Griffon (GFF)

Multi-industry consumer and professional products manufacturer Griffon Corporation (NYSE:GFF) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 9.1% year on year to $611.7 million. Its non-GAAP profit of $1.23 per share was 12.5% above analysts’ consensus estimates.

Company Overview

Initially in the defense industry, Griffon (NYSE:GFF) is a now diversified company specializing in home improvement, professional equipment, and building products.

Traditionally, home construction materials companies have built economic moats with expertise in specialized areas, brand recognition, and strong relationships with contractors. More recently, advances to address labor availability and job site productivity have spurred innovation that is driving incremental demand. However, these companies are at the whim of residential construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of home construction materials companies.

Other companies competing with Griffon in its respective industries include Masco (NYSE:MAS), Stanley Black & Decker (NYSE:SWK), and Fortune Brands Home & Security (NYSE:FBHS).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Griffon grew its sales at a sluggish 2.4% compounded annual growth rate. This was below our standards and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Griffon’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.2% annually.

We can better understand the company’s revenue dynamics by analyzing its most important segments, and , which are 60.2% and 39.8% of revenue. Over the last two years, Griffon’s revenue averaged 6.1% year-on-year declines while its revenue averaged 13.3% declines.

This quarter, Griffon missed Wall Street’s estimates and reported a rather uninspiring 9.1% year-on-year revenue decline, generating $611.7 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 4.7% over the next 12 months. While this projection implies its newer products and services will catalyze better top-line performance, it is still below average for the sector.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Griffon’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 35.5% gross margin over the last five years. Said differently, Griffon paid its suppliers $64.50 for every $100 in revenue.

In Q1, Griffon produced a 41.2% gross profit margin, in line with the same quarter last year. Zooming out, Griffon’s full-year margin has been trending up over the past 12 months, increasing by 1.6 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Griffon has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.5%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Griffon’s operating margin rose by 7.8 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Griffon generated an operating profit margin of 16.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Griffon’s EPS grew at an astounding 32.6% compounded annual growth rate over the last five years, higher than its 2.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Griffon’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Griffon’s operating margin was flat this quarter but expanded by 7.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Griffon, its two-year annual EPS growth of 10.2% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q1, Griffon reported EPS at $1.23, down from $1.35 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Griffon’s full-year EPS of $5.33 to grow 12.4%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Griffon has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.2% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Griffon’s margin expanded by 9.1 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Griffon burned through $14.44 million of cash in Q1, equivalent to a negative 2.4% margin. The company’s cash flow turned negative after being positive in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Griffon hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 17.4%, impressive for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Griffon’s ROIC averaged 3.5 percentage point increases each year. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Griffon reported $127.8 million of cash and $1.71 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $528 million of EBITDA over the last 12 months, we view Griffon’s 3.0× net-debt-to-EBITDA ratio as safe. We also see its $52.61 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Griffon beat analysts’ EPS and EBITDA expectations this quarter. On the other hand, its revenue slightly missed. Overall, this print had some key positives. The stock traded up 2.1% to $69.20 immediately following the results.

Updated: May 21, 2025 at 11:10 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Griffon possesses a number of positive attributes. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. On top of that, Griffon’s rising cash profitability gives it more optionality, and the company’s expanding operating margin shows the business has become more efficient.

Griffon’s P/E ratio based on the next 12 months is 11.4x. Looking at the industrials landscape right now, Griffon trades at a pretty interesting price. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $96.71 on the company (compared to the current share price of $68.17), implying they see 41.9% upside in buying Griffon in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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