Glen Allen, Virginia - Hamilton Beach Brands Holding Company (NYSE: HBB), which operates through its wholly owned subsidiary Hamilton Beach Brands, Inc., today announced results for the third quarter of 2022.
Highlights
•Revenue decreased 3.8% compared to Q3 2021, reflecting lower consumer sales overall partially offset by higher commercial sales
•Operating profit was $9.4 million compared to $7.4 million in Q3 2021, reflecting gross profit margin expansion and lower SG&A expense
•Demand for small kitchen appliances continues to be significantly higher than pre-pandemic levels and modestly softer than 2021
•For the full year 2022, Hamilton Beach Brands expects revenue to decrease slightly and operating profit to increase significantly compared to 2021
Third Quarter 2022 Compared to Third Quarter 2021
Total revenue decreased $5.9 million, or 3.8%, to $150.8 million compared to $156.7 million, primarily due to lower unit volume partially offset by price increases and a favorable product mix. Sales decreases in the Company's Latin American, Mexican and U.S. consumer markets were partially offset by increases in the global commercial and Canadian consumer markets. Revenue also decreased in Brazil and China as the Company has transitioned to a licensing model in those markets as of the end of 2021. In the Company's consumer markets, decreased sales in the third quarter reflected continued inventory rebalancing overall by many retailers, timing of holiday build orders, and slightly softer point of sale.
In the Company's global commercial market, revenue increased $3.9 million, or 35.8%. This growth reflects a continued strong rebound in the food service and hospitality industries from pandemic-driven demand softness as well as the Company's new product introductions and line extensions.
The Company continued to make progress with its strategic initiatives in the third quarter of 2022. Ecommerce sales increased 7.8% and accounted for 34.5% of total revenue compared to 30.8% in the third quarter of 2021. Premium market sales increased 35.1%, and sales in the home health and wellness market grew 29.6%.
Gross profit was $34.8 million compared to $33.3 million. Gross profit margin expanded to 23.1% compared to 21.2%, due to the impact of pricing initiatives that offset higher product costs, favorable product mix, and lower expenses for outside warehousing and labor compared to the prior year.
Selling, general and administrative expenses decreased to $25.4 million compared to $25.8 million, primarily due to non-recurring expenses for last year's distribution center relocation.
Operating profit was $9.4 million compared to $7.4 million.
Net income was $5.9 million, or $0.43 per diluted share, compared to net income of $5.7 million, or $0.41 per diluted share.
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During the three months ended September 30, 2022, the Company repurchased 109,828 shares of its Class A common stock at prevailing market prices for an aggregate purchase price of $1.4 million.
Cash Flow and Debt
For the nine months ended September 30, 2022, net cash used for operating activities was $40.2 million compared to a use of $4.1 million in the prior year, primarily due to net working capital, which was a use of cash of $62.1 million in 2022 compared to use of cash of $4.4 million in 2021. Trade receivables provided net cash of $21.4 million during 2022 compared to $26.5 million in 2021, due to the lower sales and improvement in days outstanding. Net cash used for inventory and accounts payable combined was $83.5 million in 2022 compared to $30.9 million in 2021.
Elevated inventory levels are primarily due to longer lead times in the supply chain, retailer inventory rebalancing programs, and normal variations in holiday build ordering patterns. While the Company's products are not in an overstocked position at retail, overstock levels in other categories are having an impact on retailer reorders overall. Strong placements for the holiday selling season and purchase order adjustments are expected to enable the Company to significantly reduce current inventory levels by the end of the year.
Capital expenditures through the third quarter of 2022 decreased to $1.6 million compared to $9.1 million through the third quarter of 2021, primarily due to capital spending for the Company's new distribution center in the prior year that did not recur.
At September 30, 2022, net debt, or debt minus cash and cash equivalents, was $144.5 million compared to $113.5 million at September 30, 2021, and $95.7 million at December 31, 2021, due to higher net working capital.
Outlook
Demand for small kitchen appliances in the U.S. remains significantly higher than pre-pandemic levels and modestly softer than 2021. Consumers continue to prepare a significant number of meals and beverages at home as a result of new habits formed during the pandemic, hybrid or continued remote work-from-home practices, a heightened interest in healthy eating, and as a means to control expenses during inflationary times. The global commercial market is expected to continue to rebound strongly from pandemic-driven demand softness.
The Company expects continued progress with its strategic initiatives in 2022 as it focuses on increasing sales in the premium, home health and wellness, and global commercial markets, and in the ecommerce channel. The Company has introduced a broad array of new products across all of its brands and has secured strong placements for the holiday selling season. For the fourth quarter of 2022, the Company expects that revenue will increase modestly compared to the fourth quarter of 2021. For the full year 2022, Hamilton Beach Brands expects revenue to decrease slightly compared to record revenue in 2021. Full-year operating profit is expected to increase significantly compared to 2021, including a $10 million insurance recovery in the first quarter of 2022. Final results will depend upon consumer pull-through and retailer reorders throughout the holiday selling season.
The Company's six strategic initiatives are focused on long-term growth and value creation. Following is a brief summary of each one.
Expand in Home Health and Wellness: This initiative was added in 2021. During the past year, the Company took many steps to introduce new products in the air purification, water filtration and home medical categories. New products in these categories are expected to generate revenue as they are launched in 2022 and into 2023 and gain momentum. To date, the Company has:
–Introduced the first products in a new line of premium air purifiers under the Clorox® brand name as part of an exclusive multiyear trademark licensing agreement with The Clorox Company. The Company is pleased with consumer acceptance of these new products.
–Launched the Smart Sharps Bin® from Hamilton Beach Health® powered by HealthBeacon® for at-home injection care management in the U.S. home medical market under an exclusive multiyear agreement with HealthBeacon plc. In the third quarter of 2022, the system became Medicare and Medicaid eligible, in addition to being FSA and HSA eligible, which is expected to drive increased adoption.
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–Entered into an exclusive multiyear trademark licensing agreement with Brita® and plans to launch a new line of countertop water appliances in early 2023.
Gain Share in the Premium Market: New products and digital marketing are expected to drive growth of the Company's premium brand products. In 2022, the Company launched Generation 2 of the Bartesian® premium cocktail machine, introduced the Bartesian Duet, a smaller 2-bottle model, and a commercial model. The CHI® garment care brand continues to grow as consumers return to offices and engage in more out-of-home activities.
Lead in the Global Commercial Market: The Company expects to generate additional growth in the global commercial market through product development, digital marketing and increasing customer relationships with regional and global chains.
Drive Core Growth: The Company plans to drive growth of its flagship Hamilton Beach® and Proctor Silex® brands through innovative new product development, including an emphasis on higher priced products, and digital marketing.
Accelerate Digital Transformation: The Company plans to continue to invest in robust digital marketing for all of its brands and markets.
Leverage Partnerships and Acquisitions: The Company is actively engaged in the pursuit of additional trademark licensing agreements, strategic alliances and acquisitions that would drive growth in all of its markets.
Hamilton Beach Brands expects to benefit from its strengths and competitive advantages, even during periods of economic downturn. These include:
–Leader in the small kitchen appliance industry.
–Leading market share. Hamilton Beach is the #1 small kitchen appliance brand in the USA, in brick-and-mortar and ecommerce channels, based on units sold.
–Strong portfolio of preferred, well-known, trusted brands covers the broad range of value to luxury markets and more than 50 categories. The Company's diversified portfolio provides exposure to high-income consumers through its premium products. It also provides numerous offerings to value-tier consumers and includes the opportunity to capture potential trade-down during times of economic downturn. The Company also has exposure to the higher-priced, higher-margin global commercial food service and hotel room amenities markets.
–Well-developed ecommerce capability. Online sales accounted for 35.1% of total revenue for the nine months ended September 30, 2022.
–History of proven innovation. The Company has launched new products across the highest demand categories in the second half of 2022. The Company's new product development supports its strategic initiatives for growth of its flagship brands, Hamilton Beach and Proctor Silex, as well as in the premium, home health and wellness, and global commercial markets.
–Resilient during past economic downturns. The small kitchen appliance industry and the Company have been resilient during recessionary times, as consumers become more home centric and cook more, and many product categories are considered essential.
Conference Call
The Company will conduct an earnings conference call and webcast on Thursday, November 3, 2022, at 9:30 a.m. Eastern time. The call may be accessed by dialing 888-350-3452 (toll free), International 647-362-9199. Conference ID: 1809480. The conference call will also be webcast live on the Company’s Investor Relations website at www.hamiltonbeachbrands.com. An archive of the webcast will be available on the website.
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About Hamilton Beach Brands Holding Company
Hamilton Beach Brands Holding Company operates through its wholly owned subsidiary Hamilton Beach Brands, Inc., a leading designer, marketer, and distributor of a wide range of branded small electric household and specialty housewares appliances, as well as commercial products for restaurants, fast food chains, bars, and hotels. The Company’s owned consumer brands include Hamilton Beach®, Proctor Silex®, Hamilton Beach Professional®, Weston®, TrueAir®, Brightline® and Hamilton Beach Health®. The Company’s owned commercial brands include Hamilton Beach Commercial® and Proctor Silex Commercial®. Hamilton Beach Brands licenses the brands for Wolf Gourmet® countertop appliances, CHI® premium garment care products, Clorox® air purifiers, and Brita® countertop water appliances. Hamilton Beach Brands markets and distributes the Bartesian® premium cocktail delivery system through an exclusive multiyear agreement. Hamilton Beach Brands has entered the home medical market through a multiyear agreement with HealthBeacon plc and is the exclusive marketer and distributor of a smart Injection Care Management System in the U.S. and Canada under the new brand name Hamilton Beach Health®. For more information about Hamilton Beach Brands Holding Company, visit hamiltonbeachbrands.com.
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Forward-Looking Statements
The statements contained in this news release that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties include, without limitation: (1) the Company’s ability to source and ship products to meet anticipated demand, (2) the Company’s ability to successfully manage ongoing constraints throughout the global transportation supply chain, (3) the unpredictable nature of the COVID-19 pandemic and its potential impact on the Company's business; (4) the direct and indirect impacts of the increasingly volatile global economic conditions as a result of the conflict in Ukraine; (5) changes in the sales prices, product mix or levels of consumer purchases of small electric and specialty housewares appliances, (6) changes in consumer retail and credit markets, including the increasing volume of transactions made through third-party internet sellers, (7) bankruptcy of or loss of major retail customers or suppliers, (8) changes in costs, including transportation costs, of sourced products, (9) delays in delivery of sourced products, (10) changes in or unavailability of quality or cost effective suppliers, (11) exchange rate fluctuations, changes in the import tariffs and monetary policies and other changes in the regulatory climate in the countries in which the Company operates or buys and/or sells products, (12) the impact of tariffs on customer purchasing patterns, (13) product liability, regulatory actions or other litigation, warranty claims or returns of products, (14) customer acceptance of, changes in costs of, or delays in the development of new products, (15) increased competition, including consolidation within the industry, (16) shifts in consumer shopping patterns, gasoline prices, weather conditions, the level of consumer confidence and disposable income as a result of economic conditions, unemployment rates or other events or conditions that may adversely affect the level of customer purchases of HBB products, (17) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation, and (18) other risk factors, including those described in the Company's filings with the Securities and Exchange Commission, including, but not limited to, the Annual Report on Form 10-K for the year ended December 31, 2021. Furthermore, the situation surrounding COVID-19, including the mutation of variants, continues to remain fluid globally and the Company continues to manage ongoing challenges associated with the pandemic as they relate to demand, supply and operations. The potential for a material impact on the Company’s results of operations, financial condition, liquidity, and stock price remains a risk. The Company cannot reasonably estimate with any degree of certainty any future impact of COVID-19. The extent of any impact will depend on the scope of any new virus mutations and outbreaks, the nature of government public health guidelines and the public’s adherence to those guidelines, the success of business and economic recovery as the pandemic recedes, the easing of pandemic-driven supply chain disruptions, unemployment levels, and the extent to which new lockdowns may be needed or are required in particular countries including China.
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HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30
NINE MONTHS ENDED SEPTEMBER 30
2022
2021
2022
2021
(In thousands, except per share data)
(In thousands, except per share data)
Revenue
$
150,823
$
156,740
$
444,701
$
460,644
Cost of sales
115,979
123,456
349,649
367,284
Gross profit
34,844
33,284
95,052
93,360
Selling, general and administrative expenses
25,425
25,788
67,361
79,614
Amortization of intangible assets
50
50
150
150
Operating profit (loss)
9,369
7,446
27,541
13,596
Interest expense, net
1,289
662
2,889
2,080
Other expense (income), net
432
(126)
1,646
(179)
Income (loss) before income taxes
7,648
6,910
23,006
11,695
Income tax expense (benefit)
1,741
1,204
4,837
3,027
Net income (loss)
$
5,907
$
5,706
$
18,169
$
8,668
Basic and diluted earnings (loss) per share
$
0.43
$
0.41
$
1.30
$
0.62
Basic weighted average shares outstanding
13,869
13,887
13,999
13,872
Diluted weighted average shares outstanding
13,892
13,902
14,026
13,888
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HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
SEPTEMBER 30 2022
DECEMBER 31 2021
SEPTEMBER 30 2021
(In thousands)
Assets
Current assets
Cash and cash equivalents
$
1,504
$
1,125
$
1,463
Trade receivables, net
97,802
119,580
120,672
Inventory
244,464
183,382
176,982
Prepaid expenses and other current assets
13,295
14,273
22,755
Total current assets
357,065
318,360
321,872
Property, plant and equipment, net
28,363
30,485
31,699
Goodwill
6,253
6,253
6,253
Other intangible assets, net
1,542
1,692
1,742
Deferred income taxes
1,800
4,006
3,088
Deferred costs
14,465
18,703
14,785
Other non-current assets
7,432
3,005
3,024
Total assets
$
416,920
$
382,504
$
382,463
Liabilities and stockholders' equity
Current liabilities
Accounts payable
$
111,485
$
131,912
$
126,231
Accrued compensation
10,543
11,719
10,797
Accrued product returns
4,651
6,429
6,048
Other current liabilities
13,222
14,116
17,084
Total current liabilities
139,901
164,176
160,160
Revolving credit agreements
146,051
96,837
114,950
Other long-term liabilities
13,019
19,212
19,448
Total liabilities
298,971
280,225
294,558
Stockholders' equity
Class A Common stock
106
103
102
Class B Common stock
39
40
41
Capital in excess of par value
64,117
61,586
61,233
Treasury stock
(8,939)
(5,960)
(5,960)
Retained earnings
74,597
60,753
49,505
Accumulated other comprehensive loss
(11,971)
(14,243)
(17,016)
Total stockholders' equity
117,949
102,279
87,905
Total liabilities and stockholders' equity
$
416,920
$
382,504
$
382,463
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HAMILTON BEACH BRANDS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30
2022
2021
(In thousands)
Operating activities
Net income (loss)
$
18,169
$
8,668
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization
3,552
3,077
Deferred income taxes
912
4,245
Stock compensation expense
2,533
2,883
Brazil foreign currency loss
2,085
—
Other
898
1,208
Net changes in operating assets and liabilities:
Affiliate payable
—
(505)
Trade receivables
21,370
26,546
Inventory
(63,328)
(3,082)
Other assets
2,181
(12,160)
Accounts payable
(20,150)
(27,868)
Other liabilities
(8,395)
(7,118)
Net cash provided by (used for) operating activities
(40,173)
(4,106)
Investing activities
Expenditures for property, plant and equipment
(1,560)
(9,109)
Net cash provided by (used for) investing activities
(1,560)
(9,109)
Financing activities
Net additions (reductions) to revolving credit agreements
49,604
16,580
Purchase of treasury stock
(2,979)
—
Cash dividends paid
(4,325)
(4,078)
Financing fees paid
(47)
—
Other financing
—
(243)
Net cash provided by (used for) financing activities
42,253
12,259
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(204)
4
Cash, cash equivalents and restricted cash
Increase (decrease) for the period
316
(952)
Balance at the beginning of the period
2,150
3,436
Balance at the end of the period
$
2,466
$
2,484
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents
$
1,504
$
1,463
Restricted cash included in prepaid expenses and other current assets
58
208
Restricted cash included in other non-current assets
