Greetings, welcome to the Griffon Corporation Fiscal Second Quarter 2026 earnings 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'll now turn the conference over to your host, Brian G. Harris, CFO. Please go ahead, sir.
Thank you. Good morning, and welcome to Griffon Corporation's second quarter fiscal 2026 earnings call. Joining me for this morning's call is Ron Kramer, Griffon's Chairman and Chief Executive Officer. A 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 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 reconciliations included in our press release. With that, I'll turn the call over to Ronald J. Kramer.
Thanks, Brian. Good morning, everyone. Thanks for joining us. On February 5th, we announced a series of strategic actions to focus Griffon into a pure-play North American building products company. These actions included the formation of a joint venture involving our AMES North America businesses and the strategic review of our AMES Australia and AMES U.K. businesses. As a result of these actions, starting with our second quarter earnings released today, our continuing operations from financial performance is presented as a single segment. The global AMES businesses are now reported as discontinued operations. We're very pleased with our financial results at the halfway point of our fiscal year. Our team's performance has been solid, showing resiliency, managing through uncertain global economic conditions. We continue to perform well in soft U.S. housing and commercial construction markets.
I'm proud to report Clopay continues to assert its position as the leading garage door provider with best-in-class product innovation. This year, Clopay was recognized for the second year in a row as one of the Best in Show for its pioneering innovation at the International Builders' Show. As a reminder, last year, Clopay was recognized as the best of IBS across the entire building products industry for its groundbreaking VertiStack Avante garage door, an innovative system that replaces traditional overhead tracks with a compact vertical stacking design, resulting in a cleaner aesthetic and open ceiling space. This year, Clopay won a Best of IBS award in the window and door category for its Avante door with C-Power enabled Click-to-Conceal panels. The patented C-Power technology delivers electrical power directly to the garage door panels, opening up a new world of potential for these doors.
The first products to use C-Power is Clopay's Click-to-Conceal panels, which allows the door to instantly transition its windows from clear to opaque. This is an ideal solution for homeowners who use their garage as flexible living space or design forward commercial spaces like restaurants and automotive showrooms, offering daylight and outdoor views when desired and privacy and security when needed. We're excited about the bright future we see through powering the garage door panels and the C-Power product. We congratulate our Clopay team for this remarkable achievement of receiving prestigious recognition from the international builder products industry for two years in a row. Even beyond VertiStack and C-Power, we have a deep pipeline of future product innovations to maintain our position as a leader of mission-critical door solutions. Okay. Let's go to strategic actions.
We continue to expect to close our joint venture with ONCAP, which will include our AMES U.S. and Canadian businesses by the end of June 2026. Griffon will receive $100 million of cash proceeds when the joint venture formation is completed, as well as $161 million second lien pay-in-kind notes from the joint venture. Griffon will also own 43% and will have representation on the joint venture's board of directors. The strategic process for AMES Australia is active and ongoing, and we'll update you when we have more to report. With respect to the AMES United Kingdom business, after careful consideration of our available options, we've made the difficult decision to exit the business because of persistent economic challenges. We expect all of these strategic actions to be completed by the end of the calendar year. Let's go to capital allocation.
During the second quarter, we repurchased $33 million of stock or 422,000 shares at an average of $78.03 per share. At March 31, $247 million remained under the repurchase authorization. We continue to believe that our stock is a compelling value. Since April 2023 and through March, we've repurchased $611 million worth of stock, 11.5 million shares at an average price of $53.21. These repurchases have reduced Griffon's outstanding by 20% relative to the total shares outstanding at the end of the second quarter of fiscal 2023.
Yesterday, the Griffon's board authorized a regularly quarterly dividend of $0.22 per share, payable on June 17 to shareholders of record on May 29, marking the 59th consecutive quarterly dividend to shareholders. Our dividend has grown at an annualized compounded rate of more than 19% since we initiated dividends in 2012. These actions reflect the strength and resiliency of our business, as well as our continued confidence in our strategic plan and outlook. I'll turn it over to Brian for a bit more financial details.
Thank you, Ron. I want to reiterate, these financial results reflect Griffon's reporting structure as a single segment. All results are presented on a continuing operations basis, with prior periods restated on the same basis. More details are provided in our earnings release and will be provided in Griffon's 10-Q filing. Second quarter revenue of $422 million reflected a typical seasonally low volume. Year-over-year revenue decreased 1% with a 6% reduction in volume driven by residential, being partially offset by a 5% improvement in price and mix. Second quarter adjusted EBITDA of $98 million decreased 4% year-over-year, driven by the decreased revenue, the unfavorable impact of decreased volume on overhead absorption and increased material costs, including steel. EBITDA margin was 23.2%, a decrease of 60 basis points from the prior year quarter.
Gross profits for the quarter was $192 million, with 45.5% gross margin, compared to $198 million in the prior year quarter, with gross profit margin of 46.5%. Second quarter selling, general, and administrative expenses were $105 million, or 24.8% of revenue, compared to prior year of $107 million or 25% of revenue. Second quarter GAAP income from continuing operations was $47 million or $1.03 per share, compared to $50 million in the prior year quarter or $1.06 per share.
Excluding items that affect comparability from both periods, current quarter adjusted net income from continuing operations was $48 million or $1.05 per share, compared to the prior year of $49 million or $1.05 per share. Year-to-date free cash flow from continuing operations was $101 million compared to $114 million in the prior year. Year-to-date net capital expenditures were $18 million compared to $26 million in the prior year. We expect free cash flow from continuing operations for the full fiscal year to be in excess of income from continuing operations. Regarding our balance sheet and liquidity, as of March 31, 2026, we had net debt of $1.3 billion and net debt-to-EBITDA leverage of 2.4 x as calculated based on our debt covenants.
This compares to 2.6 x leverage at the end of last year's second quarter. Our net debt and leverage are in line with our year-end September 2025, even after returning $72 million to shareholders through dividends and stock buybacks during the first half of the fiscal year. Regarding our expectations for the year, we are maintaining our fiscal 2026 guidance based on the results we have seen through the first half while presenting it to reflect our new reporting structure. 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 income from continuing operations.
We also expect CapEx to be $50 million, depreciation to be $27 million, and amortization to be $15 million. Fiscal year 2026 interest expense is expected to be $93 million, excluding any interest income that may be recognized this year from our anticipated AMES joint venture. Normalized tax rate should be 28%. I'd like to reiterate that our guidance, as stated, is unchanged from expectations for the former Home and Building Products segment, Hunter Fan, and unallocated costs that we originally outlined in November and again in February. I'll turn the call back over to Ron.
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 the residential and commercial markets will return to growth and expect to realize substantial operating leverage as activity improves. With respect to capital allocations, we're 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. In closing, I'd like to express my sincere appreciation for our Griffon employees who've continued to drive the success of our business. We're grateful for their contributions. Operator, we're ready for 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. Please limit yourself to one question and one follow-up. 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. Our first question will come from Trey Grooms with Stephens.
Hey, Ron and Brian. This is Ethan on for Trey. Thanks for taking the questions. As we think about your fiscal second half, you reiterated the full year guide, any changes to the underlying assumptions around the end markets? I think that the prior guide had contemplated, you know, flat volume in commercial and residential, maybe understandably a bit softer. Any changes to those assumptions, particularly how those flow through in the second half? Also we know that the HBP pricing lapse in the fiscal second half. Just any more color on top line cadence would be great. Thanks so much.
Sure. We expect the second half quarters to be similar to what we've seen over the last several quarters. As you mentioned, residential volume will continue to be soft, commercial roughly flat, and we'll see benefits from price and mix. I will point out that Clopay had price increases recently issued mid-single digit that were effective at the end of March. We have another price increase that has started. Overall, you know, we expect second half to look similar to the second half last year.
The only thing I'd add to that is I'll remind everyone that the second half is our strongest free cash flow part of our cycle.
Got it. You know, picking up on that free cash flow point. You know, in the past, you've guided to, you know, $1 billion in cumulative free cash flow. The period was fiscal 2025 to fiscal 2027. Obviously the business looks a bit different now. The cash generation remains really strong. Just any more detail on sort of the pro forma cash generation profile of the current business, maybe relative to any prior targets you had provided would be very helpful. Thank you.
Sure. The cash flow of our businesses was and is primarily generated by the Clopay business. We still have the Hunter business, and we'll get the cash flow from that as well. It'll be slightly less than historical as we've taken out, the AMES tools businesses, but those were not significant cash generators.
There's a balance sheet impact from all of the discontinued operations, strategic planning that we're doing that'll continue to de-lever.
Our next question will come from Bob Labick with CJS Securities.
Good morning. Congrats on the strong operations and on the, you know, the awards that HBP talked about earlier.
Thank you. Good morning.
I wanted to kind of, you know, stick with the innovation pipeline and thanks for the info on VertiStack and is it C-Power as well? Can you talk about the, your innovation pipeline and what's helping you drive growth kind of beyond the market? Obviously we're in this, you know, lull in the market a little bit. You know, how does this innovation compare to the past, to your past innovation cycles? How should this help you know, outpace the market in terms of growth?
I just say that, you know, the fundamentals of our business have not changed. Our execution of the plan that we've laid out over the last several years continues. Clopay is the leading brand with the best dealer network and the best big box distribution. It's a business that has evolved that is both residential and commercial, that has very low exposure to new home construction. We long term would love to see the housing markets recover and see new home construction expand. The core of our business on the residential side has been repair and remodel, and that continues to be the driving force behind Clopay's profitability.
The commercial business that we bought seven years ago integrated into our business and has come to position to be a leading commercial rolling steel security products, and in the future, mission critical infrastructure solution provider is in development. This is an excellent business with very low CapEx, 2% CapEx, that has growth ahead of it in both the residential market, the commercial market, and we just are gonna continue to execute that plan. The result of that is, you know, the housing markets, while they have not gotten better, they continue to be a repair and remodel driven for us.
Got it. Okay, great. Regarding steel, you mentioned it briefly in the prepared remarks. It's, you know, steel prices have obviously crept up a little bit. It's in the middle of a long multi-year range still. Could you just remind us kind of inventory turns, the impact of steel and your ability to price and just the timing and the lag, if there is still one, and you know how that tends to work?
Yeah. There generally is a four or five-month lag of purchase to actual realization of the cost.
We'll hear next from Collin Verron with Deutsche Bank.
Good morning. Thank you for taking my questions. Price mix continues to be very favorable. I guess I just want to dive into maybe parsing out the difference between price and mix, and I think that there is a lot of room for mix. I guess I was just curious as to sort of your long-term expectations on driving mix improvement and how meaningful of a lever that could be for you guys, call it the next couple years.
Sure. For the quarter, we saw the benefit being more price than mix. Going forward, I point back to Ron's comments from a few moments ago, you know, we continue to innovate. Those products that we come out are generally higher-end new technology products that generally will provide better revenue and mix metrics.
That's helpful. I guess just from a homeowner perspective, I guess or an end user perspective, have you seen a bifurcation or continued bifurcation in sort of high end versus low end that's supporting this? Is it pretty consistent across the sort of different price points in terms of demand strength?
Sure. You know, Clopay is, you know, is a better, best, you know, solution. You know, we address, you know, the higher end of repair and remodel. While, you know, there's no question that, you know, there is, you know, weakness in the consumer, particularly at the lower end, you know, our business and our ability, you know, to sell through both big boxes and the dealer network, continues to meet our expectations.
We'll hear next from Tim Wojs with Baird.
Hey, guys. Good morning and Nishita.
Good morning.
Maybe just kind of first question. You know, Ron, now that you've kind of, you know, we're kind of, you know, focusing on kind of the HBP business on a go-forward basis, is there any sort of change to how you think about allocating kind of capital going forward, you know, between buybacks and, you know, potentially acquisitions? Or is there no real change in your eyes at all?
Well, I'd say, you know, look at what we've done. We've bought back 20% of our outstanding. Our cash flow is substantial over the last several years, and our expectations is that for it to continue to build. We have a combination of businesses that we've streamlined and brought into focus that is going to give us a strong cash flow position to make choices about share repurchases, de-leveraging. I will say M&A is not on the table because our view is the cheapest and best acquisition we can make is in the market on a daily basis.
Okay. Okay, that's really helpful. Thanks. Then, I guess just on the retail portion, you know, within the, you know, within the business, I know parts of that, you know, specifically the fan business has been challenged over the last 18 months. Have you seen any sort of improvement in that business on a sequential basis, or is it still pretty tough?
It's at the moment stable. You know, we have seen, as you said, you know, softness over the last several years now with the consumer being weak. At the moment it's stable, and the business is in very good shape and ready for when the consumer returns.
As a reminder, that is star one if you would like to ask a question. We'll go next to Julio Romero with Sidoti & Company.
Good morning, Ron and Brian. This is Justin on for Julio.
Good morning.
Starting on HBP integration. Can you share where you're seeing early wins on the Hunter and Clopay collaboration? Is it through distribution, dealer relationships or even on the product and innovation side?
We have been and will now with those businesses working closer together, continue to realize the benefits of leveraging on the commercial side, the Hunter commercial fan, and that is, you know, we share projects and put fans into each other. Sorry, put fans into the Clopay side of the business. There has been a project where we have created a garage type fan that has gotten very good reception from our dealer network, and it's in early stages, but we're looking forward to that continuing. Early days, we have expectation that we're gonna be able to build both the residential and commercial.
Very helpful. Turning to the joint venture, your $93 million interest expense guidance excludes interest income from the anticipated joint venture. Can you help us size that income stream?
We will have $161 million of PIK notes with a 10% interest rate.
This now concludes our question and answer session. I would like to turn the floor back over to Ron Kramer for closing comments.
Thank you for joining us today. We're excited about the road ahead, confident in our strategy, and committed to continuing to deliver superior returns for our shareholders. We look forward to updating you in August.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.