Hillman Solutions Corp. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Tariffs Impact: Annualized run rate of new tariffs is approximately $250 million. The company plans to mitigate costs via price increases and supply chain optimization, aiming to reduce China sourcing to ~20% by year-end through the Dual Faucet strategy.
• Acquisition Contribution: Net sales growth was boosted by the Intex acquisition, which added about four points of growth versus the prior year.
• Financial Performance: Net sales in Q1 2025 totaled $359.3 million (+2.6% vs Q1 2024). Adjusted EBITDA increased 4.2% to $54.5 million, with adjusted EBITDA margins at 15.2% and adjusted gross margins at 46.9%.

Segment Performance

• Hardware and Protective Solutions (HPS): Net sales increased 5.6% compared to the comparable period, with adjusted EBITDA rising 15.8% to $37.4 million. Contributions from the Intex acquisition and new business wins drove this performance.
• Robotics and Digital Solutions (RDS): Net sales were up 1.9% versus the year-ago quarter. Adjusted gross margins totaled 70.9%, and adjusted EBITDA margins were 27.3%. Over 1,700 MinuteKey 3.5 machines are in the field, with plans to finalize rollout to two largest customers by end of 2026.
• Canadian Business: Net sales declined 18.7% compared to the prior year quarter, driven by a 12% drop in existing home sales, political and economic uncertainty, a challenging retail environment, and FX headwinds.

Guidance

• Net Sales: Reiterated guidance of $1.495 billion to $1.575 billion (midpoint $1.535 billion), reflecting 4% growth over last year. Assumes ~2% lift from new business wins, ~2% from Intex, and neutral impact from tariffs.
• Adjusted EBITDA: Reiterated guidance of $255 million to $275 million (midpoint $265 million), reflecting 10% growth over last year. Timing of COGS and price impact: Tariff-related COGS won't hit until later in the year, with price increases expected in the third quarter. Free cash flow guidance withdrawn, but confident in ending year around 2.5x leverage.

Risks

• Tariffs: Uncertainty in timing and magnitude of tariffs, which could materially impact financial results.
• Geopolitical and Economic Factors: Geopolitical environment, economic growth, and consumer health pose risks to business performance.

Question and Answer

• Q: Lee Jagoda asked about RDS margins and personal protective sales A: Jon Michael Adinolfi stated RDS margins are expected to recover to 30+% EBITDA rate and 70+% gross margins for the rest of the year, and there was no material prebuying in personal protective sales, with the team outperforming on promo activity.
• Q: Anika Dholakia asked about volume guidance and tariff breakdown A: Rocky Kraft explained volume assumptions assume a 17% decline in market volumes in the second half, and Jon Michael Adinolfi discussed future supplier diversification, targeting 20% China sourcing by year-end with opportunities in Southeast Asia and India.
• Q: Stephen Volkmann asked about tariff timing and margin impact A: Rocky Kraft explained price increases are expected by July 1, and long-term margin impact from tariffs is ~300 basis points if tariffs stay, with margin recovery dependent on tariff reductions.
• Q: David Manthey asked about comparison to COVID supply chain and 2026 outlook A: Jon Michael Adinolfi noted current supply chain is in good shape with strong service levels, and for 2026, the business is expected to perform well, though volumes remain uncertain in the second half.
• Q: Reuben Garner asked about China product mix and pricing elasticity A: Jon Michael Adinolfi discussed remaining China products like core fasteners and gloves, and mentioned elasticity in pricing, with teams working to move products out of China.
• Q: Madison Callinan asked about price increase timing and M&A impact A: Jon Michael Adinolfi stated price increases flow through to retailers when they feel appropriate, and M&A pipeline is strong but on hold until tariff uncertainty settles.