Hamilton Beach Brands Holding Co (HBB) 2024 Q4 法說會逐字稿

Thank you for standing by.

At this time, I would like to welcome everyone to today's Hamilton Beach Brands fourth quarter 2024 earnings conference call.

(Operator Instructions) So without further ado, I would like to turn the call over to Brendon Frey, Partner with ICR.

Brendan, you have the floor.

Thank you, Greg.

Good afternoon, everyone, and welcome to the Fourth Quarter 2024 earnings conference call and webcast for Hamilton Beach Brands.

Earlier today, after the stock market closed, we issued our fourth quarter 2024 earnings release, which is available on our corporate website.

Our speakers today are Scott Tidey, President and CEO; and Sally Cunningham, Senior Vice President, Chief Financial Officer and Treasurer.

Our presentation today includes forward-looking statements.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A.

Additional information regarding these risks and uncertainties is available in our 10-Q, our earnings release and our annual report on Form 10-K for the year ended December 31, 2023, and soon-to-be filed Form 10-K for the year ended December 31, 2024.

The company disclaims any obligation to update these forward-looking statements, which may not be updated until our quarterly conference call, our next quarterly conference call, if at all.

The company will also discuss certain non-GAAP measures.

Reconciliation for Regulation G purposes can be found in our earnings release.

And now I'll turn the call over to Scott.

Scott?

Thank you, Brendon, and good afternoon, everyone.

Thank you for joining us today.

We are pleased with our fourth quarter results, which represented a solid finish to a successful year.

Our Q4 performance was highlighted by low single-digit growth and profitability that exceeded our expectations.

Importantly, we maintained strong gross margins north of 26% despite a promotionally driven market environment during the holidays as consumers remain selective with discretionary spending.

These achievements reflect our team's focus on operational excellence as we continue to drive top line expansion while maintaining the incremental leap in gross margin we've taken this year.

Looking at our full year performance, I'm very proud of our team's accomplishments.

We delivered strong financial results across key -- across our key metrics.

Revenue increased mid-single digits, driven by successful new product launches and new points of distribution.

We expanded gross margins by 300 basis points and grew operating profit 23%.

Our focus on operational efficiency and working capital management yielded strong cash flow results as well.

We generated more than $65 million in operating cash flow, which speaks to the underlying strength of our business model and our team's execution.

This robust cash generation, combined with our disciplined approach to capital allocation, allowed us to end 2024 in a net cash position, a significant achievement that was accomplished while continuing to return value to shareholders through both share repurchases and our dividend program.

Along with these strong operating results, we took decisive action to add new opportunities to our growth plans, led by further expansion into the health care market through our acquisition of HealthBeacon last February.

We also took steps to diversify our manufacturing and sourcing to further reduce our exposure to China.

This work was not only additive to our 2024 performance but has positioned the company to maintain its top line momentum and recent gains we've made in our margin profile.

As we've discussed previously, we continue to execute against 6 strategic initiatives, which serve as the blueprint for driving long-term growth and shareholder value for Hamilton Beach Brands.

These strategies include driving core growth, gaining share in the premium market, leading in the global commercial market, accelerating growth of Hamilton Beach Health, accelerating our digital transformation and leveraging partnerships and acquisitions.

Today, I'd like to review the key drivers of our 2024 success in support of these initiatives, starting with our success introducing innovative new products and platforms to help drive future share gains in our core business.

As many of you know, Hamilton Beach Brands has a long track record of bringing innovative new products to market.

Our new product introductions over the past few years have performed very well, helping us to gain share in both the U.S. and in our international markets.

In 2024, our U.S.

consumer business grew 3.6%, outpacing the overall market percent.

We saw even greater growth in our Mexico and Latin America business, led by strong gains in Mexico, where Hamilton Beach moved up several spots to capture the #3 small appliance brand in December.

A great example of new product innovation driving our recent performance is the FlexBrew coffee maker.

The FlexBrew Advanced 5-in-1 Coffee Maker coffee maker offers consumers unprecedented versatility with 5 ways to brew, a space-saving design with 1 footprint and the ability to wake up to either a fresh brewed single cup or 12 cups.

Additional features include a dual position 60-ounce water reservoir, fast brewing capabilities that can brew a single cup in less than 2 minutes, and easy-to-use LED touchscreen and convenient cleaning features.

New products also helped us gain share in categories such as blenders, irons and slow cookers.

Along with these new exciting innovations, we also accelerated our efforts to increase our share of large and underpenetrated categories in 2024.

Starting with our premium brand strategy, HB operates a powerful portfolio of premium owned and licensed small appliance brands, including Brita, CHI and Clorox, which accounted for a mid-teens percentage of our overall revenue in 2024.

Looking ahead, this represents both an attractive growth and margin expansion opportunity as we are still less than 3% penetrated in the $4 billion U.S. premium market.

Consumers reacted positively to several of our premium product introductions in 2024.

Our new milk plant-based milk maker, which offers consumers the ability to create a variety of fresh milk on demand continues to gain traction.

This product perfectly aligns with the consumer -- with the current consumer trends towards healthier, more sustainable options.

We've seen particular interest from health-conscious consumers who appreciate the ability to create fresh, preservative-free plant-based milks at home.

Our CHI Closed Steamer Line has been another success story.

We leveraged CHI's strong reputation in the beauty and personal care market to create an innovative garment care products.

The CHI VIBES Garment Steamer, in particular, has been a hit.

It's compact, lightweight and heats up in just 35 seconds, making it perfect for both home use and travel.

We've incorporated CHI's LAVA -- signature LAVA technology, which provides exceptional heat conductivity, giving consumers professional-grade wrinkle removal and a convenient portable package.

The Clorox Air Purifier line also performed exceptionally well.

We introduced our largest ever room air purifier this year, featuring an ultraviolet light that provides an additional layer of air purification.

The product has resonated with consumers increasingly concerned about indoor air quality.

We have expanded the Clorox line to include a countertop seam sanitizer and a humidifier, providing a comprehensive approach to home air and surface health. 2024 also saw us work to increase share in our commercial business.

While this still -- while this segment is still relatively a small portion of our overall revenue, it represents another large and underpenetrated opportunity.

A highlight for our commercial business in 2024 was the performance of our Summit Edge blender, where sales increased more than 50% as we secured placement in a leading convenience store chain with over 1,000 locations and a global coffee retailer with more than 25,000 stores.

Summit Edge high-performance blender delivers speed of service and one-touch convenience perfect for high-volume commercial environments, whether blending [acai] bowls, green smoothies, protein shakes or iced coffee drinks, the Summit Edge creates a smooth creamy profile every time.

Key features include PowerBlend technology, ultra-quiet operation with quiet blend technology, one-touch automatic blending and an intuitive touchpad with optimized programming.

And lastly, regarding our newest business segment, Hamilton Beach Health, we are excited about the prospects for expansion and further market penetration of this subscription-based, high-margin business.

Since acquiring HealthBeacon in early 2024, we have been developing health care management tools, including remote therapeutic monitoring systems.

Our first system, the Smart Sharps Bin is provided primarily through specialty pharmacies.

Our growth plans include increasing our current patient subscription base of 32,000 by over 50% through existing or new specialty pharmacy customers and increasing the conditions treated using the system.

To that end, we signed an agreement with Optum Health in 2024 and look forward to launching this business next quarter.

Across each of our businesses, we are focused on growing through our existing distribution and selectively expanding our physical and digital presence.

In 2024, we experienced solid growth with many of our major retail partners and commercial customers.

Our small consumer appliance brands sold through well, led by mass market and leading specialty retailers.

We also saw solid growth online as we continue to focus on accelerating penetration of this channel.

This includes leading pure-play e-commerce retailers, our own brand websites and the digital sites of our brick-and-mortar partners.

With respect to commercial, as I said earlier, we were successfully placing our Summit Edge blender in over 3,500 total doors.

We also expanded our business with several large restaurant and hospitality chains in 2024.

As we look ahead to the new year, we are excited about the opportunities we see across the core premium, commercial and health segments of our business.

In our core business, we have a robust pipeline of new products that we believe will help us continue to gain market share, particularly in high-growth categories like specialty coffee and air fryers.

We look to continued expansion of our premium product offerings with several new innovative launches planned across our partnerships with CHI, Clorox and the Bartesian brands.

We will also accelerate our commercial business expansion, focusing on penetrating new channels and expanding our relationship with large restaurants and hospitality chains.

In our Hamilton Beach Health segment, we anticipate seeing the benefit of our Optum Health partnership materialize, and we have plans to expand both our customer base and the conditions treated using our Smart Sharps system.

Additionally, we will continue to explore opportunities to leverage our digital capabilities across all business segments, with a particular focus on enhancing our e-commerce presence and direct-to-consumer channels.

To help fuel these initiatives, we expect to meaningfully increase our marketing investment in 2025, which Sally will detail momentarily in her prepared remarks.

Before I turn it over to Sally, I want to quickly address tariffs as I know this is top of mind for many investors.

In 2023, we took proactive steps with our manufacturing and sourcing to mitigate tariffs.

As of year-end, we have mitigated 35% of our business and are on track to mitigate another 25% to 35% this year.

Additionally, we anticipate being able to offset the impact of higher tariffs through select price increases and supplier concessions being implemented in the first half of 2025.

In closing, I want to thank our global team for their continued dedication and execution excellence throughout 2024.

Their commitment to innovation and customer service has been instrumental in delivering these strong results.

We entered 2025 with solid momentum across our business and remain focused on executing our strategic initiatives to drive sustainable long-term growth and shareholder value.

With that, I will turn it over to Sally.

Great.

Thank you, Scott.

Good afternoon, everyone.

Starting with our fourth quarter 2024 results compared to the fourth quarter of 2023.

As Scott mentioned, we were pleased to deliver a solid finish to an outstanding year.

Starting with revenue, total revenue in the fourth quarter was $213.5 million, a 3.3% increase over last year's fourth quarter.

The increase was driven primarily by a favorable product mix as well as higher volume, partially offset by expected average price decreases and foreign currency impacts.

Regionally, our North American market -- North American consumer markets delivered solid growth with most strength coming from the US consumer market.

These gains were partially offset by revenue declines internationally.

Also included in the fourth quarter was $1.7 million of revenue from our HealthBeacon acquisition.

Turning to gross profit and margin.

Gross profit was $55.8 million in the fourth quarter compared to $55.3 million in the year ago period.

Gross profit margin was 26.1% compared to 26.8% of the total revenue in last year's fourth quarter.

The contraction in gross profit margin in the current quarter was expected as we recently reduced prices on certain products after realizing the benefits of lower costs that positively impacted margins starting in the fourth quarter of 2023.

We have made significant progress expanding gross margins as evidenced by the step change from our historical range, which was in the low 20% range just a couple of years ago to consistently in the mid-20s over the past several quarters.

Selling, general and administrative expenses increased $32.1 million compared to $30.2 million in the fourth quarter of 2023.

The increase was primarily driven by the addition of $2.1 million of HealthBeacon expenses, partially offset by slightly lower employee-related expenses.

Operating profit was $23.6 million compared to $25 million in the fourth quarter of 2023.

Net interest expense in the fourth quarter decreased to $283,000 compared to $366,000 a year ago due to lower debt levels and lower interest rates compared to the year ago period.

Income tax expense was a $1 million benefit in the fourth quarter compared to an expense of $5.1 million a year ago.

The $6.1 million change in our tax expense is primarily due to a $4.3 million foreign tax benefit and a change in U.S. tax accounting method, both of which will not recur going forward.

Net income in the fourth quarter was $24 million or $1.75 per diluted share compared to a net income of $19.6 million or $1.40 per diluted share a year ago.

In terms of the full year, I won't go through the drivers of change in our performance but want to quickly call out the operating highlights from our income statement.

For 2024, net revenue increased 4.6% to $654.7 million compared to $625.6 million.

Gross margin increased 300 basis points to 26% compared to 23%, which I'll note is a record for Hamilton Beach since it became a stand-alone public company in 2017.

And operating profit increased 23.1% to $43.2 million compared to $35.1 million.

Our full year net income increased to $30.8 million or $2.20 per share compared to $25.2 million or $1.80 per share in 2023. 2024 net income includes the aforementioned foreign tax credits and a change in U.S. tax accounting that we benefited from in the fourth quarter, and the $5.7 million negative impact from the pension plan termination that we reported in the third quarter.

I'd also like to highlight that we returned more than 65% of our 2024 net income to shareholders through a combination of share repurchases and dividends.

Now turning to our balance sheet and cash flows.

For the year ended December 31, 2024, net cash provided by operating activities was $65.4 million compared to $88.6 million for the year ended December 31, 2023, which benefited from post-pandemic working capital improvements.

Net working capital for 2024 provided $14.5 million of cash compared to $49.5 million of cash in 2023.

Cash flow from operations performance in 2024 was enhanced by our ongoing working capital initiatives as evidenced by favorable trends in both DSO and DPO metrics.

The movement in cash flow from operations reflects these working capital dynamics, with partial offset coming from noncash adjustments related to equity compensation and the pension settlement charges.

Capital expenditures were $3.2 million in the current year period and $3.4 million in the full year 2023.

During the 12 months ended December 31, 2024, we allocated cash flow to fund the acquisition of HealthBeacon for $7.4 million and to return value to shareholders through share repurchases and our quarterly dividend that I mentioned a moment ago.

In 2024, we repurchased 668,785 shares totaling $14.1 million and paid $6.3 million in dividends.

We made significant progress strengthening our balance sheet in 2024.

On December 31, 2024, our net cash position or cash and cash equivalents and highly liquid short-term investments minus our total debt was $600,000 compared to a net debt position of $34.6 million at the end of 2023.

In December of 2024, we entered into a new credit agreement to replace our previous credit facility that was set to expire in June of this year.

This new facility extends the terms to December of 2029 and replaces our $150 million facility with a $125 million facility combined with an optional $25 million term loan.

As of 12/31, the company carried $50 million in debt with favorable interest rate swaps to generate interest income and a leverage ratio of 1.21 at year-end 2024 compared to a leverage ratio of 1.69 at year-end 2023.

We believe that funds available from our $50.6 million of cash on hand, the new facility and operating cash flows will provide sufficient liquidity to meet our operating needs and commitments.

Turning now to our outlook for 2025.

As Scott mentioned, we expect to build upon our momentum from 2024, driven by several initiatives across our multiple lines of business.

The small kitchen appliance retail market is expected to grow in the low single-digit range in 2025.

We expect to modestly outperform the industry in 2025 with revenue growth approaching the mid-single-digit range.

We expect operating profit to increase at a faster rate than revenue, driven by expense leverage on higher revenue with gross profit margins in line with the 2024 record level, along with a sharp decrease in HealthBeacon SG&A expenses.

This will be partially offset by a significant step-up in planned advertising in fiscal 2025 to support our strategic growth initiatives.

As Scott said, we have mitigated the impact on approximately 35% of our products, and we are planning to increase this by another 25% to 35% in 2025 as we work towards our goal of mitigating potential tariff impacts on 75% of our products.

We expect we'll be able to offset any additional impact from tariffs through select price increases and supplier concessions and therefore don't anticipate the recent change in tariffs to pressure our profitability in 2025.

Cash flow from operating activities plus cash flow used for investing activities for 2025 is expected to be in the range of $40 million to $50 million per year.

This concludes our prepared remarks.

We wil now turn the line back to the operator for Q&A.

(Operator Instructions) Okay.

It appears there are no questions.

How about going once and going twice.

Okay.

Well, since there are no questions, that will conclude today's call.

Thank you all for joining today, and you may now disconnect.

Have a great day, everyone.