Hamilton Beach Brands Holding

second quarter 2025 earnings conference call. All lines have been placed by mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. If you require operator assistance at any time, please press star zero. Thank you. So without further ado, I would like to turn the call over to Brendan Frey, partner with ICR. Brendan, you have the floor.

Thanks, Julianne. Good afternoon, everyone, and welcome to the second quarter 2025 earnings conference call and webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our second quarter 2025 earnings release, which is available on our corporate website. Our speakers today are Scott Teide, President and CEO, and Sally Cunningham, Senior Vice President, Chief Financial Officer, and Treasurer. Our presentation today includes four looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either our prepared remarks or during the Q&A. Additional information regarding these risks and uncertainties is available in our 10Q, our earnings release, and our annual report on Form 10-K for the year ended December 31st, 2024. The company disclaims any obligation to update these forward-looking statements, which may not be updated until our quarterly conference call our next quarterly conference call, if at all. The company will also discuss certain non-GAAP measures. Reconciliation for Regulation G purposes can be found in our earnings release. I'll now turn the call over to Scott. Scott?

Thank you, Brendan, and good afternoon, everyone. Thank you for joining us today. After having a strong 2024 and a good start to the year, the second quarter was marked by a dramatic shift in global trade as the U.S. implemented higher tariffs on imports for most countries in early April. This included 145% increase on all Chinese exports, which created significant market disruption as purchases were temporarily halted across the industry while the U.S. and China worked towards a longer-term agreement. As the increased trade intentions played out in the headlines and the stock market sold off, retailer demand decreased further as Q2 got underway. Given this backdrop, we strategically reduced our trade advertising and promotional activities during the quarter to better align with the market conditions. While we saw purchasing patterns begin to improve following the announcement of a framework for a new China trade agreement in mid-May, our U.S. business was adversely affected throughout a large portion of the quarter. Despite these significant headwinds, I'm incredibly proud of how quickly our team mobilized to implement decisive strategic actions across several fronts at these remarkable industry challenges. First, we meaningfully accelerated our manufacturing diversification efforts away from China to other Asia Pacific countries. Through careful planning and execution, we successfully implemented foreign trade zone operations and executed strategic inventory pre-builds help minimize our tariff exposure. Our goal is to continue minimizing tariff exposure going forward. To do so, we are remaining nimble as multiple trade negotiations play out and agreements are finalized. With a more diversified geographical sourcing structure, we have the ability to quickly shift our procurement to markets that are in the best economic interest of the business. Second, we took decisive pricing actions implementing increases at the end of June that align with the current tariff rate increases. I'm pleased to report that our retail partners have been understanding and accepting of these necessary price adjustments, which were carefully balanced to maintain our competitive market position and margins. Our strong brand equity and market leadership have enabled us to take these necessary steps while maintaining our value propositions to consumers. Third, we enacted comprehensive cost management measures across the organization, including an 8% reduction in force. In total, we realized $10 million in annualized savings and expect to begin seeing the meaningful benefits of these actions materialize in the second half of 2025. Turning now to the specifics of our second quarter performance, we faced a challenging consumer environment across North America, and our financial results reflected these conditions. Total sales declined 18% driven by lower volumes in our U.S. consumer business as some retailers paused purchasing and sold through on-hand inventory, as well as the impact of our strategically constrained marketing initiatives. Despite the headwinds, I'm pleased to report we achieved 160 basis points of gross profit expansion, driven by a favorable shift in customer mix, including our higher margin commercial and health businesses, which helped lessen the impact on profitability to lower sales. Looking at performance by business, our core business maintained its number one position in units in North America, despite the top line headwinds the industry faced in Q2, which is a testament to our brand strength and consumer value proposition. Looking ahead, we remain optimistic about the market opportunities for our core business, with key fall placements secured with big box retailers that position us well for the important holiday season. Our premium business performed well to the overall market, and our highly anticipated Lotus brand launch started last week exclusively at a strategic premium retailer in-store and online. Featured are the Lotus Perfectionist Oven, which employs advanced convection, precision control, and an integrated temperature probe to deliver fast performance and flawless results. The Lotus Top Drip Coffee Maker, featuring the AccuBrew Grounds Scale, provides consistent flavor to achieve SCA-certified Golden Cup coffee standards. And the Lotus Four Slice Toaster. Seven Lotus Professional Series products launched in total, and broader distribution will occur later in the fourth quarter, followed by the Lotus Signature line that will launch in mid-2026. It is expected that the Lotus line of products will be heavily supported with over $5 million in marketing support over the next 18 months. Our commercial business contributed gross margin expansion and profitability from higher penetration of our overall mix in the period. We continue to evaluate new commercial partnership opportunities like our Sunkist agreement we announced earlier this year. The early wins from the development and marketing of Sunkist branded commercial juicers and sectionizers which are used in leading restaurants, schools, and a large restaurant chain throughout the U.S., are accelerating faster than expected with substantial runway for continued success. We expect Sunkist revenue to be about 5% of our commercial business in 2025 and double in 2026. And lastly, our newest business, Hamilton Beach Health, also contributed positively to sales and gross margins this quarter as we continue expanding our specialty pharmacy customer base develop additional healthcare tools to meet growing market demand, and work towards our goal of increasing our patient subscription base by over 50% this year. We remain optimistic about the future growth and opportunities and strong profit potential of this business. In closing, while near-term challenges persist, we remain confident in our strategy and the strength of our diverse brand portfolio. Our decisiveness in addressing the rapidly changing market conditions has positioned the business to weather the current environment and emerge stronger and more resilient. Our price adjustments have been well accepted, manufacturing diversification continues to progress, our proactive inventory servicing helped minimize the impact of higher tariffs on gross margins, and our cost management measures will positively impact operating margin. These actions, along with the strength of our teams, give me confidence that Hamilton Beach Brands is well positioned to maintain its market leadership and achieve long-term success. With that, I'll turn it over to Sally.