Q4 2021 Hamilton Beach Brands Holding Co Earnings Call
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Hello, and welcome to the Hamilton Beach Brands Holdings Company Q4, 2021 earnings call. My name is Charlie and I will be coordinating your call today, if you'd like to ask a question. During the presentation. You May Register to do so by pressing star followed by one on your telephone keypad I will now hand, you over to you.
Just do on Nevada head of Investor Relations to begin the one please go ahead.
Thank you Charlie Good morning, everyone welcome to our fourth quarter 2021 earnings conference call and webcast yesterday. After the market closed we issued our fourth quarter 2021 earnings release and filed our 10-K with the SEC copies are available on our website. Our speakers today are Greg Trepp President.
And Chief Executive Officer, and Michelle Mosier, Senior Vice President and Chief Financial Officer also participating in the Q&A will be Scott Tidy senior Vice President consumer sales and marketing.
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 the prepared remarks or during the Q&A additional information regarding these risks and uncertainties is available in our earnings release at our Form 10-K the company.
<unk> disclaims any obligation to update these forward looking statements, which may not be updated until our next quarterly conference call if at all.
Now I'll turn the call over to Greg.
Thank you Lou Ann Good morning, everyone and thank you for joining us.
We're going to take the next few minutes to provide an overview of our performance for the fourth quarter of 2021.
The full year 2021, and our prospects for growth in 2022.
For our company, we see 2022 is a year of opportunity.
We expect to grow our topline.
Bottom line as we build on the progress we've made on many fronts 2021.
Certainly the past few years have brought extraordinary challenges to our company our industry and our world.
We've now we've navigated some tremendously adverse external conditions.
In 2020 to be dealt with the unexpected COVID-19 pandemic as it spread across the globe in.
In 2021, we've worked our way through the negative effects of the pandemic on the global economy, including supply chain disruptions and inflation.
If you are adding a hugely onerous tariffs that were imposed on certain imports from China starting in early 2018.
Our industry has encountered a new crisis every year since our company became public in September of 2017.
When you take all of these external pressures into account I could not be prouder of.
Well more grateful for our outstanding team.
We have demonstrated exceptional agility and resilience for several years running.
Our people have worked incredibly hard.
Tirelessly as well as effectively to mitigate the impact of these external challenges.
Our team has also risen to the occasion as we manage through the execution of some of some very big internal investments.
We have converted to a new ERP system.
Which was demanding in many ways.
Now that is in place we expect it to provide significant benefits for years to come.
We accomplished moved to <unk> to.
New distribution centers in Canada, and the U S.
Which will support our growth in both the e-commerce and brick and mortar channels for years to come.
Our new U S facility enabled us to expand direct to consumer shipping capabilities, which increases our ability to ship online orders for many retail customers we.
We do not move far from our fusion center, we're able to retain much of our workforce. We are grateful to all of our employees who were involved in completing the smooth.
Thinking about challenges of the past few years, we cannot leave out the difficult decision to be made to close our kitchen collection business in 2019.
Decision becomes even more well time after the events of 2020 in 2021 are considered.
The pandemic seems to be waning, while supply chain constraints and inflationary pressures continue.
Theyre expected to ease over time, we're certainly better equipped to deal with them while they endure.
More importantly, I want to highlight the many successes we achieved in 2021 due to our investments in recent years.
Very excited about the direction of our company wanted to focus now on our key accomplishments and plans.
In 2021 revenue was the highest in our company's history.
We realized significant progress on all of our strategic initiatives.
Our initiatives for e-commerce , the premium products market the global commercial market delivered double digit revenue growth, we signed two agreements in the fast growing home health and wellness market.
Under these under these agreements we plan to introduce new products and the air purification the whole medical categories in 2022.
Let me delve into more details regarding the progress we've made with our initiatives and our plans for additional growth.
We made significant progress with each initiative in 2021 .
We're in a very good position to continue to build on the momentum we believe each of our initiatives will provide growth in 2022.
First our goal to accelerate our digital transformation is going extremely well.
The E Commerce channel represents a very strong and fast growing part of our business.
It enables us to connect directly with consumers through detailed product information video and digital marketing.
As a valuable way to help consumers understand the benefits and value of our products.
In 2021, our total company E Commerce sales increased 22%.
For 38% of our total revenue.
Our U S consumer market e-commerce accounted for 45% for total revenue.
We have a presence across multiple ecommerce platforms all of our nine brands our earnings star ratings of $4 two or better.
Five of our brands are rated four five stars or better.
Our products received favorable reviews from consumers experts and Influencers.
Hamilton Beach continues to be the number one brand in the U S E Commerce channel based on units sold.
Our e-commerce capabilities have become increasingly sophisticated.
We are continuing to invest in them.
We're supporting growth digital engagement with online marketing programs, expanding our direct to consumer distribution operation and increasing our participation with pure play and omni channel customers.
Next I'll discuss our goal to gain share in the premium market.
Premium products account for approximately 40% of the U S small kitchen appliance industries annual sales.
Began to build out our.
2014.
He has grown to be a meaningful part of our business.
Our premium products have higher margins than many of our other consumer products.
2021 sales of our premium products increased 33% accounted for 13% of total revenue.
We generated significant sales increases for all of our premium brands.
<unk> Western Wolf Gourmet.
Cartesian premium cocktail machine.
She premium in garment care products, and Hamilton Beach professional appliances.
We introduced new products for every brand in 2021.
We plan to further expand our presence in the premium market with continued new product development digital marketing and by pursuing additional licensing agreements and other collaborative arrangements.
The Wolfcamp a portfolio now covers 10 high demand categories brand is expected to continue to grow in sales in 2022.
With the parties in premium cocktail machine plans are in place to launch generation two this year.
This upgraded model will provide enhanced functionality line extensions are under development, including a commercial grade model for.
Artesian revenue stream includes the machine and an extensive and ever expanding line of tricked VIX capsule.
Achieve premium garment care brand continues to grow as more people return to offices to work.
Engage an evening and weekend activities, including travel.
We are introducing new products from a western brand, which is targeted to gardeners and hunters.
Items include updated meat grinder installation models smokers food Dehydrator and vacuum sealers.
Our Hamilton Beach professional line Leverages, our commercial products expertise for the benefit of home cooks.
Product portfolio analysis, it's 14 high demand categories brand continues to gain new channel placements.
We have a new brand we are adding to our.
Portfolio that I will mention today, we recently launched a premium hand mixture for the Magnolia bakery.
I know your bakery started in Manhattan's West side less village a little over 20 years ago has since become a global brand.
Bakery has begun to market and novelty items baking tools hearing its brand name along with its lot of cookbooks. They asked us to partner with them on the bench and style hand mixer and their signature blue color.
Can't help it suggests that for anyone who will be in the market for our mother's day gift in may our mixer in a Magnolia bakery cookbook are a great idea.
Another initiative is to lead the global commercial market.
Commercial products sell at higher prices and have higher margins than most of our products.
Revenue from commercial products increased 36% in 2021 and account for six 2% of our total revenue.
Global commercial business suffered a tremendous down 2020.
Due to pandemic driven demand softness foodservice and hotel industry suffered tremendous declines in business. It was great to see it rebound strongly in 2021.
Our growth plans for this marketing.
And expanding customer relationships regional and global restaurants and hotel chains.
We also continue to invest in e-commerce , which is becoming increasingly important to the commercial products market.
Expect our commercial business to grow significantly in 2022.
Our newest initiative is to expand in the home health and wellness market.
This initiative was added in 2021 as mentioned we entered into two agreements that will enable us to increase our presence in this market.
Our focus last year was on developing plans and new home health and wellness products, we plan to launch throughout 2022.
We entered the water filtration category of late last year with a new Hamilton Beach, a confusion electric countertop system.
Ah confusion provide superior water filtration fresh taste, using our proprietary carbon black filter.
We also offer flavor capsules, which provides a consumable revenue stream.
Fusion is eco friendly each filter contain eliminates 750 single use plastic bottles.
We've expanded our participation in the air Purifier category through an exclusive multiyear trademark licensing and product development agreement with the Clorox company.
We have introduced three new Clorox Air Purifying models no replacement filters in the first quarter of 2022.
These include medium and large room models the tabletop model.
We plan to launch additional new models later this year.
The air Purifier category is expected to be to continue to be strong given the benefits. These machines provide to numerous consumer concerns.
We also entered the whole medical market through an agreement with a company called <unk> Ltd.
<unk> is a leading developer of smart tools for managing injectable medications at home.
Certainly the whole medical market is newer to us and the offers to.
The others, we are entering in the home health and wellness space.
Let me provide an overview of what attracted us to this opportunity.
The aging population.
Increasingly living with and managing chronic health conditions.
And for personalized health.
Health care solutions as rising in lockstep.
The need exists and younger demographics as well.
Our prep pull to help beacon healthsmart struck spin powered by healthy.
We enter 2022, new direct to consumer sales website for the system.
We are in the process of adding retail distribution for online and brick and mortar sales focusing on placements and pharmacies and relationships with the medical community to recommend the system to their patients.
The system will provide revenue from the appliance sale for monthly subscriptions that help patients manage adherence to their personal medication regimen using our technology into that.
Another initiative is to drive core brand growth.
Even as we work to expand in new markets, we remain intently focused on accelerating the growth of our core brands and at the beach and practice Alex.
It can compete successfully compete successfully.
And our heritage North American marketplace for over 100 years innovation and new product development have always been the lifeblood of this business during 2021 and 'twenty 'twenty. Two we are introducing more than 100 gig product platforms.
Any of them.
For our two core brands.
Core brand sales increased 6% in 2021.
This growth reflects the success of our new products.
Categories, such as coffee, among others and a repositioning of the practice Alex brand to a simply better positioning increased digital marketing.
Optimizing existing products.
And at the Beach holds the top three market share and more than 25 categories.
Finally, we have initiatives to leverage partnerships or acquisitions.
Definitely increased our focus on this initiative.
We prioritize opportunities that will provide entry into consumer or commercial markets, where we can become stronger participants.
We are actively engaged in the pursuit of additional collaborations or acquisitions should drive growth in all of our markets in 2022 and beyond.
Quickly summarize all of our strategic initiatives provide exciting future growth opportunities and potential we expect to build on the significant progress we made in 2021 now.
Now I'll turn the call over to Michele.
Thank you Greg good morning.
Comment first on our fourth quarter 2020 results compared to the fourth quarter of 2020, and then discuss our outlook.
As a reminder, the 2024th quarter's a difficult comparison as our revenue was unusually high this was due to a significant amount of order backlog fulfillment that shifted from the third quarter of 2020 during our cutover to our new ERP system in the U S.
Net sales for $197 $8 million compared to a record $234 million in the fourth quarter 2020, a decrease of 15, 5%.
In addition to the difficult comp, we encountered persistent supply chain congestion, which hindered our ability to fully satisfy retailer and consumer demand.
Orders were strong in every market and our products sold well at retail However, our third party manufacturers in China struggled to produce our elevated order levels and the ongoing challenges with securing containers coupled with the long Ocean transit time. So the movement of finished goods from China to the U S.
The lag there right.
I have a lot of inventory.
In spite of the overall decline in revenue we were very pleased to see that the momentum and the Latin American market continue into the fourth quarter and revenue for this market more than doubled in.
In the global commercial market revenue also continued to grow and increased 13, 9%.
Both markets have rebounded from pet stomach driven demand softness in 2020.
The revenue decreases compared to prior year occurred in the U S Canadian and Mexican consumer market.
As Greg mentioned, we continue to make progress with our initiatives as demonstrated by sales of our premium brand products, increasing 24, 6%.
Our e-commerce sales were flat year over year, but as a percentage of fourth quarter sales E. Commerce sales grew to 47, 7% compared to 47% in the prior year.
The pandemic drove a significant increase in online shopping in 2020 and in 2021 consumers return to a higher level of shopping in stores. So we're very pleased with our e-commerce sales level.
Turning to gross profit our margin contracted to 21, 8% compared to 23, 3%.
This was primarily due to less favorable product and customer mix, we implemented price increases in the second half of 2021, which offset higher product and transportation costs in the fourth quarter.
Our selling general and administrative expenses decreased about 3% to $25 $1 million compared to $25 $9 million.
The decrease was primarily due to lower outside service expenses and lower overall employee related cost.
Operating profit was $17 $9 million compared to $28 $4 million and net income from continuing operations was $12 $6 million or <unk> 90 per diluted share compared to net income of $19 $4 million or $1 47 per share.
For the year ended December 31, 2021 cash flow before financing activities was $6 million compared to a use of cash of $31 $7 million in 2020.
Changes in net working capital resulted in a use of cash of $1 $5 million in 2021 compared to $66 $9 million in the prior year.
Benefit of a lower cash used for net working capital was partially offset by capital expenditures in 2021 of $11 $8 million.
<unk> to $3 $8 million for the year before.
The 2021 amount included our investment in our U S distribution center. This was partially offset by $4 million and lease incentives and tenant improvement allowances classified as cash provided by operating activities.
Net working capital increased by $4 $3 million.
Trade receivables decreased by $25 $2 million due to the timing of receipts and lower sales.
Inventory increased by $9 $4 million, primarily due to supply chain constraints that delayed arrival of some inventory to late in the fourth quarter that did not provide enough time for us to turn it for the holiday season.
Accounts payable decreased by $21 million due to timing.
Net debt at December 31, 2020 are in line with $95 $7 million compared to $95 $9 million at December 31, 2020.
Next let me turn to our outlook in.
In 2022 overall demand for small appliances is expected to remain above pre pandemic level.
Although significantly softer than in 2021.
Industry expectations are that the pandemic lifestyle likely will not shift entirely back to pre pandemic modes.
As the pandemic waned, we will monitor closely any shifting consumer needs and behavior away from the home.
The global commercial market is expected to continue to rebound strongly from the pandemic driven demand softness.
I will note that this view does not take into account any potential negative impact on the global economy of the war in Ukraine depends.
Depending on how things evolve business conditions could change.
For the full year 2022, we expect that continued progress with our strategic initiatives will enable us to deliver modest revenue growth compared to 2021.
Our core business is solid we expect to continue growth in the premium and global commercial market and we expect to begin to benefit from the sale of new products in the home health and wellness market.
For the first half of 2022, we expect revenue to decrease modestly in comparison to a very strong first half of 2021.
And as issues related to product availability and supply constraints continue.
For the second half of 2022, we expect revenue to increase moderately.
This outlook includes the benefit of new products for the home health and wellness market that will launch throughout the year and the continued strength of our core products.
We have planned for supply chain constraints, and rising product and transportation costs to continue through this year.
Timing for any easing of these pressures remains uncertain to.
To mitigate rising costs, we have implemented pricing initiatives that are becoming effective during the first quarter of 2022.
We plan to continue to adjust prices as necessary to offset rising costs, while also remaining competitive with retail customers and consumers.
We may not be able to cover all future cost increases with additional pricing initiatives.
Even amid these pressures we will continue to focus on managing margins and working capital within historic ranges to the fullest extent possible. We expect full year operating profit to increase mostly driven by the higher revenue and also due to a modest improvement in gross profit margin.
We reported in our 10-K that at December 31, 2021, we had $1 9 million of accumulated other comprehensive losses related to our Brazilian subsidiary, which will be recognized in net income upon substantial liquidation.
This event is expected to occur in the first half of 2022.
That concludes our prepared remarks, and we'll now turn the line back to the operator for Q&A.
Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now and if we change our mind. It just all followed by T O.
Our first question comes from Justin Kleber of Baird. Your line is open. Please go ahead.
Hi, everyone. Good morning. This is Jack back on for Justin. Thank you for taking our questions maybe.
Maybe to start off can you discuss a bit about your relationship with your largest customer we noticed they accounted for 20% odd business. This year versus 35% in 2020 I'm. Just curious if there are by any changes on that front.
Hey, Good morning, this is Greg and I'll, let Scott follow up on this so I think there.
There is we have a great relationship with <unk>.
Really across our entire portfolio.
Our customers and we've got tremendous growth.
On.
Some and some art.
Some will go up one year down another year. So really the reality is we've got a mix shift.
Going on from the court.
This division has been from a customer standpoint, we've got strong growth in some areas such as e-commerce and a little slower growth in some other areas. So really I think it's not a indication of <unk>.
Weakness in any particular customer it's really.
Like just short term ups and downs and over time, we feel like we're really good position.
All of our top customers almost kind of I said that for.
The way you would agree.
Yes, Greg I do agree I think there is.
Certainly a mix between the different countries, where we have our largest customer and some of their different outlets.
And so there is there has been some shift there, but you know overall our distribution points are still very strong.
Some of them had stronger sales than that.
2021 time period versus the prior year and others were a little bit softer. So I think we're just kind of.
I moved a little bit with them and then we had some other retailers in our portfolio. They just got bigger and because of some of our strategic initiatives.
They just think he asked me to other customers just became a bigger part of our portfolio.
Okay, I think as John mentioned as well.
So as you say with good point as Scott mentioned, when we list our top customer.
It can be.
Many different banners of that one customer across really our global platform. So there might be.
One banner in one country that might also throw the mix off a little bit but.
Scott answered it very well.
Yeah, no gotcha that makes sense thanks for the color.
Looking at your commercial business it sounds like the recovery there continued nicely during the fourth quarter and you guys ended the year with nearly $49 million in sales there.
Can you talk a bit about how supply chain constraints are impacting that business in particular, while it grew nicely with 36% growth in 2021, how much stronger do you think it could have been and then Greg going back to your comment about significant commercial growth anticipated in 2022 do you think the commercial business can get back to pre pandemic levels next year that you guys.
John 2018 2019.
So on the supply chain is definitely affecting.
All of our businesses.
They're getting product produced.
Was one one ongoing challenge and as our suppliers struggling with all sorts of things related to production and demand.
And then just getting it to where it needed to be on time.
A factor so definitely supply chain hampered what we could've sold in commercial as well as our entire portfolio of U S consumer.
Canada, Mexico et cetera, So I'm definitely missed out on what could've been higher results.
As we go into 2022.
That the demand from those customers or commercial customers is still very very strong.
We have a.
Solid backlog so as soon as we can get product produced in to them, but.
So we have orders in hand.
Now how that will play out.
Year goes on right now that's how it stands in the first half of this year.
Certainly some parts of the world are.
Slowing down here because of what's going on in Ukraine and Russia.
But overall.
Land is very very strong and then hopefully we can produce products and get them. There. We expect continued growth in 2022.
Got you yeah, that's good to hear shifts.
Shifting gears to your guidance for next year I know Michelle you mentioned your outlook includes a modest improvement in gross margin, which seem to contribute to operating income.
Faster than sales in 2022.
If you think about the magnitude of improvement there do you think you can achieve a rate similar to the 21, 8% level at which you exited in the fourth quarter. This year.
Yes.
Yeah Justin.
I think.
Sorry is that can I apologize.
You know I think when I know we did have some.
Significant costs flowing through the distribution chain this year, particularly with outbound transportation as well as inbound transportation.
We are in hopes that we will get back into that normal range of operating profit margin next year.
But again all of it does depend on what we see in the economy, where as we mentioned were taken some price increases in the first.
<unk> and if we can keep up with that throughout the year, then we should be back to where we want to be.
Sure that makes sense and just to follow up on that point. The last question, we had was around pricing.
As you mentioned that round of price increases on tap in the first quarter can you give us a sense for the magnitude of the east compared to your previous price actions taken in the second half of this past year, just given that the cost pressures seen across products and freight have escalated and then on top of that have you heard of any unit elasticity.
Jim Your vendor partners in regards to how demand has fared.
Scott you wouldn't go ahead and take that one.
Sure I can start on that Bob So yeah. If you look at the the price increases we did take several increases in 2021 to offset.
Both the the cost coming from our suppliers and the transportation cost.
And as we kind of project, we haven't quite finalized what we think will be in the first half of this year, but we're starting to look at.
Our new contract rates on containers and are working with our suppliers.
I do think you know all the retailers that we're dealing with or Havent seen challenges, we're all bringing most of our product from Asia and so our increases are in line with the competitive.
Competitive market and it seems like our suppliers are suddenly understanding is they have to deal with the same types of challenges getting in containers.
So we will definitely be continue to as we get these contracts negotiated new pricing.
We feel very effective and passing these on in a timely manner to try to mitigate.
The margin erosion.
Does that just building on what Scott said so.
Yes.
Scott and his team and the commercial team has done a great job working closely with retailers, particularly out what's best for the pillar for us and for consumers.
That all went into effect in the first quarter as Michelle said.
Scotts also referencing raw going through contract negotiations on container rates and we'll be working with our suppliers sooner back half call. So those will very likely be more price increases mid year.
Tied to.
The cost position that is again, we'll do the same thing will figure out what it's going to impact on our businesses work with our retailers.
To implement it in a way that works for everybody. So my assumption is it will be continued price increases.
Going to the back half of 2022.
Okay, Great makes sense well. Thank you all very much. We appreciate your time and congrats on the record year and best of luck in your head.
Great. Thanks Zack.
Yeah.
As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
There are no further questions on the line at this time, so I'll hand, the call back over to Greg Trepp for any closing remarks.
Thank you we appreciate the opportunity to share with you today, what we believe our strong prospects for future growth.
As we've always said our company is focused on long term value creation.
We are fortunate to be a leader in an industry with durable demand.
We also believe that new cooking habits developed during the pandemic will endure especially for young people.
If you have been shareholders since our spin off in 2017, but thank you for your confidence our ability to deliver on our commitment to build long term shareholder value that concludes our report for today. Thank you again for joining our call.
Yeah.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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