Hamilton Beach Brands Holding

Ladies and gentlemen, thank you for standing by and welcome to the Hamilton Beach Brands Holding Company Q4 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, then 1 on your telephone. If you require any further assistance, please press star, 0. I would now like to hand the conference over to your speaker today, Thanks, Jason.

Good morning, everyone, and welcome to our fourth quarter 2020 earnings call and webcast. Yesterday after the market closed, we issued our fourth quarter 2020 earnings release, and a copy is available on our website. Our speakers today are Greg Stratt, President and Chief Executive Officer, and Michelle Moser, Senior Vice President and Chief Financial Officer. Greg and Michelle will discuss our fourth quarter results and outlook. Also participating in the Q&A will be Scott Teide, Senior Vice President, North America Sales and Marketing for Hamilton Beach Brands. Our presentation today contains forward-looking statements that are subject to risks and uncertainties, that could cause actual results to differ materially from those expressed in either the prepared remarks or the ENA. Additional information regarding these risks and uncertainties is available in our earnings release and in our SEC filings, such as our annual report on Form 10-K-A for the year ended December 31, 2019, and our Form 10-Q for the period ended September 30, 2020. The company disclaims any obligation to update these forward-looking statements, which may or 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. Happy St. Patrick's Day, and thank you for joining us. I'll first discuss our fourth quarter results. We were pleased to finish the year 2020 on a strong note. Revenue in the fourth quarter increased 14.4%. Operating profit increased 49% compared to the fourth quarter of 2019, mostly due to higher sales and gross margin expansion. Our revenue growth was driven by the strength of our U.S. and Canadian consumer markets, as well as the timing of some revenue shifting from the third quarter into the fourth quarter. Sales in the U.S. and Canada increased year over year and were greater than we anticipated in our outlook. In certain of our international consumer markets and in our global commercial market, Pandemic-related issues continued to suppress sales. Revenue from these two markets decreased compared to the same period in 2019 and was below what we anticipated in our outlook. Here at Hamilton Beach Brands, we have a talented, experienced, creative, and dedicated team. Our people have deep consumer, customer, and industry knowledge. I am very proud of our team and all they have accomplished during extremely challenging conditions. They are what gives me great confidence in our future. We entered 2021 building on continued strong consumer demand for small kitchen appliances. Our many competitive strengths reinforce our position. These include the value of our brands and products, strengthened operating capabilities, including important investments in information technology, as well as continuing to execute on our strategic initiatives. We are well positioned to build on these strengths as we focus on our commitment to build long-term shareholder value. In our U.S. and Canadian consumer markets, we expect demand to remain strong in the first half of this year as consumers continue to shelter at home and cook more than ever before. We expect to see consumers continue to cook at home after the pandemic more than they did before the pandemic as new habits have formed. We also believe demographic trends support our expectations for continued demand growth. Millennials are moving into the household formation and family phases of their lives Boomers are retiring and moving to new homes or remodeling. Both trends create durable, ongoing demand for small kitchen appliances. We're capitalizing on the strong consumer interest in cooking, trusted brands, and digital engagement. Our alignment with these consumer trends, combined with the breadth of our portfolio, positions us well for continued growth. In our international markets, while certain trends lag the strength of the U.S. and Canada markets, We expect the Mexico and Latin American markets to rebound this year as more people gain access to vaccines and economies begin to recover. In our global commercial market, the food service industry was arguably one of the hardest hit by the pandemic. Parts of the food service business began to recover in the second half of last year. Quick serve restaurants have fared well, while some casual and fine dining restaurants have found success with takeout, curbside pickup, and delivery models. As consumers begin to go back out, they expect food service will rebound, although not likely at full pre-pandemic levels in 2021. Hospitality industry is expected to be slower to recover as many consumers remain reluctant to travel. I'll note, however, that demand for certain of our products has been strong during the pandemic. For example, our in-room coffee makers have been in demand as lobby and dining service are not available in many hotels. For executing on several strategic initiatives that are designed to build long-term shareholder value, in 2020, we completed a detailed review of all our initiatives, which resulted in changing some initiatives and continuing or increasing focus on others. We continue to make progress with our initiatives and expect to benefit from these efforts in 2021. A key to our continued success is our ability to leverage our trusted, well-recognized flagship brands, Hamilton Beach and Proctor Silex, particularly in the North American marketplace, where they have been competing successfully for over 100 years. We are reinvesting in these brands to keep them strong and fresh through new product development, refreshed packaging and online content, new digital marketing and social media campaigns, all with the aim of driving conversion. In 2020, Hamilton Beach was once again the number one brand in both the brick and mortar and e-commerce channels based on units sold We intend to maintain and grow this position. We plan to drive growth of the Proctor Silex brand with a new, simply better positioning. We recently launched four products in core categories and we'll have more coming in 2021 and beyond. This new product group merges sleek design with superior performance and durability. A key supporting element is investments in digital marketing. E-commerce growth accelerated significantly in 2020, which we were well prepared for as a result of our past investments. We expect the increased online shopping to continue, and we are well positioned for opportunities still ahead. Online ratings and reviews are the lifeblood of e-commerce sales, and all nine of our brands average a four-star rating or better. We're supporting growth in this channel with digital marketing programs, expansion of our direct-to-consumer distribution operation, and increasing our participation with pure play and omni-channel customers. Our direct-to-consumer sales in 2020 significantly exceeded 2019 as we invested in process and infrastructure improvements that enable us to increase output by over 50%. We continue to increase our participation in the global commercial market. Pre-pandemic, our global commercial products had achieved a compound annual growth rate of more than 5% since 2010 and accounted for 8% of total revenue. While we expect the global commercial market recovery to take some time, we are very optimistic about its potential and expect it to return to growth in 2021. We're investing in new commercial products and expanding our offerings across all areas of the kitchen. We've also invested in digital marketing and e-commerce and strengthened our partnerships with regional and global chains. Overall, we expect strong revenue and profit growth in our global commercial business in 2021. We continue to expand our presence in the premium market with new product development and by pursuing partnerships and licensing agreements. Our newest entrance in the premium market is the Bartesian Cocktail Dispenser, which we market through an exclusive multiyear agreement. Bartesian is the first of its kind to use flavor capsules to create a premier mixed drink at home. In its first full year, Bartesian received very strong customer responses. Our goal is to double our sales in 2021 and launch the next generation of machines for both the retail and commercial markets. Our Wolfgram 18 launched the stand mixer in 2020. And in 2021, we're introducing a high performance electric kettle. For CHI, we continue to gain new distribution, both in Canada and the US. CHI has become the number two iron brand in the over $40 category with a 40% share. In 2020, we launched the new touchscreen iron and a handheld steamer. This year, we will introduce a larger steamer and additional products to round up the line. We continue to build out our Hands of the Beach professional line, which leverages our commercial expertise for home cooks. We've upgraded our existing ovens and toasters, launched a stand mixer, food processor, and conical burr grinder, and have just introduced a coffee maker and juice extractor. We continue to create products for new categories that leverage our strengths of sourcing, marketing, and distribution. This year, we're increasing investments in new opportunities in the home, particularly in the large and fast-growing health and wellness space. Two examples of this include expanding our air purification offerings and entering the water filtration category. We're pursuing additional health and wellness opportunities that we expect to be able to discuss in the coming months. Certain emerging markets have experienced greater challenges from the pandemic, and our outlook is uncertain. After assessing the potential for growth in emerging markets, we are pivoting to a licensing model from a company managed model in countries such as Brazil, China, and India. This change will result in reallocating certain resources to focus on our North American market, while others will be eliminated. Commenting further on current business conditions, we're managing through rising product costs and shipping congestion persists. The congestion challenges are in response to record-setting import levels for most industries, an imbalance of containers, and the inability of ports and rail yards to handle the volume. We ship most of our needs using a contract rate, but we are shipping a percentage of our needs at the higher spot rate. We're planning for the high import volume to continue through the first half At a minimum, we are taking a number of steps to manage costs as we have in the past. The company has many strengths that enable us to successfully navigate the pandemic. Our investments in talent, global infrastructure, and our strategic initiatives are serving us well. One of our most important investments is in new product development. This is truly the lifeblood of this business. In 2020, we introduced nearly 70 new products, even with employees working remotely. We plan to introduce 100 more new products over the next 24 months. Our new products will cross a wide range of brands, price points, and categories, leveraging our leading brand portfolio in markets around the world. I'll now turn the call over to Michelle, who will review our financial results for the quarter.