 10% and improved volume with doors. The quarter and year included 4% and 8% respectively of unfavorable foreign currency impacts. EBITDA margin improved 110 basis points to 9% for the full year.

In our Telephonics segment, revenue increased 9% to $126 million and 3% to $431 million in the fourth quarter and full year respectively. In the fourth quarter, increased revenue was mostly due to identified Friend or Foe Systems and improved volume of various international radar programs.

For the full year, increased revenue was due to multi-mode AFW and IFF programs.

Telephonics adjusted EBITDA was $15.7 million in the fourth quarter and $53 million for the full year, which represents 11% and 8% decrease respectively, primarily from an unfavorable product mix from decreased C-17 program revenue, partially offset by reduced operating expenses.

Full year margin declined to 12.3% from 13.7% in the prior year, again reflecting the unfavorable mix. Segment backlog remained healthy and ended the year at $442 million, 73% of which is expected to be realized in the next 12 months giving us good visibility through 2016.

In our Plastics segment, revenues declined 15% to $131 million and 10% to $533 million in the fourth quarter and full year respectively. The quarter and year included 10% and 8% respectively among favorable foreign currency impacts, balance of these declines is primarily due to decreased volume from product rationalizations.

Segment adjusted EBITDA increased 2% to $12.7 million in the fourth quarter, reflecting a favorable FX impact of 7%, partially offset by unfavorable volume in resin. For the full year, segment adjusted EBITDA increased 1% to $57.1 million. The full year margin increased 120 basis points to 10.7% from the prior year.

Full year EBITDA included a 2% unfavorable impact from foreign currency, and a $4.6 million resin benefit, partially offset by decreased volumes, primarily due to product rationalization. Our consolidated gross profit for the quarter was $120 million or a margin of 23.9% which was inline with the prior year.

For the full year, gross profit was $476 million, which reflected a 50 basis point expansion in margin of 23.6%. Fourth quarter, selling, general and administrative expenses were $92 million or 18.3% of sales. The prior year quarter SG&A expenses of $102 million included $763,000 of acquisition-related costs.

Excluding those costs, prior year was $101 million resulting in 19.2% of sales for a decrease of 80 basis points from the prior year quarter. For the full year, SG&A expenses were $375 million or 18.6% of revenues. The prior year SG&A expense of $375 million included $3.2 million of acquisition-related costs.

Excluding such costs, prior year SG&A were $372 million, resulting in 18.7% of sales or a decrease of 10 basis points from the prior year. Fourth quarter GAAP net income was $10.8 million or $0.24 per share, compared to $7.9 million or $0.16 per share in the prior year.

Excluding the comparability items detailed in our press release schedules, current quarter adjusted net income was $10.5 million or $0.23 per share compared to $6.4 million or $0.13 per share in the prior year quarter. Net income for the quarter included approximately $1.2 million of unfavorable foreign currency impacts.

For the full year, 2015 GAAP net income totaled $34.3 million or $0.73 per share, compared to a net loss of $200,000 or $0.00 per share in the prior year.

Again, excluding the comparability items detailed in our press release schedule, current year adjusted income was $34.2 million or $0.73 per share, compared to $25.9 million or $0.51 per share in the prior year, a 43% increase in EPS. Net income included approximately $3.5 million of unfavorable foreign currency impacts.

The full year effective tax rate was 36.1%. Looking forward to fiscal 2016, we currently expect tax rate excluding any discrete period items to be approximately 36%. As is always the case, geographic earnings mix and legislative action may impact rates. Capital spending in the current year was $74 million.

We expect 2016 capital expenditures to be in a range of $90 million to $95 million reflecting the expansion and upgrade of the door manufacturing facility, the purchase of the AMES Camp Hill Pennsylvania facility and investment in Plastics capacity and equipment upgrades for new technology.

Depreciation and amortization for the quarter and year were $18 million and $70 million respectively. In 2016, we expect depreciation to be approximately $63 million and amortization to be approximately $8 million.

As of September 30, 2015, we had $52 million in cash and total debt outstanding of $844 million resulting in a net debt position of $792 million. We also had a $198 million available for borrowing under our revolving credit facility subject to certain loan covenants.

Turning to our guidance of 2016 by segment, we expect Home & Building Products revenue growth in the low single-digits compared to 2015. Inclusive of the ongoing impacts of the strong US dollar versus Canadian, Australian currencies.

Plastics is expected to decline in the low single-digits reflecting the ongoing impact of the stronger US dollar versus the euro and the Brazilian real, as well as the impact of full year effect of 2015 product rationalization and we expect Telephonics to grow in the low single-digits.

In providing this guidance we are mindful of the vesting impacts of weather to AMES the health of the housing market and Home & Building Products, US Department of Defense budgets on Telephonics, resin pricing on plastics and foreign exchange and non-US macro conditions on plastics and Home & Building Products.

Based on the revenue expectations outlined and rejection margin improvements, we expect our segment adjusted EBITDA to be $215 million or better, 5% or better increase over 2015.

In forecasting this global profitability, we are giving consideration through the continuation of certain long-term R&D initiatives that we have underway most notably in Telephonics and in Plastics that will impact operating results for the next few years which we expect will yield significant benefits in the years to come.

Corporate and unallocated expenses are expected to approximate $38 million including all equity compensation for the company which will approximate $12 million to $13 million. I’ll now turn the call back over to Ron for closing comments..

Thanks. Record 2015 top-line and segment EBITDA results for Griffon demonstrates our ability to execute even with broad volatility impacting certain parts of our business. The hard work we’ve done over the past few years to drive efficiency has really begun to materialize and enhance our ability to drive shareholder returns.

Looking forward, we have ample resources to invest in each of our segments to support their growth while maintaining balance sheet strength for future acquisitions. We expect the additional CapEx we are spending this year to meaningfully accelerate future profitability. I am very pleased with the progress we’ve made.

There is a vibrancy and a sense of optimism in each of our businesses. We are pleased with our performance this year, but far from satisfied. We can and we will do better in the years to come.

Most importantly, I’d like to thank our 6000 employees in North America and around the world for their extraordinary efforts this year and we’ll all be working hard to continue to build shareholder value in the future. With that operator, we’d like to take any questions..

[Operator Instructions] We will take our first question from Bob Labick with CJS Securities. .

Good afternoon and congratulations on a nice quarter and fiscal year. .

Thanks, Bob..

Thank you, Bob..

Sure, I wanted to start with doors.

I mean, I guess it was mid-October is when you announced it, but you just discussed the expansion of the Troy facility in Ohio and obviously it’s due to the trends that you are seeing, maybe you could expand a little bit about what you are seeing and then tell us, should we expect any margin impacts from this expansion maybe because of – starts lower utilization and to set our expectations of how we should be looking at the impacts of this expansion next year?.

We’ve looked at the housing recovery as being an ongoing slow but steady, and its impact on us has been reflected in both the doors business and somewhat in the AMES business.

We’ve been able to both gain market share in the downturn by consolidating our plans and doing some smart things in terms of introducing new products, most importantly the intelicore line foam in place doors which has sold extraordinarily well through both Big Box and through our dealer network and we see the demand continuing including through the month of October into this new fiscal year.

So, this is not been about a sudden surge in housing.

This has been a slow steady execution of a strategy and our planning long-term for this business sees us being able to grow the product sales and to continue to grow market share and as we continue to look out, we believe that adding capacity over the next few years is going to be money well spent.

Now, in terms of the impact, we see this is something that is going to be executed from a capital standpoint in 2016 and the benefits of which will start coming into our profitability in 2017 and beyond.

So, there is no short-term impact on our margins, but, like any construction we are going to be watching very carefully to make sure that we don’t have disruption of our facilities and that we can maintain the levels of profitability that we’ve enjoyed.

Home & Building products is a segment we’ve said for sometime, we expect between both doors and AMES to be able to get to over $1 billion in revenues.

We are already at that level and we expect that to continue to grow, but as Brian outlined, it’s a slow growth story in terms of the top-line and we’ve always said that we believe this is a better than 10% EBITDA margin business going forward and we continue to believe that that’s the case and how high above 10%? Only time will tell.

But we think the door business has been executing extraordinarily well. It has the best brand names in Clopay and Ideal, sold through the best retailers and a dealer network to support it on a national basis.

So, we think the future for the door business is quite bright and we see ourselves being the market leader and investing in building around a very successful management team. .

Okay, great. Yes, it does sound exciting and like you have plenty of room to go there.

Sticking in HBP, just on AMES, we talked about this a little I think on the last call, so, maybe if you could remind us and update us on the ongoing initiatives at AMES for the brand awareness and line reviews and your progress that you are making there?.

We continue to make good strides in positioning both brands and products in North America, US and Canada, as well as the Australian acquisitions that we are very excited about and having integrated successfully this year. The AMES story for us, is about execution.

We’ve done the restructuring and taken the charges over the last several years in repositioning the business and we are quite optimistic about the future prospects. There will be variability in that business. There will be good winters and bad springs and the weather is something that’s out of our control.

What’s in our control is that, we have made this very much a consumer branded business. We’ve broken out of, what I would view is a contract manufacturing role.

So, we have leading brands delivered at competitive prices and we believe that the logistical support that we supply to big box retailers around the country and to some extent around the world and our hope is that that becomes more of a story in the future that the AMES business is poised for some significant growth and profitability over the next several years.

.

Okay, terrific, great.

Jumping over to Telephonics, you have a nice backlog going into next year, I think there is also some programs beyond that, maybe you could talk a little bit about the opportunities in 2017 and beyond, some of the growth you are investing in the fire scout, mobile surveillance and recently expanded Mahindra, the ownership in your JV that was recently expanded?.

Telephonics has been a wonderful business that we’ve been in for a long time and the defense cycle has always been a boom box. We believe that we are at more of a bottom in the cycle and that defense spending over the next five years is more likely than not going to look better than what it’s look like over the last five years.

So, programs have moved to the right and in spite of that, because we’ve stuck to our intelligence surveillance, reconnaissance mission that we have been able to maintain our backlog in spite of a very sluggish defense budgetary environment and the programs that you referenced fire scout, JLTV are all things that we view as long-term opportunities and things that we are working very hard on trying to be successful on.

The measure of the defense business for us in Telephonics is over every five year cycle that we’ve looked at this business. We’ve been pleased with the performance.

This has been managing through a down cycle, and we’ve done that quite well, maintained our margins and it maintained a very visible $442 million backlog going into 2016 and the international opportunities are all ahead of us. We think that will become meaningful over the next several years.

So, we think Telephonics is in a very strong position with mission-critical battle-proven, cost-effective and incumbent positions on a variety of platforms. We think it’s got a great future ahead of it. .

Terrific, appreciate that. And then, last, and I’ll get back in queue, but, on films, you talked about some product rationalization impacting, I guess, volumes a little bit next year. Does that have a material impact on the margins, obviously, very successfully raised the margins over the last several years to your targeted level.

Should they still be similar to this year or how will the rationalization impact margins next year?.

Yes, we are expecting margins to be in the same level and obviously, this business has been most impacted for us by foreign exchange, Germany and Brazil in particular. So, the year-over-year decline in revenue and the year-over-year increase in margins.

Looking forward, I’d rather see, the margins stay stable and the revenues increasing which means, we are doing more volume, but this currency translation will continue in our view to be a headwind. In spite of that, we’ve managed through the cycle by setting expectations properly where we are able to absorb the hits that has come through.

So, we’ve always said, that the margins in this business should normalize towards 10%. We are obviously running it better than that today. We are proud of that, but I wouldn’t expect margin expansion beyond where we are. .

Okay, great. I will get back in queue. Thank you very much. .

[Operator Instructions] And we will go next to Justin Bergner with Gabelli & Company. .

Good afternoon. .

Hi Justin..

Hi Justin..

How are you guys?.

We are very well. Thank you..

Good. My first question relates to, I guess the – revenue trends in Home & Building products this quarter. I guess, sort of launch and acquire what might be behind those trends.

I guess, some other competitors – not competitors, but some other companies serving the lawn and garden space had better things to say about revenue trends in the September quarter.

So, I guess, I was just curious what you guys are seeing?.

So, this, we are obviously subject to timing and particularly load-ins for snow and also timing of weak sales to perform even. So, overall, our operations are doing well.

We are seeing good results and it’s really just a matter of hopefully timing and point-of-sale due to weather for the fall season and the load in for snow which sums which will occur in this quarter opposed to last quarter. .

Great, that’s very helpful.

My second question relates to the EBITDA guidance for the September 2016 fiscal year, should we think of most of that increase in EBITDA, a little over $10 million year-on-year as being sort of concentrated in the Home & Building Product segment or will the other segments also contributing?.

We will see contributions from all the segments. Certainly, Home & Building products has probably outside benefit but we expect from all of them. .

Okay, thank you.

And finally, if I may, on the Plastics business, are you undertaking further rationalizations or is your revenue guidance just more of the annualization of rationalization actions you took in the prior quarters?.

Primarily from the rationalizations we took in the prior quarters. We have no planned rationalization coming up, but we of course always look at our products and make decisions based on what we see at those times..

Okay, thank you so much for taking my questions. .

You are welcome..

We will take follow-up questions from Bob Labick with CJS Securities. .

Hi, thanks. Just, could you talk a little bit more about capital allocation, your decisions between buying back and acquisitions and then, in terms of M&A, there is obviously been a lot of volatility in the markets over the last few months.

Has this impacted any potential targets for you and if you have the opportunity if prices are right, where would you be looking first in terms of M&A?.

There are couple of questions in there.

So let me start with capital allocation for us, it’s been an ongoing, we thought that over the last several years and obviously, in 2015, that the cheapest thing for us to buy was ourselves and we spent a significant amount of capital, $80 million last year and a total of over $200 million over the last several years.

So that’s a significant amount of our outstanding and the market will always go through its ups and downs.

What we’ve tried to do and we will continue to do is focus on improving the businesses that we have and we think that there is a strategy today for us of being a conglomerate, of being a group of unrelated businesses tied together through a capital structure that we are able to effectuate the strategies of each of our businesses, choose the leaderships and then help them execute their strategy and that’s working quite well for us and the results are what we’ve been able to do in a unremarkable top-line growth and that’s a reflection of the economy to be able to grow both our EBITDA significantly, grow our EPS.

We think that in the outlook that we are in a sluggish macro economy and that the top-line is unlikely to grow by all that much in 2016, but we still believe we can significantly grow both EBITDA and EPS. And that’s the backdrop to looking at the M&A and the capital allocation.

So the places where we find value or I was looking what we’ve done over the last several years. In our Home & Building Products segment and particularly in the AMES business, we’ve been able to make acquisitions of either privately-held or divisions of larger companies that have been very accretive to us.

We will continue to look at adding both products and geography to the AMES business model as we go forward. So, things that are in the private space are of interest to us. Divisions of other public companies that might not fit for them would be of interest in that category.

Beyond that, we have an internal organic growth story around our Home & Building Products, our doors business and that’s going to take all of our time and attention for 2016. So, we don’t expect to be looking to do acquisitions in the residential garage store business.

Telephonics, we think is a gem of a business and every time we look at buying anything that’s comparable to the business we already own in defense electronics, we get to compete against the first-tier primes who have a lot more capital and a lot more synergies than we do and so what we are residing to is to run Telephonics, increasingly better to a better defense cycle.

So the places where we are spending our M&A time are really looking at the tuck-ins around the AMES business and to a lesser extent, things that might be advantageous for the doors business.

Beyond that, it’s opportunistic and we are very happy to run the businesses that we have build up our EBITDA which builds up our free cash flow over time and significantly drives EPS growth and to us, that’s the best story.

And when there is opportunities that the market is – doesn’t see the future, we’ve clearly stepped in and we will continue to do that if we think it’s opportunistic. .

Okay, terrific. I appreciate that. Thanks very much. .

It appears there are no further questions at this time. So I turn the call back over to our speakers for any additional or closing remarks..

Okay, thank you. We are going to hard at work to make 2016 as successful as we can and appreciate all your support. Thank you very much..

That does concludes today's conference. We thank you for your participation..