Greetings. Welcome to the Griffon Corporation Fiscal First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I would now like to turn the conference over to Brian Harris, Chief Financial Officer. Thank you. You may begin.
Thank you, Daryl. Good morning. It's my pleasure to welcome everybody to Griffon Corporation's first quarter fiscal 2024 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. 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 reconciliation, 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. Fiscal 2024 is off to a good start, with the first quarter highlighted by strong free cash flow of $133 million, continued solid operating performance at Home and Building Products, and improved profitability at Consumer and Professional Products. We are well positioned to meet our financial targets for the year. For the quarter, Home and Building Products, or HBP, revenue and EBITDA were consistent with the prior year. Revenue benefited from favorable price and mix and increased customer orders, offset by reduced year-over-year volume due to the elevated sectional door backlog we had in the prior year. Turning to the Consumer and Professional Products segment, or CPP, first quarter revenue decreased 2%, primarily due to decreased volume, driven by reduced customer demand in North America.
CPP improved EBITDA by $7 million in the quarter, driven by decreased North American production costs. I'm very pleased to tell you that our previously announced initiative to expand CPP's global sourcing strategy remains on schedule and within budget. Since May 2023, when we announced the initiative, operations have ceased at the four identified wood mills and all of the affected U.S. manufacturing facilities, except one. We expect operations at the remaining affected manufacturing facility in Grantsville, Maryland, to conclude by March 2024. These actions will reduce our manufacturing footprint by over 1.2 million sq ft. As we've emphasized before, the global sourcing expansion at Ames is a key element of our strategy to improve the margins of CPP. We will continue to provide updates throughout the year as we achieve additional milestones. Turning to our capital allocation.
In November, we announced the $200 million increase to our share repurchase authorization, bringing the total authorization to $262 million at that time. During the first quarter, we repurchased 1.6 million shares, totaling $70 million, or an average of $42.61 per share. At December 31, $238 million remained under the repurchase authorization. Since April 2023 and through December, we've repurchased 5.8 million shares at an average price of $38.15, for a total of $220 million. These repurchases have reduced Griffon's outstanding shares by 10.1% relative to total shares outstanding at the end of the second quarter of fiscal 2023.
Also yesterday, the Griffon board authorized a regular quarterly dividend of $0.15 per share, payable on March 21st, to shareholders of record on February 29th, marking the 50th consecutive quarterly dividend to our shareholders. Our dividend has grown at an annualized compounded rate of 18% since we initiated dividends in 2012. These actions reflect the strength and the resiliency of our businesses, as well as continued confidence in our strategic plan and outlook. I'll turn it over to Brian for more details on the financials.
Thank you, Ron. First quarter revenue of $643 million decreased by 1%, and Adjusted EBITDA before unallocated amounts of $130 million increased by 6%, both in comparison to the prior year quarter. EBITDA margin before unallocated was 20.3%, an increase of approximately 140 basis points. Gross profit on a GAAP basis for the quarter was $237 million, compared to $234 million in the prior year quarter. Excluding items that affect comparability from the current to prior year period, gross profit was $248 million in the current quarter, compared to $234 million in the prior year. Normalized gross margin increased year-over-year by 260 basis points to 38.6%.
First quarter GAAP selling general administrative expenses were $153 million, consistent with the prior year. Excluding adjusting items from both periods, SG&A expenses were $147 million, or 22.9% of revenue, compared to the prior year of $143 million or 22% of revenue. First quarter GAAP net income was $42 million, or $0.82 per share, compared to $49 million in the prior year quarter, or $0.88 per share. Again, excluding all items that affect comparability from both periods, current quarter adjusted net income was $55 million or $1.07 per share, compared to the prior year of $47 million or $0.86 per share.
Corporate and unallocated expenses, excluding depreciation in the quarter, were $13.9 million, consistent with the prior year. Net capital expenditures were $13.5 million in the first quarter, compared to a benefit of $7.1 million in the prior year quarter. Depreciation and amortization totaled $14.8 million for the first quarter, compared to $17.1 million in the prior year quarter. Regarding our segment performance, as Ron mentioned earlier, revenue for home and building products was consistent with the prior year quarter, reflecting improved customer orders, as well as favorable pricing and mix of 4%, offset by the prior year volume benefit from elevated backlog. Adjusted EBITDA was consistent with the prior year quarter, with the effects of reduced volume and increased labor and distribution costs being offset by reduced material costs and favorable price and mix.
Consumer and Professional Products revenues decreased 2% from the prior-year quarter to $247 million, due to decreased volume, driven by reduced customer demand in North America. CPP's adjusted EBITDA increased by $7.3 million from the prior-year quarter to $5.5 million, primarily due to the smaller North American manufacturing footprint and reduced production costs, which will more than offset the effects of reduced revenue. Regarding our balance sheet and liquidity, as of December 31, 2023, we had net debt of $1.3 billion and net debt to EBITDA leverage of 2.5 x, as calculated based on our debt covenants, which is 0.2 of a turn better than the 2.7 x leverage at the end of last year's first quarter.
Our net debt and leverage decreased slightly from our year-end, September 2023, even after returning $70 million to shareholders via stock buybacks in the quarter. In fiscal 2024, our fiscal 2024 guidance, provided in November 2023, remains unchanged of $2.6 billion of revenue and $525 million in segment Adjusted EBITDA, which excludes unallocated costs and certain other charges that affect comparability, and free cash flow exceeding net income for the year. Now, I'll turn the call back over to Ron.
Thanks, Brian. As I said up front, 2024 is off to a good start, with strong free cash flow, continued solid operating performance at HBP and improved profitability at CPP. These results reinforce the confidence of Griffon’s board and management in our outlook and strategic plan. We'll continue to use our strong operating performance and free cash flow to drive a capital allocation strategy that delivers long-term value for our shareholders. This strategy will continue to include investing in our businesses, opportunistically repurchasing shares, and reducing debt. Before we turn to Q&A, I'd like to recognize the dedication and efforts of our management and employees around the world and their contributions to our success. Operator, we'll take any questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, while we poll for your questions. Our first questions come from the line of Joe Ahlersmeyer with Deutsche Bank. Please proceed with your questions.
Hey, good morning. Great update. Congratulations on the strong start here.
Thanks, Joe.
Thanks, Joe. Good morning.
Yeah, I wonder if we could dig into the improvement in the customer orders within HBP for a bit. Just any color you can offer between residential and commercial trends. T hen any thoughts maybe on the second quarter HBP sales potential, if those order trends give you just a little bit more visibility into the quarter ahead here?
Sure. T he order trends are being driven mostly by the residential side. You know, we don't have the prior year backlog overhang, which allows our lead times to be normalized and, and helps us with our orders. Plus, we have been investing in marketing and believe we are taking market share. As far as the second quarter, we still have the backlog, elevated backlog overhang from the prior year, and we are now expecting to be back to normal seasonality, which, our second quarter is our low point of the year, basically driven by Midwest and Northeast weather. W e expect, this year's volume to be down, for those two reasons.
Understood. Also, kind of looks like in the quarter, maybe price mix is where you came in a little bit ahead of your sales expectations for HBP. Seems to have also aided the margin here. Just maybe an update on your thinking around the 30% + for the year, maybe more of an emphasis on the plus now, the way I'm thinking about it?
Yeah, we're still comfortable in looking at this and confirming that 30% margin is our target for the year.
Thank you. Our next question has come from the line of Bob Labick with CJS Securities. Please proceed with your questions.
Good morning. Thanks for taking our questions, and congratulations on a good start to the year.
Thanks, Bob.
Thanks. Good morning.
Yeah, I just wanted to kind of stick with doors for a second. You're showing success in share gains. You just mentioned the share gains in residential as you know now can fulfill the backlogs down a little bit. You're also showing gains in commercial as you're expanding the Clopay sectional doors into CornellCookson dealers. Just give us an update on how far along you are with that process and where you think that can go going forward?
We're still in relatively early days in that process, and that will continue for quite some time. We're getting very good take, and our dealers are pleased with the product and having more expanded offering through us.
Okay, great. T hen on CPP, you noted, you know, I guess, a little softness in North American demand. Can you just expand on that? What areas were soft, and was it sell-in or is it, you know, sell-through from the consumer? W hat are you, hearing from your large customers in CPP, you know, for their outlook for the spring season that we're coming into?
Sure. F or the spring season, you know, as of now, we're just assuming normalized weather compared to last year, which the weather wasn't very good. You know, the consumer still seems to be weak, and there's still elevated inventory at most of our customers, which is the main driver for the reduced demand.
Thank you. Our next questions come from the line of Robert Schultz with Baird. Please proceed with your questions.
Hey there. I was just thinking about HBP and the cadence for the rest of the year. How should we think about lapping the rest of the backlog conversion as we look through 2024?
Sure. W e normalized at the end of last year's second quarter, that would be March 2023. T he second half of the year will be more of an apples-to-apples comparison. We've made investments in, marketing, as I mentioned earlier, and we expect volume to improve year-over-year in the second half.
Got it. How are we thinking about buybacks for the rest of the year?
We'll continue to be opportunistic, and we continue to think our stock is a compelling value.
Thank you. Our next questions come from the line of Trey Grooms with Stephens. Please proceed with your questions.
Good morning, everyone. Congrats on the really nice results.
Good morning, Trey.
Good morning. F irst, I guess on, I wanna touch on the free cash flow. I mean, you guys are putting up very strong free cash flow. Brian, could you maybe touch on how you're thinking about free cash flow for the year? I think the current guide is for it to exceed net income, but, any update there and, and anything for us to be aware of as far as, you know, unusual items or, any changes to the cadence and what we typically see for, you know, as far as free cash flow is concerned?
Sure. G enerally, our second quarter will be a cash usage period. We still believe that we'll be better than net income for the year. It does include all our CapEx, including the Troy expansion project and any CapEx related to the expansion into global sourcing, as well as any other costs related to the expansion to global sourcing. C ash flow will pretty much be in the cadence that we've seen historically, with the second half being strong.
Even with those investments you're talking about here, the expectation for free cash flow to be to exceed net income is, it includes those unique items. Is that correct?
That is correct.
That is correct.
Great. Great. Thank you so much for that. I guess on CPP, you know, the improved profitability there was pretty impressive, and it sounds like your global sourcing strategy is on track and within budget. You know, it's clearly moving along nicely. Is there any update on how we should think about kind of the cadence of getting to your targets in the coming quarters, and your, you know, goals around the sourcing and what that could mean for margins?
Yeah. F or this year, we still expect modest improvement in CPP's EBITDA. Keep in mind that this year, most of the product we're selling in North America is product that we built, and it's still at that higher cost, as well as the fact that our customers' current inventory, though we expect it to be normalizing somewhat into the back half of the year, is still elevated. T he cadence remains. We'll see improved margin in 2025, and by the time we get to 2026, we expect to be across all of CPP at our 15% EBITDA margin goal.
Thank you. Our next questions come from the line of Julio Romero with Sidoti. Please proceed with your questions.
Thank you, and good morning. I wanted to ask about, you know, CPP, if you could speak to price mix in the quarter, and if that was flat or up or down year-over-year?
Yeah, there really was no significant impact from price and mix. Pretty much flat. That's, that's right.
Okay, understood. T hen, you know, as Trey mentioned earlier, it sounds like CPP is going well, the cost outs are going well. Are the benefits of those cost outs kind of flowing through the P&L a little bit earlier than you expected, or are they kind of right on track to your expectations?
They're generally on track. We've started to see some benefit as we close some of the facilities, and that'll continue to bleed at modest levels through the remainder of this year. W e'll really see the step up next year as we're more into the project and have more sourced inventory as part of our sales.
Thank you. Our next questions come from the line of Sam Darkatsh with Raymond James. Please proceed with your questions.
Good morning, Ron. Good morning, Brian. How are you?
Doing well. How are you doing, Sam?
I'm well, thank you. Terrific start to the year, especially with the difficult operating environment. Two questions.
Thank you.
My first would be, I mean, I guess virtually all of the major residential window and door manufacturers have recently announced low- to mid-single-digit price increases earlier this year for the first time in a little while. I guess dealers in the channel are also indicating the same for the garage door industry as well. What's prompting the move? Is it more sticky, like, labor and conversion rates, or is it more cyclical, like input cost inflation? And when do you see this hitting the HBP P&L? T hen I've got a follow-up also.
Sure. A s far as our own business, we have had no real change in our pricing structure, except for some minor price increases on operators, which is a small part of our business. You know, in general, you know, our expectations for the year is that input costs will be roughly flat, and if that's the case, our prices will remain steady. However, if we see increased input costs, we will react accordingly.
Gotcha. T hen my last question. There's obviously lots of increased attention on potential new tariffs on Chinese source products. Have you determined yet your new, you know, contract manufacturer partners within CPP? And how much exposure do you ultimately think you'll have to China once the conversion is complete?
Oh, go ahead, Ron.
Nope. Oh, sorry.
Initially, we are going with partners that we have in China. We've been working with them for years, supporting our Australian, U.K., geographies, which are already asset-light models. Ultimately, we'll react to any changes in tariffs by considering other providers and sources across the world. L ast, all our competition is generally making product in the same location.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question has come from the line of Justin Bergner with Gabelli Funds. Please proceed with your questions.
Good morning, Ron. Good morning, Brian. Very nice quarter.
Thank you. Thank you.
The capital allocation, going forward, the statement seemed to change a bit in the press release to one of driving a capital allocation that will deliver long-term value for our shareholders, versus one that is prioritizing repurchases from, you know, the press release a quarter ago. Maybe just can you elaborate if there's been any small change in your priorities there?
No. No change.
Okay, great. T hen my follow-up question or second question: In Home and Building Products, can you comment on how the backlog developed over the quarter and any trends in the backlog? I know you said that orders improved.
Generally, backlog remains at normal levels, or said another way, our lead times are generally normal.
Thank you. We have now reached the end of our question-and-answer session. I would now like to turn the floor back over to Ron Kramer for closing remarks.
Thank you all for joining us, and we look forward to speaking to you in May.
Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.