Griffon Corp

NYSE:GFF

Earnings Call Transcript 2020-Q4

[Operator]

Greetings and welcome to the Griffon Corporation's Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

[Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Brian Harris, Senior Vice President and Chief Financial Officer. Thank you. You may begin.

[Brian Harris]

Thank you, Maria. Good afternoon, everyone. With me on the call is Ron Kramer, our Chairman and Chief Executive Officer. Our call is being recorded and will be available for playback, the details of which are in our press release issued earlier today.

As in the past, our comments will include forward-looking statements about the company’s performance based on our views of Griffon’s businesses and the environments in which they operate. Such statements are subject to inherent risks and uncertainties that can change as the world changes. Please see the cautionary statements in today’s press release and in our various Securities and Exchange Commission filings. Finally, from today’s remarks, we’ll adjust for those items that affect comparability between periods. These items are explained in our non-GAAP reconciliations included in our press release.

Now I will turn the call over to Ron.

[Ronald Kramer, Chairman and Chief Executive Officer]

Thanks, and good afternoon, everyone. Griffon entered this year from a position of strength both operationally and competitively. Our 2018 pivot out of the capital intensive commodity driven Plastics business and continued focus on branded domestically manufactured products set the stage for strong revenue, earnings and cash flow growth. We have also captured additional market share as we continue to realize synergies across our businesses, innovate new products, maintain our exceptional product quality and deliver superior service to our customers.

Our businesses were performing well before the pandemic and the performance of our product portfolio has continued to show strength throughout this unprecedented year as consumers organized their living spaces, repaired and upgraded their homes and spent more time outdoors. Our strong fourth quarter and fiscal year results reflect the strengths as well as the actions we've taken over the last several years through our portfolio reshaping.

We finished the year with revenue up 9%. Adjusted EBITDA up 18% and adjusted EPS up 50% compared to the prior year results. We also generated strong free cash flow of $88 million in 2020 compared to $69 million in 2019. We continue to see consumers investing in home projects, such as closet renovations, tending to their lawns and gardens, enhancing their enjoyment of the outdoors, and upgrading the exterior of their homes, including their garage doors.

We took action this year to fortify our already strong balance sheet. In August we completed a public offering of 8.7 million shares of common stock with net proceeds of $178 million. This equity offering, coupled with extending maturities on our unsecured bonds to 2028 and our credit facility to 2025, will help us execute on our growth strategy and continue to invest in our businesses and to reduce leverage while providing sufficient liquidity to weather any near-term effects of the pandemic or other market uncertainties.

To that end, achieving a leverage ratio of 3.5 times was one of our key priorities coming into the year and we're pleased to have executed on this target as our strong financial performance and free cash flow conversion during the year, coupled with our equity offering brought our net-debt-to EBITDA leverage to 3.4 times.

At the onset of the COVID-19 pandemic, ensuring the health and safety of our employees and our customers has been and continues to be our top priority. Since early March, we have proactively implemented health and safety measures across all of our global facilities, and as local and national authorities have circulated additional guidelines for employee health and safety, we're incorporating those as well. We reacted immediately, decisively and have spared no expense in dealing with the COVID-19 risk and will continue to do so.

All of our facilities are currently operational; however, we continue to be mindful of elevated case counts in Europe and now in the U.S. again. In the previous shutdown, all of our U.S. facilities were deemed essential businesses and we expect that to continue should another broad shutdown occur.

Turning to the market update, beginning with Consumer and Professional products, we saw strong fourth quarter demand for seasonal lawn and garden products, tools, storage and organizational solutions at major retailers and home centers across all of our geographies, U.S., Canada, Australia, UK and Ireland. We're excited about the progress we've made in our previously announced AMES strategic initiative.

We've recently broadened this strategic initiative across all of our AMES businesses and will now include all the North American facilities, AMES United Kingdom, AMES Australasia and our manufacturing facility in China. The expanded focus of this initiative leverages the same three key development areas being executed within our U.S. operations, first multiple independent information systems we unified into a single data and analytics platform, which will now serve AMES globally. Second, certain global operations will be consolidated to optimize facilities footprint and talent. Third, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations and support our growing e-commerce initiative.

Expanding the rollout of the new business platform beyond AMES U.S. to include our global operations will extend the project by one year with completion now expected by the end of calendar year 2023. When fully implemented, these actions will result in an annual cash savings of $30 million to $35 million, which is $15 million more than we planned with the original initiative and a $30 million to $35 million reduction in inventory which is $10 million more than we planned in the original initiative. These improvements are based on our fiscal 2020 operating results.

Moving to Home and Building Products segment, in 2020 we had strong residential section garage door demand resulting from the same drivers around investing in homes as our Consumer Professional Products segment. Our commercial door business also had strong demand driven by the benefits of being combined with Clopay, e-commerce warehouse construction and demand for security products.

Telephonics 2020 revenue increased over the prior year and order demand was strong in the fourth quarter, increasing 22% compared to the prior year fourth quarter. Backlog ended the year at $380 million. We continue to have a good pipeline of opportunities, both domestically and internationally. We also announced today that Telephonics implemented an initiative to improve its operational efficiencies to streamline its organization and consolidating facilities. Brian will discuss this more as he goes through the financial details.

Finally, earlier today our Board authorized an $0.08 per share dividend payable on December 17, 2020 to shareholders of record on November 25, 2020. This marks the 37th consecutive quarterly dividend to shareholders, which has grown at an annualized compound rate of 17% since we initiated it in 2012. We're continuing to focus on managing our cost structure and improving operating efficiencies, strengthening our balance sheet and increasing value to our customers to better service and a broader branded product portfolio. We believe our 2020 results demonstrate we can do that successfully and more to come in 2021.

With that, let me turn it over to Brian to take you through a little more detail. Brian?

[Brian Harris]

Thank you, Ron. I'll start by highlighting our fourth quarter consolidated performance. Revenue increased 15% to $661 million and adjusted EBITDA increased 8% to $63,000 both in comparison to the prior year quarter. Normalized gross profit for the quarter was $175 million, increasing 10% over the prior year quarter. Our gross margin contracted 118 basis points to 26.4%.

Fourth quarter normalized selling, general and administrative expenses were $126 million or 19% of revenue compared to $115 million or 20.1% in the prior year fourth quarter. Fourth quarter GAAP income from continuing operations is $20.1 million or $0.41 per share compared to the prior year period of $16 million or $0.37 per share. Excluding items that affect comparability from both periods, current quarter adjusted net income from continuing operations was $22 million or $0.44 per share compared to the prior year of $17 million or $0.40 per share.

Turning to our full year results, consolidated revenue increased 9%to $2.4 billion and adjusted EBITDA increased 18% to $236 million, both in comparison to the prior year. Normalized gross profit for the year was $646 million increasing 11%, while gross margin increased 41 basis points to 26.8%. 2020 normalized selling, general and administrative expenses were $474 million or 19.7% of revenue compared to $449 million or 20.3% in the prior year.

2020 GAAP income from continuing operations was $53 million or $1.19 per share compared to the prior-year period of $46 million or $1.6 per share. Again, excluding items that affect compatibility from both periods, 2020 adjusted net income from continuing operations were $73 million or $1.62 per share compared to the prior year of $46 million or $1.8 per share.

Corporate and unallocated expenses, excluding depreciation, were $12 million in the fourth quarter and $47 million for the full year. Effective tax rate, excluding items that affect comparability for the full fiscal year was 32.2% compared to 34.3% in the prior year. Capital spending was $14 million in the fourth quarter compared to $18 million in the prior year quarter. For the full year capital expenditures was $49 million compared to $45 million in the prior year.

The current year included $7 million of capital expenditures related to the AMES strategic initiative. Depreciation and amortization totaled $15 million for the fourth quarter and $52 million for the full year. Regarding our balance sheet and liquidity as of September 30, 2020 we had a net debt position of $825 million and debt-to-EBITDA leverage of 3.4x as calculated based on our debt covenant. This reflects one and a half turns of deleveraging from the prior year period.

Our cash and equivalents were $218 million and total debt outstanding was $1.05 billion. Borrowing availability under the revolving credit facility was $370 million subject to certain loan covenants.

Regarding Q1 in 2021 guidance, like many other companies, we withdrew our guidance in our fiscal second quarter because of uncertainties arising out of the COVID-19 pandemic. We reinstated it in our fiscal third quarter having gained a clear picture of the effects of the pandemic's impact for this fiscal year.

Our regular practice has been to give guidance once a year and not to update that guidance during interim periods. We are returning to that practice. We are pleased that we exceeded both our revenue and adjusted EBITDA guidance. Our full year 2020 revenue guidance was approximately $2.3 billion and we achieved $2.4 billion. Our full year 2020 adjusted EBITDA before unallocated expenses guidance was $270 million plus and we achieved $283 million.

It is also worth noting that our reinstated guidance in the third quarter was significantly higher than our original guidance provided back in November 2019. That guidance was 2% to 3% revenue increase compared to 2019 and adjusted EBITDA before unallocated expenses of $250 million plus.

Regarding our 2021 annual guidance, providing guidance for 2021 is particularly challenging given the unprecedented events in 2020, and the continued global uncertainty we all face as we enter 2021. Nevertheless, we intend to follow our policy of providing guidance we feel to achieve more at the beginning at the year, and not providing updates with the guidance afterwards.

We expect Griffon's overall revenue in 2021 to be approximately $2.4 billion. In terms of profitability, we expect fiscal year 2021 adjusted EBITDA to be $285 million or better excluding both unallocated costs of $47 million and one-time charges related to the AMES and Telephonics initiative. As Ron stated earlier, the expanded AMES initiative will extend the project by one year and we now expect completion by the end of calendar 2023.

When fully implemented these actions will result in annual cash savings of $30 million to $35 million, and a reduction in inventory of $30 million to $35 million; both based on fiscal 2020 operating levels. The cost to implement this new business platform will include one-time charges of approximately $65 million, which increased from $35 million under the original initiative and capital investments of approximately $65 million increased from $40 million under the original initiative.

The one-time charges are comprised of $46 million of cash charges which includes $26 million of personal related costs, such as training, severance and duplicate personnel costs, as well as $20 million of facility and lease exit costs. The remaining $19 million of charges are non-cash and are primarily related to asset write-downs.

During the fourth quarter, Telephonics initiated a Voluntary Employee Retirement Plan, which was followed with reduction in force in order to streamline the organization and improve efficiencies. These actions will cost approximately $4.5 million, $2.1 million of which was recognized in Q4, and the remainder will be recognized in the first quarter of fiscal 2021.

Telephonics is also consolidating its three Long Island based facilities into two company owned facilities. Total costs for the facility consolidation will be approximately $4 million, which primarily consists of capital expenditures occurring in 2021.

Total capital expenditures for 2021 are expected to be $65 million, which includes $15 million supporting the AMES initiative and $4 million supporting the Telephonics facilities consolidation. Depreciation and amortization is expected to be $64 million of which $10 million is amortization.

We expect to continue to generate free cash flow in excess of net income, inclusive of the capital investments and other investments we are making at AMES and Telephonics. We expect net interest expense of approximately $63 million for fiscal 2021. Our expected normalized tax rate will be approximately 32%, as is always the case geographic earnings mix and any legislative action including new guidance on tax reform matters may impact grades.

As a final comment with our guidance for fiscal 2021 attempts to factor in external variability, the potential impacts from a global increase in COVID-19 cases, and the related potential shutdowns to combat the spread of the virus, as well as the challenging global macroeconomic environment and the uncertain U.S. political environment, all make providing guidance challenging. Our guidance also assumes that we will be able to offset wage and commodity inflation through a combination of cost mitigation actions and pricing.

Now, I'll turn the call back over to Ron.

[Ronald Kramer, Chairman and Chief Executive Officer]

Thanks, Brian. Griffon’s 2020 total year performance is something we are proud of, considering how much has been achieved in just a few years since we began the portfolio repositioning, and then adding the impact to the disruptions from the COVID-19 pandemic in 2020.

We expected the portfolio actions would provide opportunities for top line growth and margin expansion through the realization of efficiencies during the integration process of our acquired companies. Further, we expect it to become stronger competitively by providing increased value to our customers in terms of our broader product offerings, improved service levels, and enhanced efficiency.

Our results for 2020 are consistent with achieving those opportunities. Total year revenues grew 9%. Adjusted EBITDA increased 18%, and earnings per share increased 50%. Free cash flow totaled $88 million, and we strengthened our financial position, through better cash performance and paying down debt, achieving our net debt to EBITDA leverage goal was September 30, 2020 leverage of 3.4 times. We continue to believe the diversity of our businesses, our emphasis on domestic manufacturing, and our focus on leading brands provides a strong foundation for growth and a competitive advantage.

We have made progress, but we know there is still considerable opportunity for improving the performance of all of our existing businesses. In addition, we remain committed to finding strategic acquisitions that expand and strengthen our product portfolio within each of our home markets.

In closing, I'd like to thank our workforce, which has shown exceptional dedication and perseverance throughout this challenging period. We appreciate the importance of their work in order to deliver these excellent results. We know we will continue to face obstacles and are monitoring any new developments on COVID-19, but we are committed to the safety and welfare of our 7,400 employees, as well as our customers and all of our communities.

With that operator, we're happy to take any questions.

[Operator]

[Operator Instructions] Our first question is from Bob Labick with CJS Securities. Please proceed with your question.

Bob Labick

Thank you. Good afternoon and congratulations on a nice quarter and very strong year.

Ronald Kramer

Thanks, Bob.

Brian Harris

Thanks, Bob.

Bob Labick

It’s good. So I want to start with the AMES. And it's exciting that you're expanding it, what looks to be strong incremental returns as well, the whole project looks really strong. You talked a little bit about one of the outcomes being enhancing your e-commerce capabilities. Wondering if you could just tell us a little bit about what you're doing in that regard, where you are now and where you'll be? And is this front facing? Is it all kind of on the backend and logistics, or a combination of both?

Ronald Kramer

Let me start by saying our e-commerce initiative is supporting the growth of each of our individual customers. So it's our ability to build the infrastructure in order to accommodate the order entry program, as well as the automated delivery of product to the end customer. It's something that we believe is going to continue to be part of the growth of customers such as Home Depot and Lowe’s, Menards, and our ongoing support for customers that are emerging, like the Wayfairs and ultimately, the Amazons of the world.

But we really look at ourselves as a branded product manufacturer, and there's a broad ability for us to be able to distinguish ourselves with our leading market share and essential products, and then to be able to interface with the evolving retailer in e-commerce to be able to deliver those products directly to the consumer. Brian, do you want to give some details on some of the other pieces of Bob's question?

Brian Harris

Yes, I would just add to that, completing orders for e-commerce is generally different than doing it for large home centers. So you will have just one set of products in a particular order going to one individual consumer. And our new automation on the distribution side, as well as the manufacturing side, will help us fulfill those small orders to individual consumers while continuing to maintain excellent service to the larger retail customers, such as the home centers.

Bob Labick

Got it, really helpful, thank you. And then shifting gears a little bit, but obviously somewhat topical, given what most people would say is the Biden presidency that's coming. Does that have any impact on Telephonics and can you give us an update on the international outlook for Telephonics as well, and how that is ramping?

Ronald Kramer

Telephonics has been going through a multiyear impact that goes back to the sequestration programs that went from the Obama administration. The turn in defense spending that really was the 2017 budget gives us visibility in that business. Clearly, the predictability of foreign military sales has happened slower than we would have liked, but in the core products that Telephonics represents: intelligence, surveillance and reconnaissance, there is no question that there is an ongoing global demand for the U.S. and allies, and the domestic funding for the programs that we're involved in, we continue to believe are strong.

So while the five-year cycle is not something that we're at all happy with seeing our revenues go down and profits go down in the business, it's a business that we've owned for a very long time, we have an appreciation for its cyclicality. And we believe that the five-year cycle in front of us is going to get us significantly back towards the level of both revenue and profitability that we were at before we went through this sequestration cycle. So we view the ongoing political movement as being factual. The reality is we make essential products that are cost effective battle proven. And for the U.S. Navy, and for allies, we believe will continue to be a supplier.

Bob Labick

Got it. Okay, great. And then last one from me and I’ll jump back in queue. Last year was generally a pretty weak snow season, particularly northern, the Northeastern U.S. and everything and just wondering, I know, you have significant market share in snow shovels and the like, is this going to create any lumpiness in terms of inventory or anything like that going ahead or how do you plan and work through seasonal changes like that?

Ronald Kramer

Yes, I would answer that snow is just a category of a very diversified, balanced, global company. It's a very different company than the AMES that, going all the way back 10 years that we've owned the business, and snow is just not nearly as seasonal an impact as it was then. The company is far more diversified, far more balanced, and its globally counter cyclical. And, on any given season, both spring or winter, there's an impact of incremental demand.

But what we're seeing and have been seeing is, we have the leading market share in every product that we sell, not just snow, but lawn and garden, storage and organization, and all of those different products gives us a far different impact on being able to control the outcome of any one snow season or any one spring planting season. But we've enjoyed robust demand throughout this year or to the point that we're not the least bit concerned about any of the near-term seasonal snow issues.

Bob Labick

Got it. Okay, super, thank you very much.

[Operator]

Our next question is with Julio Romero with Sidoti & Co. Please proceed with your question.

Julio Romero

Hi, good afternoon, everyone. On the expansion of the AMES strategic initiative, how much restructuring should we layer into our models for fiscal 2021?

Brian Harris

Sure, I'll answer that. We were expecting about $15 million of expenses as well as $15 million of capital expenditures.

Julio Romero

Okay, got it. And I guess, could you delve a little bit deeper into some of the offsets in Consumer and Professional Products in the quarter specifically the COVID-19 related inefficiencies? And is that kind of expected to linger into the first and second quarters of this year?

Brian Harris

Sure. So yes, we have seen inefficiencies related to keeping our facilities safe and that will continue as long as the pandemic is continuing. We had some direct costs in the year of about $5 million for the CPP business and $8 million across all of our businesses. Those costs will diminish because most of the programs we've put in place are now established and operational. So we're expecting about $6 million of costs on an annualized basis, of direct costs on an annualized basis, to keep our protocols in place and our employees safe.

Ronald Kramer

Julio, I'd just add to that, we were clearly doing well going into the pandemic, and we haven't been the least bit concerned about what it costs. All we've been focused on is making sure that we were able to take care of our employees, take care of our customers, and whatever that is going to impact us financially assume it's going to keep going, because our view of this is that while there's a lot of very positive things on the horizon, and ultimately, this will be the triumph of science and being able to deliver the vaccine, until that happens, we're still in the same crisis, and we treat it that way on a daily basis.

Julio Romero

Yes, absolutely. And, I guess just switching gears to the guidance, I guess when I think about what you're fighting for, I mean, you're already at your kind of targeted margin, you're exceeding your targeted margin range in the garage door business, I believe. So I guess is the implication that for 2021, you might expect a little bit of a pullback on the margins in that segment, and then you might see some margin improvement in the Consumer and Professional Products, would that be a fair assumption?

Ronald Kramer

I wish it were that easy to give guidance and be clear. We've been operating in the most extraordinary period that anyone who has ever operated a business is faced with. So when you talk about trying to give guidance, we start by saying look, we'd always like to under promise and over deliver and that's what our track record has been over all the years that we've given guidance.

We have so many things going on on a daily basis that are going to impact what the next year, but we're six weeks into our fiscal year, and all the trends that were positive last year are still doing the same thing in fiscal 2021. So we try to be conservative. We try to set expectations, but the broader comment that I've made over all the years that we've given guidance, remains the same, which is that the earnings power of these businesses is far greater than any near term guidance that we give and our goal isn't giving guidance is to set the bar more for our credit investors and our equity holders.

We continue to believe that this is a compelling value story. We continue to believe that we have a lot of good things going our way and that the margin improvement story, particularly around AMES, and particularly around the recovery in Telephonics is still ahead of us. How much more the margins in our Home and Building Products Group will be able to achieve, it's still early days on the integration of our CornellCookson business and to Clopay.

We continue to believe that the commercial door opportunity that we saw, going back five years ago is going to play out. It's accelerated as a result of the change in retailing, and the movement to e-commerce. And I'll remind you that every time there's a package getting shipped to your door, it's coming out of a warehouse. Those warehouses have rolling steel doors. So the growth part of our business and Home and Building Products is going to change over the next several years.

We expect that. We continue to invest in it and the margins are clearly reflective of all the good things that have been done by Steve Lynch and his team in that business over the last several years. We think there's plenty more to come and so the big story for us is we set guidance and we clearly are saying next year is going to be better than this year. And this year turned out to be a lot better than the guidance that we set a year ago.

Julio Romero

Understood, thanks for taking the questions.

Ronald Kramer

Thank you.

Brian Harris

Thanks.

[Operator]

Our next question is from Josh Chan with Baird. Please proceed with your question.

Josh Chan

Good afternoon, Ron and Brian. Congrats on a good quarter. Hello.

Ronald Kramer

Thank you.

Brian Harris

Thank you.

Josh Chan

Yes, I wanted to ask about the strong momentum in AMES and I’m wondering if, you're continuing to see that momentum continuing into the current fiscal year just because, recognizing that it's probably getting away from the lawn and garden season but at the same time, will you have some inventory kind of refilling type of opportunities?

Brian Harris

Yes, you’re actually [indiscernible].

Brian Harris

Go ahead, I’m sorry.

Ronald Kramer

We continue to see the trends in our business being strong to start this fiscal year, and I'm going to go back and simply make the comment that, the at-home trend is clearly accelerating a lot of demand over a lot of categories. We still believe the housing recovery is ahead of us in the United States that this is not anywhere near the levels of both consumer spending that will come out of two things that I believe are on the horizon. One is a stimulus bill, and two is an infrastructure spending bill.

So we have so many people in this country that are going to get back into the workforce, we expect to have wages increasing as a result of a recovery that will happen once the vaccine is released and once life goes into something resembling what was occurring before the pandemic started in March. Those are positive trends. And on the AMES side of our business, consumer products, these are essential products and we are the leading brand, with the leading market share in every product that we sell.

So we feel really good about the trends that are going on in our business. We don't believe that there is any magic to that and it is all a result of what we have been positioning over a period of years. And the COVID effect of accelerating people's spending in and around the house is a trend that we believe is going to continue even once we start to reengage.

Josh Chan

All right, now that's good to hear. And then on the cost side, could you update us on sort of the phasing of the cost savings now that, you're expecting kind of a higher number, but taking additional year to accomplish the other piece of this initiative?

Brian Harris

Sure. So the original timeframe was we'll be done with the first, what we will now call the first phase of the initiative by the end of calendar 2022. And we still expect to hit that $15 million to $20 million by that time with the balance of it to come in the year after, and on the way we'll see incremental benefits.

Josh Chan

Okay. And then I guess my last question is on the guidance, so $2.4 billion last year and $2.4 billion this year. So I mean, I'm sure there could be a rounding there, but does the guidance kind of contemplate a little bit of a tougher comp in the back half of the year? I guess, could you just walk us through kind of the revenue line, what you're thinking there in terms of the upside case and the downside case?

Brian Harris

Sure. So, we have better visibility for the first half of the year orders, that as we just mentioned, are starting off in the year well, and we see good demand. When we get to, as you said, and we agree when we get to the second half of the year, we do see tougher comps. And there's a lot of unknowns, how long the virus is going to last, how successful any vaccines maybe and the economic impacts of those items.

Josh Chan

It’s [indiscernible]. Thank you for both for your time.

Ronald Kramer

We like to be conservative.

Josh Chan

Understood, that makes a lot of sense. Thank you.

Ronald Kramer

Thank you.

[Operator]

Our next question is with Justin Bergner from G Research. Please proceed with your question.

Justin Bergner

Good afternoon, Ron. Good afternoon, Brian.

Ronald Kramer

Hi, Justin.

Brian Harris

Hi, Justin.

Justin Bergner

I got dropped, so I missed some of the opening prepared remarks. So apologies if I hit one or two redundancies. Could you just remind me and there might be others that got dropped as well in terms of what the revenue and adjusted EBITDA guides were for fiscal year 2021?

Brian Harris

Sure, revenue was $2.4 billion and adjusted EBITDA, excluding corporate unallocated cost is $285 plus million and corporate - unallocated is expected to be $47 million.

Justin Bergner

47, you said there?

Brian Harris

Yes.

Justin Bergner

Okay. Thank you. May be switching to the defense business, I guess why now on this, I guess restructuring facility consolidation program for defense, electronics and does a changing presidential administration lessen your appetite for M&A in Telephonics?

Ronald Kramer

Well, I think the, two parts of the question, one is getting the facilities right sized for the level of business, and the other is to be able to capture increased margin, as we expect the recovery in both revenue and then the obvious proportionate profitability that will come from a better aligned, more efficient operating footprint. And, the M&A piece to it is, I wish it were as easy for us to find a business as good as the one we have at a price that would make any sense for us to add to Telephonics.

So we like the business. We would love to grow our defense electronics segment. Unfortunately so would most of the primes and an unlimited amount of private equity capital. So the competition for value in that space is something that while we're -- we'd love to find opportunities, for us it's about managing the business we have increasingly better and in doing that, being able to continue to generate good returns on invested capital, and an incremental free cash flow.

Justin Bergner

Okay, understood, that makes sense. I'm sorry, if I missed it, did you quantify the expected savings in the restructuring facility consolidation program or is that going to come later?

Brian Harris

That will come later. You could expect one or so -- $1 million to $2 million on that.

Justin Bergner

Okay. And then just shifting back to the Home and Building Products, sorry, to the Consumer and Professional Products business, it seems like you're spending an additional $30 million of one-time cash cost and an additional $30 million of CapEx in the new plan. And that is, generating a relatively modest level of incremental savings of sort of annual cash savings of $15 million and $10 million in reduction in inventory.

So it's sort of like a, I guess, three to four times sort of spend per return. Should I interpret that as you want to go forward with this extra part of the program even though the returns aren't as great they're still good enough, or should I interpret that as the existing program was running a bit over time and budget, perhaps because of COVID or macro considerations?

Brian Harris

So a couple things there to unpack. The initial program is running on time, on budget, and not been affected significantly by COVID or anything else. As far as returns, returns aren't that much different from our original projects. We look at it like we are making sort of an acquisition. But we're investing it in ourselves in a business we know very well. We have gained good insight from prior initiatives we've done both at Clopay and at Clopay’s original facility in Troy and the Mountain Top expansion that we did last year or end of last year and we think this is a really good investment.

Secondly, the savings that we put out there are things we can touch and are direct things we can calculate. Beyond that, we're going to be able to service our customers better, we're going to have better data, for ourselves as to when to manufacture, where inventory should be located, and how much of it we should have, as well as how our customers should take on inventory and having it at the right time. Those things are harder to know how much benefit we'll get from it, but it will be above and beyond the benefits we've stated.

Justin Bergner

Okay, that all makes a lot of sense. Just lastly, any idea in terms of the sell through type of demand in Consumer and Professional Products versus that staggering 29% organic growth number?

Brian Harris

I'm not sure exactly what you meant, but yes, point of sale has been very strong if that's what you're asking.

Justin Bergner

Yes, point of sale.

Ronald Kramer

We continue to see that trend continuing.

Justin Bergner

Okay, so maybe not quite as high as 29, but still very strong?

Ronald Kramer

Yes.

Justin Bergner

Got it.

Brian Harris

One leads to the other.

Justin Bergner

Right, all right, thanks. And good luck to all the initiatives.

Ronald Kramer

Thank you so much.

Brian Harris

Thanks, Justin.

[Operator]

Our next question is with Keith Hughes with Truist. Please proceed with your question.

Keith Hughes

Thank you, one of the big questions that I have from investors around this good home related business, if it's going to fall off as we go into next year, and you're seeing wonderful, wonderful numbers on top line from Consumer and Professional Products, but with this guidance, it sort of foretells something, a lot of that business retracting and I understand being conservative, but is that something you expect in Consumer and Professional Products, and as the year goes along?

Ronald Kramer

Yes - we saw very good trends in our business going into the pandemic. We clearly have seen accelerating trends as a result of the pandemic and we're clearly telling you that we're off to a very good start for 2021. The whole process for us of setting expectations is to be able to be at a level that we're comfortable, that we're going to be able to meet all of the demand that's out there and our view is that there is an ongoing recovery. The timing and the predictability of what's going to happen as a result of the unprecedented situation that we're in, just makes us look at this and say, we view 2021 as being better than 2020.

And I'll remind you that a year ago, we went into the year looking at guidance at $250 million plus for this year. We suspended guidance, in the depth of the crisis. We reinitiated it in August at $270 million and we ended the year at $283 million. So, and if you go back to the time when we sold the plastics business, bought ClosetMaid, bought CornellCookson, we talked about being on a path to get from, I believe, at the time was $225 million of EBITDA to $300 million over a five-year period.

Well, we're two years into it and we're going to be knocking on the door of $300 million in the not distant future, whether that happens in 2021, that's just not how we run the business. We run the business to continue to grow both margins, build and invest around the products and the brands that we've been able to put together. And the earnings power of our business is really ahead of us. Peak earning power of our business is really ahead of us. We've done very well during very difficult times. We truly believe that there's better times coming in the broader consumer economy and when that happens, you'll see that in both our margins, and incremental profitability.

Keith Hughes

Okay, and look, there's another question on consumer financial products. You talked about some of the things that happened in the quarter, when you back out the COVID cost the margins were still down year-over-year despite the strong revenue, are those issues going to persist into the December quarter as well?

Brian Harris

No, so in the quarter, we saw inefficiencies related to the facilities consolidations, closing around one distribution center and combining with another, as well as inefficiencies related to supplying areas that were hit by natural disasters. Often what happens with those situations is you don't end up sending out full trucks, because you're sending out smaller items directly to stores at smaller areas and that causes inefficiencies in the distribution system. So no, I would not expect those two things to recur.

Keith Hughes

Okay, that's all from me. Thank you.

Ronald Kramer

Thank you.

Brian Harris

Thank you.

[Operator]

[Operator Instructions] Our next question is with Trey Grooms with Stephens. Please proceed with your question.

Trey Grooms

Hi, good afternoon. Thanks for taking my question. So the, I guess the first one from me, you mentioned picking up some share. I believe you were talking about CPP, specifically there. Are there any specific products where you're seeing an outsized market share gain or was it pretty broad based there?

Brian Harris

It was pretty broad based. We're seeing, those results are across all of our product lines.

Trey Grooms

Okay, got it. And then on the garage door business, so clearly you guys are in both residential and then some commercial. And you touched on something that I think is, it’s sounds like a big opportunity for you guys is the fulfillment centers and things like that. Did that, is that helping you guys or has it helped you in your fiscal 2020 that kind of dynamic to build out of the fulfillment centers? And/or is that more on the come here as we enter 2021, just your thoughts around the commercial side there?

Ronald Kramer

We’re predominantly a residential business and we've always talked about the ability to build our commercial door business, that was the big strategic initiative behind the purchase of CornellCookson to expand our ability to do both rolling steel sectional commercial. That is, it’s still small and it's still incrementally beneficial. It's an architectural sales channel, different than the big box retailer in the dealer network that we have, but we continue to see that as being a big part of our growth opportunity for the future in both replacement cycle and new construction. The partitions and the security level products that we have innovated are clearly going to be in demand as part of what comes out of life after COVID, and all are very good long-term drivers of incremental demand. But no, none of that is played out meaningfully in 2020, that's really about the future.

Trey Grooms

Got it and thanks for that. And then you mentioned in, I guess, one of your, I guess it was in response to one of the other questions, that you, you'd kind of shoot for setting expectations to be at a level where you can meet all of the demand that's out there. So I guess that got me thinking about, like, are there any capacity constraints or is there any concern there, whether it be on your end or from I think your suppliers since we have had such strong demand getting that incremental demand or those incremental shipments, is that a concern of yours or risk as we look into 2021?

Ronald Kramer

I would more call it that the challenge is always to be able to meet demand, and we see strong demand in our product categories, and we're working every day to make sure that we can be as efficient as we can with manufacturing and in distributing to each of our customers. So we feel good about the environment. And regarding the expectation part of the comment, it is about being level set as things change, and this year, more than ever, it indicates that things may get thrown at you that are unexpected, but despite that we try to continue to run our businesses.

And I know Trey you're new to covering us and we really look at trying to be as open and transparent about setting the expectations for guidance. We have always met or exceeded any levels that we've given out and we see the world that we're in as being the most uncertain time that anyone's ever operated a business. And so we believe our earnings capability is far higher than any of our near term guidance and over time, that'll prove itself out. But it's one quarter at a time, one year at a time and for us setting the bar we expect 2021 to be a better year than 2020.

From where we're sitting it's been an exceptional year. And if we do no worse at the EBITDA line than we did this year, we're going to generate a significant amount of free cash again. We're going to de-lever ourselves even more than we already have. We have no debt to pay down since our bonds have a 2028 maturity, so we're going to continue to build cash on the balance sheet.

The bigger part of our story is we are aggressive buyers of businesses and our ability to deploy capital, the substantial amount of both cash, credit we have, $400 million revolver, and our proven ability to go and grow through acquisition is really the part of our story that over time you'll be able to see as we continue to find opportunities.

Trey Grooms

Understood, I appreciate all the color. I'll pass it on. Thank you.

Ronald Kramer

Thank you.

Brian Harris

Thank you.

[Operator]

Our next question is with Justin Bergner with G Research. Please proceed with your question.

Justin Bergner

Thanks. Two quick follow-ups. The $1 million to $2 million in savings for the defense electronics was just on the restructuring spend or the restructuring and facility consolidation spend?

Brian Harris

That was referencing the facilities. On the other side, we'll see a couple million from that as well.

Justin Bergner

Okay, great, thanks. And then the other question is, can you just remind us, have you articulated recently what the medium term EBITDA margin guidance for Home and Building Products is that so can you refresh our memory?

Brian Harris

Sure. So we have our guidance out there of 15 percent “plus.” Obviously, this year we outperform that. We're in unusual times, to say the least, and there's a lot of uncertainty in general in the macro economics, as well as from directly from COVID. So we're going to continue to work on that “plus,” and we'd like to lap our results from this year. We haven't been at that profitability level very long and we expect that there's still opportunity to improve the margin in that business.

Justin Bergner

Great, thank you.

[Operator]

We have reached the end of our question-and-answer session. I would like to turn the floor back over to Ron Kramer, Chief Executive Officer for concluding comments.

[Ronald Kramer, Chairman and Chief Executive Officer]

Thank you. Take care, stay safe, be well. We look forward to following up with you in January. Bye-bye.

[Operator]

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.