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Hamilton Beach Brands Holding Company Class A Common Stock
Q4 2022 Earnings Conference Call
3/10/2023
spk_0: good morning my name is chris be or conference operator today at this time with a welcome everyone to the hamilton beach brands holding company queue for twenty twenty two earnings call all ends have been play some you to to prevent any background noise after the speakers remarks to be a question and answer session if you died ask a question during this time simply press star than the number one on your top keep keypad to withdraw your question please press start one again thank you the when they have him at an investor relations may begin
spk_1: thank you chris good morning everyone welcome to our fourth quarter twenty twenty two earnings conference call and webcast yesterday after the market we issued our earnings release for the quarter and full year and five or ten k with se si copies are available on our website or speaker today is greg trap president and chief executive officer also join us this morning is sally cunningham it will become senior vice president and chief financial officer on march seventeenth or presentation includes forward looking statements these statements are subject to risk and uncertainty that could cause actual results to differ much serially from those expressed in i'd have they're prepared remarks or during that una additional information regarding these risks and uncertainties is available in earnings really and our annual report on form k that was filed yesterday the company disclaims any obligation to update the forward looking statements which may not be updated until our next quarter of a conference call if it all the now i will turn the call over to fresh
spk_2: good like you lose gloria everyone thanks for joining us before i give him begin my prepared remarks who would like to introduce silly her a chance to say a few words so join us on february thirteenth initially a senior financial adviser and she'll become or see a phone on march seventeenth sally is an accomplished senior by it's leader also brings a strong track record in value creation digital transformation in emanate integration sally most recently was engaged by the private equity firm one wreck one rock capital partners has a fires operating partner prior to that she was senior vice president and chief financial officer is similarly corporation we expect expected benefit significantly from sell his breadth and depth of the screws selling
spk_3: thank you drag i just wanted to take a few minutes to say hello and then i'm very excited to join him can beat france i think this is a time of great opportunity as the company continue to expand and bran and product offerings and make further progress with it's strategic initiatives i look forward to meeting many of you and working with our shareholders the analysts who follow the company and other investors who are interested in learning more about hamilton beach brand i will be full participant on our call on the and out first quarter results
spk_4: now that the greg
spk_5: the thank you it
spk_2: a gonna take the next few minutes to provide an overview of our performance for the fourth quarter with between to the full year twenty twenty two and our outlook for twenty twenty three after that will take your questions while the small kitchen appliance market proved to be slightly softer than we anticipated in the fourth quarter
spk_6: we're pleased with our results
spk_2: god total revenue was virtually fled to the fourth quarter twenty one we attribute or results to our investments in several areas including the global commercial and premium products market which i will elaborate on the moment additionally we believe our performance underscores the strength of our business model the value of our portfolio trusted well known brands and products the ability of our team to execute well in the face of industrywide challenges or investments in our strategic initiatives of the past several years generated important support the fourth quarter the softer consumer demand was due to households adjusting spending patterns in response to inflationary pressures and economic uncertainty many retailers slowed replacement orders in order to control their inventory levels but we're on track to significantly reduce him a tory in response to retailer and consumer trends we decided to provide additional promotional support these efforts well successful the short term pressure on are gross profit margin expect are gross profit margin to return to exist it's historical range as the year unfolds operating profit in the fourth quarter was one was eleven point three million dollars compared to seventeen point nine million dollars in the twenty twenty one period this reflected the short term gross profit margin contraction partially offset by lower as to the expense but the end of two thousand twenty two are immature position improve significantly a slightly better rate than expected or post how they employ levels at retail or clean at the end of december or inventory level was one hundred and fifty six million dollars compared to one hundred and eighty three million dollars at the end of two thousand twenty one and two hundred and forty five million dollars at the end of september er det came down as well that was one hundred eleven million dollars at the end of twenty twenty two compared to ninety seven million dollars at the end of twenty twenty one and one hundred and forty six million dollars at the end of september as of today we're further decrease er det and expect to end the first quarter of approximately ninety million no
spk_7: girl so excited about several other important accomplishments in the fourth quarter
spk_6: in the global commercial mark
spk_2: finish the year and a record level and in revenue increased fifty seven percent or premium or to initiative continue to generate strong results and sales increased fourteen point five percent the calmer sales accounted for forty five percent of total revenue well our core brand revenue declined slightly we grew our retail dollars here in the north american market for for your twenty twenty two revenues second highest in a company's history and decreased only two point six percent compared to the record revenue of six hundred fifty eight point four million dollars and twenty twenty one are operating profit increase twenty three percent to thirty point eight million dollars compared with thirty one point five dollars and twenty twenty one and cookies and mind our shirts recovery i income was twenty five point three million dollars or a dollar eighty one per diluted share compared to net income of twenty one point three million dollars or dollar fifty three per per diluted share navigating the years with way to successfully required significant effort on the part of our team really the year we still face supply chain disruptions we implemented price we implement a pricing actions in response to rapidly as significantly rising costs our team worked tirelessly often above and beyond normal job performance i thank everyone for their extraordinary performance diligence and commitment to are good thinking culture it's major investments in infrastructure behind us including our new earpiece system and are new to us to scrutiny center we were able to decrease capital response to two point three million dollars compared to eleven point eight million dollars and twenty twenty one the next i want to highlight the many successes we even twenty twenty two due to the investments we made in our six strategic initiatives these initiatives are ongoing programs that have helped to stay strong over the past several years they've designed to increase revenue expand operating margin and generate strong cash flow over overtime
spk_7: we made significant progress in each initiative are in very good position to continue to build upon the momentum we believe each of our strategic initiatives
spk_2: by growth toys and first are initiative to lead the global commercial market a revenue in the global commercial market increase fifty present and accounted for nine point six percent of total revenue put our food service and the hotel and many businesses experienced significant revenue and profit growth and twenty twenty two we have made important progress expanding our business with new and existing customers and both industries this growth is partly due to strong posts pandemic demand in the backlog of orders coming into twenty twenty two is also due to our success the expanding our category coverage examples of new product new commercial products that are gaining traction include are mixed asian which makes milkshake treats high performers blunders and our new big red line of immersion blender is there we introduced as part of our strategy to expand into back in the house products
spk_6: we have secured incremental wins as we increase her focus on to global and regional restaurants and hotel chains
spk_2: a group plans was market include new products and expanding cool customer relationships he also continue to invest in ecommerce which has become increasingly important the commercial products market with expect our commercial business to continue to grow and twenty twenty three next are innocent again share the premium market we continue to develop license and acquire brands and products to increase participation in a premium market new products and digital marketing support underpin the strategy to grow this business premium brand revenue increased sixteen percent and toys way to and accounted for fifteen percent of total revenue
spk_6: sales of parties and premium cocktail machines continue to increase significantly he launched the parties and professional do it models
spk_2: he's been exciting to partner with forty engine on the creation of a fast growth of the fast growth in this new category the key growth shriver has been parties his commitment to develop more than fifty cocktail flavor but she brand continue to grow in sales and share of the chrome a cure category as establish itself as a leading premium brand or news cheap products including many iron and full size handheld steamer
spk_8: are able to beat professional line leverages or commercial products expertise for the benefit of home cooks the product portfolio now includes fourteen high demand categories
spk_2: we continue to aggressively pursued placements the us and canada and we're focus on building the brand in a commercial we remain focused on driving higher sales were west product brands western brand products that are targeted hunters and gardeners this includes maximizing online growth opportunities increasing distribution in the sporting goods channel expanding promotion opportunities and launch a new new innovations in the core preservation processing and prep categories the will come a brand continues ten hut covers ten high demand categories and continues generate city sales with a luxury market and was forty percent of sales for this brand now line this week we announced an agreement with a company known as new milk which produces raw ingredients that combined with when that combined with wanted to create a variety of plant based milk products
spk_6: they need is a partner to design next generation specialty appliances for use by consumers at home and and commercial establishments we're delighted they have chosen to work with us
spk_2: this market is fast growing and we're excited about the potential new notes products are known for the high quality and excellent taste the new milk system also saves customers money produces shipping costs and has a positive environmental impact we're in the zone we are the design and engineering phase for in home and commercial appliances expect to launch the new products and early twenty twenty four
spk_7: next or initiative to expand and a home health a well as market
spk_2: we're are pleased with the plot were making to increase her participation a large and fast growing home health and wellness market our focus is on the air purification water filtration and home medical markets we have expanded our participation in the air purifier category through exclusive multiyear trademark licensing and product development agreement with the clark's company and twenty two we introduce six new clorox metals this year we replant introduce an extra large size model the air purifier category is expected to continue to be strong given the benefits these machines provide to address numerous consumer concerns this year we are introducing a countertop clorox steam sale ties are that consumers can use to kill bacteria brushes sponges and other kitchen items can still have a useful life in two twenty twenty two we signed a trademark licensing agreement with britain we've designed a new electric current up water filtration system creating a new category of easy to use appliances for consumers to access clean great tasting water from their tap while reducing plastic bottle waste last month we introduce the innovative britain have like trick or tap water appliance this product is available online and we're presenting to retailers for in store placements later and twenty twenty three we've entered the home medical market through an agreement with a company called health begun limited health beacon is a leading developer of smart tools for managing injectable medications and home the whole medical market has tremendous group to tremendous growth potential as home based medical management continues to grow we expect to become a larger persistent overtime
spk_8: trends are well known the aging population is increasingly living with and managing chronic health conditions
spk_2: demand for personalized healthcare solutions is rising in lockstep the need exist and younger demographics as well the healthcare industry and recently increasingly looking for went new ways to enable patients to manage to medical needs in their homes due to a scarcity of health care professionals
spk_6: our product is called this smart shrubs been from l to beach health powered by a beacon
spk_2: the system provides revenue from the appliance and for monthly subscriptions that help patients manage adherence to their personal medication regimen using an app it recently became medicare and medicaid eligible for certain applications which is expected to drive increase adoption you've also secured recent placements with specialty pharmacies a partner help beacon is a global leader in digital technology we are exploring additional opportunities to collaborate with help beacon and the at home medical adherents and monitoring march gallup turn your initiative to drive court wrote we remain intently focused on accelerating the growth of or or brands hamilton beach and practice alex they have completed successfully and our heritage north american marketplace for over one hundred years innovation and new product development of always been a life full of this business and twenty twenty to introduce for new product platforms thirty two for on the beach and eight could practice alex while sales of our core able to the beach and practice ice brands decreased slightly into a way to be up for me industry and gained our share in north america for both brands we increased our support for marketing communications including online content visuals and video to engage shoppers he also increased focus on se o optimization social media advertising and influence or campaigns gaining an important endorsements awards and recommendations from a number of known trusted sources
spk_6: able to beach continue to hold a number one brand position for small kitchen appliances and twenty twenty two based on years old
spk_2: and ecommerce channel or flagship to consumer products burundi average four point three star rating plans are in place to drive growth of our ammo the beach and practice alex brands including innovative new product development and continue investment in digital moving on to our nation to accelerate our digital transformation the commercial represents a very strong a fast growing part of our business brand reputation product features innovation and star ratings all play a critical role and driving online sales these are all areas where we excel he also and digital marketing and online selling capabilities he twenty twenty two e commerce sales accounted for thirty percent of total revenue and increase three percent on top of twenty two percent growth and twenty twenty one have a presence across multiple ecommerce platforms over brands are earning star ratings of four point three or better and five of our brains are it four point five started better or products receive favorable reviews from consumers experts and influencers are you commerce capabilities have become increasingly sophisticated we're continuing to invest in them for supporting growth in digital engagement with online marketing programs expanding our direct to consumer distribution operation increasing our participation with pure play in us
spk_6: finally we have an issue to leverage partnerships and acquisitions the have significantly increased our focus on this initiative
spk_2: we prioritize opportunities and provide entry into consumer or commercial markets where we can construct of suspense
spk_6: for actively engage in the pursuit of additional club versions for acquisitions
spk_2: and this time or our outlook i'll turn to i'll look for twenty twenty three i'll start with a few comments about the marketplace as we consider to the twenty twenty three landscape we see a number of headwinds and here wants to manage the overall retail and marketplace friends for general merchandise home goods and small appliances or difficult to predict we believe that over time the small plant in just industry will remain resilient even as off economy however it is challenging to for to predict the impact a softening economy will have on our industry of the next several quarters
spk_8: we don't play there will be a significant fall off in demand for small places but they're likely will be some softening
spk_2: retailers are acting cautiously across her portfolio which can impact hp be and all companies the short term is clear that the us consumers point back to some a great showcasing i'll look on unexpected moderate decline just redo and this year
spk_6: next i'll discuss the company ill
spk_2: the full your twenty twenty three we expect total revenue to be flat twenty twenty two including a more challenging first half of the year particularly in the fridge porch
spk_8: we expect a stronger back have to offset the softer first half
spk_2: typically in the first half of twenty twenty three we see a continuation of soft consumer consumption trends as a result you've taken a more conservative you can expect a moderate decrease in revenue compared to the first half of towards way to particularly in the first quarter
spk_7: the second half of twenty twenty three we expected benefit from continued progress with our strategic initiatives you're optimistic about our new product offerings
spk_2: a potential placements second half selling season
spk_7: i plan to spend a revenue in the second half will increase modestly compared to the second half of twenty twenty two
spk_2: operating profit for the full year twenty twenty three is expected to increase compared to twenty twenty two excluding the ten million dollar insurance recovering toy twenty three expect gross profit margin expansion compared to four year twenty twenty two
spk_8: they expect moderately hired as she nags spence mostly due to increased employee related costs and some investment in new product advertising
spk_6: again we expect a stronger back have to offset a softer first half for the first quarter being the most challenging pierce but a cause for small kitchen appliances and transportation expenses have been moderating has many the supply chain challenges of the past few years of are working with a retail partners on appropriate rollbacks a previous price increases in ways that will keep us competitive while also protecting margins the difficult to predict the outcome of the decline prices
spk_2: we blew the most important action is remain competitive osu in the retail pointers
spk_7: cash flow before financing and twenty twenty three is expected to increase significantly compared to twenty twenty two result ribbons and network and capital
spk_0: as always or allah could change of consumer demand schiller punishment orders are softer than currently expected that concludes are prepared remarks will now turn my back to the operator uk
spk_9: thank you and as a reminder as you would like ask a question please press star them home and until he said the first question is wrong just soon clever with buried in line something a good morning everyone missing back and progestin thanks for taking a question that congratulate
spk_10: ah fertility and top line and
spk_2: greg imaginative put take their the anti flat revenue for twenty twenty three gets tricky can speak to how much great you're expecting on from i saw this year and the overall how much contribution hmm from units and innovation
spk_8: turquoise act of so i think
spk_11: a commercial is is
spk_2: expected a grove the for the year yeah it's it's a
spk_6: how we feel little it'll be not not as strong as tweet tweet to of but certainly strong probably somewhere in the mid to high single digits
spk_12: his way it's current looking for that could change of course but we expect to be it was solid contributor
spk_8: i'm or other programs that were investing in some of these newer ears with evasion
spk_2: like like the whole melt area
spk_6: like supreme categories are also expect to grow we had some six and a success we can see how things would have said each other but in general i feel that we have enough
spk_8: areas working for is that
spk_2: i've once we get through the first quarter in the first half of the sheer were others looked up to know the consumers doing and retailers are doing to rebalance things
spk_6: i think we have enough of these programs working that should help not only the core business television but salix but some of these newer areas as well i will say that were are also and in the next month or two or three will have a better picture on placements for the back half of the year where are you in the middle line reviews
spk_2: starting promotional discussions with the back half of the year or so i think also will be alert talk more teacher about which works are going on core placement so far
spk_9: we're we're we're pleased with the weddings are going but the thing sperm and we lot of good things talk about with the retail partners needed from things up so generally speaking i think
spk_6: we've got to get through the first quarter in the first half and in a lot of things we're working on should should provide the same in the back over there
spk_2: gotcha thanks frank i'm in the annals place manx cats i'm i'm elated how do you think yourself through at retail during the holidays and you can guarantee you that have some your peers and committee share a bit more and how customers responded to promotions for the category overall sure so you are
spk_8: performance of the fourth quarter this past year was was better the market we were share or dollars here increased in the full year as well as the fourth quarter
spk_6: in so that knows it that was due to really strength of
spk_2: many the progress we talked about during the prepared remarks
spk_8: and and a softer
spk_6: more to play so expected so i think in general we get could support from of retail partners a very strong online business which is
spk_8: the of the user is is at best place for us to showcase or products
spk_2: quality star ratings etc so i think of be a solid performance both in store timeline helped us know do better the marketplace in the fourth quarter however it was less oh wait we're hoping for expecting news in general there there was the the overall of lower performers of the of the over oil industry and is that we talked about so are the in general
spk_6: and we did did better we'll see how the sheer unfolds again we used we we hope to or
spk_9: goal is to grow cheryl your long again quarter by clerk can always be a challenge but we have enough things going for is where i'm hopeful that will love will do better than the workplace
spk_2: gotcha and can now the often mentioned bowling back pricing me share any color i'm in in a computer was rollbacks are you getting any others in the marketplace start to change their pricing is while and then how last pic you think the man typically as for the category you that expect he did see a rebound and units and taking prices down here
spk_6: ah sure that i'm zach on this front it's a always a little hard to know how to the play out a few things to to point out one is some your costs club product costs ah are of has come down and as you know i'm sure transportation costs of come down significantly so what we've always try to do is whether costs are going up or down to were closer with our our retail customers does to just stay home when it comes to those costs changes so as it come down
spk_2: we've pro actively worked with retailers to the a price or products to be sure we're competitive protect her margins but also trying to be sure that we're putting pricing out there that can excite customers to to purchase more so as we went into last year and we had to raise prices
spk_6: it was very difficult to know whether that would drive top line and units would hold or whether consumers who just trade up and down in it really wouldn't impact
spk_2: shelter or herself sell through turns out the market was all softer so clearly the price increases that we took everybody took
spk_6: the did not we're not as into the marketplace the the a consumer just changed or percent have to buy different products and the market still soft
spk_2: softer than expected so is he going to twenty twenty three as we reduce prices there's a couple things go that are that want to figure out so the short term month to month in order to be dropping our invoices to retailers and will flow through there the on hands so there could be some short term i'm
spk_13: the ups and downs on our performance as we pass along those price decreases
spk_2: it is hard to know whether that consumers will continue to purchase the same way they were so therefore those read those pride lower prices will actually hurt or performance the ongoing early on we're seeing some response by consumers that will we reduce prices the have units are picking up and the respond favorably to those so our generals and thought is that just like when prices went up he was not all additive that when prices go down and will not decrease from our performance that consumers will move around their purchased his desires
spk_11: and i'm it'll be a a modest change up or down that's a big assumption and the right now or are we were saying that consumers as prices come down consumers are
spk_9: are responding to those products that are now at lower prices competitively you everyone's by from the same part of the world for the most part everyone's experiencing lower transportation costs the retailers are very good at near demanding competitive prices so another hundred percent sure aware or our peers are but my sense is that is sooner or later they're all going to be either with us or following suit because i'm is the marches haters gonna drive
spk_6: try of us to be competitive on pricing gotcha make sense thanks for like rag on shipping over to margins what did you guys the cabinet that gross margin pressure in the fourth quarter lady to those promotions will be short atlanta are you mention it is getting a return to a more normal course martin love on the first half
spk_14: a that you based on trying to get and seen so far and first quarter
spk_2: ah good good question ethic really our views as that's probably a full year twenty twenty three ah rural and of the full year as mentioned earlier the first quarter we're we're working true i'm he owed bouncing retailers to me and here or the year sort of unser nothing's going so spectre more challenging first quarter as second quarter goes on back half the year with think that's where are the chances gonna be too bells out or full year performance i think right now as we've as costs of come down
spk_8: and we pass along price decreases and we also monitor our promotional games we're here we're we're we're starting with how do we protect our margins and say competitive and where it now we feel we can do both those things
spk_9: that the big challenge will be a system if demand softens further don't do it promotes more if to man is like we think is gonna be
spk_2: then we really can tell our traditional level of emotional support and make sure our margins are are so i think model i think the first quarter and first half will probably be
spk_15: little softer or build a strong in the back half and the full year she come in or normal range
spk_2: gotcha ah makes an offer from us on a next year now i'm expected to are moderately and twenty twenty three a that off of last year's gap number which includes that ten million dollar insurance recovery or should we expect dollars to go off be the basics excluding that probably a good
spk_8: if everything is have access to everything is excluding the accounts for excluding the ten million dollar recovery and we can do better than
spk_9: ill
spk_0: inflation on cop and in this environment we're we're finding ways to save money elsewhere tough said some of that are that's a little more in some of our programs so do the got their field of putting aside the ten million dollar recovery better will see a little bit of of as today increase been nothing that says to a ordinary
spk_16: thanks echoes questions
spk_2: okay yeah thanks rob me i'm lucky that that good i gonna starve one if you like to ask a question and it appears that we have no further questions or turn over to mister trap for an causing comments
spk_7: thank you
spk_2: while the macro environment between twenty three remains uncertain as consumers can just spending patterns to inflationary pressures we've always said for companies focus on long term value creation
spk_0: i'm very proud of our team they have no doubt or employees will continue to be agile and resilient and demonstrate good thinking everyday in all aspects of our business
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