Good day, welcome to the Griffon Corporation first quarter 2018 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Brian Harris, Chief Financial Officer. Please go ahead, sir.
Thank you, Julia. Good morning, everyone. With me on the call is Ron Kramer, our Chief Executive Officer. Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today. As in the past, our comments will include forward-looking statements about the company's performance based on our views of Griffon's businesses and the environments in which they operate. Such statements are subject to inherent risks and uncertainties that can change as the world changes. Please see the cautionary statements in today's press release and in our various Securities and Exchange Commission filings. Some of today's remarks will adjust for those items that affect comparability between reporting periods. These items are explained in our non-GAAP reconciliations included in our press release.
Please be reminded that with the prior announcement of Plastics sales transaction, Plastics is classified as a discontinued operation. I'll turn the call over to Ron.
Good morning, thanks for joining us today. Before discussing the quarter and the businesses, I'd like to take a moment to remember our Chairman, Harvey Blau, who passed away on January 19th. With more than 50 years of service, including 25 as CEO of the company, Harvey was instrumental in building Griffon into the company that it is today. He was an extraordinary leader, trusted friend, and a mentor to the entire Griffon team. He'll be greatly missed, and we're all committed to build on his legacy. Let's move to the quarter. I'm pleased to report we're off to a strong start to the year as we build on the transformative actions of fiscal 2017.
At a consolidated level, our revenue increased 24% from the prior year, driven by both the acquisitions and organic growth in our Home and Building Products segment, which as expected, was partially offset by reduced revenue in Telephonics. We continue to expect defense orders and revenue to improve throughout the year, particularly in the second half. This morning, I'd like to take a few minutes to walk you through updates to our key strategic actions. Then we'll provide comments on our segment performance and outlook before turning the call over to Brian for a closer look at the numbers. Beginning with our recent acquisition of ClosetMaid, I'm pleased that performance in our first quarter of ownership was in line with our expectations, generating $77 million in revenue in the quarter.
We view ClosetMaid as an important growth platform for Griffon. To that end, we're seeing good incremental demand through new customer relationships. In addition, under our management, we have begun implementing operational improvements and cost controls. We completed the post-closing purchase price adjustment process with Emerson, which resulted in a reduction in the ClosetMaid purchase price of approximately $14 million-$186 million, and net of tax benefits to approximately $165 million. We expect to close on the sale of the Clopay Plastics business to Berry Global for $475 million in cash next week. We expect to pay cash taxes on the sale of Plastics of $60 million-$65 million due to the benefits of the Tax Cuts and Jobs Act. This is down from a range of $85 million-$90 million we announced in November. The divestiture of Plastics unlocks value for Griffon shareholders. It positions us for growth.
After the closing of the Plastics transaction, we expect to increasingly improve Griffon's operating margins and free cash flow generation. After the Plastics transaction closes, we will evaluate the use of proceeds to either invest in opportunities that diversify Griffon's portfolio of businesses, deleverage our balance sheet, or return capital to Griffon shareholders. During the first quarter, we did not repurchase any shares. Since 2011, we've repurchased a total of $262 million worth of stock, approximately a third of the capitalization, which was 20.4 million shares at an average of $12.81 per share. As of December 31, we held $49.9 million of repurchase availability under our board authorized plan. We announced this morning a $0.07 per share dividend, which marks the 17% increase over the prior year first quarter dividend. Since its inception, our dividend program has grown at an annual compound rate of 23% per year.
Next, I'd like to provide an update by segment before I turn it over to Brian, who will take you through in a little more detail. Let's start with Home and Building Products. Sales increased 40% to $371 million from both the benefits of the recent acquisitions of ClosetMaid, Tuscan Path, La Hacienda, Hills & Harper, and organic growth. EBITDA improved 24% to $39.5 million, driven by the increase in revenue. We remain positive on the outlook for Home and Building Products as we continue to grow sales and improve our profitability through product innovation and category expansion, efficiency initiatives, and bolt-on acquisitions. We continue to see underlying strength in the U.S. housing market with the slow but steady multi-year housing recovery, which we have discussed for some time.
Our doors business is well positioned to capture increased new construction and remodeling activity, while rising homeownership rates supports our AMES tool business. Our recent acquisition of ClosetMaid nicely complements the Home and Building Products segment as we look to leverage the segment's combined strengths. Turning to Telephonics, our defense electronics business. Fiscal first quarter sales were $66 million as expected, compared to the $88 million we had in the prior year quarter. Lower revenue was mostly related to timing of orders and work performed on certain programs compared to the prior year, particularly in our maritime surveillance radar and airborne intercommunication system programs. As a reminder, the U.S. Department of Defense currently remains under sequestration while Congress continues to work on a budget that includes significant increases in military spending.
The U.S. Navy ship fleet is expected to see increased funding, which supports a healthy outlook for Telephonics maritime surveillance radars. The international set of opportunities include a number of foreign military sales and direct commercial sales to existing customers in Telephonics' core defense electronics business areas. The additional areas of new business include building on Telephonics' incumbent market position in mobile border security systems, electronic warfare, and commercial transit communication systems. Telephonics' new business pipeline of domestic and international opportunities looks strong, with backlog anticipated to grow in the second half of this year. This is an exciting time of transition for our company. We're pleased with the progress we've made on all of our strategic initiatives. I'll let Brian take you through the numbers in a little more detail.
Thank you, Ron. First quarter 2018 revenue increased 24% to $437 million, compared to the prior year period of $352 million. Increased revenue in the quarter was driven by strong performance in our Home and Building Products segment, with both acquisition and organic growth contributing to the increase, partially offset by lower Telephonics revenue. First quarter 2018 segment adjusted EBITDA from continuing operations was $43.7 million, an increase of 9% over the prior year period. Moving to our segment results, Home and Building Products first quarter revenue increased 40% to $371 million. AMES revenue increased 16% to $140 million, compared to the prior year period of $121 million. The increase was driven by acquisition-related revenue from our Tuscan Path, La Hacienda, Hills, and Harper Brush Works acquisitions, increased Canadian snow tools and pot and planter sales. In our doors business, first quarter revenue increased 8% to $154 million.
The doors business benefited from favorable mix in pricing. In our ClosetMaid business, first quarter revenue was in line with our expectations. We continue to expect $300 million of revenue from ClosetMaid in 2018. Home and Building Products first quarter segment adjusted EBITDA increased 24% to $39.5 million, compared to $31.8 million in the prior year period, driven by the increased revenue and continued operational efficiency improvements. Turning to Telephonics, as expected, first quarter segment revenue decreased to $66 million compared to $88 million in the first quarter 2017, due to lower maritime surveillance radar and airborne intercommunications systems revenue. Segment adjusted EBITDA of $4.2 million decreased compared to the prior year period of $8.1 million. At December 31, 2017, backlog was $332 million, compared to $351 million at September 30, 2017. We continue to expect backlog to increase in the second half of the year.
Moving back to our consolidated results, gross profit for the quarter was $120.8 million compared to the prior year level of $96.7 million. Gross margin, excluding $1.5 million in acquisition inventory amortization impact in the first quarter, increased 50 basis points to 28%. First quarter selling, general and administrative expenses, excluding items that affect comparability, were $101.5 million or 23.2% of sales, compared to the prior year period of $78.9 million or 22.4% of sales. In the quarter ending December 31, 2017, the company recognized a tax benefit of $24.9 million on a loss before taxes on continuing operations of $2.1 million, compared to a tax benefit of $2.6 million on income before taxes from continuing operations of $4.4 million in the comparable prior year quarter. The quarters ending December 31, 2017, and 2016 tax rates included certain net tax benefits of $23.1 million and $4.4 million, respectively.
The current year quarter tax benefits included a $24 million benefit from the revaluation of net deferred tax liability resulting from the December 22, 2017, enactment of the Tax Cuts and Jobs Act. Excluding these tax items and the tax effect on other items that affect comparability, the normalized effective tax rates for the quarters ended December 31, 2017 and 2016, were 35.4% and 40.8%, respectively. Regarding U.S. tax reform, the U.S. government enacted a comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act. This act reduces the federal corporation tax rate on U.S. earnings to 21% and moves from a global taxation regime to a modified territorial regime. As Griffon has a September 30 fiscal year-end, the lower tax rate will be phased in, resulting in a U.S. statutory federal rate of 24.5% for fiscal year ending September 30, 2018.
Subsequent fiscal years will reflect a 21% federal tax rate. Griffon will continue to assess the impact of the tax reform for the balance of fiscal 2018. First quarter income from continuing operations was $22.8 million or $0.53 per diluted share, compared to the prior year period of $7 million or $0.17 per share. Excluding certain tax items and other items that affect comparability from both periods, current quarter income from continuing operations was $2.4 million or $0.06 per share, both of which are in line with the prior year adjusted result. Moving over to our balance sheet. First quarter capital spending was $10.8 million compared to the prior year level of $7.7 million. For fiscal 2018, we expect capital spending to be approximately $45 million. Depreciation and amortization in the first quarter of 2018 was $13 million.
As of December 31, 2017, we had $84 million in cash and total debt outstanding of $1.25 billion, resulting in a net debt position of $1.17 billion. This is before the proceeds from the Plastics divestiture. We had $170 million available for borrowing under our revolving credit facility, subject to certain loan covenants. Regarding EBITDA, we continue to expect 2018 segment adjusted EBITDA of $205 million. In providing this guidance, we are mindful of the risks and impacts of weather to AMES, the health of the housing market on Home and Building Products, the U.S. Department of Defense budgets on Telephonics, and foreign exchange and commodity costs on Home and Building Products. I'll now turn the call back over to Ron for his closing comments.
Thanks. We're off to a good start in fiscal 2018, and we're well-positioned to benefit from an improving economy and an improving housing market. We believe that our ongoing efficiency initiatives will enhance our operating margins, and the expected increase in U.S. defense and infrastructure spending will drive incremental growth and profitability, cash flow generation, and ultimately shareholder value. There's much for us to be excited about, and with the dedication and commitment of our employees around the world, we'll continue to build on our success. With that, operator, we'll open it up for questions.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We'll pause for just a moment to allow everyone to signal for a question. Thank you. We'll now take our first question from Mr. Bob Labick from CJS Securities. Please go ahead. Your line is open.
Good morning.
Morning, Bob.
Morning.
Hi. Wanted to start with ClosetMaid. Obviously, as you said, sales are off to a good start. Just expand a little bit about the operations now that you've had your kind of first look inside, and operating it? I think originally you said margins will likely come in a little lower than the HBP average, but over time, you have the opportunity to grow them. How do you feel about the operations now that you've seen them? Just expand on your outlook for that, please.
Very pleased with all of our initial impressions of the business. Believe that it creates both revenue opportunities as well as cost reductions across. While we've said that we expected margins in the first year of ownership to be better than 8% at the ClosetMaid level, and I think we had said about approximately $300 million in revenue, and that we expected $25 million at the EBITDA level. We believe that this is a better than 10% EBITDA margin business and ultimately, a 10% EBIT business, over a period of years. Point being that our blended Home and Building Products segment, we fully expect to be a better than 12% EBITDA margin business over the coming years.
Okay, great. Then on Telephonics, obviously you've said that you expect the backlog to pick up in the back half of this year. Can you just talk about the visibility there for the pickup, and then other things that maybe are potential drivers that aren't in backlog and latest on Border Patrol or military spending and how it could impact you and just the outlook there over a two, three-year period, please.
Yeah. I'll remind you, Telephonics has been part of this company for over 50 years. We've seen more than a few cycles in defense. The current cycle that we're in is entirely an issue related to fiscal policy coming out of the U.S. government and the transition of building up our military has been something that we've been talking about under the current administration. You have to go back to, we've been operating under sequestration for over five years, and the amount of capital that's getting put into purchase of equipment is still constrained. We believe that Telephonics is going to be a beneficiary when the budgetary spigot ultimately flows into the broader defense industry. In order to build these ships, it takes a number of years.
To build the helicopters that go on them and then to put the radars on the helicopters that go on the ships is measured over a five-year cycle. We see Telephonics as being at the bottom of the revenue cycle backlog decline that we've seen, we believe improves quarter-over-quarter and year-over-year. The outlook that we have on some of the other programs, U.S. Customs and Border Protection, where we believe we are part of the solution for border security in terms of providing electronic mobile surveillance. Again, that's caught up in a much larger political debate and funding issue. If and when money flows, we believe we're going to be a beneficiary of it.
The outlook for us, both domestically, is strong, and more importantly, near-term, the foreign sales, which have been in process for us over a number of years, seem to be coming to the point where we expect, particularly in our third and fourth quarter of this year, to see backlog improvement.
Great. Very helpful. Thanks. Then you mentioned, obviously, earlier on the call, you're expecting the receipt of the proceeds from the plastic sale, and you'll have over $400 million in cash. You touched on it, but I was hoping you could expand a little bit about the opportunities with that balance sheet. We've seen a number of consumer companies divesting assets recently. Can you talk about if you're looking for complementary assets or if you're looking for a third leg and what the current thought process is on redeploying that capital that's about to come in?
We're very busy working on acquisitions, big and small. The timing of them are always unpredictable. We clearly are looking to grow Griffon by redeploying the capital that we're going to receive into higher growth, higher value-creating opportunities. We're really excited about the platform of our own businesses. We see complementary tuck-in acquisitions to continue around Home and Building Products. As you referenced, there's some really interesting assets that are likely to be coming up in the market over the next year. We think we're very well-positioned to compete for them, and our value added is capital, and you've heard me say this. There's a tidal wave of capital chasing assets out there. What we bring to the table, in addition to capital, is our ability to operate businesses and improve them.
We're perfectly happy to find something that is big, actionable, and for us to be able to grow Griffon, either within the businesses that we're already in or find an entirely new leg to add to the store.
Great. All right. Thank you very much.
Thank you. As a reminder, ladies and gentlemen, to ask a question today, please press star one on your telephone keypad. We'll now take our next question from Clark Orsky from Alcentra. Please go ahead. Your line is open.
Thanks, Brian. You made a comment about an impact to gross margin that I didn't hear. Could you restate that? It sounded like a one-time impact.
Sure. Oh, there is, as part of acquisition accounting, a gross up of inventory as part of the rules, and then that turns as the first inventory turns occur after an acquisition. That impact was $1.5 million and went through our cost of sales in the quarter. I removed that $1.5 million in calculating the gross margin.
Okay, thanks. There was no comparable impact in the prior period?
There was not.
Okay. Do you take that out in your EBITDA calculation?
Correct.
Okay, great. Thanks. What was the revolver balance?