Hamilton Beach Brands Q1 2025 Earnings Call Transcript

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April 30, 2025

There are 5 speakers on the call.

Operator

Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a Q and A session. So without further ado, I would like to turn the call over to Brendan Frey, partner with ICR.

Operator

Brendan, you have the floor.

Speaker 1

Thank you, Greg. Good afternoon, everyone, and welcome to the first quarter twenty twenty five earnings conference call and webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our first quarter twenty twenty five earnings release, which is available on our corporate website. Our speakers for today are Scott Teide, President and CEO and Sally Cudahan, Senior Vice President, Chief Financial Officer and Treasurer. Our presentation today includes forward looking statements.

Speaker 1

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 and A. Additional information regarding these risks and uncertainties is available in our 10 Q, our earnings release and our annual report on Form 10 ks for the year ended 12/31/2024. 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.

Speaker 1

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

Speaker 2

Thank you, Brendan, and good afternoon, everyone. Thank you for joining us today. The year got off to a good start with first quarter sales and operating profit both showing solid improvement despite increasing macroeconomic headwinds. We entered 2025 with good momentum following a successful holiday season and we were able to maintain our positive trajectory over the first three months. Our top line performance was led by our North America consumer business driven by demand for our mass market brands.

Speaker 2

Increased penetration from higher margin businesses such as premium and healthcare helped fuel another healthy gain in gross margins year over year, which along with lower operating cost resulted in a $3,200,000 improvement in operating profit. We are pleased with our overall first quarter results. As we exited March, we were on track to achieve the full year guidance we provided on our Q4 call in late February, even as The U. S. Imposed 20% tariffs on all Chinese imports.

Speaker 2

With the reciprocal tariffs levied against us levied against all trade partners in April and the increase in China tariffs to 145%, visibility into near term trends has become much more challenging. We are taking actions to mitigate the impact of higher tariffs, which Sally and I will speak to later in the call, but these will take time to flow through our supply chain and income statement. While expect the next few quarters to be difficult for the industry, we are confident in our ability to navigate these headwinds and emerge with our leading market position intact. In the meantime, we continue to execute against our six 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.

Speaker 2

I'll now take a few minutes to highlight some of the recent drivers behind the advancements of these strategies, starting with the drivers of core brand growth in the first quarter. Hamilton Beach brand sales were up modestly compared to the first quarter of twenty twenty four as we take advantage of positive eating and entertaining at home trends. Our success was driven largely by the growth of our U. S. Consumer and Latin America businesses.

Speaker 2

We were also pleased to see continued market share gain of the Hamilton Beach brand in Mexico this quarter. In The U. S, we continue to make progress expanding our reach and expect to benefit from key big box store placement wins in the back half of the year, which should help drive further penetration of our core business in 2020. Turning to our premium business. Our powerful portfolio of premium owned and licensed small appliance brands collectively delivered mid single digit growth in Q1, driven largely by exceptional growth in both our new milk and Qi brand products as consumers continue to react positively to our new products introduced over the past year.

Speaker 2

Nu Milk plant based milk makers continue to gain traction among health conscious consumers who value creating fresh, preservative free alternatives on demand, aligning perfectly with current trends towards healthier and more sustainable options. We also saw continued success with our Qi iron in the first quarter, highlighted by a successful partnership with one of the largest club stores in North America. These performances were partially offset by the planned wind down of our licensing agreement with Wolf Gourmet. While this will be a temporary drag on results, we are excited about the launch of Lotus, our new owned premium brand in the back half of this year. Lotus will be the premium small kitchen appliance brand for home cooks with big culinary ambition.

Speaker 2

At launch, the brand will introduce seven new Lotus professional products, including the Perfectionist air fry and convection oven, the Top Drip coffee maker and ground scale and the four slice precision toaster. This full range will position us to take share in the nearly $4,000,000,000 total addressable premium market. The response from specialty retailers to this new line of sleek, innovative, small appliances has been very positive so far. Looking ahead, we plan to expand offerings under LOTUS in 2026 with three new introductions under the Signature line. Turning now to our commercial business.

Speaker 2

Along with the strong demand for our signature products like the Summit Edge blender, we continue to evaluate new opportunities for potential partnerships in the global commercial market. To this end, we signed a new agreement with Sunkist to develop and market Sunkist branded commercial juicers and sectionizers to use in leading restaurants, schools and a large restaurant chain throughout The U. S. As we look to leverage this new opportunity, we are excited about the potential future partnership with a whole new customer base. And lastly, regarding our newest business segment, Hamilton Beach Health, we were pleased with the segment's first quarter performance, which marked its third consecutive quarter of increasing patient subscriptions.

Speaker 2

Since acquiring Health Beacon early last year, we've been developing health care management tools, including remote therapeutic monitoring systems. As part of our goal to grow our patient subscription base by over 50% this year, we are excited to launch with our newest specialty pharma partner OptumHealth later this quarter. As we look forward, we remain excited about this high margin business and the untapped potential that lies ahead. Across each of our businesses, we are focused on growing through our existing distribution, while also selectively expanding our physical reach and growing our digital presence through our digital transformation efforts. This has allowed us to capitalize on the consumer shift to online shopping, with roughly 40% of The U.

Speaker 2

S. Consumer sales now coming via e commerce. I'm pleased to report that we delivered mid single digit e commerce growth in the first quarter with gains across leading e commerce retailers, our brick and mortar partner digital platforms and our branded websites. Following a solid first quarter, trends have slowed in April as our retail customers and consumers digest the tariff increases and weigh the potential impacts from ongoing negotiations. As I said earlier, we are taking actions to mitigate the impact to our cost.

Speaker 2

First, we are implementing increases in Q2 to address the first round of IEPPA tariffs. We enjoy strong relationships with our retail partners and are maintaining open dialogue as we navigate global tariff implications together. Second, we have taken proactive sourcing actions, including a pull forward inventory purchases from suppliers in Q1 to minimize tariff impact. We have also recently certified our main distribution center as a foreign trade zone to help manage cash flow and tariff impacts. Lastly, we are accelerating our sourcing diversification, prioritizing the movement of product manufacturing based on volume and profitability.

Speaker 2

Historically, 25% of our sales have originated outside of The U. S. And are not subject to recent tariff actions. For the remaining 75% of sales that are U. S.-based, we have already transitioned approximately 15% of our manufacturing out of China and expect to have two thirds of our U.

Speaker 2

S. Sales coming from outside of China by the end of twenty twenty five, with the remainder to be moved in the first half of next year. We are confident that these actions will positively benefit our margin profile in 2026.

Speaker 1

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

Speaker 3

Great. Thank you, Scott. Good afternoon, everyone. To echo Scott's comments, we are pleased with our start to '20 '20 '5 marked by positive sales and operating profit momentum, even as macroeconomic headwinds began to strengthen in the first quarter. Starting with revenue.

Speaker 3

Total revenue in the first quarter was $133,400,000 a 4% increase over last year's first quarter. The increase was driven primarily by favorable product mix as well as higher volumes, partially offset by expected average price decreases and foreign currency impacts. Regionally, our North American consumer markets delivered solid growth with the majority of the contribution coming from The U. S. Market.

Speaker 3

These gains were partially offset by slight revenue declines internationally. Also included in the first quarter was $1,500,000 of revenue from our Health Beacon business. Turning to gross profit and margin. Gross profit was 32,800,000 in the first quarter compared to $30,100,000 in the year ago period. Gross profit margin was 24.6% compared to 23.4% in last year's first quarter.

Speaker 3

The increase in gross profit margin in the current quarter was primarily due to favorable product mix in the period, highlighted by the addition of our higher margin Health Beacon business. Selling, general and administrative expenses decreased slightly to $30,400,000 compared to $30,900,000 in the first quarter of twenty twenty four. The decrease was primarily driven by Health Beacon transaction costs that did not recur in the current year period. Operating profit was $2,300,000 compared to an operating loss of $943,000 in the first quarter of twenty twenty four. Net interest income in the first quarter was $72,000 compared to net interest expense of $156,000 a year ago due to investment of increased cash on hand compared to the year ago period.

Speaker 3

Income tax expense was $729,000 in the first quarter compared to an income tax benefit of $110,000 a year ago. Net income was $1,800,000 or $0.13 per diluted share compared to a net loss of $1,200,000 or $08 per diluted share a year ago. Now turning to our balance sheet and cash flows. For the quarter ended 03/31/2025, net cash provided by operating activities was $6,600,000 compared to $19,700,000 for the quarter ended 03/31/2024. Net working capital provided $16,300,000 of cash compared to $33,500,000 in the year ago period.

Speaker 3

The decrease was primarily due to improvements in trade receivable collections that benefited the year ago period, combined with a notable level of inventory pulled forward ahead of recent tariff related uncertainty in the current year period. Capital expenditures were $516,000 in the first quarter of twenty twenty five compared to $942,000 in the first quarter of twenty twenty four. We continue to follow our disciplined capital allocation strategy of reinvesting in the business and rewarding shareholders in the first quarter. During the three months ended 03/31/2025, we returned value to our shareholders through the repurchase of 141,435 shares totaling $2,700,000 and paid a total of $1,600,000 in dividends. Over the last few years, we have allocated much of our free cash flow to significantly reducing debt, returning shareholder value through cash dividends and stock buybacks, and last year, to fund our Health Beacon acquisition.

Speaker 3

Looking ahead, we will continue our prudent approach, prioritizing the most impactful allocation of capital in the current operating environment. On 03/31/2025, our net debt position, or total debt minus cash and cash equivalents and highly liquid short term investments, was $1,700,000 compared to a net debt position of $23,700,000 at the end of the period at the end of the prior year period. Now turning to our outlook. As Scott mentioned, our first quarter performance had us on track to achieve the full year guidance we outlined in our fourth quarter earnings call. We were confident in offsetting the impact of the additional 20% tariffs imposed by The U.

Speaker 3

S. On China in late February and early March through select price increases. With the reciprocal tariffs announced in April and the subsequent escalation tariffs on Chinese imports, visibility at this moment into how the remainder of the year unfolds has become more difficult. We are monitoring the situation closely and taking actions to mitigate the impact on our business, including price increases, pre buying inventory and accelerated diversification efforts, while we await what we hope is a positive outcome from current and future negotiations. Given the unpredictability of trade negotiations and responses that may occur, we think it is prudent to temporarily suspend our practice of providing guidance until conditions stabilize and visibility improves.

Speaker 3

We look forward to updating you on our progress on our second quarter earnings call in late July. That concludes our prepared remarks. We will now turn the line back to the operator for Q and A.

Operator

Thanks, Sally. Ali. Adam Bradley with AGB Capital. Adam, your line is live.

Speaker 4

Hi. Great job, Sally and Scott. Another good quarter. I think everyone understands, given the current environment, the lack of clarity on outlook. So my questions are more of could you provide some clarity on your own comments?

Speaker 4

Specifically, gross margin outlook now with the tariffs, said in your earnings release that you expect a benefit from that in the fiscal year. Can you clarify if you mean beyond the roughly 26% gross margin you've experienced last year and we're forecasting for this year? Do you expect these actions even with tariffs to benefit beyond that? Or if not, can you please clarify what you meant?

Speaker 3

Hey, Adam. This is Sally. I'm not sure that we said that our margins were going to benefit I do think that we're certainly working the levers to mitigate tariffs, and we're accelerating our supplier diversification. And we're working really closely with retailers as we navigate this.

Speaker 3

But at this point, as we said in our prepared remarks, we really don't have visibility that we want to share an outlook about gross margins going forward.

Speaker 4

Okay. Well, may clarify. But I'm referring to in your earnings release where you said and expect these actions to benefit our margin profile in 2026. So that's what I was asking for clarity. Yes.

Speaker 2

So Adam, I think there we're sitting there saying our diversification efforts as we move our production into other countries with lower tariffs, we feel like that that's going to benefit our margins as things settle out in 2026.

Speaker 4

Okay. If we if without asking you specifics, can you help investors generally? As you your initiative to move sourcing outside of China has been a multiyear that's what you've said publicly and I think that's great, right? And now you're in a better position had you not waited. As you look to source the same products from the rest of the world, in general, are those, costs or margins better or worse than what you've done in China over the last one or two years, if you normalize for tariffs?

Speaker 4

Meaning like if you move out of China and you go somewhere else, is it more expensive? Or is it cheaper? Or is it about the same?

Speaker 2

Yes. I really think as you know, we've a very broad portfolio. And as you indicated, we started this endeavor two years ago. So we've learned a lot from doing that. I will tell you each product platform is a little bit and the location is a little bit different.

Speaker 2

I think what we feel confident in saying is that regardless of what the cost impact is as we diversify, we feel like we can negotiate the right

Operator

It appears we lost Scott. Scott, are you back? Yeah.

Speaker 2

I'm still here. Is Adam here?

Speaker 4

Great. I'm here.

Speaker 1

Okay. Can you hear me? So did did

Speaker 2

you hear my response, Adam?

Speaker 4

No. I think we all lost you for about, I don't know, fifteen All

Speaker 2

right. So what I was saying was, as we continue to diversify our production outside of China, whether the cost is up or down or neutral, we feel like that when that product lands here in The U. S, we were able to maintain our margins as we take pricing activities with our retail partners.

Speaker 4

Okay. I have some follow ups to that, but I'll take one step back. And if there's someone else who wants to ask a question, I'll yield. And if not, I'd like to follow-up on that.

Operator

There are no further questions, Adam, if you'd like to continue.

Speaker 4

Yes. I'll keep rolling. Thanks. So we all learned a lot in COVID and then with the other tariffs, and I'm sure you all learned a lot. So far, we are hearing with other general news that retailers, the large retailers, may be pushing back on price increases.

Speaker 4

Without being specific, are you it sounds like you're saying you're not experiencing that because you're referencing specifically to raise prices where tariffs are impacting you. So what is the response of the major retailers out there? Are they accommodating price increase in general? Or are you receiving kind of some pushback on that?

Speaker 2

Yes. I'm not going to I think, Adam, I'm not going go into that in a lot of specifics. I will tell you right now that we're kind of in week four since the retaliatory tariffs have come into play. And if you look at our inventory on hand and the number of months that we have on hand and most of our retailers have anywhere from five to eight weeks of inventory as well on hand, we're really both kind of sitting there and just doing a lot of communication as to what's the way to move forward, right? And so one, we're trying to maximize the inventory that we've got on hand.

Speaker 2

We're working very hard to diversify our product into other countries, talking through those transitions and timelines and what those costs would be. And then as things get closer for those products that we don't have diversification plans, those will be different conversations, but those haven't had to happen yet. And so we're being very open with our retailers and there's a lot of understanding back and forth. As you know, many of our retailers source their own products from these markets. So these types of challenges are something that they're facing as well.

Speaker 2

And it's also something that we really believe the majority of our competition is dealing And so it's not like We're not the only ones in the room and the only ones having this conversation. So we feel like we're all trying to figure it out together. We've got a little bit of cushion right now. We feel very good about our diversification efforts. And we're just trying to move as quickly as possible.

Speaker 4

Okay. Well, thanks for clarifying that. I think that's pretty helpful. You did pull forward, it looks like, about a $32,000,000 if we compare inventory levels of Q1 'twenty five to Q1 'twenty four, It's about a $32,000,000 pull forward as of the end of the quarter. That was preretaliatory tariff amounts.

Speaker 4

Have you are you willing to share, have you continued to do that through April? Or what's your inventory status now?

Speaker 2

Yes. I don't think we're going spend a lot of time on that. As you know, kind of one of the critical dates that occurred out there was April 10 for when things could ship before they received the retaliatory percentage of 145%. And so after that date, again, we feel like we've got a good inventory position in the short term. As we get closer to the holiday season and we need to start building inventory, that's when we're going to really lean on our diversification efforts or try to work out an understanding with our retail partners on what we would do with the inventory that would be coming at the higher tariff percentage.

Speaker 4

Okay. Thank you. So I'm going to move on from inventory and tariffs and all that and talk about some of the other parts of the business. So HealthBeacon, you've given us kind of a basic understanding of its, not only of the business strategy, but its revenue has been about $1,500,000 on a quarter run rate basis. Will you begin to break out its performance?

Speaker 4

Or what maybe say differently, yes. You have a plan to break out its performance longer term? And what should we expect from that?

Speaker 3

Yes. I mean, think you will continue to see a breakout of the performance. I mean, certainly, if you refer to our 10 Q, it is a segment. And so you'll see it in segment disclosures. And then as it makes sense, we'll obviously continue to include it in our earnings release as well.

Speaker 3

But we remain very excited about the business. It continues to grow at a better than expected rate. And so we're excited to see where it takes us in the future.

Speaker 4

Great. Alright. And then I I got a housekeeping item on on, on accounting, if you could clarify, Salad. Your, your release said your share repurchases I I have to go back and look. I think it's the 21 in in the body of the release.

Speaker 4

And then the statement of cash flows has 3,400,000 of share repurchases. Is is it easy enough for you to walk me through the difference in those two numbers?

Speaker 3

Yeah. And I think it's that we have two different pieces for the for the share repurchase. One is through our our share repurchase program that was approved and governed by the board. And then our second piece of the repurchasing in first quarter is associated with kind of tax withholdings associated with incentive compensation. So it's it's the sum of those two pieces.

Speaker 3

And as they're governed under two different plans, we we break them out separately.

Operator

Alright. Well, thank you for the questions, Adam. And ladies and gentlemen, that does conclude today's call. So thank you all for joining, and you may now disconnect. Have a great day, everyone.

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Hamilton Beach Brands Q1 2025
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