Hamilton Beach Brands Holding

Hello and welcome to the Hamilton Beach Brands Holding Company Second Quarter 2022 Earnings Call. My name is Lauren and I will be coordinating your call today. There will be an opportunity for questions at the end of the presentation. If you would like to ask a question, please press star floatable 1 on your telephone keypad. I will now hand you over to your host, Luanne Napan, Head of Investor Relations to begin. Luanne, please go ahead.

Thank you, Lauren. Good morning, everyone, and welcome to our second quarter 2022 earnings conference call and webcast. Yesterday, after the market closed, we issued our second quarter earnings release and filed our 10-Q with the SEC, which is 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 four looking statements. These statements are subject to risk and uncertainties that could cause actual results to materialize from either the prepared remarks or during the Q&A. Additional information regarding these and uncertainties is available in our earnings release and our annual report on 410K for the year ended December 31st, 2021. These companies claim any obligations to update these forward-looking statements, which may not be updated until our next quarterly call, if at all. I'll now call over to Craig.

Thank you, Luann. Good morning, everyone. Thank you for joining us. We're going to take the next few minutes to discuss our good performance in the second quarter, along with our outlook for the second half. We are pleased with our second quarter results, which demonstrated another quarter of strong execution by our team in a challenging external environment. Revenue, gross margin, and operating profit were in line with our expectations. We achieved our results against a difficult comparison to record sales in the first quarter of 2021, which increased nearly 12%. Last year's growth was impacted by a strong rebound from the pandemic-driven demand softness in our global commercial and Latin American markets. while demand in the U.S. continued to be strong. This year, as we expected, revenue declined in all of our consumer markets except Canada. In our global commercial market, revenue increased 37%. The commercial market continues to benefit from the strong ongoing rebound of the food service and hospitality industries. We continue to make progress with all of our strategic initiatives, Several of them generated strong growth in the second quarter. We've been working to build on our progress and believe each initiative will generate growth in 2022 and beyond. Our initiatives are focused on expanding our presence in markets where we have the opportunity to increase the sale of higher priced, higher margin products. These include the premium, commercial, and home health and wellness markets. We're also focused on growth of our core brands, Hamilton Beach and Procter Silex. Our initiatives focused on accelerating our transformation and leveraging partnerships and acquisitions are going very well. The second quarter, e-commerce remains strong. Online revenue increased and accounted for 37% of our total. We continue to accelerate our digital transformation by investing in online selling capabilities and digital marketing for all of our brands and markets. As mentioned, our global commercial revenue growth in the second quarter was plus 37%. We were also seeing our participation in this market with product development, digital marketing, and increasing customer relationships with regional and global chains. Our premium brands matched our results in last year's second quarter. Growth was particularly strong for the extremely popular Bartesian cocktail machine and our Qi garment care products. We are introducing a number of new products in time for the holiday selling seasons. We are excited to launch the Barclaysian Generation 2, as well as the Barclaysian Duet, a smaller two-bottle model, and a commercial model. Our premium portfolio includes five street brands. All five have an online rating of 4.2 stars or better. Due to the comparison to last year, sales of our core brands, Hamilton Beach and Procter Stylix, declined slightly. We expect growth for both brands in 2022, and we are launching new products in multiple categories for the holiday selling season. Hamilton Beach continues to be the number one brand in the U.S. based on units sold. It has extremely high awareness and a 4.4 star average online rating. The brand serves a range of categories and price points with innovative consumer preferred products. The Hamilton Beach brand did extremely well during this year's Amazon Prime Day, held early in the third quarter. Following the event, Amazon issued a press release announcing that it was the biggest Prime Day ever. In that announcement, they highlighted some of the brands worldwide, and Hamilton Beach was one of them. For us, this year's Prime Day was our best ever as well, and our sales nearly doubled compared to last year. Dr. Salix is a brand with a broad portfolio of products and has a 4.4-star average online rating. We continue to incorporate the Simply Better Brain positioning out our Platinum Series line, as well as introducing new products in a broad range of high-demand categories. Our home health and wellness initiatives are progressing as we have begun to launch new products in the air purification and the home medical categories. We are excited about participating in this large and fast-growing market. We look forward to our new products gaining traction throughout the year and into next year. This market is one where we also will have a meaningful consumables revenue, particularly for filters for air and water filtration products. This year, we have introduced the first products in a new line of air purifiers under the licensed Clorox brand name. We plan to launch additional new models in the coming months. We launched the SmartSharpSpin from Hamilton Beach Health, powered by HealthBeacon, for at-home injection care management in the U.S. home medical market. We plan to launch 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 in early 2023. For gross profit margin, we were pleased that it was well above last year's second quarter and back within our historical range. Our efforts to mitigate higher transportation and with a number of actions, including pricing programs, have been successful. Inbound freight costs have become a significant portion of our product cost, Securing ocean containers at reasonable rates remains a significant challenge. Outbound freight costs have increased significantly as well due to the high demand for trucking needs by all shippers. While we are seeing ocean container rates come down somewhat as overall demand eases, the rates are still significantly higher than they were at this time last year. We've begun to benefit from recent abatement of commodity costs. However, given the increase in container rates, overall product costs are up significantly compared to last year. We are focused on covering the higher costs, particularly for the ocean carrier rate increases, and we continue to work closely with our retail customers. Currently, we are implementing additional price increases that will become effective in the third quarter. We expect to be successful in passing increases that are necessary to maintain our margins at historical levels while staying competitive. Next, I will discuss for the second half of the year, starting with demand. Demand for the small kitchen appliance industry was softer in the first half of the year compared to the same period last year, primarily due to the comparison to last year's spending. In the second half, demand is expected to be slightly down from prior year, but remains significantly ahead of pre-pandemic levels. Demand has softened slightly compared to our previous outlook, as consumers and retailers adjust to current unfavorable economic conditions, but it is not a dramatic decline. We believe the small kitchen appliance industry has a number of tailwinds supporting continued strength despite the economic headwinds that are growing in the environment. First, the pandemic accelerated broader and deeper consumer adoption of small kitchen appliances that has continued as the pandemic has receded. significantly more consumers are engaged in the small kitchen appliance category than they were pre-pandemic. Secondly, even as many people have moved to non-lockdown lifestyles, many others continue to work from home, or at least part of the time. These folks continue to engage in at-home meal and beverage preparation during the workday for breakfast, lunch, and snacks. Third, for consumers who are working in offices with children back in school, The need to be able to prepare healthy and good-tasting meals quickly and easily is as important as ever. Large gatherings with family and friends for holidays and other occasions are back. All of this benefits the small kitchen appliance categories. Another consideration is the inflationary times in which we are living. When the economy softens, the small appliance market remains strong as consumers stay home and cook more to save money. That is especially true now given the significant increase in away-from-home meal costs. History tells us that during difficult economic times, people do not eliminate spending on essentials. Products like coffee makers, small appliances used to heat food, and other products count as essentials. We recently analyzed 16 years of industry data and found that the small kitchen appliance industry has performed well in both difficult and good economic times. There have been pockets of extreme ups and downs, but those have been short-lived. The industry quickly returns to steady performance. Hamilton Beach Brands expects to continue to benefit from a number of strengths and competitive advantages, even during difficult times. While we are optimistic about our prospects for a strong second half of the year, we recognize that there are uncertainties in the macro environment and there can only be uninitiated events. At this point, consumer demand has been holding up, and based on what we know, we feel confident in our outlook. Now I'll turn the call over to Michelle.