Griffon (NYSE:GFF) reported third-quarter financial results on Wednesday. The transcript from the company's third-quarter earnings call has been provided below.
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Summary
Griffon Corporation reported a 7% organic increase in revenue and a 2% increase in EBITDA for the third quarter of fiscal 2026, with strong year-to-date free cash flow of $194 million.
The company completed the closing of its Australasia joint venture, receiving $181 million in cash and a 49% equity interest, marking its transformation into a pure-play building products company.
Griffon repurchased $53 million of its stock during the quarter and repaid the remaining Term Loan B balance of $285 million, highlighting its focus on capital allocation and debt reduction.
Third quarter revenue reached $481 million, with adjusted EBITDA of $125 million. The company maintains its fiscal 2026 revenue and EBITDA guidance of $1.8 billion and $458 million, respectively.
Management expressed confidence in the company's strategic initiatives and financial outlook, emphasizing the potential for growth in residential and commercial markets as economic conditions improve.
Full Transcript
OPERATOR
Good day and welcome to the Griffon Corporation fiscal third quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on your telephone keypad. To withdraw your question, please press star, then two.
Please note this event is being recorded. I would now like to turn the conference over to Brian Harris, CFO. Please go ahead.
Brian Harris — Executive Vice President & Chief Financial Officer
Thank you. 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 Corporation 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 statement 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.
Ron Kramer — Chairman and Chief Executive Officer
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 interests 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 a combination of proceeds from our strategic actions and our revolver.
Also yesterday, the Griffon Board authorized a regular quarterly dividend of $0.22 per share, payable on September 16 to shareholders of record on August 31, 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.
Brian Harris — Executive Vice President & Chief Financial Officer
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 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 with 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 significant, 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 from 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 Australasia 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 1.5 to 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%. Now I'll turn the call back over to Ron.
Ron Kramer — Chairman and Chief Executive Officer
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.
OPERATOR
We will now begin the question and answer session. To ask a question, you may press star, then one, on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Please note, we ask that you ask just one question and one follow-up, please. At this time, we will pause momentarily to assemble our roster.
The first question is from Tim Wojes with Baird. Please go ahead.
Tim Wojes — Analyst at Baird
Hey everybody, good morning. Nice job.
Ron Kramer — Chairman and Chief Executive Officer
Thanks, Tim.
Tim Wojes — Analyst at Baird
Hey, maybe just on the first one, first question I had, I think in the overhead door business, one of your competitors is going through some consolidation efforts and our understanding is they've had some issues manufacturing and shipping. Is that anything that I guess, is that something that you're seeing in the marketplace and is that an opportunity for you from a share perspective?
Ron Kramer — Chairman and Chief Executive Officer
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. We're always looking to increase market share.
Tim Wojes — Analyst at Baird
Okay. And then I guess on the business, I mean, 6% price/mix, it sounds like volume's up a little bit. Just any additional color on just how kind of the individual pieces performed, whether it's kind of replacement in residential or the commercial market just performed better versus the overall average.
Brian Harris — Executive Vice President & Chief Financial Officer
Sure. So door volume for the quarter was down slightly, driven by residential, and this was more than offset by the fan volume, leaving our commercial volume flat.
OPERATOR
The next question is from Bob Rybik with CJS Securities. Please go ahead.
UNKNOWN — Analyst at CJS Securities (for Bob Rybik)
Hey, it's legit Godo for Bob this morning. Just starting on the residential side, what are some of the growth drivers within your control to drive potentially some top line while we wait for housing starts and the macro?
Ron Kramer — Chairman and Chief Executive Officer
Yeah, we continue to execute on innovation, coming out with new products that have had good take in the market. Our designs over the last decade have brought our company and the entire door industry upscale, and we continue to on that basis. And we are ready for any turn in volume that comes with a better housing market. And I'd also add that Clopay is best in class, both in terms of product, service and national footprint. And part of the dichotomy in the economy is the premium market continues to do well.
And we are very focused on the repair and remodel side of the premium-better-best category, and that continues to do well in an otherwise sluggish U.S. housing market. We continue to believe that there's upside in both transaction volume and ultimately new home construction that we'll be a beneficiary of, but it's a small part of our overall picture today.
UNKNOWN — Analyst at CJS Securities (for Bob Rybik)
And then on the commercial side, can you speak to how the commercial replacement cycle is similar or different to the residential side and where we stand in that cycle today?
Brian Harris — Executive Vice President & Chief Financial Officer
Generally, the replacement cycle on the commercial side is shorter. So we deem it as approximately seven years depending on the product and location it's installed. New construction is relatively low compared to prior years, but we have a large installed base. And when new construction is lower, generally replacement and refurbishment of existing facilities is higher.
OPERATOR
The next question is from Colin Baron with Deutsche Bank. Please go ahead.
Colin Baron — Analyst at Deutsche Bank
Good morning. Thank you for taking my questions. I just wanted to dive a little bit further into the price/mix. In the quarter it was very strong at 6%. Again, can you just break out the benefit in between price versus mix and sort of how you're thinking about those components going forward? I know mix can be a little bit volatile quarter to quarter.
Brian Harris — Executive Vice President & Chief Financial Officer
Yeah. So for the quarter, price and mix were approximately equal. And looking forward, we had a price increase during the quarter, so that will continue to effectually as we get through backlog. Mix is hard to predict, but as we continue to bring new products to market, we continue to expect good mix.
Colin Baron — Analyst at Deutsche Bank
Very good. And then just on the cost side, any help in thinking about the magnitude of COGS inflation that you guys are seeing and your expectations as you look out into the September quarter and maybe the beginning parts of fiscal year 27?
Brian Harris — Executive Vice President & Chief Financial Officer
Sure. So obviously all our expectations are in our guidance. We had the price increase, as I just mentioned, that was to offset increases in raw material, labor, energy, distribution, logistics costs. And we expected that price increase and our margin—the price increase will keep our margins at 25%.
OPERATOR
The next question is from Trey Grooms with Stephens. Please go ahead.
Trey Grooms — Analyst at Stephens
Hey, good morning everyone and congrats on the nice results.
Ron Kramer — Chairman and Chief Executive Officer
Good morning.
Trey Grooms — Analyst at Stephens
Good morning. And yeah, so I wanted to kind of follow up with the price/cost question and, you know, you've got the price increase in place. Raw materials, you know, there has been some fluctuation. I know there's typically a lag there. I think we have a decent idea of how you're thinking about 4Q. But all else equal, now that we have these things in place, as we look into next year, do you expect to see, you know, maybe a little more catch up, you know, as we get into the fiscal 1Q or 1Q?
Or do you feel like most of that kind of price/cost catch up is going to occur in 4Q?
Brian Harris — Executive Vice President & Chief Financial Officer
So most of that should occur in 4Q. But of course, you're lapping as the year goes into next year. We feel like we've put an appropriate price increase based on the inflationary cost and we'll provide further guidance in November.
Trey Grooms — Analyst at Stephens
Okay, fair enough. Just trying to get an idea for the trajectory there. Maybe we look a little bit further out, but that's fair enough. So maybe thinking about this a little bit longer term, you know, now as a pure play building products company, I know there's going to be leverage in the business as we kind of look forward over the longer term and as we get into a position where demand begins to improve. How are you thinking about these businesses over the longer term, kind of the incremental margin as we are looking at the business as it stands today, pure play building products within those two, how do you think about the longer term kind of incremental margin opportunities as demand improves? Because you guys are putting up good results in a market that's operationally demanding, the demand is relatively challenged.
Ron Kramer — Chairman and Chief Executive Officer
Look, I think you have to look at where we've come from, the evolution of the business. And Clopay is now both residential, commercial and the drivers of both of those engines are going to be better in a better economy and a better housing market. Our results are both excellent given the circumstances and the environment that we've been operating in. And what you should take away is that our balance sheet is positioned for us to continue to grow the business. We have modest leverage on the company today and we have significant operating leverage in the businesses. So with any incremental growth in volume, you should expect us to have significantly higher free cash flow. And that is exactly the way we position the company for the long run.
OPERATOR
The next question is from Sam Darkatch with Raymond James. Please go ahead.
Sam Darkatch — Analyst at Raymond James
Good morning, Ron. Good morning, Brian. How are you doing?
Ron Kramer — Chairman and Chief Executive Officer
Great. How are you, Sam?
Sam Darkatch — Analyst at Raymond James
I'm well, thank you for asking. Yeah, two questions. The first one, how did the quarter progress as we moved from April into June and then specifically how does July look versus the trajectory of the rest of the quarter?
Brian Harris — Executive Vice President & Chief Financial Officer
Sure. So generally as we move out of the winter season through the spring into the summer, the months progress and continue to get better in our normal seasonality. And that's exactly what we saw. And we expect our fourth quarter to be our high point as it normally is. And Q1 generally is similar to Q4, and, you know, trends in July continue.
Sam Darkatch — Analyst at Raymond James
Good to hear. And then my follow up question, given the smaller operating footprint post Ames, any thoughts in terms of the corporate overhead on a go forward basis? Thanks.
Brian Harris — Executive Vice President & Chief Financial Officer
Sure. So we regularly review all our costs and will continue to do so. Our guidance assumes EBITDA margin of 25% plus. That includes all costs.
OPERATOR
The next question is from Julio Romero with Sidoti & Company. Please go ahead.
Julio Romero — Analyst at Sidoti & Company
Thanks. Hey good morning Ron and Brian. Congrats on the execution and being pure play building products company. And a lot of good questions this morning. Wanted to dive into more along Trey line of questioning on the pure play story going forward, and then your product positioning, particularly on the commercial side. You have best-in-class garage doors and part of that is the innovation that you have in your doors. Can you maybe discuss how your doors can play a part in some of the emerging secular growth in markets that are out there?
You know, data centers, semiconductor, pharma, over the medium to longer term?
Ron Kramer — Chairman and Chief Executive Officer
Sure. So our products do play in all those spaces. In data centers, it's both entry and fire protection inside the facility. Our doors are used as partitions in pharmacy and other type places. Our doors are used for security. We have actually very high-end secure doors that can even be used in embassies and places like that. And we continue to innovate and we'll continue to have product launches that meet the needs of both commercial and residential.
And to meet that demand, we've been building up an architectural sales force, getting significantly more inquiries. And it's our belief that over time our commercial business is going to grow in addition to the recovery in the U.S. housing market on the residential side. So the commercial—everything you've identified are avenues of growth for us on the commercial side of the business.
Julio Romero — Analyst at Sidoti & Company
That's great color, Ron. And do you get spectrum to those projects and if so, how far out does your visibility extend?
Ron Kramer — Chairman and Chief Executive Officer
Longer lead time and, as I said, we're seeing a meaningful increase in the number of inquiries which lead to bids. So it's a longer process but we're very confident about what the future of that business is going to look like.
OPERATOR
The next question is from Jeffrey Stevenson with Loop Capital. Please go ahead.
Jeffrey Stevenson — Analyst at Loop Capital
Good morning. Thanks for taking my questions today. You reported a nice step up in sequential EBITDA margin during the quarter and, you know, just driven by the sequential volume improvement you saw. Was that the primary driver? Did you see incremental price realization as well from the spring Clopay price increases?
Brian Harris — Executive Vice President & Chief Financial Officer
Yeah, it was definitely more from volume and mix. Price, we look at it as offsetting cost, and generally our Q3 does see better volume compared to our Q2, as Q2 is our lowest buying quarter in the winter.
Jeffrey Stevenson — Analyst at Loop Capital
Great. And then, you know, congrats on the close of the Australian JV. And you know you have a large cash proceeds from both that and the North America joint venture as well and just wonder, you know, should we expect a balanced mix of share repurchases and debt paydown in line with your kind of historical capital strategy?
Brian Harris — Executive Vice President & Chief Financial Officer
So from a free cash flow standpoint, we have a balanced approach between return of capital to shareholders and debt reduction. The money from the transactions was used to pay off our TLB, so that specifically was used for debt reduction.
OPERATOR
This concludes the question and answer session. I would like to turn the conference back over to Ron Kramer, CEO, for any closing remarks.
Ron Kramer — Chairman and Chief Executive Officer
We're encouraged by the outlook for our business and the momentum we've been building through our transformation. We've accomplished a lot. We're positioned for continued growth and long-term value for our shareholders. Looking forward to talking to you again in November. Thanks.
OPERATOR
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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