Doug Wetmore - CFO Ron Kramer - CEO

Labick - CJS Securities Justin Bergner - Gabelli & Co. Philip Volpicelli - Deutsche Bank Russell Collins - NWQ

Good day, and welcome to the Griffon Corporation Second Quarter Fiscal 2014 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Doug Wetmore, the Company’s Chief Financial Officer. Please go ahead, sir.

Thank you, Molly. Good afternoon, everyone. With me on the call is Ron Kramer, our Chief Executive Officer. Before we get into the call, there are certain matters I want to bring to your attention. First, our call is being recorded, and playback will be available, the details of which are in our press release issued earlier today and are also available on our website. Second, during the call, we may make certain forward-looking statements about the Company's performance. Such statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed. And for additional information concerning factors that could cause those actual results to differ from those discussed, you should refer to the cautionary statements contained in today's press release, as well as the risk factors discussed in our various filings with the Securities and Exchange Commission. And finally, some of today's prepared remarks will adjust for those items that affect comparability between the reporting periods. And these items are laid out in the non-GAAP reconciliations, which are included in our press release. With that, I'll turn the call over to Ron.

Good afternoon. Thanks for joining us on the call today. I am very pleased with our performance this quarter. We had very good results reflecting the continued improvement of our operations, specifically home and building products increased through a combination of core business growth and acquisition, plastics had excellent results and are benefiting from the initiatives and action implemented to improve its operating efficiencies over the last few years. Telephonics performed well despite facing a difficult comparison to last year’s second quarter and a challenging Department of Defense budgetary environment. Revenue of 508 million increased 4% over the prior year quarter. This is the highest revenue Griffon has ever reported in second fiscal quarter. Segment adjusted EBITDA of 46 million was ahead of last year, our adjusted income was $0.12 per compared to $0.08 per share in the prior year quarter. I’ll comment on each of the operating segments and then Doug will take you through the financials in more detail. Starting with home and building products. Revenues totaled 252 million, increasing 11% over the prior year, led by strong sales of snow shovels and tools at Ames and inclusion of Northcote, the acquisition we made in Australia which closed December 31, of 2013. Segment adjusted EBITDA was 17.1 million, down slightly compared to the prior year quarter notwithstanding the sales growth as we continue to refine our manufacturing efficiency at Ames and the impact of some weather in the doors business. We continue to believe that we are in the early stages of a multiyear housing recovery with new residential construction and (repairing our) [ph] model levels in the United States improving. Over time, this bodes well for both the doors and tools businesses, as housing continues to recover, relatively small incremental additional revenue will carry significant improvements in…

Thank you, Ron. Consolidated revenue totaled 508 million in the quarter representing an increase of 4% or 19 million in comparison to the prior year quarter. Home and building products led our growth with revenue increasing 11% over the prior year quarter. Ames revenue increased 18% due to a combination of improved snow tool and (planner) [ph] sales and the inclusion of the results of Northcote effective December 31, 2013. Door revenue increased 1% with favorable product mix offsetting weak volume and that weak volume was influenced by the first winter that we experienced in many of the markets that we serve. Segment adjusted EBITDA was 17.1 million, down from 17.6 million in the prior year quarter. Driven by the volume increase in the quarter Ames incurred higher distribution and selling cost and Ames also continued with manufacturing inefficiencies being encountered in connection with its planned consolidation initiative. These inefficiencies are expected to continue until the end of calendar 2014 when that initiative is complete. The effect of the decline in door volume impacted absorption in our door plant further impacting EBITDA and however that was partially offset by the benefit of the favorable mix. The impact at Northcote in the quarter was not significant to segment EBITDA. The Ames manufacturing consolidation remains on schedule and on budget. We continue to expect the annual cash savings exceeding $10 million based on current operating levels on completion of this consolidation initiative at the end of calendar 2014 as I mentioned. Telephonics revenue of 104 million declined 17 million or 14% from the prior year quarter. The decrease compared to last year’s quarter was mainly due to the prior year including shipments of (ICREW) [ph] electronic warfare totaling 13.2 million. Core Telephonics revenue decreased 4% in the current quarter with the decline…

Thanks Doug. We’re executing well on our strategy of improving the operations of each of our segments, this quarter highlights the meaningful progress we’ve made, our businesses are poised for continued growth and profitability. We have ample resources to invest in these businesses to support their growth and are optimistic about their prospects. We’re committed to shareholder value creation and are confident that we can make investments for organic growth, pursue additional acquisition and return value to our shareholders via quarterly dividend and continued share repurchases. As we look out over the next few years, we believe we can sustain revenue growth, expand our EBITDA margins and significantly increase our earnings per share. I am pleased with our performance this quarter and quite confident about our future. Operator we’ll take questions.

Thank you. (Operator Instructions) We’ll take our first question from Bob Labick with CJS Securities.

Wanted to start with HBP, Ames had a very nice quarter, obviously very strong sales there. I was wondering if it was possible to estimate the disruption from the restructuring initiatives underway in terms of the margin there, there was obviously a little margin pressure, but we've been expecting some from the restructuring. Is there any way to kind of pull that out or give us a sense of where this can get back to?

Bob, it’s a good question, I prefer to not go into the specifics of it because there is always a reasonable amount of approximation in terms of estimating what that effect is of inefficiencies, but suffice to say there were probably exacerbated by the strong demand on for snow related products during the quarter which kind of stressed the operations a little bit more than might otherwise have done. While at the same point in time, they’re building up for the spring lawn and garden season. So I’ll kind of deflect that question if it’s okay with you.

No fair enough. I think you mentioned you remain on track to complete restructuring by year end, calendar year end with a $10 million in savings, which would I guess implies somewhere in the neighborhood of 7 million plus in ‘15, if it all happens at once. So I guess first question is does it happen right away, the slow ramp and then also, will you be reinvesting that or will we see that flow through to the bottom line?

Bob, that should scale up pretty dramatically beginning with the start of calendar 2015 and while we’re always going to continue to reinvest in the business, I think the early on, anticipation will be that will be generating $10 million of cash savings as we’ve said and we have to look at it for reinvestment as and when appropriate, but right now we would expect a significant bump in EBITDA.

Okay, great. And then jumping to Telephonics, there is a nice pick up in backlog there. Just wondering if you could tell us a little bit about some of the new programs maybe or what that's picked up from, and then talk about the international opportunities there as well.

Telephonics continues to build up in its core radar and in surveillance equipment business (in spite) [ph] a number of initiatives to try to grow internationally to make up for what we fully expect to be a slow moving budgetary process. Core business continues to be strong, there is all sorts of things going on relative to multiyear programs, we’ve had this business for a very long period of time, we've gone through cycles and we believe we’re going to continue to grow top line and profitability of the business over time.

Okay, great. And then jumping to films obviously a very impressive quarter I can stop asking when you will get to 10%, a great job there. Now that you’ve lapped the exiting of the low-margin business, what should we expect in terms of volume growth going forward there?

Well to a certain extent, at least for about 55% of the business it does depend upon the macroeconomic circumstances for the business in Latin America and the business in Europe and as I said in kind of the risk comments, those are hard to put your finger on, just to be in precise, but we feel as though we’re going to continue, we’re competitive from a cost standpoint, we’ve continued to work on efficiencies and so forth which drives further competitiveness, we think we can still drive further volume growth but I think we’ll be very happy if we achieved low single digit volume growth on a sustained basis and we still have room for improved profitability particularly in Brazil and in Germany and when those are -- so while we accomplished a great deal and we’re very pleased about the management team and our ability to execute, we still think we have more that we can accomplish and increase profitability.

And Bob by the way that’s without making a substantial and further capital investment because obviously if we installed a lot more capital we can grow the top line.

It's always to continue to run the business for free cash flow and to improve the return on invested capital.

(Operator Instructions) We’ll go next to Justin Bergner with Gabelli & Company. Justin Bergner - Gabelli & Co.: Good afternoon. I guess my question relates to the share repurchases during the quarter. It seems like the shares were repurchased earlier in the quarter when the stock was at a higher price, about 12.50 per share. I'm wondering if the performance of the quarter in your eyes was good, why wouldn't you continue purchasing stock later in the quarter when the share price was lower.

Well look, there are windows that we can be in the market and there are windows when we can’t be in the market. Justin Bergner - Gabelli & Co.: Okay. I assume the window of which you could have been in the market lasted through March 31st?

We’ve been a continued purchaser of our stock, go back and look at from 2011 on and we continue to believe our stock is a compelling value. When we can, we will be in the market buying stock. Justin Bergner - Gabelli & Co.: Okay. I guess secondly, I was wondering if you might be able to quantify the headwind to Ames in the quarter from the higher distribution and selling costs.

I think those were pretty much moving in line with the increase in the sales and remember they increased to 18%. It's a lot of that is distribution cost so freight and associated cost involved with that so that drove a higher expense number there. I wouldn’t characterize that so much as a headwind it’s just a natural part of the business. The headwind we really had as I mentioned to the previous question was the manufacturing and inefficiencies that we had and that challenged the business and our people quite frankly in Ames did a great job of satisfying the customer demand during a very difficult winter season, so that was the primary driver and challenged the headwind to use your term, from a profitability standpoint. Justin Bergner - Gabelli & Co.: Okay. So I should think about the, I guess non-increase in profitability as relating more to sort of the continuing effort to take out manufacturing inefficiencies rather than to challenges in dealing with the step up in volume?

That’s very fair and then as I mentioned in my comments, the weaker volume at doors, because the doors business is a business that very much benefits from an absorption standpoint by throughput and volume was down there, so the door volume did impact absorption in our doors business. Justin Bergner - Gabelli & Co.: Okay. And one more question, if I may. In Plastics, I guess thinking about the EBITDA margin, were there any sort of one-time benefits to the performance this quarter or is that a level of margin that you are hopeful you can sustain sort of against the low single-digit volume growth looking out this year and next?

There was no one time item, mix was favorable and we believe that this margin we’ve said that we would get to a 10% EBITDA margin and that we would continue to work to expand it beyond that. We’re at that level and we’re going to continue to try to make this business as profitable as we can.

We’ll go next to Philip Volpicelli with Deutsche Bank.

Thank you very much. Two questions for you. One, what is the timing on the new $50 million share repurchases are for year, two years? And then second, I have to ask on acquisitions are there any imminent acquisitions and has the philosophy changed at all?

The authorization doesn’t have a time limit on it so it’s immediate and we have as I said, over the period of 2011 through this increase we repurchased the $107 million worth of our stock and when we think the market is not paying attention, we are and we’ll continue to put on money we’re on at this. As far as acquisitions, we always have something in the pipeline and we continue to believe that tuck in acquisitions around the businesses that we already own are the primary drivers of near term growth.

Can I ask, Ron, is there anything that you think is imminent that might close within the next quarter?

I will tell you we always have something that we’re hoping is going to get to the finish line.

(Operator Instructions). We’ll go next to Russell Collins with NWQ.

It's, really impressive numbers on the plastics, congratulations, looks like you guys are really turning that around. I noticed as I was looking at the -- on the building products side, if you look at the sequential change from December through March, Ames up around 50% and Clopay down around I think 25%, 30%. So I'm just trying to understand a little bit the operating leverage on both ends. Can you give us a little bit more sense of what is currently sort of the negative leverage on the Clopay side and maybe the positive leverage on the Ames, if we're getting some of that? I understand year over year we see the numbers, but I guess the sequential numbers really look so dramatically different on the sales side as well. And clearly [multiple speakers]

There is seasonality but Doug why don’t you...

Yes if we touch on doors first of all in the first quarter we did -- we had, we were up year over year from a volume standpoint and as I mentioned, our earlier that the door plant is very much a beneficiary of volume throughput because the fixed costs are essentially fixed but any additional throughput benefits us and the current quarter, the impact of volume being slightly down was partially offset by a somewhat favorable shift in product mix, but it did not completely offset and remember this quarter is typically and historically the smallest of the quarters for doors because of the inclement weather and if you look back to comparison last year and the year before, we benefited because a very moderate weather and doors had very strong performance in both of the first calendar quarters of 2012 and 2013 so it’s a bit of a difficult comparison because the impact of weather on doors is pretty pronounced. All kidding aside, we got the benefit of snow on the [indiscernible] business but it did have a negative effect on the doors business.

And we have every reason to see the spring selling season staring off well for both businesses and obviously the weather impact is going to have a big impact for Ames for its lawn and garden business, door business to go back over the last year, we have consistently said that there is a slow, steady recovery in the housing markets and we continue to believe that that’s the case. I think you saw some crazy weather pattern in the first quarter that not only affected us but slowed down the entire economy. We continue to believe our doors business is moving at the pace of a rate that we saw prior to last quarter.

So you would expect second -- I know the June quarter to see a benefit from weather -- the weather essentially delaying some activity into the June quarter?

That is our expectation.

Okay, thank you.

And that will conclude our question and answer session. I’d like to turn the conference back to Ron Kramer for any additional or closing remarks.

Thank you all for joining us. Very happy about where our companies are positioned and we look forward to continue to report on our process -- progress over the next quarter. Thank you.

This does conclude today’s conference call. We thank you for your participation.