Hamilton Beach Brands Holding

Ladies and gentlemen, thank you for standing by and welcome to the Hamilton Beach Brands Holding Company Q2 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require any further assistance, please press star zero. Thank you. I would now like to hand the conference over to your speaker today. Luanne Nabhan, please go ahead.

Thank you, Jacqueline. Good morning, everyone. Welcome to the second quarter 2020 earnings conference call and webcast for Hamilton Beach Brands Holding Company. Greg Trapp, President and Chief Executive Officer, and Michelle Mosier, Senior Vice President, Chief Financial Officer and Treasurer, We'll discuss our second quarter results. Also participating in the Q&A will be Scott Teide, Senior Vice President, North America Sales and Marketing for Hamilton Beach Brands. Yesterday, after the market closed, we issued an earnings release and filed a 10-Q with the SEC. Both documents can be found on our website, HamiltonBeachBrands.com. A replay of today's call will be available on the website this afternoon. Today's presentation contains forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either the prepared remarks or during the Q&A. Additional information regarding these risks and uncertainties is available in our earnings release, our 10Q, and in our annual report on Form 10-K-A for the year ended December 31, 2019. 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. And now I'll turn the call over to Greg.

Thank you, Luanne. Good morning, everyone. Thank you for joining us. During the unprecedented time since the COVID-19 pandemic began, Hamilton Beach Brands has effectively navigated the global crisis. Our focus has been on the safety and health of our employees, serving our customers and consumers, moving our business forward, making sure we emerge stronger, when we get to the other side. A number of factors have positioned us well to maximize our performance, including our investments in brands, category expansion, our global infrastructure, and team members. Our diversified retailer relationships and years of investment in e-commerce capabilities have enabled us to meet strong consumer demand. We are fortunate to be a leader in an industry that is providing essential products to homebound consumers. Most households are engaging in far more food and beverage preparation than usual, breakfast, lunch, dinner, and snacks every day. Our customers and consumers are counting on us to provide appliances they can trust, that work well, that last long, and that play a small part in making their lives a little easier. In mid-March, as the virus spread globally and became a pandemic, some of our customers in the retail business and many in the food service and hospitality industries temporarily shut down and the closures had an unfavorable impact on our business. At the same time, retailers in the U.S. who remained open thrived as providers of essential products and e-commerce sales took off. In the second quarter, consumer demand in the U.S. and Canada was so strong that sales in those markets offset the declines in international consumer and global commercial markets. Michelle will review our financial results for the quarter, so let me say simply that our second quarter results reflected this demand as well as the benefit of cost containment measures. Through the first half of this year, our effective management of working capital also contributed to our significantly increased cash flow and reduced debt. Meeting the consumer demand that has occurred during the pandemic presents many new challenges. Our team has done a fantastic job rising to the occasion. I'd like to thank all of our employees around the world for the excellent work they are doing. Since March 16th, All of our employees who can work remotely have done so. They are conducting our normal business activities very effectively and will continue working remotely at least through the end of the year. Many of our employees are needed to work onsite in our distribution and customer service facilities and in engineering and research labs. These employees are doing critical work, and we very much appreciate and value their dedication. We are taking many precautions to keep our on-site teams safe and healthy. We monitor their situation daily to ensure we balance the needs of the business and the needs of our team members. We continue to capitalize on our many strengths in the e-commerce channel, including our fast-growing direct-to-consumer operation. In the first quarter, our e-commerce sales increased 23% and accounted for 27% of total revenue. In the second quarter, our e-commerce sales increased 77% and accounted for 37% of our sales. We believe the substantial investment we've made in our e-commerce capabilities will continue to pay off. Our products are readily available in whatever channel consumers choose to buy. Our global supply chain is another area of strength for us and has been very critical to our success during this time. Our global sourcing organization has been very agile in responding to the demand surge. All of our third-party suppliers are producing at normal capacities and are working very hard to meet our needs. Our team in China ensures that our products are made to our safety and quality specifications, and that we maximize production with our suppliers. I'll add that our consumer and commercial sales teams in China are working very hard to secure every sale possible as those markets begin to rebound. We're managing costs to preserve our financial strength. We asked everyone to batten down the hatches by finding ways to spend as little as possible, but keep the business going. This includes minimizing discretionary spending and implementing a hiring freeze for most open positions. We will assess these costs on a go-forward basis. We continue to support the business with necessary capital investment, but projects that can be deferred have been. This effort has kept us on solid ground. The U.S. and Canada, as consumer demand has surged, the small kitchen appliance industry and our company have experienced robust point-of-sale growth. Sales of Hamilton Beach brand products have outperformed the industry, reflecting our leading position in a wide range of categories. A considerable amount of demand is focused on the product categories where we are strong, and the price points are in our sweet spot. Many U.S. consumers have demonstrated they prefer trusted brands, affordable price points, key features, and high star ratings. Our strategy, providing a broad portfolio of trusted brands, covering 50-plus categories at price points ranging from value to luxury, has positioned us well in this current environment. Demand was particularly strong for our slow cookers, blenders, food processors, hand mixers, and coffee makers, among others. Demand has increased substantially for certain specialty appliances, such as bread makers, electric pasta makers, waffle irons, and the Bartesian premium cocktail machine that we began selling in the fourth quarter of 2019. In fact, demand in the second quarter was so robust that it led to out-of-stock positions for certain product categories, which retailers are now starting to replenish. As the second half of the year begins, we also continue to see elevated demand. We believe the shift to eating at home will continue, with many people continuing to work from home, many schools offering only virtual learning this fall, and a slow build in consumer confidence with eating out. We believe that the new habits formed during shelter-at-home circumstances may lead to an increased preference for cooking at home. More people are learning new cooking skills. There's a heightened focus on healthy eating and wellness, and many believe they can better control ingredients and portions with home cooking. In the international consumer market, we're beginning to see improvement from the weak demand earlier in the year. Many retailers and consumers are just beginning to open up, The e-commerce channel is less developed in many countries, so while orders are starting to flow, we are less certain about how quickly demand will return. While our highest demand is coming from our retail customers, our commercial customers are beginning to order again. Although the commercial market remains weak, we are well positioned to benefit from any rebound that may occur. Our food service customers are quickly adjusting menu choices and customer service options And our core products, such as blenders and drink mixers, are an important part of the meal and beverage preparation for many customers. Additionally, our focus on expanding category participation has broadened our ability to generate revenue outside of the blender and drink mixer business. E-commerce strength also is expected to have a favorable impact on commercial sales when the pandemic recovery unfolds. On the other hand, our hospitality customers remain under significant pressure. Our consumer markets in the U.S. and Canada continue to drive our performance. While we do not expect the current robust consumer demand to be fully sustained over the long term, we believe it will continue for the remainder of the year. Increasingly, it appears that many people will continue to be at home into 2021. It is challenging to project the demand for our industry in the coming months. However, it seems highly likely that demand should remain strong in the near term. Innovation and new product development are proven strengths of ours over a long period of time. We have over 50 new products coming to market this year, and we are working on over 100 that are scheduled to come to market in 2021 and 2022. Even with employees working remotely, our new product development process is working well. Our line reviews for the holiday selling season have gone well, and we've held and gained placements. We serve a core group of large retailers who are experiencing above-average demand and strong sales in stores that are open, as well as online. Let me address two more topics before turning it over to Michelle. Two weeks ago, we completed an investigation involving unauthorized transactions by former employees at our Mexican subsidiaries and filed restated financials with the SEC. With this behind us, we expect our performance in Mexico to improve, which will further enhance our total company performance in the coming quarters and years. While we are very disappointed that the situation occurred, it does not change the fundamental strength of our business. I'd also like to remind everyone that kitchen collections, net losses, and negative cash flow no longer have an impact on our company. I think the benefit of closing the business through a successful liquidation has gotten a little lost in everything else going on this year, but I wanted to make the point that we are fortunate to have completed the wind down last year. We continue to hope that the favorable impact of this move will become more evident in our valuation over time. I'll now turn the call over to Michelle.