Hamilton Beach Brands Holding

and thank you for standing by. Welcome to Hamilton Beach Brands Holding Company Q1 2022 Earnings Call. At this time, all participants are in the 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. If you require any further assistance, please press star 0. I would now like to turn the conference over to your first speaker today, Luan Nebhan, Head of Investor Relations. Please go ahead.

Thank you, Chris. Good morning, everyone. Welcome to our first quarter 2022 earnings conference call and webcast. Yesterday, after the market closed, we issued our first quarter 2022 earnings release and filed our 10Q with the SEC. Copies are available on our website. Our speakers today are Greg Trapp, President and Chief Executive Officer, and Michelle Moser, Senior Vice President and Chief Financial Officer. Also participating in the Q&A will be Scott Tyee, Senior Vice President, Consumer Sales and Marketing. Our presentation today includes forward-looking statements. These statements 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 reference and uncertainties is available in our earnings release and our annual report on Form 10-K for the year ended December 31, 2021. The company exclaims 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, Luann. Good morning, everyone. Thank you for joining us. We're going to take the next few minutes to provide an overview of our performance in the first quarter of 2022 and our outlook for the year. We are pleased that revenue was in line with our expectations, down slightly in the first quarter. We said previously that industry demand would be slightly softer than 2021, mostly due to the comparison to stimulus spending last year. Additionally, we comped a record quarter last year which also was significantly higher than our historical average. Lower sales volume was partially offset by pricing actions that became effective during the quarter. Our price increases enabled us to offset a significant amount of increased transportation and product costs. As I discussed during our third quarter 2021 call, like all importers from China, in the second half of 2021, we faced the challenge of securing enough ocean shipping containers to move product from China to the US at contract rates. We elected to secure a certain number of containers at premium rates in order to meet customer commitments and consumer demand for the holiday selling season. Persistent supply chain constraints resulted in the delayed arrival of some inventory, a portion of which turned in the first quarter of 2022, affecting short-term margins. Our 2022 pricing strategy covered our ongoing transportation and product costs, and we also expected these premium spot containers to be a pressure in the first half of 2022 when we communicated our outlook. More of the impact hit the first quarter than being spread out over the first half, so we think the second quarter pressure from these spot containers will be behind us. We were also impacted by geographic mix. Michelle will cover that in a moment. When you add it all up, We believe this unusual first quarter margin pressure is not an ongoing issue for us based on today's product loss. Our team has worked diligently and effectively to recover as much as possible of the prior year losses associated with the unauthorized transactions by former employees and our Mexican subsidiaries. In the first quarter of 2022, we recovered $10 million from a crime insurance policy. It is very gratifying to be able to recover this value for the company and our shareholders. Despite the challenges related to inflationary pressures and supply chain constraints, our team has done an impressive job keeping our business on track and moving forward, enabling us to satisfy the needs of our customers. I am delighted by how effectively our operations, sales, and distribution teams are working together as they manage through some of the most challenging times ever in recent memory. For our teammates, we implemented a return to office plan in March that is designed to balance the needs and desires of our employees with the needs of our business. We believe we have implemented a plan that combines the best of our pre and post-COVID environment. We are working to build on the many successes we achieved in 2021 with our six strategic initiatives and believe each one will provide growth in 2022. These initiatives support our overarching goal of long-term value creation. Four of our initiatives are focused on expanding our presence in markets where we have the opportunity to increase the sale of our higher-priced, higher-margin products. These include premium, commercial, and home health and wellness markets, as well as our core market that focuses on Hamilton Beach and Parque Solix brands. The other two initiatives support our growth plans in all markets. These include accelerating our digital transformation and leveraging partnerships and acquisitions. Let me briefly discuss each one. Our newest initiative is to expand in home health and wellness, a fast-growing multi-billion dollar market. This initiative was added in 2021. We are currently focused on air purification, water filtration, and home medical categories. During the past year, we took many steps to prepare for the introduction of new products in these markets. In the first quarter, we announced progress in three key areas. We've introduced the first products in a new line of premium air purifiers under the Clorox brand name and replacement filters. This product launch is part of an exclusive multi-year trademark licensing agreement we have with the Clorox company. Our new air purifiers all have true HEPA filters. Currently, large room and tabletop models are available. Both models have received favorable reviews and have 4.9 star ratings. We have developed a robust digital marketing strategy to build awareness of these new products in a category and to drive sales. The spring allergy season supported sales in March and April. We anticipate additional sales to be generated as consumers try to deal with the difficulties of the summer wildfire season and as we build awareness. Further, we have scheduled additional launches in the coming months. New models that will launch yet this year include a medium room size and three connected technology models that use voice-integrated services. We entered the home medical market through an exclusive multiyear agreement with HealthBeacon, a leading developer of smart tools for managing injectable medications at home. Under the agreement, we're the marketer and distributor of the system in the U.S. and Canada. The system includes a countertop appliance that serves as a sustainable way to store used needles for recycling. The appliance is supported by a companion app that assists patients in managing adherence to the personal medication regimen. In March, we announced the US launch of the SmartSharp Spin from Hamilton Beach Health, powered by HealthBeacon. We plan to launch the system in Canada next year. We entered into an exclusive multi-year trademark licensing agreement with Brita and plan to launch a new line of countertop water appliances later this year. Gaining share in the premium market is a significant focus for our team. Revenue from our premium products grew 13% in the first quarter. Sales of the Bartesian Cocktail Machine and Sheed Garment Care products were the major contributors to the growth. We also generated sales increases for our Wolf Gourmet and Hamilton Beach Professional brands. We plan to further expand our presence in the premium market with new product development, digital marketing, and by pursuing additional licensing agreements and other collaborative arrangements. We expect to generate additional sales growth of our Wolf Gourmet countertop appliances brand in 2022. Our newest Wolf Gourmet product, the True Temperature Kettle, is selling well. For the Bartesian Premium Cocktail Machine, plans are in place to launch Generation 2 this year. This upgraded model will provide enhanced functionality. Line extensions are under development, including a commercial-grade model, which we plan to introduce in the coming months. Recently, Aramark Sports Entertainment announced that it has installed the Bartesian cocktail-making appliance and luxury suites at several baseball stadiums. Sales of our cheap premium garment care brand products are growing. New products on the line include a mini iron and handheld steamer. We're introducing many new products for our Western brand, which is targeted to the gardeners and hunters. New items include updated meat grinder and slicer models, smokers, food dehydrators, and vacuum sealers. Our Hamilton Beach Professional line leverages our commercial products expertise for the benefit of home cooks. New HB Pro products include a programmable coffee maker, air fryer ovens, hand and stand mixers, and a cast iron griddle. Our initiative to lead in the global commercial market provides an outstanding opportunity for the sale of higher priced, higher margin products, while meeting important customer needs in the food service and hospitality industries. The last couple of quarters, The rebound of the global commercial market from pandemic-driven demand softness has accelerated in North America and around the globe. We expect the strength to continue. Our fourth initiative, focused on markets, is to drive core growth. We plan to drive growth in our flagship brands, Hamilton Beach and Proctor Silex, through innovative new product development, digital marketing, and a number of our new products are aimed at the $50 and higher price point. Every year, we introduce a number of new products under these brand names. This year, new offerings will include several models for the coffee cannery. We're launching rechargeable cordless appliances in the personal blender and can opener categories. Other new products include new hand and stand mixers, air fry toaster ovens, slow cookers that defrost, and have air fry attachments. We're pleased with the progress we're making to accelerate our digital transformation. In the first quarter, e-commerce sales were approximately flat overall as consumers shopped more in stores as the pandemic recedes. In last year's first quarter, e-commerce sales increased 59%, so performing close to that typical comparison was an accomplishment. E-commerce sales accounted for 35% of our total company revenue in both the current and prior year quarters. With our initiative to leverage partnership acquisitions, we're actively engaged in identifying additional trademark licensing agreements, strategic alliances, and acquisitions that would drive growth in all our markets. To summarize, we have an exciting portfolio of brands with promising growth potential. As we drive momentum for all of our initiatives, we're planning for another year of record revenue growth. Operating profit is expected to improve at a faster pace than our revenue growth. We believe our base case outlook does not represent our full potential. However, given the many unknowns and potential headwinds this year, we're taking a more conservative view. Industry demand for small kitchen appliances remains solid, higher than pre-pandemic levels, slightly softer than 2021. Once the comparison to last year's stimulus spending concludes, demand is expected to be flat to slightly down from prior year and to remain ahead of pre-pandemic levels. Even as consumers return to offices to work and engage in more evening and weekend activities, lifestyles have not reverted to pre-pandemic habits. Consumers are still spending significant amounts of time at home preparing their own meals and beverages. At-home meal preparation is being driven by new habits formed during the pandemic, a heightened interest in healthy eating, and as a means to control expenses during inflationary times. closely monitoring any shift in consumer behavior away from home, as well as any potential negative impact on consumer demand due to inflation. The 2022 marketplace is difficult to predict. While we expect demand for retail and commercial small appliances to be durable over time, we expect short-term ups and downs as we comp unusual 2021 activity. At this point, consumer demand has been holding up well, Depending on inflationary pressures, it could soften from where it is today. If it does, we would revisit our outlook. The supply chain environment remains dynamic and unpredictable. Inflationary pressures have been increasing for transportation and product costs, especially for ocean shipping containers. As we have been doing, we will work diligently to mitigate the impact on our margins to the fullest possible extent. And now I'll turn the call over to Michelle.