Sam Darkatsh

Sam Darkatsh asked about the current status of retailer inventories within the Consumer and Professional Products (CPP) category, inquiring whether sell-in and sell-through are expected to be at parity in 2026 or if retailers might need to reload inventory. He also sought clarification on the board's signal regarding business prospects and equity value, given the simultaneous dividend increase and sequential decrease in share repurchases.

Answer

Ron Kramer, Chairman and CEO, indicated that the weak consumer has led to higher retailer inventory, so he doesn't foresee immediate repurchasing or restocking in early 2026, expecting the year to resemble 2025. He noted that potential interest rate reductions and clearer tariff situations could lead to improvements in the second half. Regarding capital allocation, Kramer stated there's no conflict, as Griffon intends to continue all three strategies: share buybacks (having repurchased 19% of outstanding shares), deleveraging (down to 2.4x leverage), and increasing dividends, leveraging significant free cash flow.

Sam Darkatsh asked about the current status of retailer inventories within the Consumer and Professional Products (CPP) category, and whether Griffon expects sell-in and sell-through to be at parity in 2026 or if there might be a need for retailers to reload inventory. He also questioned the board's signal regarding business prospects and equity value, given the simultaneous dividend increase and sequential decrease in share repurchases, which he perceived as conflicting messages.

Answer

Ron Kramer, Chairman and Chief Executive Officer, stated that the weak consumer has resulted in higher inventory levels, so he does not foresee any immediate repurchasing or restocking. He expects 2026 to largely resemble 2025, with potential for reorder/restocking in the second half if conditions improve. Regarding capital allocation, Ron Kramer clarified that there is no conflict, as Griffon intends to continue all three strategies: share buybacks, debt reduction, and dividend increases. He highlighted $560 million in share repurchases (nearly 19% of outstanding shares), deleveraging to 2.4 times, and significant free cash flow, affirming the company's ability to pursue all these actions.

Sam Darkatsh asked about the amount of share repurchases conducted in January and the expected pace for the remainder of the year. He also inquired whether the CPP segment's spring product inventory had already landed, considering potential tariff implications.

Answer

CEO Ronald Kramer stated that the company repurchased $42 million in stock during the first quarter ending in December and that second-quarter repurchase details would be provided in May. He affirmed the company's intention to continue buying back shares at current price levels. Executive Brian Harris confirmed that a significant portion of the spring product for CPP has already landed.

Sam Darkatsh asked for clarification on the impact of steel costs on the Home & Building Products (HBP) segment in Q4 and fiscal 2025, and questioned the potential dollar impact of a 60% tariff on Chinese products for the CPP segment.

Answer

Executive Brian Harris explained that the steel cost headwind from Q3 reversed in Q4 and that he anticipates steel costs will be roughly flat year-over-year in fiscal 2025. Regarding tariffs, Harris stated it was premature to speculate on specifics but expressed confidence in the company's ability to manage any new policies and meet its long-term 15% EBITDA margin target for CPP.

Sam Darkatsh asked about the company's favorable trends in pulp and paper and oil and gas compared to a competitor's headwinds, and sought a breakdown of the 2% pricing contribution by segment and product category.

Answer

President and CEO Neil Schrimsher broadly noted active energy markets and a strong position in paper, focusing on value-add, but couldn't provide a direct comparison to competitors. Director of Investor Relations and Treasury Ryan Cieslak stated that the 2% pricing contribution was relatively similar across Service Center and Engineered segments, perhaps slightly higher in Service Center. He added that pricing impact was broad-based across products, with no materially different outliers in specific categories like bearings versus steel-related items.

Sam Darkatsh asked about the specific factors driving favorable performance in pulp and paper and oil and gas verticals, contrasting with competitor headwinds, and sought a breakdown of the 2% pricing realized in the quarter by segment and product category.

Answer

Neil Schrimsher, President and CEO, noted that energy markets are active and pulp and paper benefits from Applied's strong position and value-add efforts, without specific comparison to competitors. Ryan Cieslak, Director of Investor Relations and Treasury, stated that pricing was relatively similar across segments, perhaps slightly higher in Service Centers, and was broad-based across product categories, with no material outliers like bearings despite steel content.

Sam Darkatsh of Raymond James Financial inquired about the specifics of the estimated 3% of COGS tariff impact, the dollar-for-dollar mitigation strategy, and the nature of the inventory valuation adjustment in the residential segment.

Answer

Chairman, President & CEO Richard Olson identified the primary tariff exposures as China, steel/aluminum, and reciprocal tariffs, estimating a fiscal 2025 impact of approximately $90 million. He and VP & CFO Angela Drake affirmed the plan to mitigate this fully through productivity initiatives like AMP, sourcing strategies, and targeted price increases. Drake explained the residential inventory valuation adjustment was a significant factor in the margin decline, driven by slower-than-expected battery product adoption, and characterized it as a one-off action.

Sam Darkatsh asked for an update on the company's progress toward normalizing field inventories and red iron DSOs by year-end. He also sought revised thoughts on the fiscal 2025 sales growth outlook and questioned if the lower full-year tax rate guidance implied weaker-than-expected international business performance.

Answer

CEO Richard Olson stated they are on track with inventory normalization, having made 'tremendous progress' and being 80% of the way there. Regarding fiscal 2025, he expressed 'cautious optimism,' citing strength in golf and underground, the full-year benefit of Lowe's, and a potential snow market rebound, offset by macro uncertainty. CFO Angela Drake clarified the lower tax rate was due to a favorable geographic mix and a transfer pricing study, not weaker international results, and expects a rate around 20-20.5% next year.

Sam Darkatsh of Raymond James inquired whether prospective price increases were weighted more heavily in certain business units and asked how WESCO's contracts handle price hikes on existing backlog.

Answer

John Engel, Chairman, President and CEO, clarified that prospective price increases are more heavily weighted toward the EES and UBS businesses due to greater offshore manufacturing exposure in their supply chains. David Schulz, EVP and CFO, explained that long-lead-time project contracts often have cost escalator clauses to pass through tariff impacts, while for shorter-term projects, pricing is typically locked in with suppliers. He noted that suppliers have not attempted to reprice existing backlog.

Sam Darkatsh asked about the company's confidence in the second-half recovery of the utility vertical and whether gross margins are expected to increase for the full year.

Answer

Chairman, President and CEO John Engel stated that confidence in the utility recovery stems from new customer wins ramping up in H2 2025 and direct discussions with customers who are expected to resume purchasing. EVP and CFO David Schulz added that full-year gross margins are expected to rise, partly due to an anticipated increase in supplier volume rebates from historically low levels in 2024.

Sam Darkatsh inquired about the pricing outlook for 2025, the specific basis point benefit from the one-time supplier rebate in September, and the company's goal for inventory days reduction in the upcoming year.

Answer

CEO John Engel stated that while the number of products with price increases is stable, the magnitude of those increases is lower than a year ago but consistent with the prior quarter. CFO David Schulz quantified the one-time supplier volume rebate benefit as being between 10 and 20 basis points and noted that billing margins have remained stable. He deferred providing a specific 2025 inventory days goal until the Q4 earnings call.

Sam Darkatsh from Raymond James inquired about the magnitude of the April price increase and the extent to which consumers were pulling forward purchases ahead of anticipated tariffs.

Answer

Marc Bitzer (executive) stated the price increase aims to cover higher component costs and that total pricing actions could yield a full-year margin benefit approaching two percentage points. He noted that while the discretionary demand side is weak due to low consumer confidence, there has been only limited evidence of consumers pre-loading purchases ahead of tariffs.

Sam Darkatsh asked for the expected North American margin progression throughout 2025 and for quantification of sell-through trends in Q4 and early January.

Answer

CEO Marc Bitzer and CFO Jim Peters guided to a full-year North American margin of 7.5% and expect a more balanced seasonality rather than a 'hockey stick' progression, citing carryover cost benefits and early-year pricing actions. Bitzer noted that Q4 sell-through was soft pre-election but became very strong post-election, with Whirlpool's sell-out significantly outpacing its sell-in for the quarter. He mentioned January had slowed slightly from the strong December pace.

Sam Darkatsh of Raymond James inquired about the conclusion of the company's strategic review, including its valuation implications, the potential use of the newly expanded share repurchase program, the initial outlook for 2025, and contingency plans for potential port strikes.

Answer

Executive Santiago Giraldo stated that the board determined organic growth is the best path for shareholder value and that share repurchases would be opportunistic, dependent on cash flow. While too early for specific 2025 guidance, he expects margins to trend upwards. Executive Christian Daes added that the company utilizes private ports unaffected by potential strikes and maintains a two-week inventory buffer to ensure supply continuity.