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Text: With me on the call is Ron Kramer, our Chairman and Chief Executive Officer.
Finally, some of today's remarks will adjust for those items that affect comparability between reporting periods.
2021 was a record year for Griffon.
We continued to see strong demand in our businesses, driven by a robust housing market and a leading product portfolio in the US and internationally, while effectively navigating a highly dynamic and challenging operating environment.
Griffon entered 2021 with significant momentum, reflecting more time spent in and around the house and a renewed appreciation for a lifestyle, including the lawn, garden and the outdoors.
During the course of the year, we continued to see healthy demand, but supply challenges across the global economy emerged and then escalated, creating increasing headwinds for us and the entire global economy, particularly in the second half.
Despite these challenges in 2021 inclusive of Telephonics, we generated revenue of $2.5 billion, record segment adjusted EBITDA of $317 million and record adjusted earnings of $1.86 per share.
Our businesses also continued to see unprecedented levels of backlog, which bodes well for continued momentum into 2022.
Our record performance this year is a direct result of our being able to realize the benefits of the strategic actions we've taken to strengthen the Company and position ourselves for future growth and increased profitability.
Our portfolio repositioning and strategic acquisitions along with the critical investments we made in infrastructure at our CornellCookson commercial door facility in Mountain Top Pennsylvania and our ongoing AMES strategic initiative have put us into a position to capitalize on the consistent strength of the housing market and homeowner activity.
Notwithstanding our record levels of performance, we continued to be impacted by an increasingly difficult global operating environment.
COVID is better, but it's not over.
Particularly in the second half of this year, labor, transportation and supply chain disruptions, both domestically and internationally affected our ability to meet market demand and disrupted the steady flow of our operations.
Our customers affected by these same challenges continued to be desperate for product to restock their shelves and replenish their inventory levels, and have begun working more broadly across their supplier and vendor base to secure the product needed to meet the continued demand in the market given these inefficiencies.
This presents both challenges as well as opportunities across the competitive landscape.
We've also taken significant strategic actions this year with the goal of increasing value to our shareholders and enhancing our competitiveness.
In September, we announced the exploration of strategic alternatives, including a sale for Telephonics, our Defense Electronics business.
Telephonics is a terrific company with a long history of impressive achievement and we are evaluating opportunities to realize the value of the business and focus our resources on areas where we believe we can achieve stronger growth.
On the acquisition front, we have an extremely active pipeline of high-quality businesses and we will continue to be optimistic about finding acquisition opportunities that are value enhancing and immediately accretive.
Let's shift to the results for the year and give some more detail around the performance of the segments.
Starting with Consumer and Professional Products, our AMES business.
Revenue increased by 8% year-over-year and adjusted EBITDA increased 11%.
The increase in revenue benefited from increased volume and favorable price, mix and foreign exchange.
AMES saw volume gains in international markets, largely driven by consumer activity catching up after earlier pandemic shutdowns and other demand disruptions.
Domestically, US volumes were lower due to the labor, transportation and supply chain disruptions that have been widely reported and commented upon; despite these disruptions consumer demand appears to continue to be healthy.
In terms of profitability, increased material cost in the US, coupled with continued lag of price catching up with rapidly rising input costs have been and continued to be headwinds on margins.
We expect price and cost to reach parity at the end of our second quarter of 2022.
Turning to Home and Building Products.
Our Clopay business saw a record revenue and EBITDA, which increased by 12% and 18%, respectively.
The increase in revenue benefited from increased favorable price and mix and increased volume.
We saw broad strength across both residential and commercial products throughout the year.
Commercial products, in particular, did well with heightened customer interest in the new products developed by CornellCookson, strong performance of core rolling steel product offerings and successful cross-selling of sectional doors through commercial channels.
And with an infrastructure bill finally signed, the future looks bright for demand.
EBITDA at Clopay benefited from the increased revenue, partially offset by continued price and cost lag, rapidly rising prices for steel, interruptions of supply of raw materials and chemicals, as well as significant shortages in labor continued to create challenges for the business, as evidenced by Clopay's unprecedented levels of backlog.
We announced the exploration of strategic alternatives for the business on September 27, and are now treating the business as a discontinued operation in our reported results.
Lazard, our banker, is actively working on these alternatives, which includes a sale.
We expect this process to conclude by the end of our second fiscal quarter ending March 2022.
Excluding the contribution of the SEC -- SEG business, which we divested in the first quarter of 2021, Telephonics revenue in 2021 decreased by 15% year-over-year and EBITDA decreased by 15%.
Revenue was impacted by reduced volume due to delayed awards in certain programs as well as decreased deliveries.
EBITDA was likewise affected by the lower volume as well as by cost growth in surveillance systems, partially offset by favorable program performance in the radar systems and reduced operating expenses resulting from efficiency actions taken last November.
We expect increased sale and profit, including strong margin improvement, as the Company enters fiscal 2022.
Turning to our dividend and balance sheet.
Our record performance this year reduced our leverage to 2.8 times net debt to EBITDA, which is well below our stated target of 3.5 times and does not include the benefit from the Telephonics strategic process.
This balance sheet strength provides us with substantial flexibility to pursue value enhancing and immediately accretive acquisitions, while making strategic investments in our existing businesses.
We increased our dividend to $0.09 per share, which marks the 41st consecutive quarterly dividend paid to shareholders.
Our dividend has grown at a 17% compound annual growth rate since our dividend program was started.
Separately, each year, we reach out institutional shareholders to discuss their views on a variety of subjects, including our governance practices.
Over the past five years, we've refreshed approximately half of our independent directors, adding diversity and relevant expertise to our Board.
As we evolve, we are continuing this process.
Our Board has adopted two amendments to our Certificate of Incorporation for submission to our shareholders at our 2022 annual meeting.
The first amendment will declassify the Board over a three-year transition period after the amendment becomes effective.
The second will reduce the percentage of voting power necessary to call a special meeting of shareholders.
These amendments will become effective upon the approval of our shareholders at our 2022 annual meeting.
Our Board has also undertaken a commitment to further diversify with an objective that, by 2025, 40% of our independent directors will be women or persons of color.
These enhancements and refinements to our corporate governance practices will further align our interest with those of our long-term shareholders and contributing to maximizing shareholder value.
I'll start by highlighting our fourth quarter consolidated performance on a continuing basis.
Revenue increased by 3% to $570 million.
Segment adjusted EBITDA increased 6% to $67 million, with related margin increasing 30 basis points to 11.7%.
Gross profit on a GAAP basis for the quarter was $156 million, increasing 1% compared to the prior-year quarter.
Excluding restructuring-related charges, gross profit was $159 million, increasing 3% compared to the prior-year quarter, with gross margin decreasing 10 basis points to 27.9%.
Fourth quarter GAAP selling, general and administrative expenses were $123 million compared to $117 million in the prior-year quarter.
Excluding restructuring-related charges, selling, general and administrative expenses were $120 million or 21% of revenue compared to $116 million or 21% in the prior-year quarter, with the increased dollars primarily driven by distribution, transportation and incentive costs.
Fourth quarter GAAP net income, which includes Telephonics, was $16 million or $0.30 per share compared to the prior-year period of $20 million or $0.41 per share.
Excluding items that affect comparability from both periods, current quarter adjusted net income was $21 million or $0.40 per share compared to the prior year of $22 million or $0.44 per share.
Keep in mind, the impact of the August 2020 equity offering on adjusted earnings per share was approximately $0.04.
Fourth quarter GAAP income from continuing operations was $13 million or $0.23 per share compared to the prior-year period of $21 million or $0.43 per share.
Excluding items that affect comparability from both periods, current quarter adjusted net income was $18 million or $0.33 per share compared to the prior year of $17 million or $0.35 per share.
The impact of the August 2020 equity offering on adjusted earnings per share was approximately $0.03.
Corporate and unallocated expenses, excluding depreciation, were $13 million in the quarter compared to $12 million in the prior-year quarter, primarily due to incentive costs.
Our 2021 full-year effective tax rate, excluding items that affect comparability, was 31.7% compared to 33.7% in the prior year.
Capital spending was $12 million in the fourth quarter compared to $11 million in the prior-year quarter.
Depreciation and amortization totaled $13.3 million compared to $12.8 million in the prior-year quarter.
Regarding our balance sheet and liquidity, as of September 30, 2021, we had net debt of $797 million, with leverage of 2.8 times calculated based on our debt covenants.
This is a 0.6 of a turn reduction from our prior-year fourth quarter.
Our cash and equivalents were $249 million and debt outstanding was $1.05 billion.
Borrowing availability under the revolving credit facility was $371 million, subject to certain loan covenants.
Regarding guidance, our standard practice has been to provide a forecast of our performance for the coming year and maintain that guidance.
At the beginning of our fiscal 2021, we provided initial guidance that reflected our view of the ongoing risks associated with the pandemic and the economic recovery.
However, at mid-year, we took the unprecedented step of updating guidance when our performance continued to be well in excess of initial guidance.
We are returning to our standard practice and providing guidance for fiscal '22, reflecting what we consider to be reasonable expectations for the year.
On a continuing operating basis, excluding the contribution of Telephonics, we expect revenue of $2.5 billion and segment adjusted EBITDA of $300 million for fiscal '22.
Excluding both unallocated costs of $49 million and one-time charges of approximately $15 million related to the AMES initiative.
In terms of the phasing of our guidance, we expect significant margin compression in the first half of the year, particularly in the first quarter, as we recover price to offset significantly increased input costs.
Just to dimension [Phonetic] the magnitude of the price increases we have realized and expect to realize, we secured multiple double-digit price increases in '21 and expect to realize additional double-digit price increases in the first half of fiscal '22.
Margins are expected to gradually improve starting in the latter part of our second quarter and will reach more normalized levels by our fourth quarter, reflecting the pass-through of pricing to our customers and expected improvement in labor and transportation availability, along with improving reliability within our supply chain.
Further, our guidance incorporates the sales trends we are seeing as customers are diversifying their supplier base to find available product across a wider array of vendors and suppliers than before.
This diversification is resulting in shifts of market share and shelf space across our product categories.
Likewise, we are diversifying our own supplier base and focusing our resources on those brands, channels, products and customers we had competitive strength and a good product mix and can maintain healthy margins.
This will result in shifts of both sales volume and mix throughout '22 and into '23, as we prioritize our resources to achieve our margin objectives.
Total capital expenditures for fiscal '22 are expected to be $65 million, which includes $25 million supporting the AMES initiative.
Depreciation and amortization is expected to be $56 million, of which $9 million is amortization.
We expect to generate free cash flow in excess of net income, inclusive of the capital investment and other investments we are making at AMES.
As in prior years, we expect a similar pattern of cash flow with significant cash usage in the first half, followed by strong second half cash generation.
As a result of the expected margin compression in the first quarter and the timing of price cost parity expected to be reached in the second half of the year, our first half cash usage, particularly in the first quarter, will exceed historical levels.
We expect net interest expense of approximately $63 million for fiscal '22.
Our expected normalized tax rate will be approximately 32%.
As is always the case, geographic earnings mix and any legislative action, including new guidance on tax reform matters, may impact rates.
Just as a final comment on '22, we continue to believe that supply chain disruptions, inflationary trends and labor shortages will remain challenges, but the strength of our demand gives us a high degree of confidence in the outlook.
We continue to believe in the strength of our diversified holding company investment and operating-centric model.
This year marks the third fiscal year since we repositioned our business through divesting the Plastics business and acquiring ClosetMaid and CornellCookson.
These actions have fundamentally strengthened Griffon over the last three years.
Our revenue, adjusted EBITDA and adjusted earnings per share have increased at a compound annual growth rate of 11%, 23% and 35%, respectively.
Over this period, we generated $224 million in free cash flow, while cutting our leverage in half to 2.8 times.
Our announcement of strategic alternatives for Telephonics marks another fundamental shift in our portfolio.
We'll realize additional value for shareholders, and this will allow Griffon to redeploy capital toward accretive acquisitions.
Our M&A pipeline is active, and we are reviewing exciting opportunities to substantially bolster our existing businesses, as well as considering new opportunities that will further strengthen and diversify us.
We appreciate the importance of their work in order to deliver these excellent results.
We remain excited about our future.
Operator, we're happy to take any questions.

user
compname reports q4 earnings per share $0.30.
q4 adjusted earnings per share $0.33 from continuing operations.
q4 adjusted earnings per share $0.40.
q4 earnings per share $0.30.
griffon q4 earnings per share from continuing operations $0.23.
q4 earnings per share from continuing operations $0.23 .

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