Hamilton Beach Brands Holding

THE END Ladies and gentlemen, thank you for standing by, and welcome to the Hamilton Beach Brands Holding Company third quarter 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would like to hand the conference over to your speaker today, Luann Mabon, Head of Investor Relations. You may begin. Thank you.

Thank you, Lindsay, and good morning, everyone. Welcome to Hamilton Beach Brands Third Quarter 2020 Earnings Call and Webcast. Yesterday after the market closed, we issued our earnings relief and filed our 10Q. Copies have been posted to our website. Our speakers today are Greg Trapp, President and Chief Executive Officer, and Michelle Mosier, Senior Vice President and Chief Financial Officer. Greg and Michelle will discuss our third quarter results in Outlook. Also participating in the Q&A will be Scott Tidy. Scott is our Senior Vice President, North America Sales and Marketing for Hamilton Beach Brands. Our presentation today 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 10-Q and our annual report on Form 10-KA for the year ended December 31, 2019. The company disclaims any obligation to update these forward-looking statements. This 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, Luann. Good morning, everyone. Thank you for joining us. I will provide color on the third quarter in a moment, but first I'd like to focus on the underlying strength of our business. We delivered a solid first half. While third quarter results were disappointing, As a cutover to our new ERP system temporarily reduced shipping capabilities at our U.S. distribution center, we expect the elevated demand from our customers to remain strong over the back half of 2020, and at least into the first quarter of 2021. A large portion of the third quarter revenue shortfall is expected to shift to the fourth quarter, as we focus on maximizing our shipping capabilities to capture as much of the market demand as possible. Based on early fourth quarter results, shipments are ahead of last year. The ERP-related shipping challenges have been resolved and are behind us. While the cutover was more difficult than expected, we now have a system in place that is more efficient than our decades-old legacy system, which will benefit us in future years. The small kitchen appliance market in the U.S. and Canada is growing at a rate of approximately 30% compared to 2019, driven by consumers who are sheltering at home during the pandemic and engaging in far more than usual meal and beverage preparation. We expect this demand to remain elevated into 2021 as the pandemic continues to keep people at home. Hamilton Beach Brands is well positioned to meet the unprecedented demand. Customer order levels are high and we have the necessary inventory on hand and more in transit to meet this demand. We have been increasing the in-stock levels with our customers and shipping product at elevated levels. We held and gained placements for the holiday selling season, including many new products. We are benefiting from our leading portfolio of consumer preferred brands and products. Even with employees working remotely, our new product development process is working well. Our robust capabilities in the growing e-commerce channel, our global infrastructure, and team members in our diversified retail relationships are important competitive advantages. Further, The retail business in Mexico and Latin America are slowly rebounding. Commercial customers in the food service and hospitality industries are beginning to order again as they adjust to the new world created by the global pandemic. We are well positioned to capitalize on the recovery in these markets. Our financial position is healthy as we have effectively managed networking capital and reduced debt. Additionally, kitchen collections, net losses, and negative cash flow no longer have an impact on our company. We closed the business through a successful liquidation and completed the wind down earlier this year. That timing turned out to be very fortunate. While our focus is continuing to capitalize on all of the tailwinds that are driving Hamilton Beach forward in the coming months and quarters, let me take a moment to comment on our third quarter. As we communicated in our last call, we were in the early stages of a cutover to a new ERP system in the U.S. At the time, we reported a reduction of sales in July and an expectation to offset the July shortfall in August and September. As August unfolded, the challenges were more persistent than anticipated. We improved our shipping abilities week by week, and as we entered September, we were operating more effectively. However, the shortfall in July and August was too large to overcome in the third quarter. While the ERP challenge was the primary hurdle, A secondary factor was challenges with shipping and transportation, both inbound from our suppliers and outbound to our customers, which added to our revenue shortfall. While shipping challenges related to the ERP implementation have been largely resolved, congestion in the shipping and transportation industries persist, which is requiring us and our customers to plan differently. We have enhanced our shipping capabilities by adding warehouse personnel and lift equipment, extended shifts and augmented capacity with temporary third-party facilities, We also have been able to convert some of the order volume that our largest retail customers to direct import, which helps to ease the strain on our shipping capabilities. We are also preparing for record direct-to-consumer shipments. We are well positioned on retailers' e-commerce sites. Consumers are likely to shop online at elevated levels, and we are positioned well to support our retail partners. An ongoing challenge, of course, is the fact that the global pandemic is still with us and likely to be for many months to come. The pandemic continues to require careful attention to protecting health and safety. We closely monitor the ever-changing COVID-19 environment globally in order to keep our business moving ahead and in compliance with all guidelines. We are deeply grateful for the efforts of our employees to stay safe and healthy, especially those who are not able to work from home. Our team has effectively navigated the global crisis, and the focus, teamwork, and diligence have been epic. I thank our employees around the world for the excellent work that they are doing under the ongoing difficult circumstances brought on by the virus. I'd like to recognize especially the dedication of the folks who work in our distribution centers. The demands placed on them have been immense, and they have risen to the occasion. I can never thank them enough for all they have done to keep product flowing to our customers under these circumstances. Our priority has been and continues to be the health and well-being of our employees as they work to serve the needs of our customers and consumers. In summary, we are fortunate to be a leader in an industry that is providing essential products to homebound consumers and making their lives a little easier during these times. The tailwinds we are experiencing are providing momentum to propel our business forward for the remainder of this year and into 2021. Our team is doing an outstanding job navigating the pandemic and meeting the unprecedented demand surge. We are encouraged by our early fourth quarter results. We remain committed to protecting the health and safety of our employees as we work together to meet the needs of our customers and consumers and keep our organization agile so that we may adapt as necessary to the dynamic environment we're operating in. I'll now turn the call over to Michelle, who will review our financial results for the quarter.