Q2 2025 Hamilton Beach Brands Holding Co Earnings Call
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So without further Ado I would like to turn the call over to Brendon Frey partner with ICR Brendan you have the floor.
Thanks Julien.
Good afternoon, everyone and welcome to the second quarter 2025 earnings conference call and webcast for Hamilton Beach brands.
Earlier today after the stock market closed we issued our second quarter 2025 earnings release, which is available on our corporate website.
Our speakers today are Scott tidy, president and CEO and salary cutting them 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 other 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 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.
Now I'll turn the call over to Scott Scott.
Thank you Brendan and good afternoon, everyone. Thank you for joining us today after having a strong 2024 and a good start to the year. The second quarter was marked by a dramatic shift in global trade as the U S implemented higher tariffs on imports from most countries in early April.
This included 145% increase on all Chinese exports, which created significant market disruption as purchases were temporarily halted across the industry, while the U S and China work towards a longer term agreement.
As the increased trade petitions plate attentions played out in the headlines in the stock market sold off retailer demand decreased further in Q2 as Q2 got underway.
Given this backdrop, we strategically reduced our trade advertising and promotional activity activities during the quarter to better align with the market conditions.
While we saw purchasing patterns begin to improve following the announcement of a framework for a new China trade agreement in mid May our U S business was adversely affected throughout a large portion of the quarter.
Despite these significant headwinds I'm incredibly proud of how quickly our team mobilized to implement decisive strategic.
The strategic actions across several fronts.
These remarkable industry challenges.
First we meaningfully accelerated our manufacturing diversification efforts away from China to other Asia Pacific countries.
Through careful planning and execution, we successfully implemented foreign trade zone operations and execute a strategic inventory pre builds to help minimize our tariff exposure.
Our goal is to continue minimizing tariff exposure going forward to do so we are remaining nimble as multiple trade negotiations play 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 interest of the business.
Second we took decisive pricing actions implementing and increases at the end of June that align with the current tariff rate increases I am pleased to report that our retail partners have been understanding and accepting of these necessary price adjustments, which were carefully balanced to maintain our competitive market position.
Margins.
Our strong brand equity and market leadership have enabled us to take these necessary necessary steps, while maintaining our value propositions to consumers.
Third we enacted comprehensive cost management measures across the organization, including an 8% reduction in force and total we realized $10 million in annualized savings and expect to begin seeing the meaningful benefits of these actions materialize in the second half of 2025.
Turning now to the specifics of our second quarter performance, we faced a challenging consumer environment across North America, and our financial results reflected these conditions total sales declined 18% driven by lower volumes in our U S consumer business as some retailers pause purchasing and sold through on hand.
Inventory as well as the impact of our strategically constrained marketing initiatives.
<unk> the headwinds I am pleased to report we achieved a 160 basis points of gross profit expansion driven by a favorable shift in customer mix, including our higher margin commercial and health businesses, which helped lessen the impact on profitability to lower sales.
Looking at performance by business, our core business maintained its number one position in units in North America. Despite the topline headwinds the industry faced in Q2, which is a testament to our brand strength and consumer value proposition looks.
Looking ahead, we remain optimistic about the market opportunities for our core business with key fault placement secured.
With big box retailers that position us well for the important holiday season.
Our premium business performed well to the overall overall market and our highly anticipated Lotus brand launch started last week exclusively at a strategic premium retailer in store and online.
Featured our the Lotus perfectionist oven, which employs advanced confection precision control and an integrated temperature probe to deliver fast performance and flawless results.
The Lotus top drip coffee maker, featuring the accu brew ground scale provides consistent flavor to seek to achieve.
<unk> certified Golden Cup coffee standards.
And the Lotus for slice toaster.
Seth and Lotus professional series products launched in total and broader distribution will occur later in the fourth quarter, followed by the Lotus signature line that will launch in mid 2026.
It is expected that the Lotus line of products will be heavily supported with over $5 million in marketing support over the next eight months.
Our commercial business contributed gross margin expansion and profitability from higher penetration of our overall mix in the period.
We continue to evaluate new commercial partnership opportunities like our Sunkist agreement, we announced earlier this year the early wins from the development and marketing of Sunkist branded commercial Juicers in section <unk>, which are used in leading restaurants schools and a large restaurant chain throughout the U S are accelerating faster than expected with <unk>.
Substantial runway for continued success.
We expect sunkist revenue to be about 5% of our commercial business in 2025 and double in 2026.
And lastly, our newest business Hamilton Beach Health also contributed positively to sales and gross margins. This quarter as we continue expanding our specialty pharmacy customer base.
Develop additional healthcare tools to meet growing market demand and work towards our goal of increasing our patient subscription base by over 50% this year.
We remain optimistic about the future growth and opportunities and strong profit potential of this business.
In closing while near term challenges persist, we remain confident in our strategy and the strength of our diverse brand portfolio, our decisiveness and addressing the rapidly changing market conditions has positioned the business to weather the current environment and emerge stronger and more resilient or price adjustments have been well accepted.
<unk> manufacturing diversification continues to progress our proactive inventory servicing help minimize the impact of higher tariffs on gross margins and our cost management measures will positively impact operating margin.
These actions along with the strength of our teams give me confidence that Hamilton Beach brands is well positioned to maintain its market leadership and achieve long term success.
With that I'll turn it over to Sally.
Great. Thank you Scott and good afternoon, everyone as Scott detailed our second quarter performance reflects the industry wide challenges brought on by higher tariff that temporarily pause retailer purchase orders.
Some of these headwinds lessened as the quarter progressed visibility continues to be limited.
Turning to our results starting with revenue.
Revenue in the second quarter was $127 8 million down 18, 2% from last year's second quarter.
The decrease was primarily driven by lower volume in our U S consumer business as some retailers pause they are buying when the new tariffs are implemented in order to assess inventory levels and price increases.
As the quarter progressed and a pause on the higher tariff rates went into effect until August retailers resumed buying.
As of today, the final tariff rates and the related impact on consumer buying remains uncertain.
Turning to gross profit and margin gross profit was $35 $1 million in the second quarter compared to 40 $45 million in the year ago period, reflecting the lower sales volume. However, our gross profit margin increased 160 basis points to 27 five.
That compared to 25, 9% in last year's second quarter.
The increase in gross profit margin in the current quarter was due to a shift in our customer mix within our U S consumer business, along with a larger proportion of sales from our higher margin international commercial and health taken businesses.
Selling general and administrative expenses decreased $1 3 million to $29 1 million compared to $30 4 million in the second quarter of 2024.
The decrease was primarily driven by adjustments to incentive compensation based on the change in our projected annual performance.
This is partially offset by a one time severance charge from restructuring actions taken by management to optimize our cost structure.
Operating profit was $5 9 million or four 7% of total revenue compared to $10 million or six 4% of total revenue in the second quarter of 2024.
Income tax expense was $1 $6 million in the second quarter compared to income tax of $3 million a year ago.
Net income was $4 5 million or <unk> 33 per diluted share compared to net income of $6 million or <unk> 42 per diluted share a year ago.
Quickly summarizing our first half results.
Revenue was $261 1 million down eight 2% from the first half of 2024.
Gross margin increased 120 basis points to 26% and operating margin stayed flat at three 2%.
Now turning to our balance sheet and cash flow.
For the six months ending June 32025, net cash used for operating activities was $23 8 million compared to a net cash provided of $37 1 million for the six months ended June 32024.
The decrease was primarily due to a $58 million impact from changes in inventory and accounts payable driven by higher inventory from increased tariffs and accelerated purchases in Q1 of 2025.
Slower sales reduced inventory turnover, while fewer purchases in Q2 lower accounts payable.
Further affecting cash flow due to the timing difference between inventory buildup and supplier payments.
During the three months ended June 32025, we continued to return value to our shareholders to the repurchase of approximately 215000 shares.
$4 million and paid a total of $1 6 million in dividends.
On June 32025, our net debt position or total debt minus cash and cash equivalents and highly liquid short term investments was $38 $7 million compared to a net debt position of $12 $8 million at the end of the prior year period.
As Scott discussed we are encouraged with the progress that we've made over the past three months diversifying our source first in structure and lowering our fixed cost base.
To provide us with great financial flexibility in these uncertain times.
That said it is still unclear how the outcome of ongoing negotiations between the U S and most all of its trade partners combined with current Mac.
Macro and geopolitical events will impact retailer planning and consumer demand.
Therefore, we are going to refrain from reinstating guidance at this time.
That concludes our prepared remarks, we will now turn the line back to the operator for Q&A.
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Draw any questions Press Star one again, we'll pause for just a moment to compile the Q&A roster.
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Our first question comes from Adam Bradley from H, a JV capital. Please go ahead. Your line is open.
Hi, Scott.
I'll just start with health Beacon.
Okay.
Can you tell us a little bit about the second quarter's performance on that line of business.
I'm sure I mean, we're I mean, we continue to be Dv pleased with how the business is growing and we think it's still an pasty off growth targets with number of patients as well as being profitable by the end of the year.
I think we're pleased with how that segment reporting.
Yes, and I'll just add.
Adam.
Go ahead.
Well Ed.
Rather you are going to say first and then go ahead go ahead.
Okay.
And the 10-Q it reported quarterly sales of $1 5 billion will you be reporting in the Q second quarter sales.
P&L.
We will it will be part of our segment reporting.
Yes can you share that now than if you're just going to report that in the Q what were sales in the second quarter.
And I will give me a quick second as I flip to the page to make sure I say the number right.
And for the three months ended.
June 30 at the health business had a $1 $7 million in topline revenue.
And then an operating segment loss of 864000.
And this is a significant improvement over last year. So last year was $859000 in revenue.
About double top line and then bottom line was about a $2 million loss. So we cut the loss in half year over year. So.
So as I said, it's still great results is still moving in the direction that we wanted to we're still pretty happy with the business.
Thank you for that so.
One of them switch to buybacks.
The stock has been.
Languishing for a while.
Can you can you give investors.
Like me you are kind of a longer term view of.
Your capital allocation plan as it pertains to buybacks is it opportunistic as it kind of formulaic per quarter whats governing.
The decisions of when and how much.
To buy back stock.
Yeah, I think Thats a great I think it's a great question you know in terms of stock buybacks, we break it into two into two pieces. The first piece is that we.
We don't want any stock issuances to be dilutive rights that we buy back as many shares as we granted as part of that is a part of our compensation.
Compensation package and Thats about 300000 shares.
That's the first 300000 or per.
For year per year.
Got it.
On a per year basis, and so this year was around 300000.
So we seek to repurchase them in the market and then the second piece is opportunistic so we do take a look at the stock.
And we take an opportunistic view of whether or not we need to be repurchasing stock or not and we did repurchase quite a bit of stock last year with that opportunistic lens.
For this year.
We if you look at the number of shares we bought in the first five months of the year, we've met that anti dilution goal.
And at this point, we will just continue to watch the stock and see if the opportunistic makes sense.
So to follow up on that often the op reduced domestic price on a la carte basis occurs at the same time as Youre experiencing troubles you are right now so.
So right now you are having to build up your inventory it looks like this quarter and eat up some working capital yet the stock has stayed low so I'm asking kind of philosophically.
What is the view of repurchases.
It is.
Hamilton Beach willing to look at the long run and repurchase even when shares are low going through turbulent market conditions and in sales and earnings or are you holding onto cash during that and then.
Waiting until skies are clear to make repurchases I think thats what.
It would help investors like me to understand that a little better.
Given our liquidity profile.
The first thing that we look at.
And then once we've met matter anti dilutive goals I think we are open as a philosophical perspective to repurchasing shares when we feel that the VAT that the shares are undervalued and our liquidity position kind of is in line with repurchasing shares.
Our next question comes from Jake Patters from Atlanta Investment Group. Please go ahead. Your line is open.
Okay.
Hey, guys. Just a question on the cost savings program I know you said $10 million annualized starting second half is there any way to kind of bucket that with your segments is that going to come on this Adam consumer I would assume or is there any.
Any cost savings on the HPE side.
Okay.
So of the 10 million that we identified annualized savings.
A good portion of that is head count related.
And the majority of that is coming specifically out of the retail.
The retail segment.
Hum Homelink in the commercial product segment.
Okay got you and then can you I guess I don't know if you can discuss this now but I.
Any other color on the price increases I know that was kind of the spending.
They were late June.
So presumably not a huge impact in the quarter, but just kind of maybe framing some expectations on that going forward. If you can.
Yes. This is Scott so I think if you go back we.
<unk>.
At the beginning when tariffs started appear even before April we had there were some some tariffs there and we took a price increase at that point when we got more clarity around the tariffs that are potentially proposed today.
We have taken another price increase that would cover the tariffs that are out there that are being considered.
<unk> by country.
I think we're in the same situation as our competition.
And we feel like the retailers understand that because they are also or our sourcing product as well from from these Asia Pacific countries, and so far we feel like things have been able to be pushed along nicely, we're able to kind of get back into a normal <unk>.
This cadence with them I think that the challenging thing is there's still just selling indicated there is still just unknown tariff negotiations still going on so we still got to be nimble and able to adjust going forward.
Got it Okay, and then kind of maybe just piggybacking off of that.
Looking at this correctly it looks like the last few years you guys have.
Minus four five minus 5% on pricing.
We're at $24 23, and as you think about like.
I want to say most of that was kind of getting back some of those excess freight costs that you guys embedded in your product prices, but when you think about your competitors how.
Im assuming you guys track this but how is your pricing kind of.
Compared to competitors over the last couple of years.
Maybe some thoughts on how.
That looks now moving forward like you have more wiggle room with pricing to move up relative to competitors or is it kind of even across the board there.
I would say, it's kind of even across the board I think our competitors have similar challenges that we face whether it be tariff for our container rate cost increases.
If you look at our distribution points, even going back to 2023, and then through 2004, we feel like we've got good solid distribution points across multiple channels.
Throughout North America, so from that perspective, we feel very good I think.
If you look back historically coming into this second quarter. We were we were growing topline sales seven quarters in a row. So we feel like our strategy has been pretty solid it's really this unknown issues around tariffs that.
<unk> had to make us adjust but as I indicated the retailers understand what's going on there direct importing products, they're sourcing products directly they are dealing with our other competitors that are getting products from the same countries where were getting ours and so this is not something that is surprising.
To the retailer standpoint.
Got it and then the last one is there is that.
Restructuring you guys called out was that material is there any way you can give me the number for that.
Yes.
Structuring charges of about $800000.
For the quarter.
Okay. Thanks, that's all for me.
Yeah.
Our next question comes from Michael Mark from Mark Capital Management. Please go ahead. Your line is open.
Hello, Michael Mork with Mork capital here.
Bigger picture.
Back in 2016, you were doing $750 million in revenues and now Youre doing about $650 million in revenue. So you dropped about $100 million. So to me that's kind of it looks like you added a lot of new products that are fancy and people buy them, but the other ones drop off almost quicker.
And going forward is there a game plan to have the whole company grow.
Yes.
Recent rate or was just going to be treading water.
No I think strategically we plan to grow.
I can't say that I'm, not so sure about that $750 million number that youre looking at in 2016.
But it's probably all your lines from value lines.
Sure.
I think I think our peak is a little bit lower than that but.
But no I think we there's a lot of there's a lot of runway for us to still grow we feel like are our opportunities continue to be in the premium space of the business. If you look at.
The consumer business in the U S.
About 50% $45, 50% of the business is being done in that premium space, we have a very low share in that and so we've got a lot of effort and we just talked about Lotus. For example, we feel like is a great brand that we can build out.
That space and be very competitive over the next couple of years.
Our commercial business is global we feel like there's a lot of opportunity as well there we continue to add partnerships like the suncoast partnership that we talked about.
I think not only can be beneficial in North America for.
For that business, but also globally and then if you look at the health business again.
We're expecting 50% increase in.
And our subscriptions, there and thats tracking throughout the way we expected it month by month.
And we feel like there's a lot of other opportunities as we build out that business to expand and reach more specialty pharmacy companies and reached more pharmaceutical companies in that space and really look at a good growth opportunity. So we're very focused on the growth side of things I think we as I indicated we were.
We were seven quarters consecutive top line growth and we certainly hit the wall here in the second quarter.
And with tariffs, but I think that the whole industry is experiencing that.
We feel like we've been working pretty hard to be very nimble and be able to be opportunistic can be producing in the and the countries that are going to give us. The best economic return that takes a lot of effort, but I also feel like our relationships with our customers remained strong our ability to reach the consumer online in the stores.
Still very sound and so we're going to continue to grow.
Sounds good. So do you think you can grow in line with GDP going forward them.
I mean, I think we're obviously not giving forward looking guidance at this point, but I do think we've had a couple of different times that we have that we have a good strategy and we believe in our strategy.
<unk>.
We feel good about things to come within our strategy.
Okay, well thank you.
Thank you.
This will conclude today's question and answer session as well as today's call. Thank you for your participation you may now disconnect.