Hamilton Beach Brands Holding Company Q4 FY2025 earnings call

• Fourth quarter results exceeded expectations, representing a step forward in recovery from tariff-related disruptions. Sequential improvement in top-line performance from double-digit declines in prior quarters. - 2025 was challenging with tariff increases, but full-year operating profit was $0.3 million above 2024 levels excluding certain items. - Strategic actions implemented like manufacturing diversification, pricing adjustments, cost management, and inventory management positioned for growth in 2026. - Premium business had successful launch of Lotus brand with initial sell-through exceeding expectations. - Commercial business had good results, growing over 15% for the year, with Summit Edge Blender a success and agreement with Sunkist on branded commercial products. - Hamilton Beach Health achieved positive operating profit in third and fourth quarters of 2025, expanded specialty pharmacy partnerships, launched software products, and increased patient subscription base. - In 2026, focus on driving core business growth with new products in various categories, increasing investment in innovation, digital/social media and influencer marketing, expanding Lotus brand, leading in global commercial market, and accelerating growth of Hamilton Beach Health.

Fourth quarter revenue was nearly flat with the year-ago period, with gains in commercial and health offset by modest decline in core consumer business. Fourth-quarter operating profit grew by 8%, driven by a 220 basis point year-over-year increase in gross margins to 28.3%. Full-year revenue was only down approximately 7%, with a decline from lower volumes in U.S. consumer business. Excluding one-time items, full-year operating profit was $0.3 million above 2024 levels. Fourth quarter revenue: $212.9 million vs $213.5 million year ago. Fourth quarter gross profit: $60.2 million, up 8%, gross margin 28.3% vs 26.1% last year. Full-year revenue: $606.9 million, down 7.3% from $654.7 million in 2024. Full-year gross margins down 30 basis points to 25.7%.

• Expect revenue to return to mid-single-digit growth rate in 2026, despite a roughly $22 million sales headwind from expiration of license agreement with Bartesian at end of 2025. - Expect 2026 gross margins to be similar to slightly better than 2025. - Operating profit on reported basis expected to decline low teens on percentage basis, inclusive of approximately $6 million in accelerated depreciation from legacy ERP system and $6 million in planned advertising spend, particularly in second half of 2026. - Cash flow from operating activities less cash used for investing activities in 2026 expected to be in range of $35 to $45 million, reflecting normalization of tariff-related impacts on networking capital.

Q: As you look at early 26, how are your big box partners behaving now that price increases have fully flowed through? Are you seeing any signs of trade down, category contraction, or promotion pressure that feels different to 2025?

A: No, I think our big box retailers are kind of back to business as normal. I mean, I think there's a lot of still uncertainty around where the tariff rates will go in the future. But, you know, right now we're running our normal promotions. They're doing their normal promotions. It seems like their inventory and weeks on hand seem to be similar. And I would say things are getting back to a more normalized period.

Q: With the lowest performing kind of ahead of expectations, how confident are you that the premium growth is net incremental versus cannibalization with your existing good or better offering? Are you seeing any evidence that the premium consumer is distinct in terms of retailer price point usage, or is there some trade-off from the legacy range?

A: Yeah, no, I would say Lotus is really a completely incremental, you know, from where it's positioned and the retailers that it's sold in and the price points. I mean, so, you know, we're such in, you know, different price points from where our core brands are positioned. Lotus is really up in that premium segment at the middle and higher ends. And so we see that as all being incremental.

Q: Hi, Scott and Sally. It's good to see a sales resumption. Can you tell us how much of the sales resumption was restocking in mass versus actual end consumption?

A: I mean, I think... I think POS, right, was pretty consistent with what we saw.

Q: Can you take us through a little bit more of the $12 million that you highlight in your release? You got $6 million of the accelerated depreciation plus $6 million of incremental depreciation. Advertising spend, can you give a little more detail on the parts and the strategy on both of those? For example, where will the advertising be targeted? You mentioned it a little in your comments, but how much is Lotus versus, because you've mentioned Lotus in the past, how much is Lotus versus all other categories? And then separately, what's leading to the accelerated depreciation of the ERP system? Is it going away or what's happening there?

A: On the advertising front, it's about a 40-60 split between premium and core, with about 40% of it being in the premium and 60% being in the core. And both of them are significant increases from what we've been doing in the past. And both of them will have different strategies because the customer base is very different from those brand positionings. But at the end of the day, we feel like we've got to be much more relevant with our brands, with the consumers looking to shop, and so we've got to reach them on a number of different social platforms, and we feel like we want to be growing, that this is going to be an investment we're going to continue to try to ramp up. And then I'll speak to the accelerated depreciation. You know, we, as part of our strategic initiatives, we're also investing in technology. And so we are upgrading our ERP platform, which is causing us to accelerate the depreciation on the existing one. And we're doing that really just to be able to unlock, you know, benefits from emerging technologies once we move to the new platform.