Greetings, and welcome to the Griffon Corporation Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host Brian Harris, Chief Financial Officer.

Thank you, Omer. 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. In providing this guidance, we are also mindful of the risks and impacts of weather to AMES, the health of the economy on Home and Building products, the U.S. Department of Defense Budgets on Defense Electronics and foreign exchange fluctuations. 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, some of today's remarks will adjust for those items that affect comparability between reporting periods. These items are explained in our non-GAAP reconciliations included in our press release. Now I'll turn the call over to Ron.

Good afternoon, and thanks for joining us on today's call. Our fiscal 2018 results begin to reflect the strategic actions we've taken to grow Griffon. Full year revenue increased 30% to $2 billion, reflecting the impact of our acquisitions, and our segment adjusted EBITDA from continuing operations was up 24% to $213 million. I'll come back to our operating performance in a moment, but first I'd like to take a few minutes to share some of our key takeaways as we focus on fiscal 2019. It's been nearly two years since we began to strategically reshape our portfolio with the goal of providing increased cash flows and improving our profitability. Our strategic actions included the acquisition of ClosetMaid in October of 2017, the sale of our Plastics business in February 2018 and the acquisition of CornellCookson in June 2018. These actions along with the five bolt-on AMES acquisitions made over the last 20 months have created an operating structure with stronger free cash flow and a diversified portfolio of highly attractive, leading brands in each of their respective categories. The integration process is proceeding as planned. AMES and ClosetMaid have been combined under one leadership team and the integration of ClosetMaid into AMES is progressing. ClosetMaid's first year performance was right on target with our expectations. We're confident about the long-term prospects of this acquisition as part of AMES. We expect significant future improvement in the operating performance of these combined businesses. CornellCookson, we're delighted with the integration that we've seen into Clopay. The CornellCookson acquisition has delivered the performance we expected since its acquisition in June. Our familiarity with the CornellCookson business and personnel prior to the acquisition along with the highly aligned strategic and cultural fit of the businesses are expediting this transition. We continue to see CornellCookson…

Thanks Ron. Beginning with a brief recap of our consolidated performance in the fourth quarter, revenue of $546 million increased 27% and gross profit increased 30% to $148 million, both in comparison to the prior year quarter, with the increase primarily due to acquisitions. Gross margin increased 53 basis points to 27.2% compared to the prior year quarter. Fourth quarter selling, general and administrative expenses, excluding items that affect comparability, were $109 million or 20% of sales compared to the prior year period of $83 million or 19.3% of sales, with the increase in SG&A, primarily due to acquisition. Fourth quarter GAAP 2018 income from continuing operation was $1 million or $0.02 per share compared to the prior period of $4.3 million or $0.10 per share. Excluding items that affect comparability from both periods, current quarter adjusted income from continuing operations was $15.7 million or $0.38 per share compared to the prior year period of $12 million or $0.28 per share. For the fiscal year, revenue of $2 billion increased 30% and gross profit increased 30% to $530 million, both comparisons to the prior year, with the increase primarily due to acquisitions. Gross margin was 26.8% consistent with the prior year. Full year selling, general and administrative expenses, excluding items that affect comparability were $418 million or 21.2% of sales compared to the prior year period of $324 million or 21.3% of sales. Fiscal 2018 GAAP income from continuing operations increased to $33.3 million or $0.78 per share, compared to the prior year period of $17.8 million or $0.41 per share. Excluding items that affect comparability from both periods, current year adjusted income from continuing operations was $32.1 million or $0.76 per share compared to the prior year period of $19 million or $0.44 per share. Our effective tax rate,…

I'm excited about our future growth and want to thank our 7,000 plus employees for their dedication and perseverance. Our strategic actions represent the culmination of 10 years of hard work. During this time, Griffon has evolved from a decentralized holding company to a more strategic and focused buyer and builder of businesses. We have a talented team, both at the corporate and operating company level, which is the key to the success of our company. We have the opportunity to improve margins further by leveraging procurement, distribution and warehousing, manufacturing and administrative functions, coupled with revenue enhancement opportunities. We're just starting to see the benefits of these businesses together within our portfolio. We're committed to long-term value creation for our shareholders. Griffon has never been in a better strategic position. Operator, we'll now take questions.

At this time will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Bob Labick, CJS Securities. Please proceed with your question.

Good afternoon. And thanks for taking my questions. It's obviously been a wonderful and transformational year for you.

Thank you.

I just wanted to start with that, obviously you are still in the process of integrating two exciting acquisitions in ClosetMaid and Cornell and then obviously the bolt-ons as well, but could you talk about some of the synergy opportunities and the timing for these? It seems like you have a lot of opportunity in hand for margin growth. So give us a sense of how long that takes to play out and where your efforts are focused?

It's really four companies that are going become two and let's talk about them separately. So you have ClosetMaid going into AMES and you have CornellCookson going into Clopay. They are very different businesses that have some similarity in their customer base, but the opportunities for us are really separate. The ability for the AMES business to be able to take the home organizational category and be able to provide the levels of service, the levels of innovation that we think we're able to do with that business really is about the longer-term revenue enhancement and the margin improvement story which for us has been about taking ClosetMaid, which was when we bought it was $300 million revenue business that was not performing nearly at the margin expectations that we wanted to. This was meant to be a multiyear journey. We fully expect to be able to improve the margins of ClosetMaid as part of AMES and then separately the Clopay business, which is the leading U.S. residential garage door business and we went through hopefully in detail that people understand of how diversified that stream of revenue is and how uncorrelated it is to the new home construction business to be able to combine that with the leading commercial door business at a time where the growth of distribution centers and commercial and institutional demand for those types of rolling steel doors is a broader compliment. So we're thinking about a multiyear ability to save on things like steel purchasing, wood purchasing, wire purchasing, that facilities rationalization in terms of distribution centers and all those things come from taking what we've proven we can do to a diverse businesses like plastics, manage through cycles and improve both revenues and reduce expenses. So we're just getting started on the ability to grow the margins of those businesses. If I had to put a number on it, I would tell you, we want to get better than 12% at the EBITDA line and we think that's within our near-term capability that's far from what our long-term desire is, but it's a long way from where the acquisitions that we bought were running when we bought them. So hopefully that gives you some flavor as to how much upside we see within our control.

Yeah, that's great, very helpful. I appreciate that. And then jumping over to Telephonics, obviously given the outlook of consistent with this year for the most part, but also talked about the pipeline, what does it take to turn pipeline into backlog and how are you looking at things beyond fiscal '19 there?

Sequestration was a five-year exercise in a reduction in revenues and accordingly a reduction of profitability. Telephonics, has been and will continue to be the leader in the intelligence, surveillance and reconnaissance products, particularly maritime radar products. We saw a revenue decrease as the defense budget was contracted. The turn in the defense budget really started in December of 2017. The flow-through from that we expect to impact 2020 and beyond. We believe we're at the bottom of the cycle, but that's a cycle that's been five-plus years in the making. We see 2019 consistent with 2018. We see improvement in 2020 and we see growth beyond that. It is a fabulous business. It is desirable for us to build on it. We really see it as a gem of a business at the bottom of the cycle and we're excited about the programs and the investments that we've made during this downturn and fully expect to build back to a much higher level of both revenues and profitability in the future.

Super. Okay. Great. I will jump back in queue. Thank you.

Thank you.

Our next question comes from Julio Romero, Sidoti & Company. Please proceed with your question.

Hey. Good afternoon, everyone.

Hi.

So Clopay had nice 10% organic growth in the quarter. Could you give us a quick breakdown of maybe price volume mix and what you would expect going forward to 2019.

Sure. So price and mix and volume all played a part with price and mix playing a larger part than volume in the quarter. We continue to see that business growing at a similar pace that we've seen in the past. Across our homebuilding products business, we expect to see 5% to 6% organic growth, roughly I would say half is price related with the balance being related to volume and that would more or less be equal across our businesses.

Got it. And then just ClosetMaid I saw you had called out a $311 million contribution in the year. Do you have the EBITDA contribution for that business during 2018?

So when we bought the business, we put out there that it was roughly a $25 million EBITDA business in the first year of ownership and we met that expectation.

Okay. Got it. So maybe you have that business under your belt for the past year. What have you learned after one year of having that business there and what's a fair revenue and EBITDA expectation for 2019.

So again, we combine that business with AMES and won't be separating out revenue or really EBITDA for that business in the future. However, I'd really refer back to Ron's comments that we're combining these businesses. We see a lot of opportunity. We have margin improvement opportunities that we're going to be going after particularly in this year and the combined home building products in this case with AMES and ClosetMaid business, the benefits from those efforts will start showing themselves in '20 and beyond.

And just to -- Julio, it's Ron, just to add to that, when you look at AMES, ClosetMaid is part of AMES, that will be a $1 billion plus revenue part of our Home & Building products business and we have every expectation of those blended margins growing to 12% in that business.

Got it. And maybe just taking a step back here, I know you called out some this multiple avenues for growth and hitting your financial targets, leveraging the manufacturing procurement G&A, but what do you guys view as the near-term opportunity that we should expect to flow through the income statement? What's kind of low hanging fruit that would come first?

So the first item we'll chase is procurement and we've already started that process and obviously we'll continue that through '19. But the majority of our efforts really will show the benefits I mentioned in '20 as we have to go after some of these items in '19 and there is cost associated in doing so.

Helpful. I'll hop back in queue and best of luck in 2019.

Thank you.

Our next question comes from Justin Bergner, Gabelli and Company. Please proceed with your question.

Good afternoon, Ron. Good afternoon, Brian.

Hi Justin.

Hi, first question would be it seems like I inferred that the fourth quarter of the 4% organic growth in Home & Building products, it seems like from your comments that less than 2% of that was volume related, but it appears that if you look out to the next year, you see the volume component stepping up a bit maybe closer to 3%. Can you sort of help us understand maybe what the volume growth was in '18 and why it should stay the same or slightly accelerated in '19?

Sure. So in the quarter and in 2018 overall, AMES' volume was impacted by timing and weather basically. So we don't expect that to reoccur. So that's correct. We had roughly 2% organic in AMES business for the year and we expect that should increase to roughly 3% going forward as that will normalize. So was the area that really impacted that. And the Clopay building products roughly 11% organic growth. We don't expect that type of volume to continue necessarily but of course the business is very strong and we have roughly half and half of price versus volume growth.

Okay. So just to make sure I understand you're saying the fiscal year just completed, the volume growth in AMES was about 2% and the volume growth of Clopay was about 5%.

No, that's not actually what I meant. So I am saying organic growth in AMES was 2% impacted by weather. CBP Organic growth was 11% which was driven by price mix and volume and simply saying going forward, we see the price increases related to input cost, commodity status etcetera along with volume is about 50-50 for the 5% to 6% growth that we will have.

Okay. Thanks for clarifying. Two more questions, when you're referring to the 10% of your business that was exposed to new construction, were you referring to Home & Building products as a whole or just Clopay?

As a whole.

Okay. So for Clopay, it might be a little bit higher than that 10%, for AMES it might be a little bit less.

So, yes, Clopay itself, Clopay building products excluding Cornell is plus / minus 15% for new construction and AMES including, actually I should say the ClosetMaid business by itself is high teens new construction.

Okay. Got it. And then lastly you mentioned the headwinds to margins looking out into the fiscal year '19 between integration expenses and certain input costs. So the integration expenses than those will run through the adjusted numbers in '19. Is that an appropriate inference and is it possible to sort of quantify roughly how much those headwinds will be in each of those two buckets?

So we have included in our guidance all items related to negotiating price increases with our customers, productivity initiatives or supply chain or automation expense control or the impact of the tariffs, the commodities, freight, labor and the cost to go make investments to go after margin improvement. So we bake all these things in, we look at them, we risk weight them into our budget. So to pull out a specific number is not really appropriate and we don't really want to disclose exactly what we're going to be investing. But going to the first part of your question, yes, we expect to absorb that into our adjusted EBITDA number of 230.

And the only thing I'd add to that is when we give guidance we give it for credit investors, we're nowhere near the peak earnings and we try to be realistic about the ups and downs that could affect our business over at any given one year period and we think we've always consistently set the bar at places that we've been able to meet or exceed and given all the clouds of uncertainty, about the economy, the political risk that's out there, we're still very confident about what we see in our business and I will just say that we are nowhere near the peak earnings power of these businesses.

Okay. Thanks. I'll hop back in the queue.

Our next question comes from Nishu Sood, Deutsche Bank. Please proceed with your question.

Thank you. Thanks for all the details and breakdowns. If we look at the margins in that HBP built business, year-over-year a decline of about 110 basis points I believe, part of that is acquisitions. Is that all of that decline? How would if we looked at it on a kind of legacy business or on a like-for-like basis, did margins improve ex, the acquisition dilution?

Excluding the CornellCookson and the ClosetMaid acquisitions, margins remained in line really with the prior year basically resulting from increase in sales offset partially by commodity, tariffs and other input cost.

Got it. Okay. And then there was some mention of tariffs I believe and can you just walk us through what the impacts have been and is that part of the price cost headwinds that you're mentioning for next year? And also the acceleration in the price cost, I think it was a little -- it sounds like it's weighing a little bit heavier on margins this quarter than last quarter. Was that just the flow through in terms of the amount of time the input cost takes to kind of flow through inventory and hit the income statement. So I apologize that's a few questions, but just generally around those topics please.

So looking overall, we estimate that we took on about $25 million before being mitigated cost related to tariffs as well as steel, aluminum, raw materials, input cost increases. We've mitigated that through increased sales, good mix and some price increases being passed through so far. So we continue our process of working with our customers on price increases. So some of that has been completed, I'd say about half is being completed and we will continue that process through the end of our fiscal second quarter, which would take us through the end of March of 2019. So the impact of the lag that I am describing would certainly hit fourth quarter a little bit and it will also continue to hit us in Q1 and Q2 and then we'll expect to be done with our pricing negotiations by then and have mitigated the impact of tariffs, current tariffs to be specific, not the additional potential tariffs, and raw material and other input cost increases. And of course with that we continue to work on our supply chain automation and expense controls. So we're looking at it on both ends.

And just to add to and if and when the additional tariffs kick in we'll pass those costs along like we've dealt with every other input cost, freight cost, labor cost, that we've had to work through. So we will work our way through this and we're quite confident of our ability to manage any incremental tariffs.

Got it. So it's $25 million that you have worked through or is that half of what you'll need to work through. I am not so sure.

No problem, $25 million is what we estimate we had in 2018 and we estimate that the 2019 impact meaning annualizing all the tariffs and commodity increase is roughly $70 million. So that will be flowing through over the course of the year. We are working on as I said, negotiating with our customers to complete our price increases. Some of them are done. Some of them are in the process and that we'll continue to work them and they’ll continue to come to a conclusion between now and the end of our fiscal second quarter which ends in March. And again that would be done via those price increases and of course we're looking inwards as well, supply chain. We look to our vendors via supply chain and we have automation and expense controls internally as well to offset that impact.

And that's approximately 4% of our Home & Building products segment sales.

That's correct. So we expect pressure in the first and second quarter to be alleviated in the third and fourth quarter and obviously that will affect top to bottom results and leave us with what I said. If I'm looking at last year versus this year, we'll have a similar type of earnings over the course of the year is the best way of putting it.

Got it. Okay. Thank you.

You're welcome, Sure.

Our next comes from Andrew Casella, Deutsche Bank. Please proceed with your question.

Hey guys. Thanks for taking the question. I wanted to dive into Nishu's topics real quick. So just to be clear, the $25 million that you quoted, is that just a tariff impact or is that tariff plus commodities? And then Brian, I know you mentioned $70 million. What does that represent overall? And then, obviously, the follow on would be, in the event that on January 1, these tariffs step up to 25%. Do you have any way to kind of book and what exactly that quantum could be as far as a headwind?

Sure. So, yeah, so $25 million is both tariffs and input costs, mainly steel and aluminum is where we saw.

And wood.

And wood, sorry. Thank you. And the $70 million is related to tariffs and those same input cost increases. It does not assume the future. The January expected – not expected, the potential January 15% increase, that is could be coming, roughly I'd say $15 million of the 2019 annualized number is tariff and the balance would be the input costs that I mentioned. And as far as what that means regarding the 15%, that would be $20 million plus of additional costs that we would expect to mitigate by passing on price increases to our customers, which we are currently discussing with them now in anticipation of it happening in January.

Okay. Fair thanks. And then as far as free cash flow guidance, and I know you went through the numbers pretty quickly, but when we think about segment EBITDA for fiscal 2019, your forecast is or guidance is $230 million, the unallocated item is about $45 million, so that implies EBITDA about $185 million, we have CapEx of $50 million, cash interest of ($60 million) [later changed by the company to $66 million]. And then I know your overall free cash flow guidance was expected to exceed a 100% of net income. I just wanted to see if there were any other cash inflows or outflows or any restructuring charges that we should be mindful of? And then the follow-on would be, how you're expected to kind of deploy that capital? I know in the past when we've kind of seen the shares at these levels, I know you've kind of gone after them in the open market, but I know you're obviously focused on producing leverage, so just -- if you could walk us through how you're going to treat that? Thank you.

Sure. There is no other charges, you got the numbers right. And our expectation is that, we are going to run the businesses, we have a solid execution plan that we've been going down. We expect to generate increasing amounts of cash. We expect to build it up on our balance sheet and we expect that to be a natural deleveraging.

Okay, great. And then final question, just as I think about the pricing discussion that you're having with customers, so on January 1, if those tariffs come in place, do you have a mechanism to put those through immediately or how quickly could we see you mitigate that? I know you kind of called out some pressures in first fiscal quarter '19, second fiscal quarter '19, but just trying to understand how quickly you can react to the other 15%?

We are working hard, expecting that the tariffs are going to be in place and we are making ourselves more efficient and we are in negotiation with our customers on passing them along, so there will be a lag on the input costs being able to be offset by price increases and we've fully taken that into account in our consideration of what the calendar year 2019 could look like.

Yeah. And I would just add to that. So when we were saying we really expect to complete our price negotiations by the end of the March, the second quarter, which ends in March, so that's really the lag. So, we'll call it 90 days from January 1, which is the expected increase day to the end of March.

Okay, great. Thanks so much guys. I'll get back in the queue.

Okay. Thank you.

Our next question comes from Doug Clark, Goldman Sachs. Please proceed with your question.

Hey guys. Thanks for taking my question. My first one is specifically on the AMES business, the organic component. I know you talked about 2018 having 2% type volume growth, but if I look in the fourth -- or yeah, the fourth quarter in particular, it looks like organic growth was actually negative 3% to 4%. So I know you mentioned kind of weather and timing, assuming that that's kind of what went into the fourth quarter, can you just extrapolate a little bit as to what caused that negative year-on-year decline?

Sure. So that was mostly driven by the US business and its related to Q3 weather, which then leads into Q4 with less restocking, because they had stock. And then they also had to do with the timing of winter stocking, which can fluctuate from year to year. So last year we had a little more winter in our fourth quarter, this year it looks like some of that will bleed into the first quarter. But it's normal for that -- the timing to fluctuate a bit.

Okay. Thank you.

Roughly correct on the organic number.

Okay. Great. That was helpful. And then on the -- kind of the raw inflation piece, the $25 million versus $70 million. I guess I just wanted to understand a little bit better the cadence of that, because especially if tariffs aside, if I'm actually looking at the raw material complex things like steel, aluminum and wood, the incremental acceleration or growth in those underlying commodities was earlier in 2018. So I guess I'm just little curious why the disproportionate impact is in 2019. Is it based on kind of how you source and the lag perhaps that the price increases kind of flow to you or perhaps something that I'm missing?

Well, you’re generally correct; there is a lag between the time a price actually goes up and the time it goes through our P&L, which one of the other questions touched upon. So yes, so we did start earlier in the year on the commodity side. So once there was a whisper of tariffs plus there is natural economic factors are pushing commodities up and as the year went on, that's started to bleed actually into our P&Ls and then the tariffs came later in the year.

Okay. Great. Thanks a lot guys.

[Operator Instructions] Our next question comes from Michael Rehaut, JPMorgan. Please proceed with your question.

Hi. Good afternoon. Thanks for taking my question. Wanted to circle back to the acquisition synergies that you'd referred to and just getting a better sense of the cadence of that, you talked about, I believe, getting the acquisitions up to corporate average and -- but it seems like 2019 is still more of a transition year. So just wanted to make sure I understood that? And what you're expecting in terms of any -- particularly from the cost side, any cost synergies as you integrate Cornell into Clopay and AMES into -- I'm sorry, ClosetMaid into AMES?

First, I'll say that nothing has changed from the time that we made the acquisitions and the guidance we gave as part of that. We have always been looking at these acquisitions as being revenue enhancing and opportunities for cost reductions, which would improve margins over a multi-year period. So, there is no surprise to us that this is going to take longer than a year, there's nothing that's changed the environment that we've been operating in, particularly since we closed on CornellCookson in June has changed quite dramatically and our outlook on our business is exactly the same.

No. Understood. I guess the question was just more oriented in terms of the cadence of those savings and maybe a little more granularity as those are achieved. I guess, second question just on 2019 and appreciate the detail around the raw material and tariff impact for this past year and the upcoming year. From a pricing standpoint, appreciate the lag there as well, but I was just hoping to get a sense of what the overall benefit you got from the price increases in 2018? And I know that the benefit will be more fully realized at the end of 2Q '19, but what would that mean from a full-year perspective in '18 as well as what you expect in '19?

So there is quite a bit there. So as I said in '18, we had a combination of the price increases helping along with improved mix and sales. In '19, we described the lag and we baked in the effect into our $230 million plus guidance. Once we have completed our price increases and have completed our supply chain initiatives automation expense controls, which we expect to do during '19, we expect to completely mitigate the effects of the tariffs and commodity costs and other input cost increases. I'm not sure if that answers your question, but that's how we do it.

Right. No. Okay. One last quick one, If I'm able to. Just on the Defense Electronics business, understanding how long of a tail that is as you described the cycles of spending, but the fourth quarter revenue number was pretty well below what we were looking for. I was just curious if it was a surprise to you in terms of the quarter results itself given the year-over-year drop, if there was anything behind that and anymore detail around that would be helpful?

Timing of orders, things that could have happened in the fourth quarter that we expect to happen in the first quarter, but the lag that we continue to see in defense spending as it flows through from a budgetary standpoint is slower than we expected and part of that is -- should be what you take away from it is the outperformance of our Home and Building Products businesses to be able to meet our $210 million EBITDA guidance and exceeded to $213 million. So we are very, very confident about what the long-term prospects for Telephonics in being able to regain its revenue base as things flowed through the Trump-related budget increases, that's a 2020 and beyond story, and the near term performance of our Home and Building Products business was better than we even thought it was going to be over the period of time that the Telephonics business was less than we thought it could be.

I would just add to that. Our products -- we remain on all the platforms. We have not lost the platform, everything is really about timing in this business and when orders come through. So, we continue to have a very strong pipeline. We expect backlog into '19 improving and that will ultimately roll itself into improved revenue and earnings in '20 and beyond.

And -- I'm sorry, did you give a backlog number and an order growth number for 4Q, I apologize if I missed it?

Yes. Backlog at the end of the quarter was $345 million and we had a book-to-bill of roughly one-to-one.

Thank you.

Our next question comes from Justin Bergner, Gabelli & Company. Please proceed with your question.

Thanks for taking my follow-up. I was just curious as you deal with these tariff and input costs headwinds, is it possible to sort of bucket what percentage you expect to recover from price, what percentage you expect to recover from the supply chain, and what percent you expect to recover from other drivers?

Justin, I'd go back, in each year, we try to take a look at the outlook in front of us. And if you remember last year, we talked about increasing commodity costs, increasing freight costs and increasing labor cost, and this -- the tariffs are just one more bit of what management teams, like us, spend our time navigating. This is -- this recovery in this economy is going on in spite of lots of different challenges we continue to believe that we can mitigate whatever we get -- gets thrown at us. We set our expectations properly. We have a group of businesses that we have put together. This is very much a growth by acquisition expertise at the corporate level and the operating level and the ability to take the ClosetMaid acquisition and combine it with the AMES to be able to offset all of those things that are going to continue to be pressures for anyone who is a manufacturer. Higher input costs, higher freight costs, higher labor costs is what defines whether you're able to be competitive. We think we have a proven record. We think the opportunity in front of us on that side of our business is for us to execute. The result of that is much higher free cash flow, a natural way for us to delever. And on the Clopay CornellCookson side, the strategic positioning of the leading residential and the leading commercial business we've owned the business since June. 2019 was never meant to be what we were shooting for. Long term, we see ourselves as being able to combine the businesses that we’ve got and the result of that is going to be a steady improvement of operating performance across each of the businesses that we have and our longer term goals is clearly that we want to run and build a significantly bigger company based on the success of getting all of those things right. Near term, what you should expect of us is just to run the businesses increasingly better. 2019 is, for us, the year to prove that the acquisitions that we've made can perform in what very well may be an uneven economy. We've dealt with a lot harder economic circumstances over the last 10 years, we feel really good about our ability to deal with each of those buckets of costs, inflation, of tariffs, of whatever else is going to come at us and run our businesses.

Okay. That's very helpful. And then just lastly, did I hear at the beginning of the call that you said that going forward the primary form of capital return would be the dividends?

Yes, that is correct.

Okay, so share repurchases are probably going to be less impactful going forward?

Depends on the prices of the stock. Look, we didn't buy stock in this last quarter, because it is clear that there is a negative sentiment that has nothing to do with the underlying intrinsic value of our business. We will sit back and we'll watch the markets. If you put in perspective, we have bought back over $300 million worth of stock over a multi-year period and we paid out $100 million, plus or minus, in dividends. That's why our leverage is where it's at after buying two really good businesses. Our choice is to grow this company, our ability to deal with rationalizing at times in the irrational stock market. We have the capacity to buy back stock, we choose not to, not because we don't see value in our stock but we clearly see a market that doesn't want to hear about our story relative to the Home & Building Products; negative cloud that there are people you’re suggesting. We're not suggesting that that can't happen, we're simply telling you it hasn't happened to us. Our performance this quarter, our trends in our businesses remain strong.

Okay. Thanks and good luck.

Thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Ron Kramer for closing remarks.

Thank you. Griffon is in a strong position as we head into fiscal 2019. It's been a great year. We look forward to many more. Thank you, and goodbye.

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