Hamilton Beach Brands Holding

noise. After the speaker's remarks, there will be a Q&A session. If you'd like to ask a question during that time, press star followed by the number one on your telephone keypad. If your question has been answered and you'd like to remove yourself from the queue, press star followed by the number one. Thank you. So, with further ado, I will turn the call over to Brendan Frey, partner with ICR. Brendan, you have the floor.

Thank you, Tamika. Good afternoon, everyone, and welcome to the third quarter 2025 earnings conference call and webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our third 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 remarks 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. With that, I'll now turn the call over to Scott. Scott?

Brendan, and good afternoon, everyone. Thank you for joining us today. Our third quarter performance represents a step in the right direction towards normalization following the significant disruption our industry faced after higher tariffs were implemented in April. As the third quarter progressed, retailers started to resume more typical buying patterns after destocking inventory purchased evident in the sequential improvement in our year-over-year sales trend compared with the second quarter. While profitability declined more meaningful than revenue in Q3, this was driven primarily by one-time incremental tariff cost of $5 million and, to a lesser extent, a timing mismatch between ongoing tariff rate increases and our pricing adjustments. This significant headwind was partially offset by a favorable mixed shift led by increased penetration of our higher margin commercial and health businesses. Importantly, we have fully absorbed the impact on gross margins from the peak tariff rate and have moved forward with a more balanced inventory position and a clear line of sight on returning gross margins more in line with historical levels. This will be achieved over the coming quarters through the strategic actions we've taken in response to higher tariffs. To review, we meaningfully accelerated our manufacturing diversification efforts away from China to other APAC countries and remain nimble as multiple trade negotiations played 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.