Hamilton Beach Brands Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 30, 2025

Key Takeaways

  • Negative Sentiment: Q2 revenue fell 18.2% to $127.8 M amid a 145% tariff increase on Chinese imports, prompting retailer purchase pauses despite a 160 bp gross margin expansion from mix shifts.
  • Positive Sentiment: The company accelerated manufacturing diversification, shifting sourcing to other Asia-Pacific countries and deploying FTZ operations and inventory prebuilds to minimize tariff exposure.
  • Positive Sentiment: Implemented price increases in June aligned with tariff hikes, which retail partners have accepted, preserving margins and competitive positioning.
  • Positive Sentiment: Enacted cost controls including an 8% workforce reduction, yielding $10 M in annualized savings expected to benefit 2025 operating margins.
  • Positive Sentiment: Diversified growth: premium Lotus launch of seven products with $5 M+ marketing support, Sunkist commercial partnership set to double revenue by 2026, and Health segment revenue doubling to $1.7 M with losses halved.
AI Generated. May Contain Errors.
Earnings Conference Call
Hamilton Beach Brands Q2 2025
00:00 / 00:00

There are 7 speakers on the call.

Speaker 1

Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands Holding Company Second Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. If you require operator assistance at any time, please press star zero. Thank you. Without further ado, I would like to turn the call over to Brendan Frey, Partner with ICR. Brendan, you have the floor.

Speaker 2

Thanks, Julianne. Good afternoon, everyone, and welcome to the Second Quarter 2025 Earnings Conference Call and Webcast for Hamilton Beach Brands Holding Company. 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 R. Scott Tidey, President and CEO, and Sally Cunningham, Senior Vice President, Chief Financial Officer, and Treasurer. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed, and other prepared remarks are 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.

Speaker 2

The company disclaims any obligation to update these forward-looking statements, which may not be updated until 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. I'll now turn the call over to Scott. Scott?

Operator

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 a 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 worked towards a longer-term agreement. As the increased trade tensions played out in the headlines and the stock market sold off, retailer demand decreased further as Q2 got underway. Given this backdrop, we strategically reduced our trade advertising and promotional activities during the quarter to better align with the market conditions.

Operator

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 actions across several fronts of 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 executed 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.

Operator

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 increases at the end of June that align with the current tariff rate increases. I'm 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 and margins. Our strong brand equity and market leadership have enabled us to take these 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. In 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.

Operator

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 paused purchasing and sold through on-hand inventory, as well as the impact of our strategically constrained marketing initiatives. Despite the headwinds, I'm pleased to report we achieved 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 top line headwinds the industry faced in Q2, which is a testament to our brand strength and consumer value proposition.

Operator

Looking ahead, we remain optimistic about the market opportunities for our core business, with key fall placements secured with big box retailers that position us well for the important holiday season. Our premium business performed well to the overall market, and our highly anticipated Lotus brand launch started last week exclusively at a strategic premium retailer, in-store and online. Featured are the Lotus Perfectionist Oven, which employs advanced convection, precision control, and an integrated temperature probe to deliver fast performance and flawless results. The Lotus Top Drip Coffee Maker, featuring the AccuBrew Ground Scale, provides consistent flavor to achieve SCA certified Golden Cup coffee standards, and the Lotus Four Slice Precision Toaster. Seven 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.

Operator

It is expected that the Lotus line of products will be heavily supported with over $5 million in marketing support over the next 18 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 and sectionizers, which are used in leading restaurants, schools, and a large restaurant chain throughout the U.S., are accelerating faster than expected, with substantial runway for continued success. We expect Sunkist revenue to be about 5% of our commercial business in 2025 and double in 2026.

Operator

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 in addressing the rapidly changing market conditions has positioned the business to weather the current environment and emerge stronger and more resilient. Our price adjustments have been well accepted, and manufacturing diversification continues to progress. Our proactive inventory servicing helped minimize the impact of higher tariffs on gross margins, and our cost management measures will positively impact operating margin.

Operator

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.

Speaker 1

Great. Thank you, Scott. Good afternoon, everyone. As Scott detailed, our second quarter performance reflects the industry-wide challenges brought on by higher tariffs that temporarily paused retailer purchase orders. While some of these headwinds lessened as the quarter progressed, visibility continues to be limited. Turning to our results, starting with revenue, total 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 paused their buying when the new tariffs were 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. However, as of today, the final tariff rates and their related impact on consumer buying remain uncertain.

Speaker 1

Turning to gross profit and margin, gross profit was $35.1 million in the second quarter, compared to $40.5 million in the year-ago period, reflecting the lower sales volume. However, gross profit margin increased 160 basis points to 27.5%, 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 HealthBeacon 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.

Speaker 1

Operating profit was $5.9 million, or 4.7% of total revenue, compared to $10 million, or 6.4% 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 $0.33 per diluted share, compared to net income of $6 million, or $0.42 per diluted share a year ago. Quickly summarizing our first half results, revenue was $261.1 million, down 8.2% from the first half of 2024. Gross margin increased 120 basis points to 26%, and operating margin stayed flat at 3.2%. Now turning to our balance sheet and cash flows. For the six months ending June 30, 2025, net cash used for operating activities was $23.8 million, compared to net cash provided of $37.1 million for the six months ended June 30, 2024.

Speaker 1

The decrease was primarily due to a $50.8 million impact from changes in inventory and accounts payable, driven by higher inventory from increased tariffs and accelerated purchases in Q1 2025. Slower sales reduced inventory turnover, while fewer purchases in Q2 lowered accounts payable, further affecting cash flow due to the timing difference between inventory buildup and supplier payments. During the three months ended June 30, 2025, we continued to return value to our shareholders through the repurchase of approximately 215,000 shares, totaling $4 million, and paid a total of $1.6 million in dividends. On June 30, 2025, 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.

Speaker 1

As Scott discussed, we are encouraged with the progress that we've made over the past three months, diversifying our sourcing 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 macro and geopolitical events, will impact retailer planning and consumer demand. Therefore, we're 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.

Speaker 5

Thank you. To ask a question, please press star followed by the number one on your telephone keypad. To withdraw any questions, press star one again. We'll pause for just a moment to compile the Q&A roster. As a reminder, to ask a question, please press star followed by one. Our first question comes from Adam Bradley from AJB Capital. Please go ahead. Your line is open.

Speaker 5

Hi, Sally and Scott. I want to start with HealthBeacon. Can you tell us a little bit about the second quarter's performance in that line of business?

Speaker 5

Sure. We continue to be pleased with how the business is growing. We think it's still on path to see all growth targets with a number of patients, as well as being profitable by the end of the year. I think we're pleased with how that segment's reporting.

Speaker 5

I'll add that.

Operator

Go ahead.

Operator

Adam, I'd rather hear what you were going to say first, and then I can answer the call.

Operator

No, go ahead. Go ahead, Adam. That's okay.

Operator

In the 10-Q, it reported quarterly sales of $1.5 million. Will you be reporting in the Q2 second quarter sales and P&L?

Operator

It'll be part of our segment reporting.

Operator

Yeah, can you share that now, then, if you're just going to report that in the Q? What were its sales in the second quarter?

Operator

Give me a quick second as I flip to the page to make sure I say the number right. For the three months ended June 30, the health business had $1.7 million in top line revenue, and an operating segment loss of $864,000. This is a significant improvement over last year. Last year was $859,000 in revenue, so we about doubled top line, and bottom line was about a $2 million loss. We cut the loss in half year over year. As I said, it's still great results. It's still moving in the direction that we want it to, and we're still pretty happy with the business.

Operator

Thank you for that. I want to switch to buybacks. The stock has been languishing for a while. Can you give investors like me your kind of longer-term view of your capital allocation plan as it pertains to buybacks? Is it opportunistic? Is it kind of formulaic per quarter? What's governing the decisions of when and how much to buy back stock?

Operator

I think that's a great question. In terms of stock buybacks, we break it into two pieces. The first piece is that we don't want any stock issuances to be dilutive, right? We buy back as many shares as we grant as part of our compensation package, and that's about 300,000 shares. That's the first draft.

Operator

300,000 per?

Operator

Per year. We look at it on a per-year basis. This year was around 300,000. We seek to repurchase those in the market. The second piece is opportunistic. 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. We did repurchase quite a bit of stock last year with that opportunistic lens. For this year, 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. At this point, we'll just continue to watch the stock and see if the opportunistic makes sense.

Operator

Yeah, to follow up on that, often the opportunistic price on a long-term basis occurs at the same time as you're experiencing trouble as you are right now. Right now, you're having to build up your inventory, it looks like this quarter, and eat up some working capital, yet the stock has stayed low. I'm asking kind of philosophically, what is the view of repurchases? Is Hamilton Beach willing to look at the long run and repurchase even when shares are low, going through the turbulent market conditions in sales and earnings? Are you holding on to cash during that and then waiting until skies are clear to make repurchases? I think that's what would help investors like me to understand that a little better, you know.

Operator

Given our liquidity profile, that's the first thing that we look at. Once we've met our anti-dilutive goals, I think we are open as a philosophical perspective to repurchasing shares when we feel that the shares are undervalued and our liquidity position is in line with repurchasing shares.

Speaker 5

Our next question comes from Jake Patterson from Talented Investment Group. Please go ahead. Your line is open.

Speaker 5

Okay, guys. Just a question on the cost savings program. I know you've said $10 million of annualized starting second half. Is there any way to kind of bucket that with your segments? Is that going to come mostly out of consumer, I would assume? Is there any cost savings on the HB side?

Speaker 5

Of the $10 million that we identified in annualized savings, a good portion of that is headcount related, and the majority of that is coming specifically out of the retail segment, the home and commercial products segment.

Speaker 5

Okay. Gotcha. I guess I don't know if you can discuss this now, but any other color on the price increases? I know those kind of sound like they were late June, so presumably not a huge impact in the quarter, but kind of maybe framing some expectations on that going forward if you can.

Operator

Yeah. This is Scott. I think, you know, if you go back, at the beginning when tariffs started to appear, even before April, there were 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 and negotiated by country. I think, you know, we're in the same situation as our competition, and we feel like the retailers understand that because they also are sourcing product as well from these Asia-Pacific countries. 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 business cadence with them.

Operator

I think the challenging thing is there's still just, as Sally indicated, there's still just unknown tariff negotiations still going on. We still got to be nimble and able to adjust going forward.

Operator

Got it. Okay. Maybe just piggybacking off of that, if I'm looking at this correctly, it looks like the last two years, you guys have been minus 4.5%, minus 5% on pricing for 2024 and 2023. As you think about it, 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. When you think about your competitors, I mean, I'm assuming you guys track this, but how is your pricing compared to competitors over the last couple of years? Maybe some thoughts on how that looks now moving forward. Do you have more wiggle room with pricing to move up relative to competitors, or is it kind of even across the board there?

Operator

I would say it's kind of even across the board. I think our competitors have the similar challenges that we face, whether it be tariff or container rate cost increases. If you look at our distribution points, even going back to 2023 and then through 2024, we feel like we've got good solid distribution points across multiple channels throughout North America. From that perspective, we feel very good. I think if you look back historically, coming into this second quarter, we were growing top line sales seven quarters in a row. We feel like our strategy has been pretty solid. It's really this unknown issues around tariffs that have had to make us adjust. As I indicated, the retailers understand what's going on. They're directly importing products. They're sourcing products directly. They're dealing with our other competitors that are getting products from the same countries where we're getting ours.

Operator

This is not something that is surprising to the retailer standpoint.

Operator

Got it. The last one, is that restructuring you guys called out, is that material? Is there any way you can give me the number for that?

Operator

Yeah, the restructuring charge was about $800,000 for the quarter.

Operator

Thanks. That's all for me.

Speaker 5

Our next question comes from Michael Paul Mork from Mork Capital Management. Please go ahead. Your line is open.

Speaker 6

Hello. Michael Paul Mork at Mork Capital here. Just a bigger picture. Back in 2016, you were doing $750 million in revenues, and now you're doing about $650 million in revenue. You dropped about $100 million. To me, that kind of looks like you add a lot of new products that are fancy and people buy them, but the other ones drop off almost quicker. Going forward, is there a game plan to have the whole company grow at a decent rate, or do we just kind of be treading water?

Operator

No, I think strategically, we plan to grow. I can't say that I'm not so sure about that $750 million number that you're looking at in 2016.

Speaker 6

It's from Value Line, so I don't know.

Operator

I think our peak is a little bit lower than that. No, I think there's a lot of runway for us to still grow. We feel like 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. We just talked about, you know, Lotus, for example. We feel like it is a great brand that we can build out in 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 Sunkist partnership that we talked about.

Operator

I think it not only can be beneficial in North America for that business, but also globally. If you look at the health business, again, we're expecting a 50% increase in our subscriptions there, and that's tracking throughout the way we expected it, month by month. 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 reach more pharmaceutical companies in that space and really look at a good growth opportunity. We're very focused on the growth side of things. I think, as I indicated, we were seven quarters consecutive top line growth. We certainly hit the wall here in the second quarter dealing with tariffs. I think that the whole industry is experiencing that.

Operator

We feel like we've been working pretty hard to be very nimble and be able to be opportunistic and be producing in the countries that are going to give us the best economic return. That takes a lot of effort. I also feel like our relationships with our customers remain strong. Our ability to reach the consumer online and in the stores is still very sound, and we're going to continue to grow.

Speaker 6

Do you think you can grow in line with GDP going forward, then?

Speaker 6

I think we're obviously not giving forward-looking guidance at this point, but I do think we've said a couple of different times that we have a good strategy and we believe in our strategy. We feel good about things that come within our strategy.

Speaker 6

Okay. Thank you.

Speaker 6

Thank you.

Speaker 5

This will conclude today's question and answer session, as well as today's call. Thank you for your participation. You may now disconnect.

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