Hamilton Beach Brands Holding Company Q3 FY2025 earnings call

• Third quarter performance represents a step towards normalization after tariff disruption, with sequential improvement in year-over-year sales trend. - Profitability decline in Q3 was due to $5M onetime incremental tariff costs and timing mismatch in pricing adjustments, partially offset by favorable mix shift from higher-margin commercial and health businesses. - Accelerated manufacturing diversification away from China to other APAC countries, implemented price adjustments, and generated $10M annualized cost savings. - Core business expanded retail presence, premium business with Lotus brand success, commercial business strong demand despite inventory constraints, Health division reached positive operating profit. - Robust pipeline of new products in high-growth categories and future launches planned across various brands.

Core business: Shipped kitchen collections by Hamilton Beach line to a leading mass market retailer, with a robust pipeline of new products in high-growth categories like blender kitchen systems, specialty coffee, and air fryer. Premium business: Successful launch of Lotus brand with initial sell-through exceeding expectations by strong double digits, actively negotiating for increased shelf space. Commercial business: Delivered outstanding results in Q3 with inventory constraints limiting performance, Sunkist brand launch a resounding success. Health division: Achieved positive operating profit for the first time this quarter, with new partnership deals and successful launch of HealthBeacon Harmony software product. Revenue contribution details: Total revenue in Q3 was $132.8 million, but specific revenue contribution % for each segment not explicitly stated in absolute terms beyond total revenue figures.

• Anticipate further sales trend and margin improvement in the fourth quarter. - Expect annual performance to benefit from sourcing diversification efforts and lower fixed cost base in 2026.

• Uncertainty in the marketplace remains, including potential impact from ongoing trade negotiations and tariff rate changes. - Inventory constraints could impact business performance as mentioned in relation to the commercial business.

Q: Thank you for the color around the gross margins. Can you please clarify the 370 basis point or $5 million tariff cost, was that a charge? Or how should we think about that?

A: Okay. Sure. Adam, so the costs relate to the 125% tariff that was temporarily put in place in the April time frame earlier this year. So you are right. These are costs that were incurred in April of this year that did flow through our P&L in the third quarter. And what it really represents is some containers that we had on the water when this spike in tariff occurred that we are not able to -- or we made the decision to not pass on to the consumer. And so for us to absorb as a onetime cost, and that flowed through in its entirety in the third quarter. And I think that's a little bit different from kind of the more go-forward increased tariffs that we're seeing from IEPPA in from China and other Asian countries. which we do consider part of our go-forward kind of cost structure and that we have taken actions to cover those additional expenses.

Q: And can you expand a little bit on a more normalized rate from your largest retailer. Can you give us a little bit more color around that? The second quarter earnings report, you shared that they had pretty -- I may be paraphrasing here, but paused orders. And then it sounds like from what you are stating in this Q3 report that they continue to pause orders. Did they -- did you lose shelf space? Did -- are you back to normal ordering patterns? Are you almost back? What kind of color can you give us on that to help us understand sales trends?

A: Yes, Adam, this is Scott. So yes, on that customer and specifically, they -- you're right, they did pause placing orders. Their inventories got lower throughout that time period. But if you look now, we've been shipping them now for several months, and we feel like the business is back on track. As we indicated, we had a very robust promotional event in October, and that customer was included, and we exceeded our expectations with that customer. And we really, now looking into the fourth quarter, we feel like we're going to be having a record number of promotional activities this fourth quarter. And that customer, along with many of our other retailers will be part of that.