Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brand 2nd Quarter 2025 Earnings Conference Call. All lines have been placed by 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 1 on your telephone keypad. If you require operator assistance at any time, please press star 0.

Thank you.

So without further ado, I would like to turn the call over to Brendan Frey, partner with ICR. Brendan, you have the floor.

Thanks, Julianne. 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 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 in other 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 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.

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 for 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 markets 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. 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. 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. 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. 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 accu brew ground scale provides consistent flavor to see to achieve sca certified golden cup coffee standards and the lotus four slice 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 it is expected that the lotus line of products will be heavily supported with over five million dollars 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. 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 health care 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. 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. 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. Good afternoon, everyone. As Scott detailed, our second quarter performance reflects the industry-wide challenges brought on by higher tariffs that temporarily pause 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 to 18.2 percent from last year's second quarter. The decrease was primarily driven by lower volume in our U.S. consumer business as some 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 the related impacts on consumer buying remains uncertain. 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 health beacon 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 4.7 percent of total revenue compared to $10 million or 6.4 percent of total revenue in the second quarter of 2024. Income tax expense was $1.6 million dollars in the second quarter compared to income tax of 3 million a year ago. Net income was 4.5 million or 33 cents per diluted share compared to net income of 6 million dollars or 42 cents per diluted share a year ago. Quickly summarizing our first half results, revenue was 261.1 million dollars down 8.2 percent from the first half of 2024 gross margin increased 120 basis points to 26 percent and operating margin stayed flat at 3.2 percent now turning to our balance sheet and cash flows for the six months ending june 30th 2025 net cash used for operating activities was 23.8 million dollars compared to a net cash provided of 37.1 million for the six months ended June 30th 2024. The decrease was primarily due to a 50.8 million dollar 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 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. 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 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.

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.

Hi Sally and Scott. I want to start with Health Beacon. Can you tell us a little bit about the Second Corps' performance in that line of business?

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

So I think we're pleased with how that that segment's reporting yeah and i want to add adam go ahead well um i'd rather hear what you're going to say first and then i can go ahead go ahead and that's okay in the 10q it reported quarterly sales of 1.5 million uh will you be reporting in the queue second quarter sales and and dnl we will it'll be part of our of our segment reporting yeah can you share that now then if you're just going to report that in the queue what were its sales in the second quarter I am.

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

Thank you for that. So I want to switch to buybacks. And 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?

Yeah, I think that's a great question. You know, in terms of stock buybacks, we break it into two pieces. You know, the first piece is that we don't want any stock issues to be dilutive, right? So we buy back as many shares as we grant as part of our compensation package. And that's about 300,000 shares. So that's the first 300,000 per year. So we look at it on a per year basis. And so this year was around 300,000. And so we seek to repurchase those 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, 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'll just continue to watch the stock and see if the opportunistic makes sense.

Yeah. So to follow up on that, often the opportunistic price on a lockdown basis occurs at the same time as you're experiencing troubles you are right now. So right now, 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. So 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 turbulent market conditions in sales and earnings? or are you holding on to cash during that and then waiting until skies are clear to make repurchases? I think that's what it would help investors like me to understand that a little better.

Given our liquidity profile, that's the first thing that we look at. And then once we've met our anti-tilutive 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 kind of is in line with repurchasing shares.

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

Okay, guys. Just a question on the cost savings program. I know you 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, or is there any cost savings on the HB side?

So of the $10 million that we identified in annualized savings, you know, 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 product segment.

Okay, gotcha.

And then, too, 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 sounded like they were late june so presumably not a huge impact in the quarter but it's kind of maybe framing some expectations on that going forward if you can yeah um this is scott so i think um you know if you go back we we um you know at the beginning when tariffs started up here even before april we had there were some some tariffs there we took a price increase at 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, 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 business cadence with them. I think the challenging thing is there's still just, as Sally indicated, there's still just unknown tariff negotiations still going on, so we've still got to be nimble and able to adjust going forward.

Got it. Okay, and then kind of maybe just piggybacking off of that, if I'm looking at this correctly, it looks like the last two years you guys have been what minus four and a half minus five percent on pricing for 24 and 23 and as you think about like i want to say most of that was kind of giving back some of those excess freight costs that you guys embedded in your product prices but when you think about your competitors how i mean i'm assuming you guys track this but how is your pricing kind of compared to competitors over the last couple of years and then 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 you know I would say it's kind of even across the board I think our competitors have you know the similar challenges that we face whether it be tariff or or container rate cost increases You know, if you look at our distribution points, even going back to 2023 and then through 2024, you know, we feel like, you know, we've got good, solid distribution points across multiple channels, you know, throughout North America. So, from that perspective, we feel very good. You know, I think if you look back historically, you know, coming into this second quarter, we were growing top-line 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 have, you know, had to make us adjust. But as I indicated, the retailers understand what's going on. They're directing, 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. And so this is not something that is surprising, you know, to the retailer standpoint.

Got it. um then the last one is there is that uh restructuring you guys call that is that material or is there any way you can give me the number for that yeah the the restructuring charge is about eight hundred thousand dollars um for the quarter okay thanks that's all for me our next question comes from michael mark from mark capital management please go ahead your line is open Hello, Michael Mork at Mork Capital here.

Just a bigger picture. Back in 2016, you were doing $750 million in revenues. Now you're doing about $650 million in revenues. So you dropped about $100 million. So 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. And 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?

No, I think, you know, 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. It's from ValueLine, so I don't know. I think our peak is a little bit lower than that. But 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, and we just talked about Lotus, for example, we feel like is a great brand that we can build out in that space and be very competitive over the next couple 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. I think not only can be beneficial in North America for that business, but also globally. And then if you look at the health business, again, we're expecting 50% increase in our subscriptions there, and that's tracking throughout the way we expected it, you know, 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 reach 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, you know, as I indicated, we were seven quarters consecutive top line growth. And we certainly hit the wall here in the second quarter dealing with tariffs, but I think that the whole industry is experiencing that. And 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. But 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 so we're going to continue to grow. Sounds good.

So do you think you can grow in line with GDP going forward then?

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