Griffon Corp (GFF) 2012 Q2 法說會逐字稿

Good day and welcome to the Griffon Corporation second quarter fiscal 2012 financial results conference call.

Today's conference is being recorded.

At this time, I'd like to turn the conference over to Mr.

Doug Wetmore, Chief Financial Officer.

Please go ahead, sir.

Thank you, operator, and good afternoon, everyone.

With me on the call is Ron Kramer, Griffon's Chief Executive Officer.

Before I get into the details of the call, there are certain matters that I want to bring to your attention.

First, I'll mention again that this call is being recorded and will be available for playback.

Details regarding the playback are provided in our press release issued earlier today and are also available on our website.

Second, during our call we'll make certain forward-looking statements about the Company's performance.

Such forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from those expressed.

For additional information concerning factors that could cause actual results to differ from those discussed in our forward-looking statements, you should refer to the cautionary statements contained in today's press release, as well as the risk factors that we discuss in our filings with the Securities and Exchange Commission.

And finally, some of today's prepared remarks will adjust for those items that affect comparability between reporting periods.

These items are all laid out in our non-GAAP reconciliations, which are included in our press release.

Thank you.

And now I'll turn the call over to Ron.

Good afternoon, everyone, and thanks for joining the call today.

Our second quarter reflects a strong performance from telephonics, ongoing improvements in our plastics division and a stable home and building products business.

We're performing well in uncertain times.

Telephonics is operating in a business environment where a strong commercial market opportunity and many of our mission-critical defense programs give us a degree of inflation from the defense budget environment.

Telephonics revenue in the quarter increased modestly compared to the prior-year quarter with core revenue, excluding sales associated with the CREW 3.1 program, for which we're a contract manufacturer, grew 6%.

In plastics we've made progress but headwinds from a tougher business environment in Europe and in Brazil are affecting our pace and improvement.

We experienced continued momentum and increased market share, with revenue growing 10% compared to the 2011 quarter, with higher volumes across all regions.

In home and building products, 5% growth in our door business, as well as the inclusion of the Southern Patio acquisition helped offset the performance from weather-related categories.

Home and building products revenue decreased 3% from a prior-year quarter.

Consolidated revenue increased by 1% to $482 million compared to the prior year quarter.

Earnings per share in the quarter were $0.04 compared to a loss of $0.24 in the prior year.

Our consolidated segment adjusted EBITDA was $40.4 million, 8% below the prior-year quarter.

I'd like to take you through each of the operating segments in greater detail, so that you can understand the direction in each that they're headed and why we're confident about the long-term prospects for all of our businesses.

Let's start with telephonics.

Revenues grew by $500,000 over the prior-year quarter and continued to perform extremely well with core revenue growth of 6% over the prior-year quarter.

Telephonics also led the profitability performance with EBITDA of 19% to $15.3 million and operating margins up 200 basis points over last year.

Demand in funding for intelligence, surveillance and reconnaissance equipment remain strong relative to other areas of defense.

It's nice to be in the sweet spot as the leader in most of our categories.

And our customer feedback continues to be very positive.

We expect continued growth in airborne ISR equipment, and should see the benefit both from the continued upgrade and recapitalization of existing platforms as well as growth from selected new platforms with secure funding, including the Fire Scout program.

Telephonics was also benefiting from the very strong cycle in commercial aerospace, which we believe is in its early stages and will last for quite some time.

Specifically, we believe our weather and air-traffic radar systems are well positioned for this trend.

Our backlog rose 14% to $434 million at March 31, compared to $380 million at December 31, in line with expectations and giving us confidence in the near term.

Backlog at September 30 was $417 million.

Longer term, we remain very confident that our continued investment in research and development will further extend our leadership position, and we're excited for the continued development of a number of key category initiatives and product families.

We're also excited about the pending telephonics joint venture with Mahindra & Mahindra in India.

Telephonics and Mahindra signed a memorandum of understanding regarding the venture in November of 2011.

While we continue to finalize aspects of the related arrangements, we expect the joint venture to be officially formed in the second half of our fiscal year.

The joint venture will license technology from telephonics for use on a wide range of products that are both defense and civil applications.

It will provide the Indian Ministry of Defense and the Indian Civil Aviation Sector with radar and surveillance systems, identification for (inaudible) devices and communication assessments.

The JV also intends to provide systems for air-traffic management services, Homeland Security and other emerging surveillance requirements.

Finally, the highlight of the quarter was telephonics award of a $330 million follow-on contract for the delivery of 160 multimode radar systems, (inaudible) and engineering support for the US Navy's NHR 60 Romeo Helicopter program.

With all of these and other initiatives, we believe that telephonics will continue to grow and prosper.

This is an excellent business for us.

Plastics continues to have the most near-term opportunity for improvement, and we've made substantial progress on capturing it.

Revenue increased 10% to $144 million in the second quarter, driven by growth in all regions.

In particular, North America is running near full capacity and near-term visibility is quite strong.

Notwithstanding the increase in revenue, plastics EBITDA declined $2.1 million in comparison to $11.2 million in the prior year second quarter.

While we were nearly finished implementing improvements to address the manufacturing inefficiencies that accompanied our capacity expansion, we expect fully benefit of these improvements to flow through the income statement in the second half of this fiscal year.

Our new management that's been put in place is already begun to produce tangible results and progress, and we're excited to get back on track.

[Alan Kaubland] has done a superb job, and we have high expectations about where this business is heading.

At the same time, we're contending with a more complex and more difficult set of market conditions, both in Europe and in Brazil.

In general, customer demand remains robust despite that difficult environment, and the new capacity has made us a stronger competitor, enabling us to service and sustain our increased market share.

The increased volume is a great scalable opportunity, and we believe that ultimately we can run this business at an EBITDA margin exceeding 10%.

Our home and building products segment had second quarter revenue of $225 million versus $232 million last year.

Ames True Temper had revenue of $133 million versus $145 million last year, while Clopay Building Products had revenue of $91 million, up from $87 million last year.

Segment adjusted EBITDA on the 2012 quarter declined $3.8 million to $15.9 million from the prior-year quarter, though partially offset by the inclusion of Southern Patio.

Weather played a significant and hopefully temporary factor in the quarter as the absence of snow during the fourth warmest winter on record in the United States markedly impacted sales of snow-related products.

Obviously, this is beyond our control, so we've focused on the opportunities and challenges that we can address -- strong branding, innovation, customer service and broadening our product portfolio organically and through acquisition.

A moderate winter has led to an early spring with increased lawn-and-garden activity.

Ames True Temper had record sales for the month of April, and if Mother Nature continues to cooperate, we expect a very strong lawn-and-garden season.

Clopay Building Products performed relatively well in what continues to be a challenging housing market.

Revenue increased due to a combination of better volume and favorable product mix.

In short, we are pleased with its performance and the progress we have made over the past several quarters, and continue to look forward to a better environment to leverage our leadership position.

As housing recovers, we expect this business to significantly improve both revenues and profitability.

As we execute our strategy and improve operations for each of our segments, we expect to continue to generate significant cash flow.

We'll continue to utilize this in several ways to ensure we are providing value to our shareholders.

The first priority remains funding our organic growth, but we believe that our excess cash flow could be used for other initiatives.

Our businesses are well positioned, and we continue to have excellent liquidity.

We're confident that we can make investments for organic growth, pursue additional acquisitions and return direct value to our shareholders, be above dividends and share repurchases.

We remain committed to driving value to our shareholders through the full range of opportunities.

With respect to additional strategic acquisitions, we have the capacity, the infrastructure and the skill set to identify and complete transactions.

Our preference remains for tuck-in acquisitions around our existing businesses, but we continue to evaluate larger transactions that would further diversify our portfolio.

We have an excellent base of business.

We look out the next few years.

We believe that conservatively, even in a difficult economic environment, we can sustain an organic revenue growth rate of at least 5%, achieve consolidated EBITDA margins of 10% and generate compound earnings growth to better than 12%.

Again, this is strictly from our organic growth.

Doug is now going to take you through more detail on the quarter's financial, and then we'll open it up to your questions.

Doug?

Thanks, Ron.

Again, consolidated revenue in the quarter increased 1% to $482 million.

And revenue in the quarter reflects the first full quarter of contribution of the Southern Patio acquisition, which was completed in October 2011.

Despite challenging revenue in home and building products that was weather related, we were pleased with the overall growth driven by plastics and telephonics.

Telephonics strength drives from its technology leadership position in a variety of categories and from the continuing demand for ISR systems.

But the growth is notably strong in the quarter.

As has been the case for the last several quarters, telephonics revenue associated with the CREW 3.1 production impacts reported growth in what we consider our core business.

As Ron mentioned, we're a contract manufacturer for the CREW 3.1 product.

Excluding sales associated with the CREW 3.1 for both the current and prior-year quarter, it was just under $14 million in the current quarter; just under $20 million in the prior-year quarter.

Revenue in telephonics core business grew 6% in comparison to the prior-year quarter and continuing the strong performance achieved in the first quarter of this fiscal year.

Telephonics second quarter adjusted EBITDA was $15.3 million, increasing 19% or $2.4 million compared to the prior-year quarter.

Segment operating margin increased 200 basis points compared to the prior-year quarter.

Telephonics' improved profitability was primarily a result of a favorable product mix, and the improved profitability also reflects the benefit of the voluntary early retirement plan and other restructuring initiatives undertaken in the latter stages of fiscal 2011 and earlier in this fiscal year.

As we have anticipated in our last earnings call, telephonics backlog at the end of the second quarter increased significantly to $434 million compared to $380 million at December 31, 2011.

Plastics revenue in the second quarter increased $13.6 million or 10% compared to the prior-year quarter.

This growth was driven by 12% higher volume, which was spread across all geographic regions and 1% benefit related to the pass through of higher resin costs in customer selling prices.

The growth was partially offset by a 3% negative impact of translation of European, and to a lesser extent, Brazilian results, into a stronger US dollar.

Segment adjusted EBITDA in the 2012 second quarter decreased $2.1 million compared to the prior-year quarter as costs and manufacturing efficiencies -- inefficiencies, excuse me, related to recent expanded capacity initiatives in both Germany and Brazil impacted profitability.

As Ron mentioned, improvements in operations in the newly expanded locations continued but will take somewhat longer than previously anticipated, and we will continue to update you on those undertakings as progress is made.

Home and building products revenue decreased $7.7 million or 3% compared to the prior-year quarter.

Ames True Temper revenue decreased 8% mostly because of the weather-related revenue associated with snow products.

The comparison with the prior-year quarter was made even more difficult because of the extremely high level of snow fall in the prior-year quarter, which drove significant snow-related revenue.

These results were partially offset by the inclusion of Southern Patio in the current-year results.

Our doors division revenue continued to improve with the revenue increasing 5% over the prior-year period.

Segment-adjusted EBITDA in the home and building products business in the current quarter declined $3.8 million to $15.9 million from the prior-year quarter, again, mainly due to the decline in snow-related sales.

The inclusion of Southern Patio operating profit was not enough to offset the current period results impacted by snow.

We also experienced somewhat higher material and fuel costs in both operating businesses.

Consolidated gross profits in the second quarter was $103 million, a margin of 21.3% and in line with the prior-year period.

Consolidated SG&A expenses were $86 million in the quarter or 18% of revenue compared to $84 million last year.

The increase in operating expenses in absolutely value terms is the result of inclusion of Southern Patio from its acquisition day.

Overall, we continue to exercise very tight cost control across our businesses.

Earnings per share in the quarter were $0.04 as compared to a loss of $0.24 in the prior-year period.

Prior-year adjusted earnings per share were a profit of $0.10 per share.

There were no adjustments to the current quarter earnings.

The tax rate for the current quarter was a provision of 57% compared to a benefit of 32% in the prior-year quarter.

The prior-year benefit arose on a pretax loss for the quarter, which related mainly to the debt refinancing that was completed in March of 2011.

The current year rate reflects the impact of permanent differences that are not deductible in determining taxable income, mainly limited deductibility of restricted stock under Reg 162M, tax reserves and a change in earnings mix from a geographical perspective, all of which were spread over a lower pretax income, which accounts for the increase in the effective rate.

There were no discrete period items in the current quarter.

We now expect our full-year fiscal 2012 effective tax rate to be between 52% and 54%.

Cap spending in the quarter was $20 million and we continue to expect full-year 2012 cap spending to be in the range of $65 million to $70 million.

Depreciation and amortization in the current quarter was about $16 million, and for the full year we expect depreciation of about $60 million and amortization of about $8 million for a total of $68 million.

At the end of the second quarter, we had $165 million in cash and total debt outstanding of $705 million resulting in a net-debt position of $540 million.

If you look at our balance sheet, you'll note a buildup of working capital, notably inventory, primarily related to the spring lawn-and-garden season, as well as the impact of the inclusion of Southern Patio, which is also a seasonal business.

About $180 million of our $200 million revolving line of credit is available for borrowing.

Letters of credit account for the utilized portion.

There's no actual drawing under the line of credit.

For the full year 2012, we continue to expect consolidated revenue to be in the range of $1.9 billion to $2 billion, with home and building products revenue increasing in the low single digits, telephonics at a low to mid-single-digit rate of growth and plastics at a mid to high-single-digit rate of growth.

Considering the lost earnings from the very weak snow season, which will not be made up this year, we now expect segment-adjusted EBITDA will approximate $170 million compared to the $166 million reported for 2011.

These reduced expectations also consider that while significant progress has been made in plastics, work remains before we return to the normalized profitability levels in this business.

And this guidance also gives consideration to the slowness in both Europe and Latin America, mentioned earlier, as well as current exchange rates and resin pricing.

Corporate and other expenses are expected to increase somewhat from reduced levels in 2011 and be pretty much in line with the actual results reported for fiscal 2010 or about $26 million.

Corporate includes all equity compensation for the Company, which will be between $9 million and $10 million for fiscal 2012.

And with that, I'll turn the call back over to Ron.

Thanks, Doug.

We think we're very well positioned for today's business environment and for what is likely to be continued uncertainty regarding the overall economy.

Telephonics is poised to grow; plastics will continue to improve; and the home and building products business will improve as housing recovers.

We see very good growth opportunities, both in existing businesses and through strategic acquisition, particularly with the smaller tuck-ins that can meaningfully boost profitability.

With any improvement in the global economy, we expect to see our profitability expand.

All of our businesses are growing, and we believe they will continue to outperform their competition.

We have ample resources to invest in these businesses to support their growth, and we remain excited about their prospects.

We've not only built a strong business, but we have a talented Management team in each of our businesses that we expect to take us forward and create value for our shareholders.

With that, I'd like to take your questions.

(OPERATOR INSTRUCTIONS) We'll take our first question from Arnie Ursaner with CJS Securities.

Hi.

Good afternoon, Ron and Doug.

Obviously you guys are somewhat disappointed by the rate of improvement you're seeing in plastics profitability.

Just remind us what is causing the issue.

And you mentioned the term normal efficiencies hopefully returning.

What do you believe your margin will be in this segment exiting this year?

Fair question.

The base of the expansion was brought on in Germany, and we were experiencing separately through an expansion in Brazil high rates of scrap as we learned the manufacturing of new product for new customers as part of our expansion.

We're -- while it's gone slower, we're pleased with the results that we've seen.

And don't lose sight of the fact that we made all of our customer commitments; our top line has met all expectations.

And the improvement in efficiency and in run length and in profitability month over month and quarter over quarter continue to improve.

So we like the (inaudible) path.

We of course would like the profitability to have come quicker, but the goal for that has been and continues to be to ramp that business to a 10% EBITDA margin.

And we feel very comfortable that we're on the right path to that.

Do you believe you'll exit the year with that type of margin in place?

I'm sorry.

I didn't hear the question.

Do you believe you'll be at that level exiting this year?

We think that we're going to be there, and I don't want to give you certainty.

It's gone slower.

We think that month over month, quarter over quarter, we're getting towards there, and we are comfortable by the end of this year that we should see ourselves growing towards that number but fully expect that may take us into 2013 before it's achieved.

And Arnie, as well, we also mentioned in our comments that we're seeing a bit of a slowdown both in the European and Brazilian markets, which is also factoring into our forecast for the balance of this year.

And also since December we have also seen an uptick in the cost of resin, which while we pass it on, it's always passed on on a delayed basis.

And because of that, during a period of rising resin price, our margins get compressed a little bit.

Ultimately we catch up to that, but there is a delay or a lag in that pass-through, which is all being taken into account in our providing the updated information.

That leads right into my next question.

Can you remind us what percent of your revenues come from Europe?

And what is embedded in your view for the back half of the year in terms of rate of growth overall for your European business?

In Europe, fiscal 2011 was about 46% to 48% of plastic sales, and North America is about 42% to 44%, with Brazil basically accounting for the difference.

And I might be off by a percent or two, but Europe is slightly bigger than North America.

And it's basically -- remember, first of all, we started to achieve the growth in Europe last year in the third and fourth quarters from the new business that we won, so we are seeing the -- we'll have more difficult comparisons in the second half of the year.

But I think the economic circumstances in the markets that we're serving in Europe, and we've talked in the past about a slowdown in Brazil, are working their way into our forecast.

And I think while -- we're just taking a more conservative view of the economic circumstances in Europe given the current environment that they're operating in.

Thank you very much.

We'll take our next question from Tim Quillin with Stephens.

Hi.

Could you remind us what, and maybe on a normalized basis, what percent of revenue of Ames True Temper, the snow shovels represent?

You know, we've never broken out the individual product lines, but obviously the second quarter of the year and the latter stage of the first quarter of our fiscal year, snow is a big element of that.

I think it's safe to say it's probably on an annualized basis in the range of the high teens to low 20%s of the overall Ames True Temper sales.

Okay.

And that's all snow-related activity.

And I'd add to that, at a higher EBITDA margin than what we do in that business on a blended basis.

So the impact of lack of snow probably hit us by more than $5 million at the EBITDA line for the quarter.

Got it.

And have you -- did you see any benefits in the March quarter or are you seeing any benefits so far this quarter from increased sales of landscaping equipment?

I mean, I think weather can work both ways.

Are any good things happening?

Yes, as I said April was fantastic.

And one month doesn't make a quarter, and obviously -- look, we bought this business with a very long-term view.

There's going to be great weather quarters; there's going to be lousy weather quarters.

And that's going to have an impact, but it doesn't change the investment thesis of we like the business.

We think we've got products that are important to our customers.

We're going to be extraordinarily competitive winning business going forward.

We like the way we're positioned.

And the weather is going to continue to throw us curve balls.

At the moment, the weather is going our well.

Right.

And did you say what -- how much revenue and/or EBITDA Southern Patio contributed in the quarter?

No, and the only thing we've talked about publicly, Tim, is the year prior to acquisition, Southern Patio had revenues slightly in excess of $40 million.

It is a seasonal business, and this quarter just completed is one of the more significant quarters.

But we've not broken out the profitability of that.

Great.

Okay.

Very good.

And Doug, can you breakout your depreciation and amortization forecast by segment, the $68 million total?

How does that go into each of the segments?

You know, Tim, I don't have that information.

I've got the full-year basis on total.

I'd be happy to break that out for you, and if anybody else has the interest in that information on the call, if you give me an hour after the call, I'll have the information.

But I don't have it readily available now.

Yes, no worries.

Thank you.

And on -- so telephonics had what looked like a pretty exceptional bookings quarter.

Can you give us a flavor of some of the bigger chunks of order flow it saw?

Well, look, the biggest growth in the business continues to be radar related.

And they have excelled with the most significant being $330 million contract for the (inaudible).

A portion of that contract was announced, and only a portion of it rolled into our order book at the end of the quarter.

And which I guess brings up the question of on the $330 million, what will be -- what's the expected timing of revenue, and how will that -- how will you take that into backlog?

Well, just remember, we only put things into funded backlog that are going to go into production within the next 12 months.

What the importance of this contract is, and I can't emphasize enough how pleased we are and how well positioned telephonics is.

This is many years of very strong visibility on our forward backlog.

So this could be a five-year-plus contract, and we expect it to come in over that timeframe with the goal being if you look at the backlog, forget about quarter over quarter but year over year, Joe Battaglia have done just an extraordinary job of building backlog year over year and building our revenue base.

We see our product categories continuing to grow, and we believe that our backlog, though I don't want to give you a number because it's so cautionary in the environment that it's in, but the history here has been that these products are wanted and mission critical and with the base of the $330 million expansion, we think that there are other contracts that are going to come for this, and that we're going to be able to continue to build on that base going forward.

Right.

And Ron, I hate to parse words, but you said five years plus.

I mean, is there a specific term of the contract?

It basically runs to the middle of 2007, Tim, so roughly five years.

And in terms of the ability to project the revenue, let's say by year, it's difficult because there is flex on the part of the customer in terms of when those radar units are drawn down.

And what of -- so what was booked in the March quarter?

Right around $20 million, so it's just an element of the increase in the book.

Okay.

And is that kind of your anticipated one-year revenue, or do you expect a little bit more than that in terms of revenue in the current forward 12 months?

I think it would be hard on that, but, again, as Ron said, we're booking it based on the plans to put it into production.

It -- realistically, there's probably a little bit more that will come in over the course of the next quarter or two, but that's really at the discretion of our customer in terms of when they place it.

It's really beyond our control.

The key is to have the contract.

Yes.

Can you give us a little update on Fire Scout?

It probably is not going to necessarily impact you, but there was a halt on -- or a grounding of the program.

Where do you see -- what do you see in terms of the next potential orders there?

You know, that's a good question.

We know that they were grounded for a period of time because, one, Fire Scout went down in Afghanistan about a month ago.

There was a period of investigation to determine whether it was an accident or an operational failure, or whether it was, in fact, shot down.

Quite frankly, I haven't seen the final determination of what caused it, but I believe the units that are actually deployed are now back in the air, and we don't think that that will have any long-term implications for us.

And in terms of your expected timing of order flow for Fire Scout?

When do you expect the next order?

It's conceivable that we'll get some benefit in the current year in the third and fourth quarters, but that's still a bit uncertain because obviously it does depend on the timing opted for by our customer, but it will ramp up again more significantly in fiscal 2013 for us.

Got it.

And just a couple more programs, if you could give an update on what you're seeing, if anything, under the MSC program, and what your expectations are for your counter IED work?

Thank you.

Yes, the counter IED work is really -- we expect we'll have some continued demand for spares.

It really is -- it flexes.

I think there's going to be some [kidding] out of the Afghani Army, which we may benefit from.

But obviously as the troops draw down, the need to supply those devices to our troops will obviously diminish.

So I can't really forecast that.

And let's say we continue to go through testing and we continue to believe that it's a very big opportunity and has a growth profile that remains quite strong, and we've not looked at adding anything significant in this quarter, though we've got a lot of near-term visibility, and we hope to be able to add to the backlog.

All right.

Thank you.

We'll take our next question from Zahid Siddique with Gabelli.

Hi.

Good afternoon.

A couple of questions, one on -- within the home and building products.

Could you comment on if the garage doors was profitable?

Oh, yes, we had positive EBITDA in that business.

Remember, we don't break out the EBITDA of the components of the home and building products business, but, yes, they did make money.

And year over year, quarter over quarter, we actually had seen improvement, but I would not take that as a -- I wouldn't extrapolate from that any meaningful housing improvement.

We think we are maintaining or increasing market share because we've done a very good job running that business.

We've seen volume increases, which does give us some level of confidence that there is an early start to what hopefully is a recovery in the housing markets.

And we think with the overhead reductions and the positioning for Clopay that it has the potential as housing continues to recover to expand its margins significant beyond the 5%, 6% range that it's been operating.

So it's making money.

We think it will make a lot more money as volume increases.

I think the other two things just to bear in mind, one is we're still -- year-over-year comparison, this is the final quarter where we get the benefit of the mega-plan savings, which began to roll into our profitability in the third fiscal quarter of last year.

So, but we also think there's additional opportunities to drive further savings that are derivative of that project.

And the second thing, just from a sales perspective, and this is a positive to the weather, because the weather was so good during the January to March timeframe, it is possible -- we're not quite yet in a position to determine for sure, but we may have been the beneficiary of people that might have otherwise held off doing work on garage doors did it earlier in the year because the weather was accommodating.

Sure.

How much does a garage door typically cost, on average?

Well, you can go anywhere from $150 to $18,000, Zahid.

And it depends on a number of factors, including geographic region, whether you need insulation capabilities, whether it's a wood door or a metal door.

I really wouldn't even hazard a guess in terms of what the average --

Why?

Are you shopping?

No, actually not.

I rent, so I guess my owner probably would be.

Speak to your landlord.

Right.

And as people -- you know, as people (inaudible) go from rentals into absorbing, and as that process leads to new construction, look, we're going to be a beneficiary of it.

We like where we have the business positioned.

We're the number one branded Company.

We expect to stay there.

We have the brand.

We have the distribution relationships that are important to us.

You know, housing in America will come back.

Clopay is going to be a beneficiary.

Okay.

And then I wanted to follow up on the tax rate.

If I heard you correctly, you expect roughly 55% for a full year, is that correct?

52% to 54%.

And quite frankly, it's basically being driven by the reduced expectations for the pre-tax income.

And quite simply it's -- you've reduced the denominator, but the numerator, in terms of the permanent items and so forth, stays the same.

So our effective tax rate is going to be higher than normal.

It doesn't mean we're paying more taxes.

It's just the percentage relationship.

One of the key things for us to drive down that effective tax rate is to further improve our pretax income.

And just to put a little bit of clarity to it, what happens and the reason it looks so unusual is that we're making money in North America.

We're losing money in -- on a tax basis in Europe and Brazil.

The losses outside of the United States are not deductible against US.

So, therefore, with a lower consolidated pre-tax and not having the deductibility, we're effectively increasing our tax rate on American operations; thereby driving the tax rate.

And then throw in non-deductibility of restricted stock, and that (inaudible) about 50%.

Look, this is -- so that's factually accurate.

As the businesses and as our pre-tax grow into 2013 and beyond, the tax rate will come down.

What about the dollar value?

What should we -- what's your forecast for full-year dollar tax value, and for 2013, the dollar value of tax?

We don't.

We don't project.

We prefer not to comment on that.

Okay.

And last question on the guidance, I guess you brought or you reduced the guidance on the EBITDA level, but you are comfortable still that you will -- on the top line you will do $1.9 billion to $2 billion?

Let me give you -- business is growing, so our revenues are increasing.

You know, EBITDA is obviously significantly effected by the headwinds that we -- were out of our control, lack of snow and related sales in the quarter.

And that impact flows through into our fourth quarter, which we've already taken into account.

And looking out as a result of inventory that we are holding, that we there will be production that we won't be doing based on that, that revenue in the quarter.

And then in addition, we're taking the view that Europe and Brazil are going to take time to ramp up.

The confidence level is that there is a revenue increase, and that's going as expected.

The profitability, while better than last year, we still think is given the circumstances we're doing as well as we can do.

And that we're pleased with the progress and expect that to flow through the meaningful increases in 2013 and beyond.

Thank you.

(OPERATOR INSTRUCTIONS) We'll go next to Philip Volpicelli with Deutsche Bank.

Afternoon.

My question was in regard to Ames True Temper.

I think, Ron, you mentioned that you had record sales in April.

Can you give us a sense of the magnitude of increase year over year?

Is it a single-digit increase?

Is it a double-digit increase?

Yes, it was a double-digit increase, a fairly significant double-digit increase, but we'd just as soon not -- again, the practice of providing month-to-month commentary.

And the point of even saying it is that I go back to weather is a factor.

It's out of our control.

There's going to be good weather.

There's going to be bad weather.

When -- if you remember a year ago we went through our third quarter where it rained substantially.

You know, gave us a terrible environment to sell lawn and garden, not just us but all of the other customers and manufacturers in the segment.

And this quarter, this month is an outstanding start to a quarter that will be affected, one way or the other, by the weather pattern.

And I think one thing to remember is if you recall the snow in the United States last year, we really got a heavy dose of it in the latter part of March.

So that snow lingered on the ground for an extended period of time, which ended up delaying the spring lawn and garden season.

So it not only -- I mean, we had a great snow year last year, but it did have the cascade effect on delaying lawn and garden.

This year we had a weak snow season, but we're the beneficiary of, at least in April -- and as Ron said, if Mother Nature cooperates, will continue.

But that just speaks to the seasonality and the volatility of the Ames True Temper business in the short term due to weather.

And part of it is to our investment thesis, which remains intact.

Why -- we don't want Griffon highly levered.

Why we think Ames is better owned in the mix of businesses that we have.

And we're going to continue to run it with a long-term view.

Right.

And then if I remember correctly on the last call when you went through the line reviews with your largest retailer, you were unable to get price increases.

How has the price raw material relationship evolved in the first quarter?

Are you facing some pressure there?

You know, as I mentioned in my comments, we saw some cost increases in both sides of the home and building products business.

And we've got initiative to improve our efficiency and take costs out and mitigate those cost increases as best as we can.

And we try as best as we can to negotiate with our customers on a fair price for the product.

But it wouldn't be appropriate to talk about individual price negotiations.

Okay, great.

I think that's -- yes, that's it for me.

Thank you.

And there are no further questions left in the queue.

Mr.

Kramer, I'll turn the call back over to you for any closing remarks.

Thank you all for participating, and we'll look forward to speaking again in August.

Ladies and gentlemen, this does conclude today's conference.

We appreciate your participation.

You may disconnect at this time.