Hamilton Beach Brands Holding Co (HBB) 2025 Q3 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 Brand's 3rd quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise.

[Operator Instructions]

Thank you. So, with further ado, I will turn the call over to Brendon Fray, partner with ICR. Brandon, you have the floor.

Thank you, Tamika. Good afternoon, everyone, and welcome to the 3rd quarter, 2025 earnings conference call and webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our 3rd quarter 2025 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 risk 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 remarks and uncertainties is available in our 10Q, our earnings release, and our annual report on Form 10K for the year ending 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 race. With that, I'll now turn the call over to Scott.

Brendan, and good afternoon, everyone. Thank you for joining us today. Our 3rd quarter performance represents a step in the right direction towards normalization following the significant disruption our industry faced after higher tariffs were implemented in April.

As the 3rd quarter progressed, retailers started to resume more typical buying patterns after destocking inventory purchases purchased. Evident and sequential improvement in our year over year sales trend compared with the 2nd quarter.

While profitability declined more meaningful than the revenue in Q3, this was driven primarily by one-time incremental tariff cost of $5 million and to a lesser extent a timing mismatch between ongoing tariff rate increases and our pricing adjustments.

This significant headwind was partially offset by a favourable mix shift led by increased penetration of our higher margin commercial and health businesses. Importantly, we have fully absorbed the impact on gross margins from the peak tariff rate and have moved forward with a more balanced inventory position and a clear line of sight on returning gross margins more in line with historical levels.

This will be achieved over the coming quarters through the strategic actions we've taken in response to higher tariffs. To review, we meaningfully accelerated our manufacturing diversification efforts away from China to other APAC countries and remain nimble as multiple trade negotiations played out and agreements are finalized.

With a more diversified geographical sourcing structure, we have the ability to quickly shift our procurement to markets that are in the best economic interests of the business. We at the end of June and August that align with the current tariff rate increases. Our retail partners understanding.

Price adjustments which were carefully balanced to maintain our competitive market position while protecting margins. Brand equity and market leadership have enabled us to take these necessary steps on maintaining our value proposition to consumers.

And we enacted comprehensive cost management measures across the organization that generated $10 million in annualized savings with the benefit of these actions starting to materialize in the 3rd quarter. Looking at the performance highlights by business division, our core business continued to expand its reach as we shift our kitchen collections by Hamilton Beach Line to a leading mass market retailer nationwide.

This commercial, this broader rollout increases our already significant retail presence and reinforces our market leading position across the small appliance space. Looking ahead, our robust pipeline of new products and high growth categories like blender kitchen systems, specialty coffee, and air fryer should position us for further market share gains.

Our premium business continues to perform well, highlighted by the successful launch of our high-end Lotus brand. Initial sell-through results have exceeded expectations by strong double-digits, which is remarkable for a new premium line, especially as the majority of our initial advertising support for Lotus is planned for November and December.

Based on this performance, we are actively negotiating to increase shelf space, positioning Lotus or even broader market reach. Beyond Lotus, we also have new innovative launches planned across our Q and Clorox brand partnerships in the coming quarters that should help fuel further growth.

Our commercial business delivered outstanding results in the 3rd quarter. In fact, we believe inventory constraints limited our performance, which speaks to the strong and growing underlying demand for our innovative commercial solutions. Our recent Sunkists brand launch continues to be a resounding success with branded commercial juicers and sectionizers continuing to deliver outsized results.

Looking ahead, we are focused on accelerating our commercial business expansion through new channel penetration and expansion of our relationships with large food and hospitality chains. Furthermore, we are diversifying our manufacturing base for our commercial line to make sure we are positioned to fully capture the growing market opportunity ahead.

Our newest division, Hamilton Beach Health, achieved a major milestone by reaching positive operating profit for the first time this quarter. We're seeing new partnership deals develop, including a new specialty pharmacy partnership with Centerwell and Lumecera, both of which are top 15 specialty pharmacies in the US.

Additionally, we saw the successful launch of a new Health Beacon Harmony software product with Novartis Ireland. With strong interest for expansion into other markets.

Beyond these product advancements, the team has also recently implemented several digital improvements resulting in a smoother patient experience, lower patient acquisition cost, and higher conversion rates. These new developments, along with expanding our patient subscription base by 50% this year, and the conditions treated using our Smart Sharp system, leave us very excited about Health Deacon's future.

Finally, our digital initiatives continue to gain traction this quarter. We exceeded our point of sale expectations during one of the largest digital retail events of the year. Looking ahead, we're placing a large emphasis on digital growth in Q4 to capitalize on the important holiday shopping season.

In closing, we have greater clarity into our cost and pricing architecture now that tariff rates on certain Chinese imports have moderated significantly from the peaks reached in the second quarter and trade relations have improved. While uncertainty in the marketplace remains, we expect the strength of our brand portfolio, recent sourcing diversification efforts, and pricing actions will lead to further top-line and margin recovery in the 4th quarter.

With that, I'll turn it over to Sally.

Great, thank you, Scott. Good afternoon, everyone. As Scott detailed, our third quarter sales trend improved compared with the second quarter, and while growth margins were down year over year, the pressure was largely temporary, and the impact from the peak tariff rate on China is now fully behind us.

Turning to our results, starting with revenue, total revenue in the third quarter was $132.8 million down 15.2% from last year's third quarter, but up 300 basis points compared with the second quarter's year over year performance.

The revenue decline was primarily driven by lower volumes in our US consumer business, reflecting overall softness in consumer demand, as well as timing of retailer purchases, specifically one large retailer that that delayed orders for most of the third quarter.

As a reminder, some retailers paused buying in the second quarter to assess inventory levels and price increases flowing from the new tariffs implemented by the United States in April 2025. While most retailers resumed buying in the second quarter, the pause negatively affected volumes during the early part of the third quarter.

Turning to gross profit and margin. Gross profit was $28 million or 21.1% of total revenue in the third quarter compared to $43.9 million or 28% in the year ago period. The decline in gross profit margins was primarily due to the flow of one-time incremental tariff costs of $5 million the majority of which are related to the temporary 125% China tariff costs that were in effect for a period of time earlier this year.

Additionally, gross margin was impacted by a delay between tariff-related rising costs and the effective date of pricing adjustments. This created a temporary compression of gross profit margin that we expect to normalize in future periods.

It is important to note that excluding the $5 million of 125% one-time tariff costs, gross margin would have been $33 million or 24.8% of total revenue. Selling general and administrative expenses decreased $8.2 million to $25.1 million or 18.9% of total revenue, compared to $33.3 million or 21.2% of total revenue in the third quarter of 2024.

The decrease was primarily driven by $6.8 million of lower personnel costs, including reduced stock-based compensation expense due to changes in our stock price year over year, as well as benefits associated with the restructuring actions we took in the second quarter.

Operating profit was $2.9 million or 2.2% of total revenue, compared to $10.6 million or 6.8% of total revenue in the third quarter of 2024. As the temporary impact on gross margins from the peak tariff rate more than offset the expense leverage, we delivered in the third quarter.

Excluding the $5 million 125% one-time tariff costs, operating profit would have been $7.9 million or 5.9%. Income before taxes is $2 million compared to $2.7 million. The prior year period included a one-time non-cash charge of $7.6 million related to the termination of the company's overfunded pension plan.

Income tax expense was $0.4 million in the third quarter compared to income tax expense of $0.7 million a year ago. Net income was $1.7 million or $0.12 per diluted share compared to net income of $1.9 million or $0.14 per diluted share a year ago.

Now turning to our balance sheet and cash flows for the nine months ended September 30, 2025, Net cash used for operating activities was $14.6 million dollars compared to net cash provided of $35.2 million for the nine months ended September 30, 2024.

The decrease was primarily due to a $27.5 million dollar change in accounts payable due to lower purchasing activity from decreased sales volume and inventory turnover, as well as shorter payment terms with new suppliers under the company's China diversification initiatives.

During the 3 months ended September 30, 2025, the company repurchased approximately 39,000 shares, totalling $0.6 million and paid $1.6 million in dividends.

On September 30, 2025, our net debt position, or total debt minus cash and cash equivalents and highly liquid short-term investments was $32.8 million compared to a net debt position of $22.5 million at the end of the prior year period.

In closing, we are encouraged with how we have navigated the dynamic trade environment this year. With greater clarity around the go forward tariff rates for most all of the US's trade partners, the situation continues to stabilize.

We anticipate that our fourth quarter results will show further progress towards improving our sales trend and gross margins, and while our continued recovery won't be linear in 2026, we expect our annual performance to benefit nicely from the actions we've taken this year, diversifying our sourcing structure and lowering our fixed cost base.

This concludes our prepared remarks. We will now turn the line back to the operator for Q&A.

[Operator Instructions]

Your first question is from the line of Adam Bradley with AJB Capital.

Thank you for the colour around the margin, gross margins. Can you please clarify? The 370-basis point or $5 million dollar tariff cost. Was that a charge or is how should we think about that? In the past, I believe you used FIFO accounting and it's taken time for costs to flow through the P&L, and this seems different. What we hear you saying is that the $5 million charge was recognized in the quarter that those purchases were made. Just some clarity around that to help us understand that better.

Okay Sure. Hi Adam.

So, the costs relate to the 125% tariff that was temporarily put in place in the April time frame earlier this year. So, you are right, these are these are costs that were incurred in April of this year that did flow through our P&L in the third quarter, and what it really represents is some containers that we had on the water when this spike in tariff occurred. That we are not able to or we made the decision to not pass on to the consumer and so for us to absorb as a one-time cost and that flowed through in its entirety in the third quarter and I think that's a little bit different from kind of the more go forward increased tariffs that we're seeing from IEPA in from China and other Asian countries, which we do consider part of our go forward kind of cost structure and that we have taken actions to cover the additional expenses.

Okay, thank you. So, the $5 million that you paid, you didn't, it's not a charge on the P&L separately, it just flowed through in your cost of goods.

Correct.

Okay, thanks.

I'll hold off here and jump back in and see, give someone else a chance to ask a question.

As a reminder to ask a question, press star, followed by the number one on your telephone keypad.

You do have a follow-up from Adam Bradley.

And can you, Expand a little bit on a more normalized rate from your largest retailer. Can you give us a little bit more colour around that? The second quarter earnings report you shared that they had pretty, I may be paraphrasing here but paused orders and then it sounds like from what you are stating in this Q3 report that they continued to pause orders. Did you lose shelf space? Did, are you back to normal ordering patterns? Are you almost back? What kind of colour can you give us on that to help us understand sales trends?

Hey Adam, this is Scott. So yeah, on that on that customer and specifically they, you're right, they did pause placing orders. Their inventories got lower throughout that time period.

But if you look now, we've been shipping them now for several months, and we feel like the business is back on track as we indicated, we had a very robust promotional event in October and that customer was included. And we exceeded our expectations with that customer and we really, looking into the fourth quarter, we feel like we're going to be having a record number of promotional activities this fourth quarter and that customer along with many of our other retailers will be part of that.

Thanks. Are you, are you experiencing any catch up of inventory to replace what was lost or is it more of a normal flow?

I think we're kind of in a normal flow right now. I mean we had a little bit of a catch up, the market has been, a little bit different depending on the category of, lower in units but up in dollars because of price increases, but I think we're kind of back into a normalized pattern with this customer.

Okay, great. Thank you for that. Are you seeing the different behaviour from other large customers or is it consistent with some of the larger ones?

No, I think, for the most part we feel like we're in a normal cadence with a lot of our, a lot of, I mean actually probably with all of our retail partners, there was definitely that that time period where they stalled in the second quarter, took a hard look.

Some people were sitting on higher cost inventory. That you know due to these surprising 125% tariffs and everybody's trying to figure that out, but I think really for the last, most of the third quarter with the exception of this one retailer, we were shifting, as normal and promoting.

At this time there are no further audio questions. I will not have the call back over to our speakers for any closing remarks.

Thank you, Tamika. I think that's it from the Hamilton Meach brands. I appreciate everybody's time.

This includes today's call.

Thank you for joining. You may now disconnect your lines.