Griffon Corp (GFF) 2013 Q1 法說會逐字稿

Good day and welcome to the Griffon Corporation first-quarter 2013 earnings conference call.

As a reminder, today's conference call is being recorded.

At this time, I would like to turn the conference over to Mr. Doug Wetmore, Griffon's Chief Financial Officer.

Please go ahead, sir.

Thank you, Lisa, and good afternoon, everyone.

With me on the call is Ron Kramer, our Chief Executive Officer.

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

First, as Lisa mentioned, our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today and are also available on our website.

Second, during our call we may 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 the 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 SEC.

Finally, some of today's prepared remarks will adjust for those items that affect comparability between reporting periods, and these items are laid out in our non-GAAP reconciliations which are included in our press release.

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

Good afternoon, everyone.

First-quarter results were in line with our expectations, showing continued improvement in our operations as the global economy slowly recovers.

Specifically, Telephonics had another great quarter, benefiting from cost control and operating efficiencies, as well as a more favorable product mix.

Plastics continue to show improvement from the initiatives undertaken to address the manufacturing inefficiencies arising from our capacity expansions in Germany and Brazil.

And Home and Building Products benefited from enhanced profitability in our doors business.

However, ATT revenues decreased 22% due to the lack of snow and the resultant lower snow tool sales.

Retail customers also continued to hold high levels of snow tool inventory carried over from last year, further affecting the snow tool sales volume.

The weather is obviously beyond our control, but Ames is undertaking several initiatives to improve its operations, which I'll discuss in a moment.

Consolidated revenue of $424 million decreased 6% compared to the prior-year quarter, and consolidated segment-adjusted EBITDA was $43 million, increasing 3% compared to $41.6 million in the prior-year quarter.

First-quarter net income was $0.01 per share compared to $0.04 in the prior year.

Adjusted earnings were $0.05 compared to $0.07 in the prior-year quarter.

I'd like to take a moment and go through each of the operating businesses, and then Doug will take you through the financial results in more detail.

Telephonics first-quarter revenue totaled $96 million, decreasing 8% compared to the prior-year quarter.

The decline was primarily attributable to an absence of contract manufacture revenue for CREW 3.1 in the current quarter.

Notwithstanding the revenue decline, Telephonics continues the strong profitability performance achieved throughout fiscal 2012, with current EBITDA of $16.4 million and an EBITDA margin of 17%, increasing 200 basis points over the prior-year quarter.

Telephonics margins continue to benefit from favorable product mix, as well as our continued focus on manufacturing efficiencies and stringent cost control.

Our experience suggests that demand and funding for intelligence, surveillance, and reconnaissance equipment remains strong relative to the other areas of defense.

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

And we received our first order, I'm happy to say, in January.

We also believe that Telephonics is operating in a business environment with strong commercial market opportunity.

And many of our defense programs which are mission critical give us a degree of insulation from the broader defense budget environment.

Sequestration remains a cloud on the horizon.

However, we've been planning for its impact since the summer of 2011.

Telephonics has become more efficient and we will continue to adapt our business regardless of the outcome of the forthcoming budget discussions.

We believe that, while not immune from the impact of budgetary constraints we remain poised for continued growth and improved profitability.

Our funded backlog continues to build, ending the quarter at $467million.

We have good visibility on all of our programs, particularly our radar-based programs, going through 2013.

There's going to be continued issues around the world and, regardless of what the defense budget ultimately turns out to be, our products are well positioned to remain an integral part of our national defense.

Additionally, we've taken a number of initiatives to accelerate our growth internationally to be able to mitigate the impact of whatever US slowdown in defense ultimately materializes.

Finally, let me give you an update on the Mahindra joint venture.

As you're already aware, we've signed the agreement with Mahindra in a joint venture for India, and we've now completed the final regulatory steps.

As a reminder, the JV will license technology from Telephonics for use on a wide range of products that are both defense and commercial applications.

The joint venture will provide the Indian Ministry of Defense and the Indian Civil Aviation sector with radar and surveillance systems, identification friend-or-foe devices, and communication systems.

The joint venture also intends to provide systems for air traffic management services, homeland security, and other emerging surveillance requirements.

Let's turn to Plastics.

First-quarter revenue totaled $137.5 million, increasing 1% compared to the prior-year quarter.

Volumes increased 7%, but the top line was negatively impacted by the translation of local currency, European and Brazilian results, into a stronger dollar.

Plastics operating performance continues to improve, driven by the volume growth and continued progress on initiatives to address manufacturing inefficiencies related to the expansion in Germany and Brazil.

We expect to continue to show operational improvement in these regions over the next several quarters.

Plastics EBITDA margins improved year over year from 6% to 6.8%, with the improvement driven by volume growth and efficiency.

The benefits of operational improvement were substantially impacted by the higher resin costs of $4.8 million, which had not yet been reflected in increased customer selling prices.

We're pleased to note that customer demand remains robust, especially in North America.

Our expanded capacity has made us a stronger global competitor and it's enabling us to service and sustain our increased market share.

We continue to target an EBITDA margin for this business of better than 10%.

Couldn't be happier with the job that Alan Koblin and his team are doing, and the results reflect the excellence of their efforts.

Let's turn to Building Products.

First-quarter revenue totaled $190.2 million, decreasing 10% compared to the prior-year quarter.

Ames revenue decreased 22%, primarily due to lack of snow and lower sales of snow tools as a result.

Retail customers also continued to hold high levels of inventory carried over from last year, further affecting the impact on the snow tool volume.

For the quarter, the Clopay Building Products revenue increased 1%, primarily due to favorable mix.

As you've now read in our earnings release, we have announced our intention to close certain Ames True Temper manufacturing facilities and to consolidate this manufacturing into our Camp Hill and Carlisle, Pennsylvania locations.

These actions are the result of a strategic review of this business, similar to what we did in our garage door a few years ago.

We expect to complete this initiative by the end of next year, and it markedly improves Ames' manufacturing and distribution efficiencies, allowing for in-sourcing of certain production currently performed by third parties and improves material flow and absorption of fixed costs.

We estimate annual cash savings exceeding $10 million, based on current operating levels, and we hope that the operating levels improve significantly.

We expect to incur restructuring costs of $8 million and also anticipate capital spending of $20 million in connection with the plan.

Our doors business continues to perform well.

We're pleased with its performance, the progress that we've made over the past several quarters, and continue to look forward to a better environment to leverage our leadership position in this business.

As housing recovers, due to our successful restructuring over the last several years, slow increments of additional revenue will carry significant profitability benefits for Home and Building Products.

As far as Corporate, in December we announced the hiring of Bob Mehmel as President and Chief Operating Officer of Griffon.

This is really a tremendous hire for us.

In this newly created role, Bob has oversight over our operating businesses and the development of our corporate strategy.

Bob's a truly capable executive; joins us after having served as President and Chief Operating Officer of DRS Technologies, a leading defense technology supplier that had annual revenues of $4 billion and 10,000 employees before its sale to Finmeccanica.

We're excited to have Bob as part of our team and we believe his experience and leadership will be a significant benefit to Griffon and its shareholders.

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

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

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

Earlier today the Board declared a regular quarterly cash dividend of $0.025 per share payable on March 27, 2013 to shareholders of record as of the close of February 27, 2013.

During the quarter, under our buyback program, we significantly tuned up our buying.

We bought 700,000 shares for $7.3 million during the quarter.

At December 31 there was approximately $31 million remaining under our existing $50 million buyback program.

Doug will now take you through the quarter's financial in more detail, and then I'll come back for closing remarks and we'll open it up for your questions.

Doug?

Thanks, Ron.

Consolidated revenue totaled $424 million in the quarter, decreasing 6% compared to the prior-year quarter.

Telephonics revenue was $96 million in the current quarter, which is a decline of $8.5 million compared to the prior-year quarter.

The 2011 quarter included $5.9 million of revenue related to the CREW 3.1 program, where we serve as a contract manufacturer.

There was no CREW 3.1 revenue in the current quarter.

Excluding CREW 3.1 revenue, Telephonics core revenue decreased 3% from the prior year, primarily due to lower shipments of Advanced Radar Surveillance Systems, which was partially offset by increases in Romeo Radar and Secured Digital Intercommunications revenue.

Telephonics segment-adjusted EBITDA was $16.4 million, an increase of 4% from the prior-year quarter, while segment-adjusted EBITDA margin increased 200 basis points compared to the prior-year quarter.

Telephonics improved profitability has been a function of the favorable product mix and manufacturing efficiencies combined, particularly in the current quarter, with lower selling, general and administrative expenses related to the timing of proposal and research and development activities.

Telephonics operating results have also materially benefited from cost reductions resulting from the voluntary early retirement plans undertaken and other restructuring activities over the past two years, through which we eliminated 185 positions at Telephonics that have not been replaced.

Importantly, as I previously stated, the improvements to the Telephonics cost structure are not only contributing to current profitability improvements, but also make the business more cost competitive in bidding on future business opportunities.

In the current quarter Telephonics was awarded several new contracts and received incremental funding on current contracts.

At December 31, 2012 backlog reached a record $467 million, up from $451 million at September 30, 2012, giving us confidence in Telephonics near- to medium-term operating outlook.

Turning to Plastics, first-quarter revenue was $137.5 million, increasing 1% compared to the prior-year quarter.

Plastics volume increased 7%.

However, as Ron mentioned, translation of local currency results into the stronger US dollar impacted reported results by about 4% unfavorably.

In the current quarter the euro was about 4% weaker versus the dollar than the year-ago quarter, and on that same basis the Brazilian real weakened more than 12% compared to the 2012 quarter.

A shift in mix had a 2% unfavorable effect on revenue in comparison to the prior year as well, accounting for the balance of the fluctuation.

During the first quarter selling price adjustments due to fluctuations in resin costs were not significant.

Just as a reminder, Plastics adjusts customer selling prices based on underlying resin costs on a delayed basis.

As Ron mentioned, we continued to see improvement in Plastics operating results.

First-quarter adjusted EBITDA was $9.3 million, increasing 14% from the prior-year quarter, driven by the improved volume and continued efficiency improvements made on those past capital initiatives.

Partially offsetting -- actually in a material way offsetting the benefits of operational improvement, current-quarter results included a $4.8 million unfavorable impact from the higher resin costs that have not yet been reflected in increased selling prices.

Had resin costs been neutral in the first quarter this year, our EBITDA margin would have slightly exceeded 10% of sales.

By region, North America continued to run near full capacity and the near-term visibility is strong.

Europe, which accounts for approximately 45% of our business, is, not surprisingly, more challenging, but showing improvement in a difficult macro economic environment.

And Brazil has also made significant progress, but also in a difficult economic environment.

Though there remains significant room for continued improvement, we're benefiting from improvements in operations in the expanded locations, and we expect this trend of improvement to continue into the balance of 2013 and beyond.

Home and Building Products revenue was $190 million, decreasing $20 million, or 10%, compared to the prior-year quarter.

Ames True Temper revenue decreased 22% to $77 million due to a lack of snow and resultant reduced sales of snow tools.

And, as Ron mentioned, the retail customers continued to hold high levels of snow tool inventories carried over from last year, further affecting snow sale volume.

Door revenue was up 1% to $113 million, mainly driven by favorable product mix.

The Home and Building Products segment adjusted EBITDA in the current quarter decreased slightly to $17.2 million from the prior-year quarter and that decrease was driven by the lower snow volume.

The impact of snow was partially offset by a combination of reduced Ames True Temper warehouse and distribution costs, other cost initiatives undertaken by Ames, and an increase of $900,000 in Byrd Amendment receipts, which are anti-dumping compensation that Ames True Temper has periodically received from the US government.

At this time, though, we do not expect any further anti-dumping compensation.

Favorable mix and manufacturing efficiencies in our doors business further contributed to the segment-adjusted EBITDA results for the quarter.

We've announced a restructuring at Ames True Temper that involves consolidation of certain manufacturing facilities into existing Pennsylvania locations.

In this regard, we expect to incur pretax restructuring and related exit costs of $8 million, of which $4 million will be cash charges.

The cash charges will be $3 million for one-time termination and other personnel-related costs, and $1 million for facility exit costs.

Home and Building Products recognized $1.1 million and $300,000 in restructuring and other related charges in the current and prior-year quarters, respectively, related primarily to one-time termination benefits and other personnel costs.

The current-quarter charges, the $1.1 million pretax, relate primarily to Ames True Temper's plant consolidation initiative.

On completion of the initiative we expect annualized cash savings exceeding $10 million based on current operating levels.

As Ron mentioned, we will begin to realize a portion of those savings in the latter stages of fiscal 2013, but the bulk of the savings will begin to be realized in the latter stages of 2014.

And we'll continue to update you on the status of this initiative in future quarters.

Overall, our consolidated gross profit in the first quarter was $97.7 million, a margin of 27%, in line with the prior-year period.

Consolidated selling, general and administrative expenses were $82 million in the quarter, compared to $83 million last year.

Current-quarter SG&A expense includes $2.1 million related to a noncash pension settlement loss that resulted from the lump sum buyout of certain participant balances in the Company's defined benefit plan.

That's a plan that's closed and there's no additional service being earned at this time.

These are a buyout of existing pension obligations.

The buyouts were funded by the pension plan and reduced the Company's net pension liability by $3.5 million.

Excluding this pension item, SG&A expense approximated 19% of consolidated revenues for the quarter.

And we continue to exercise tight cost control across our businesses.

First-quarter net income totaled $600,000, or $0.01 a share, compared to $2.5 million, or $0.04 per share, in the prior-year quarter.

Current-year results included a restructuring cost net of tax of $700,000, or $0.01 a share, and a loss on the pension settlement which represented $0.02 per share after tax.

Prior-year first-quarter results had restructuring and acquisition-related costs of $1.3 million net of tax, or $0.02 per share.

So on an adjusted basis, current-quarter adjusted net income was $2.6 million, or $0.05 per share, compared to $3.8 million, or $0.07 per share in the prior quarter.

As I mentioned in my opening remarks, the reconciliation of GAAP results and EPS to the adjusted results accompanies our press release.

Our first-quarter effective tax rate was a fairly significant 68.1% compared to 49.2% in the prior year.

In both years the effective rates reflect the impact of permanent differences not deductible in determining taxable income, mainly limited deductibility of some restricted stock, as well as tax reserves and changes in earnings mix between domestic and nondomestic locations.

The first quarter, quite frankly, is also high because of these factors, but it's further exacerbated by the low pretax income in the quarter.

If pretax were equivalent to last year's first quarter, the effective tax rate would have been pretty much identical with last year's first-quarter effective rate.

For the full year 2013 I continue to expect the effective normalized rate, excluding any discrete items, to be in the range of 46% to 48%.

That's unchanged from prior guidance.

Capital spending in the current quarter approximated $17 million, a decrease of about $3 million from the prior-year quarter.

Depreciation was $15.4 million in the quarter and amortization was just -- at the annual amortization -- $2 million for the quarter, excuse me.

Currently we expect capital spending of $65 million to $70 million in fiscal 2013, slightly above the expected $64 million in depreciation for fiscal '13.

This expectation contemplates the capital to be incurred in connection with the Ames plant consolidation initiative.

And just for your models, full-year 2013 amortization expense is expected to be $8 million, in line with the prior year.

At December 31, 2012 we had $150 million in cash and total debt outstanding net of discount of $699 million, resulting in a net debt position of $549 million.

Remember, this quarter is typically one of our smallest from a cash generation perspective, and we also build inventory for the coming lawn and garden and spring building seasons.

About $179 million of our $200 million line of credit is available for borrowing.

There is no actual draw under the line.

Letters of credit issued account for the utilized portions.

And now, our expectations for fiscal 2013, first of all, are unchanged from those discussed on our November call.

We expect consolidated revenue to be in the range of $1.9 billion to $2 billion, with Home and Building Products revenue increasing in the mid-single digits.

Telephonics core business, excluding the CREW 3.1, is also expected to achieve mid-single-digit rate of growth.

And Plastics is expected to grow on a reported dollar basis in the low-single digits.

As I noted during our last call, the currency comparison for Plastics, which is our most international business, is pretty difficult, particularly in the first half of the year.

And is always the case, Plastics guidance is the most susceptible to variation, due to a combination of resin pricing and foreign currency fluctuations.

Based on our revenue expectations I just outlined, we continue to expect our segment-adjusted EBITDA to approximate $180 million, representing a 5% increase over what we achieved in 2012.

Corporate and unallocated expenses are expected to be in the range of $28 million to $29 million.

Corporate includes all equity compensation for the Company and that's currently expected to be between $11 million and $12 million for the year.

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

We're pleased with our performance this quarter and believe that we will perform even better as the economy improves.

Telephonics poised to grow; Plastics will continue its turnaround; and we expect Home and Building Products to benefit from the recovery in housing, as well as from our Ames restructuring initiatives.

We believe that over the long term our businesses have room to grow and will outperform their competition.

We have ample resources to invest in these businesses to support their growth, and are optimistic about their prospects.

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

The foundation of our business is solid.

As we look out at the next few years we believe that we can sustain organic revenue growth, expand our EBITDA margins, improve our return on equity, and significantly increase our earnings per share.

I'm very excited about our future.

And with that, Operator, why don't we open it up for questions?

Thank you.

(Operator Instructions) Bob Labick; CJS Securities.

Congratulations on a nice start to the year.

Let's jump in with Telephonics.

First, the Fire Scout program, that was a nice award.

I think it's certainly ahead of our expectations.

I was wondering if you could just speak a little more about the program and your expectations for that now for this year.

And then remind us of the potential size of the program over the next several years as it relates to opportunity for Telephonics.

We had always said that we thought that the initial orders would come sometime in fiscal year '13.

This, by our own expectations, happened far sooner.

I think it speaks to the importance of an already funded program.

And this is the beginning of what we hope to be a very long lived set of opportunities for Telephonics.

The initial award, down award to us, was $200 million on a $2 billion contract to Northrop.

And our initial order is the start against that $200 million order which we've always said was going to be over a period of years.

The importance of that technology and our proven ability and cost effectiveness is why we won the award.

And we think this is going to have significant long-term growth for Telephonics and its Fire Scout, and there's a number of derivatives of Fire Scout that will happen over time.

So it's always a guess as to when additional programs will come our way.

This one we had very little baked into our forecast for 2013, and this is helpful.

Our order book, as we've discussed, is significantly higher at the end of this quarter than I think many people who follow us were expecting.

And we feel very optimistic about Fire Scout, the program, our technology, and the longer-term implications for Telephonics growth.

Okay, great.

That's very helpful.

And you indicated on the call in November the steps you've taken to improve the margins in Telephonics.

And I believe, though, that you also indicated that there may be some retraction from the highs of last year.

However, you showed a further improvement of 200 basis points.

Could you tell us kind of an expected or sustainable range for margins in Telephonics?

[We'll] say it again; we don't expect them to go up from here.

And the range for this business has steadily improved.

I was looking back, and when you look at Telephonics over time, we've grown this business -- the Company's going to celebrate its 80th birthday this year, which is quite remarkable.

And in the last four years we've grown our top line 20% and we've grown our EBITDA line 50%.

So this is a business that we view as incredibly well managed.

Joe Battaglia and his team have done the right things.

The environment around defense has changed continually in 80 years, and it will change continually for the next 80 years.

It's an important business.

Its technology is proven and its growth rate is going to be dependent on a lot of things out of our control.

What's in our control is making sure it's the most efficient business.

And some of the growth initiatives that we have are significantly higher margin, particularly the joint venture, which is a technology licensing.

But that's very far out in the future.

But these are the kinds of things that we think about, that we're planning and that will become obvious.

Short term, controlling costs, doing plant consolidations, rightsizing people, have all been the right decisions to have made for this business.

And those decisions two-plus years ago are just starting to show the impact and you've seen it over the last several quarters.

Yes.

And, Bob, I made a comment in my comments that may have been lost a little bit.

But some of it has to do with the timing of proposal and research and development activities.

So the first-quarter profitability, the EBITDA margin of 17%, is aberrational a little bit within the year, so you're going to see some flux.

And I've said on the last few calls, you shouldn't build out into your model Telephonics being sustained, at least at the present, at the high EBITDA margins that they've achieved.

I think you're probably looking at something in the neighborhood -- you form your own judgment on what that means -- for the full year 2013 in the neighborhood of the EBITDA margins achieved for fiscal '12.

So you're going to see some fluctuations in the next couple quarters because of spending in bid and proposal costs.

Okay, great.

That's helpful color.

Thank you.

Just jumping over to the Home and Buildings Products, with the restructuring announced with Ames, I just want to know how that kind of moves into the bigger picture as we see a recovery a few years out.

You've often said that HBP can be a $1 billion-plus business with 10%-plus EBITDA margins.

Does this move that margin goal with these savings to 11%, 12%?

Or how do you look at the business now once you get this restructuring behind you?

Yes.

I think the upside will take care of itself.

What we're trying to do is rightsize the business for what's obviously been an incredibly volatile weather pattern that's affected that part of the business.

We've said that we think there's a recovery that we now clearly see in our door business, and that the revenues have yet to really show significant growth.

So the increase in profitability as a result of the doing the mega-plant is obvious to us.

And we put the same focus on the Ames business, on the assumption that weather never normalizes and how do we make the most money we can in that business.

And then ultimately, what the profitability turns out to be will take care of itself.

So we still target a blended 10% margin for that business.

And we still think that there's upside.

But until we see a normal weather pattern that we can get our arms around as to what's the top line going to be, this is the most conservative way for us to approach making sure that we maximize our profitability in a difficult environment.

And we've experienced a number of quarters in owning Ames where we have had significant impact by having spring that was washed out and by having two consecutive years of record high temperatures impacting snow.

You have to go back to 1860-something in order to get to -- 1863 in order to get to the same winter pattern that we've just experienced.

I'm willing to take the upside that by getting the cost structure into the most efficient footprint, that over time we'll continue to generate nice returns on this investment.

I think it's important -- we've always recognized that -- we conceded that the weather was beyond our control, but we also said that we were going to take those steps and address those initiatives that were within our control.

And cost cutting and streamlining the manufacturing footprint of Ames True Temper is one of those things that is in our control.

And even if we have further anomalous weather periods we will have reduced our cost base and improved the profit of Ames True Temper and the Home and Building Products business at current operating levels.

And if we get an uplift from that, a return to normal, whatever the new normal is, we should benefit from that measurably.

Okay.

That's terrific.

And then just going over to films, the progress has been fantastic in the margin improvement, particularly if you account for -- if you back out the impact from resin in the quarter.

Is there still expected growth beyond what you have?

And then also I guess the second part would be -- can you talk about the market dynamics in Europe, if there's any market share shifts and any opportunities for you there?

Let me -- there's a couple questions embedded in that.

Let me deal with -- the top line's grown nicely.

And the issue has always been we want profitable growth, not just top-line growth and for the sake of having a larger revenue base.

So rightsizing the mix in the business has been a priority and is going to continue to be a focus.

So we still like the growth prospect.

And as we mentioned, Europe is slower and Brazil went from a business that we were losing money in to stabilized, actually making money.

And I give that -- that's a management story.

And the management there has done the job that we hired them to do, which was to take the business, right the investments that we had made, get the manufacturing efficiencies improved.

And we continue to think that that's going to be the story over the balance of this year and going forward.

North America continues to be the leading part of the volume increase and the leading part of the profitability story for Plastics.

Germany will go through a change in market dynamic.

Kimberly Clark has announced that they're exiting that market.

That should benefit our Proctor & Gamble relationship, but that remains to be seen.

And so we feel like it's a business that is going to improve.

There's going to be a rightsizing of the product mix and the customer base that we should continue to focus on.

And ultimately the goal here is to have a 10% or better EBITDA margin business at not less than the revenue levels that we're currently operating on.

And we think that high-single-digit growth is the best that you're going to look at in a recovering European economy that this business will get the benefit from.

Doug, do you want to add anything?

No.

I think -- remember, there was a 7% volume growth there that was kind of masked by the unfavorable currency.

And currency has a tendency to even out over the long term.

But they focus on volume.

They focus on selling profitable product.

And as Ron was very complimentary of the management in Plastics, I would only repeat those comments.

Okay.

That sounds great.

Resin's going to -- resin has been a headwind.

So it's real and it shows you at some level that there is an expectation of a recovery in the global economy.

Okay.

Terrific.

Thank you very much for all the color, and keep up the good performance.

Tim Quillin; Stephens, Incorporated.

So on Ames True Temper -- and clearly we are having unusual weather, and there's no doubt about that.

And you're taking action on costs regardless.

But have you been able to ferret out any evidence that there's something else besides weather happening there?

Look, I'll tell you we are sensitive to GDP growth in that business more than we are sensitive to housing.

But a recovering housing market helps the Ames business.

GDP in this has been anemic.

And we have not seen the big infrastructure spending.

And remember the phrase "shovel-ready"?

We bought a shovel company and there's been no infrastructure development in the United States in the last several years.

Unemployment's still 7.8%.

So the Ames business hasn't lost market share.

The Ames business is suffering from a recovering US-dominant economy.

And in Canada, where we own Garant, which is the leading market share company in Canadian snow shovels, for two years running there's been record low snow.

So we're not -- we consider all that bad luck.

We don't think it's a bad business.

As a matter of fact, we think it's a good business.

We announced that we brought Les Ireland in to run the Ames business.

Comes from Stanley Black & Decker.

We have a long-term view of positioning this company for an improving economy.

And we think its brands, we think its quality, and we think its relationships with its customers and its growth potential will be recognized.

Now, that's not going to happen in 2013.

And we've said clearly that our guidance for the year remains what it was in November.

And I can assure you in November we thought there was going to be a winter.

There wasn't.

And hopefully there will be a spring and that will benefit us.

And maybe we're being conservative, but it has been a volatile business.

We try to look at this as where are we going to be long term.

We think Ames is complementary to us in our segment, to having the door business and having the customer relations.

But that business will improve as volume improves.

We haven't lost market share.

We think this is entirely a reflection of what's going on in the economy.

And then on the $8 million in restructuring charges and the $20 million in planned CapEx there, remind me what the timeframe for that is going to be?

It will be between this fiscal year and fiscal '14, Tim.

The capital spending is probably fairly evenly spread over that period of time, so model $10 million a year.

But as I said, the guidance, I bumped it a little bit from what we previously provided in November.

Our spending will be $65 million to $70 million this year.

That includes the spending associated with the Ames initiative.

The restructuring charges will -- there's very clear accounting guidance for that in terms of recognition of the severance-related costs and the asset-related costs.

Those will be in discrete periods over the course of the next, let's say, six to seven quarters, because those will span into the first half of fiscal 2014.

I'd like to be somewhat sensitive to the affected employees, so I won't give you a calendarization of that right now.

Okay.

That's fair.

I've had a few people over the past few months wondering if your garage door business shouldn't be seeing a little bit more growth right now, given some early signs of a, albeit slow, housing recovery.

But it seems like other housing-related companies have had maybe a little bit faster start.

Can you kind of reconcile that a little bit?

I think our seasonality is an issue.

I think that we see the improvement in both volume.

We see the improvement in both our dealer network and in our big-box customers.

I think you've got to separate the difference between what's an absorption and moving a lot of single-family homes into speculative hands that are renting them, and the multifamily impact.

We are in the beginning of a housing recovery.

The housing markets in this country have not recovered.

We have a front row seat on it.

Telephonics has its issue in looking at defense.

Clopay Building Products is in -- our garage door business is a absolute finger on the pulse of what's really happening in housing.

And you're at the early stages of the recovery in that market.

And you have to remember, too, that the garage door is actually the last piece that's bolted on to the new home.

And new housing starts now typically should trigger garage door sales in the next two quarters, let's say.

So I think when we're speaking three months from now and ideally more likely six months from now, we'll tell you whether the housing starts that you hear about right now are actually leading to increased garage door sales.

If they're housing finishes.

Yes.

And go back to the same comment.

When you have the levels of unemployment that we have, and you have the amount of pent up demand that's out there, when it starts to shift, we should see significantly higher volumes.

We're not expecting that.

We're not projecting that.

It's not in our guidance for this year.

But we certainly believe that the earnings power of not just home im- -- of the door business and the Home and Building Products segment is significantly beyond what we're looking at in 2013.

And the capital initiatives and the plant restructuring that we undertook with respect to the door business in the years 2009 to 2011 ideally position us from a cost and efficiency standpoint to really be able to leverage that uptick in housing if it does indeed come to pass.

Right.

And then on Telephonics, I think Telephonics may be the only government contractor to build backlog in the December quarter.

You know, that may not be an exaggeration.

So that was very impressive.

Was the order for Fire Scout, was that in -- did it come after the quarter, in January?

Yes.

And that's a $33 million order.

Is that right?

The initial, yes.

The initial order is $33 million.

So knock on wood, it could be a decent bookings quarter in the March quarter as well, or maybe not as big of a disaster as other government contractors might be looking for.

But -- and you alluded --

(Multiple speakers)

What's that?

No one's immune from a sequestration that's uncontrolled.

Right.

Right.

And so we're not going to be Pollyanna-ish about it.

We think Telephonics' products are mission critical, proven, and funded.

And our visibility in '13 is clear.

And then what happens beyond that is -- if we don't come to an agreement on budgets and providing for national defense, everyone's going to suffer.

We think Telephonics is as well positioned -- and we've been saying this now for the last several years, that our concentration on intelligence, surveillance, and reconnaissance is our competitive advantage.

Right.

Right.

No, you're doing a great job of dodging the bullet so far.

And then, what are you thinking on acquisitions right now?

Do you continue to evaluate things?

What's going on there?

We are focused on operational improvement and, while I would love to believe that there's an acquisition out there, that -- we clearly have the financial capacity and we clearly have the undrawn both bank and the ability to come back to the bond market.

It's not where my focus is.

I want these businesses to be able to get to the maximum amount of profitability, cash flow.

And we've gone -- we've dealt with some difficult issues over the last few years.

We are clearly -- each of our businesses is getting better month over month, quarter over quarter.

And we think that there's still a level of improvement.

So part of the strategy for us is focus on the operations.

Continue to build our operating excellence.

And the acquisitions will come as a result of that.

Yes.

Fair enough.

And last question was -- what was Ames year-over-year growth in 1863?

That was a very strong year, Tim.

It was actually a very weak winter (multiple speakers) --

That was a bad weather year, yes.

(Laughter)

Listen, everyone talks about owning businesses for the long run.

We think that these businesses -- we think we have them moving in the right direction operationally.

And we think our capital structure provides an enormous amount of flexibility.

We've invested in the businesses.

Our CapEx will start to go off.

Our free cash flow will start to rise in 2014 and beyond.

We like where these businesses are positioned.

We want to continue to build the operating performance and the weather will have an impact one way or the other in that happening.

Thank you.

(Operator Instructions) Marty Pollack; NWQ Investment Management.

If I may, just a couple questions, one on the Plastics business.

I guess there was a time we would talk about EBIT margins and the possibility that those margins could move up in the high-single digits.

At this point as we're talking about EBITDA margins, can you kind of translate back what you might be thinking about is the potential for the Plastics business?

The 10% margins currently obviously -- assuming that you didn't have the resin problem, you would have shown a margin of about 5.5%.

But is that 10% suggest a run rate that you would be comfortable in the EBITDA line?

Or should it actually be higher if you're targeting perhaps higher EBIT margin itself?

That would be the first question.

Well, I think the first step, Marty, is to get to the sustained annualized basis of an EBITDA margin of 10%.

But I think Ron has been pretty clear that that's the first step, because that's getting us back to where we were.

But then the next step is to build upon that and continue to improve the profitability as well as the return on the underlying assets deployed.

Okay.

And secondly, if I may, on the Telephonics, it's quite amazing that considering so much of the business actually could run off in a year's time, you've been able to grow the backlog.

But as you look at the impact of sequestration and, you know, it seems that at some point the backlog is going to decline, as much as you will have fairly good visibility of earnings in 2013.

Should we just assume the backlog will be kind of dropping off more precipitously just simply because 70% of your business you're saying of that backlog is going to basically be visible through, or will happen, in 2013?

So are we replacing that backlog with some orders that will keep that number fairly elevated?

Look, I think if you look at the pattern, we've increased our backlog consistently for the last five years.

And we believe that our outlook is -- for 2013 and beyond that things might shift to the right as a result of whatever is going to happen in March.

But our products are necessary.

Our replacement business is ongoing.

And this is not a company and a technology that is subject to boots on the ground.

It's not a consumable.

And that this is part of the budget that is going to have to continue to be funded.

Now, how many, at what timing?

But to your question, there's no reason for us today to sit and project that we're going to have a downturn in our backlog.

And the empirical evidence is each year we have improved our backlog.

Each year we've improved our revenue.

And we've significantly improved the profitability of this business.

Yes.

Okay.

Thank you.

It appears there are no further questions at this time.

Mr. Kramer, I'll turn the call back to you.

Thanks.

And we will look forward to reporting on our continued performance in May.

Ladies and gentlemen, that does conclude our conference.

Thank you for your participation.