Executive Summary / Key Takeaways

• Griffon Corporation is a diversified holding company anchored by its high-margin Home and Building Products (HBP) segment and a Consumer and Professional Products (CPP) segment undergoing significant profitability improvement through a recently completed global sourcing initiative.
• HBP, a leader in North American garage doors, continues to demonstrate resilient performance with EBITDA margins consistently exceeding 30%, driven by strong residential demand, favorable mix, and product innovation like the award-winning VertiStack Avante door.
• The successful completion of CPP's global sourcing expansion has transitioned U.S. operations to a more flexible, asset-light model, significantly improving profitability and setting the stage for a targeted 15% EBITDA margin by fiscal 2027, despite current North American and UK consumer softness.
• The combined strength of HBP and the improving CPP segment is generating robust free cash flow, with over $1 billion expected over the next three years, enabling flexible capital allocation including substantial share repurchases, debt reduction, and a growing dividend.
• While macroeconomic uncertainty, particularly regarding U.S.-China tariffs impacting a portion of CPP's revenue, presents risks, management expresses confidence in its ability to mitigate these impacts through strategic operational levers and maintain its fiscal 2025 guidance.

A Diversified Foundation Built for Resilience and Growth

Griffon Corporation, established in 1959, has evolved into a diversified management and holding company strategically focused on maintaining leading positions in its core markets. Through a series of transformative transactions since 2017, including the divestiture of non-core businesses like specialty plastics and defense electronics, Griffon has sharpened its focus on its Home and Building Products (HBP) and Consumer and Professional Products (CPP) segments. This strategic pivot was designed to strengthen core operations, enhance free cash flow conversion, and position the company for sustainable long-term growth.

The company's strategy is built on providing innovative, branded products with superior quality and service across diverse markets, geographies, and distribution channels. This diversification aims to reduce variability from external factors such as market cyclicality and seasonality. Griffon oversees its subsidiaries, allocating resources and managing capital structures to support both organic growth and strategic acquisitions.

In the competitive landscape, Griffon operates across several distinct markets. The HBP segment, primarily through Clopay, competes in the North American garage door and rolling steel door market, where it holds a leadership position. Key competitors in the broader building products space include companies like Masco Corporation (MAS) and Allegion (ALLE), although GFF's focus on doors and access solutions provides a distinct niche. In the CPP segment, encompassing tools, fans, storage, and watering products, Griffon's brands like AMES and Hunter compete with larger, more diversified players such as Stanley Black & Decker (SWK), Masco (MAS), and Allegion (ALLE), as well as numerous smaller, specialized competitors and increasingly, online retailers offering generic alternatives.

Griffon's competitive advantages stem from its portfolio of iconic and well-respected brands, which command pricing power and foster customer loyalty. The company also emphasizes operational efficiency, particularly highlighted by recent strategic initiatives. However, it faces challenges common to the sector, including exposure to raw material costs, supply chain complexities, and the cyclical nature of certain end markets. Compared to larger rivals like SWK and MAS, Griffon's scale in specific product categories may be smaller, and its R&D investment as a percentage of revenue is generally lower than some competitors focused on high-tech solutions like electronic security (ALLE). Despite this, Griffon's targeted investments in innovation and operational improvements aim to bolster its competitive standing.

Differentiated Offerings and Operational Excellence

A key element of Griffon's strategy and competitive positioning lies in its differentiated product offerings and operational capabilities. In the HBP segment, innovation is a significant driver. Clopay, recognized as the largest manufacturer and marketer of garage doors in North America, continues to push the boundaries of design and functionality. A prime example is the groundbreaking VertiStack Avante garage door, which earned the prestigious Best of IBS award across the entire building products industry in February 2025. This patented design features unique glass panels that stack compactly above the door opening, eliminating the need for traditional overhead tracks. The result is a sleek aesthetic that maximizes available space and light, offering a revolutionary approach to door incorporation in both commercial and residential projects. Management views VertiStack as the first in a long pipeline of future innovations aimed at maintaining Clopay's leadership. Furthermore, HBP is investing in advanced manufacturing equipment and expanding capacity at its Troy, Ohio facility to enhance productivity and better satisfy demand for premium products, with further investments planned for fiscal 2025.

In the CPP segment, while product innovation is important, the primary operational differentiator recently has been the successful execution of a global sourcing expansion initiative. This strategic move transitioned U.S. operations for certain product lines, including long-handled tools, material handling, and wood storage/organization, to an asset-light business model. Completed ahead of schedule by September 30, 2024, this initiative involved ceasing manufacturing at four U.S. sites and four wood mills, resulting in a significant reduction of approximately 1.2 million square feet in facility footprint (about 15% of CPP's total square footage) and a headcount reduction of around 600. The closed locations, with a net book value of $5.45 million as of March 31, 2025, are classified as held for sale, and the company has already realized cash proceeds from asset sales.

This shift to leveraging global supplier relationships is designed to create a more flexible and cost-effective sourcing model, improving CPP's competitive positioning. While the full financial benefits are expected to be realized by fiscal 2027, the initiative is already contributing to improved profitability. The asset-light model provides flexibility to source manufacturing from locations offering the best value proposition for customers. For product lines like fans, where the majority of U.S. supply originates from a concentrated area in China, Griffon is accelerating plans to establish alternate supply chains outside of China by the end of calendar year 2025. This operational agility is a critical strategic asset in navigating dynamic global trade conditions.

Performance and Profitability: A Tale of Two Segments

Griffon's recent financial performance reflects the distinct characteristics and strategic trajectories of its two segments. For the six months ended March 31, 2025, consolidated revenue was $1.24 billion, a 5% decrease compared to $1.32 billion in the prior year period. Net income for the same period was $127.61 million, or $2.70 per diluted share, compared to $106.32 million, or $2.10 per diluted share, in the prior year. Excluding items affecting comparability, adjusted net income was $123.47 million, or $2.61 per diluted share, compared to $122.78 million, or $2.42 per diluted share, in the prior year period.

The HBP segment continues to be the primary driver of profitability, contributing approximately 85% of total segment EBITDA. For the six months ended March 31, 2025, HBP revenue decreased 3% to $763.65 million, primarily due to a 4% decrease in volume, partially offset by a 1% favorable product mix. Adjusted EBITDA for HBP decreased 7% to $236.48 million, resulting in a robust EBITDA margin of 31.0%. This margin performance, consistently exceeding 30% through the first half of fiscal 2025, underscores the segment's operational strength and market position. The decrease in EBITDA was attributed to lower revenue volume impacting overhead absorption, and increased labor and distribution costs, partially offset by reduced material costs. Management noted a return to more typical seasonal patterns in Q2 2025 compared to the prior year, which benefited from unusually strong activity. Despite this, residential demand remains healthy, and the segment expects better volume in the back half of the year than originally anticipated.

The CPP segment, while smaller, is on a clear trajectory of profitability improvement. For the six months ended March 31, 2025, CPP revenue decreased 9% to $480.47 million, driven by an 11% decrease in volume. This volume decline was primarily due to reduced consumer demand in North America and the UK, partially offset by increased organic volume in Australia. The acquisition of Pope in Australia in July 2024 contributed 3% to the six-month revenue, and foreign currency had a 1% unfavorable impact. Despite the revenue decline, CPP's adjusted EBITDA increased significantly by 63% to $41.92 million, resulting in an EBITDA margin of 8.7%. This substantial improvement was primarily driven by the positive effects of the global sourcing expansion initiative and increased volume and improved margin in Australia, partially offset by the impact of reduced North American and UK volume. The CPP segment's EBITDA margin improved from 7% in fiscal 2024 to over 9% expected in fiscal 2025, with further gradual improvement anticipated as the transition to sourced inventory continues.

Consolidated gross profit margin has shown improvement, with normalized gross margin increasing to 41.2% in Q2 2025 and 41.8% in Q1 2025 compared to prior year periods, reflecting operational efficiencies and cost management.

Financial Strength and Strategic Capital Allocation

Griffon's operational performance translates into strong financial health and significant free cash flow generation, providing substantial flexibility for capital allocation. As of March 31, 2025, the company had cash and equivalents of $127.82 million. Net cash provided by operating activities for the six months ended March 31, 2025, was $159.43 million. While this was lower than the prior year period ($185.86 million), it was primarily due to changes in net working capital, including increased inventory in the current year compared to reductions in the prior year. Cash flows used in investing activities totaled $13.60 million, reflecting capital expenditures of $31.17 million partially offset by proceeds from asset sales ($17.58 million). Cash used in financing activities was $134.00 million, primarily driven by share repurchases and dividend payments.

The company maintains a manageable debt structure. As of March 31, 2025, total gross debt was $1.55 billion, resulting in net debt of $1.42 billion. The net debt-to-EBITDA leverage ratio, calculated based on debt covenants, stood at 2.6x at March 31, 2025, consistent with the end of fiscal year 2024 and an improvement from 2.8x a year prior. Griffon was in compliance with all debt covenants as of March 31, 2025. The debt maturity schedule is favorable, with the Term Loan B maturing in 2029 and Senior Notes due in 2028.

Management is confident in the company's ability to generate substantial cash flow, projecting over $1 billion in free cash flow over the next three years based on the current business trajectory and expected improvements. This robust cash generation fuels a dynamic capital allocation strategy focused on delivering long-term shareholder value. Griffon is committed to investing in its businesses (as seen with HBP capacity expansion), opportunistically repurchasing shares, reducing debt, and paying dividends. Since April 2023 through March 2025, the company repurchased 9.9 million shares totaling $498 million at an average price of $50.09, reducing outstanding shares by 17.4% relative to Q2 FY23. Share repurchases in Q2 FY25 totaled 420,000 shares for $31 million. As of March 31, 2025, $360 million remained under the share repurchase authorization. Griffon has also consistently paid a quarterly cash dividend, recently authorizing its 55th consecutive dividend of $0.18 per share, reflecting an annualized compounded growth rate exceeding 18% since initiation in 2012. Management views the stock as a compelling value, trading below intrinsic value, and intends to continue utilizing free cash flow for buybacks at current levels.

Outlook and Path Forward

Griffon is maintaining its fiscal year 2025 guidance, projecting revenue of $2.6 billion and segment adjusted EBITDA between $575 million and $600 million (excluding unallocated costs and strategic review charges). This outlook is underpinned by expectations for both segments to perform in line with their fiscal 2024 revenue levels.

For HBP, the expectation is that increased residential volume will offset reduced demand for commercial projects. The segment anticipates a return to normal seasonal patterns, which typically include reduced volume during winter months, although recent performance has shown resilience. HBP is expected to maintain strong EBITDA margins in excess of 30%.

For CPP, the guidance reflects continued growth in Australia, bolstered by the Pope acquisition, which is expected to contribute approximately $25 million in revenue in its first twelve months. This growth is anticipated to partially offset ongoing weakness in consumer demand in North America and the UK, which is expected to persist through the first half of fiscal 2025. The segment's EBITDA margin is projected to be in excess of 9% for the year, reflecting the ongoing benefits of the global sourcing initiative. Management expects CPP margins to improve sequentially as the year progresses and the transition to sourced inventory is fully realized, targeting a 15% EBITDA margin for the segment by fiscal 2027.

The company expects free cash flow to exceed net income in fiscal 2025, with anticipated interest expense of $102 million and a normalized tax rate of 28%.

A key assumption underlying the guidance is management's ability to mitigate the impact of potential and recently implemented U.S.-China tariffs. Approximately $325 million (annualized) of CPP's revenue, primarily from fans and lawn and garden products, is currently affected by China-based tariffs. Griffon plans to manage these costs through a combination of supplier negotiations, cost management, leveraging existing inventory, and taking necessary price actions. While acknowledging the fluidity and uncertainty of the tariff situation, management is confident in its ability to navigate these headwinds within the current guidance framework.

Risks to the Investment Thesis

While Griffon presents a compelling investment case, several risks could impact its performance and the realization of its strategic goals. Macroeconomic uncertainty, including potential recessions or prolonged periods of reduced consumer spending, could negatively affect demand in both segments, particularly for discretionary purchases within CPP and commercial projects within HBP. The HBP segment is also exposed to the cyclicality of the housing market, although its focus on repair and remodel and market share gains provide some insulation.

U.S.-China trade policy and tariffs represent a significant, ongoing risk, particularly for the CPP segment. While management has outlined mitigation strategies, the potential for higher costs, supply chain disruptions, and retaliatory actions from China could pressure margins and revenue if mitigation efforts are not fully effective or if tariffs escalate beyond current expectations. The increased reliance on global sourcing for CPP also introduces risks related to geopolitical events, foreign currency fluctuations, and conditions at international ports.

Dependence on a small number of key customers, notably The Home Depot (HD), which accounted for 10% of consolidated revenue in the first half of fiscal 2025, poses a concentration risk. A significant reduction in orders from a major customer could materially impact results.

Furthermore, the company faces potential liabilities related to historical environmental matters at sites like Peekskill, NY, and Memphis, TN, which involve ongoing investigation and potential remediation costs. While management believes the resolution of these matters will not have a material adverse effect, environmental risks can be unpredictable.

Finally, the successful realization of CPP's 15% EBITDA margin target by fiscal 2027 depends on continued execution of the global sourcing strategy, favorable market conditions for demand recovery, and effective management of tariff impacts. Delays or unforeseen challenges in any of these areas could push back the timeline for achieving this profitability goal.

Conclusion

Griffon Corporation stands as a compelling investment story, grounded in the stability and high profitability of its Home and Building Products segment and the transformative improvements underway in its Consumer and Professional Products segment. HBP, a market leader in North American garage doors, continues to deliver strong financial results, supported by product innovation and resilient residential demand. The successful completion of CPP's global sourcing initiative is fundamentally reshaping that segment, driving significant profitability gains and establishing a clear path towards a substantially higher margin profile.

This combination of a robust core business and a strategically improving segment is fueling impressive free cash flow generation, providing Griffon with the financial strength and flexibility to execute a shareholder-friendly capital allocation strategy. Despite facing macroeconomic headwinds and the complexities of evolving trade policies, particularly impacting a portion of the CPP business, management has demonstrated confidence in its ability to mitigate these challenges and maintain its fiscal 2025 guidance. While risks remain, Griffon's diversified portfolio, strong brands, operational focus, and commitment to returning capital position it favorably to continue creating value for shareholders.