Hamilton Beach Brands Holding

Thank you for standing by. At this time, I would like to welcome everyone to Hamilton Beach Brands 2025 fourth quarter and full year earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question at that time, simply press star then the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. So without further ado, I would like to turn the call over to Brendan Frey, partner with ICR. Brendan, you have the floor.

Thanks, Krista. Good afternoon, everyone, and welcome to the fourth quarter and full year 2025 earnings conference call and webcast for Hamilton Beach Brands. Earlier today, after the stock market closed, we issued our fourth quarter and full year 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 forward-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 end of December 31st, 2024. The company disclaims any obligation to update these forward-looking statements, which may not be updated until 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. And now I'll turn the call over to Scott.

Scott? Thank you, Brendan, and good afternoon, everyone. Thank you for joining us today. We are pleased with our fourth quarter results, which meaningfully exceeded our expectations and represent an important step forward in our recovery from the tariff-related disruptions we faced throughout 2025. Fourth quarter revenue was nearly flat with the year-ago period, with gains in commercial and health offset by modest decline in our core consumer business. Our top-line performance represents a significant sequential improvement from the double-digit declines we experienced in the second and third quarters and demonstrates both the resilience of our business model and the effectiveness of the strategic actions we implemented throughout the year. At the same time, we grew fourth-quarter operating profit by 8%, driven by a 220 basis point year-over-year increase in gross margins to 28.3%, which was more than 700 basis points higher than the third quarter. This improvement reflects the successful implementation of our pricing strategies, improved customer and product mix, and continued ramp up of our commercial and health divisions. We are very encouraged with our overall results to close out what was a tumultuous year. Looking back on 2025, it was undoubtedly a challenging period marked with unprecedented tariff increases that created significant industry-wide disruption. That said, full-year revenue was only down approximately 7%, with a decline coming from lower volumes in our U.S. consumer business as retailers adjusted their buying patterns in response to higher tariffs, including suspending purchasing for a six-week period in April and May at the height of the tariff uncertainty. And if you exclude the $5.3 million in one-time incremental tariffs we incurred in 2025 and the $1.6 million from the accelerated depreciation and write-off associated with our legacy ERP system, our full-year operating profit was $0.3 million above 2024 levels. I'm incredibly proud of how our team responded with agility and decisive action. We successfully navigated through the most difficult period in the second quarter when sales declined high teens, and we've seen sequential improvement each quarter since then, culminating with near parity in Q4's year-over-year comparison. The strategic actions we implemented, including manufacturing diversification away from China, selective pricing adjustments, comprehensive cost management measures, and proactive inventory management have positioned us well for a return to growth in 2026. Despite the challenging environment, we continue to execute against our strategic initiatives, and I'm particularly excited about the progress we've made in several key areas. Our premium business delivered a major step forward with a successful launch of our Lotus brand. The initial sell-through results have exceeded our expectations by strong double digits, which is remarkable for a new premium line. Based on this early success, our key retailer has committed to increase shelf space as we position Lotus for broader market reach. Our commercial business delivered very good results throughout 2025, representing about 10% of total revenue with significant room for growth. Our commercial business grew over 15% for the year, driven by our Summit Edge Blender with advanced blending and mixing technologies, which can be found globally in major restaurant and convenience stores. Another major highlight from the past year was our agreement with Sunkist to develop and market Sunkist branded commercial juicers and sectionizers. Launched in Q2, results continue to exceed expectations as demand from leading restaurants, hospitality chains, and schools for these innovative products has accelerated faster than we anticipated. Hamilton Beach Health reached a significant milestone, achieving positive operating profit in the third quarter of 2025, just 18 months after the HealthBeacon acquisition, and again in the fourth quarter. This performance was driven by expanding our specialty pharmacy partnerships with new agreements, including CenterWell and Lumicera, successfully launching our HealthBeacon Harmony software products with Novartis, and achieving our goal of increasing our patient subscription base by 50% this year. Before moving to our view of this coming year, I wanted to emphasize the significant progress we've made in reducing our tariff exposure and strengthening our supply chain resilience. Tariffs currently at parity across the APAC countries we source from. We built a core competency that allows us to shift manufacturing between countries based on economic benefits. In some cases, it's more economically beneficial to manufacture in China. while in others it's more cost-effective to source production from Vietnam, Thailand, or Indonesia. This flexibility allows us to react quicker should tariff rates for one or more of these countries change, or the administration tariff policies change like they did following the Supreme Court's decision last Friday. Looking ahead to 2026, we're particularly excited about several growth drivers, starting with driving growth of our core business. Our robust pipeline of new products in high-growth categories like blender kitchen systems, garment care, and single-serve coffee position us well for further market share gains. In the coming quarters, we will be bringing to market three new blender systems, a redesign of our successful Durathon iron platform, new Durathon and SHE garment steamers, a large segment we believe can grow significantly, and two new single-serve coffee platforms, bringing much-needed innovation to the space. In support of these initiatives, we are making incremental investments in innovation to drive growth while significantly increasing our investment in digital, social media, and influencer marketing. This also ties into our initiative to accelerate our digital transformation. The way the consumer is exposed to our brands and products has changed dramatically over the last five years. Add generative AI-assisted shopping, and this will only accelerate changing shopping habits in years to come. We start with a strong foundation with our e-commerce capabilities. We enforce that foundation with consistent, strong consumer reviews and ratings averaging above four stars across our brands. However, we are having to pivot quickly to better connect with the consumer. We must be relevant when the consumer decides to buy their appliance, and we must be present and featured across a variety of platforms to influence their purchase decision. To do this, in 2026, we've increased our advertising investment to more than the past four years combined and invested in resources to improve discoverability with consumers and sharpen our AI shopping tactics. Moving to our third initiative, gaining a larger share in the premium market. A big part of this strategy revolves around the Lotus brand expansion. Lotus is more than just a brand of chef-inspired tools. It is a promise of culinary confidence, a philosophy focused on savoring and sharing passionate preparation and its delicious results. Both lines, Lotus Professional, which launched in 2025, and Lotus Signature, scheduled to launch this fall, play in the biggest premium categories at premium price points. This validates our strategy to capture share in the premium market, which represents approximately half of the U.S. appliance market, totaling over $4 billion, where we currently hold only about 1% market share, providing significant growth runway. We're supporting these launches with 6 million in marketing investment over the 15-month window, including 2 million spent in 2025. Our fourth initiative is to lead in the global commercial market. We're focused on new channel penetration and expanding relationships with large food service and hospitality chains, with particular emphasis on regional and global chain penetration. The Summit Edge high-performance blender continues to be a big success. Carefully engineered and built to last for years of reliable performance, the Summit Edge continues to be placed in chains across the world. The team has also partnered with several large chains to launch multiple automated beverage products that deliver high-quality outcomes for their new menu items. Our final initiative is to accelerate growth of Hamilton Beach Health. Our primary product is currently the SmartSharp Spin for injectable medication management. Our plan going forward is to broaden our offering, including products that combine hardware and software to solve in-home patient pain points and expand our distribution network with other large specialty pharmacies. To date, we've been focused on expanding our injectable reach by adding more specialty pharmacies and pharmaceutical companies to the platform. In the second quarter, we will be in trial with a pill management platform aimed at improving adherence and providing patient feedback. We are targeting the areas of oncologic and mental health with plans to expand in other areas of treatment in the near future. As you just heard, we have several exciting initiatives in the works and are better than expected As you have just heard, we have several exciting initiatives in the works, and our better-than-expected fourth quarter performance has added to our optimism about our growth prospects in the coming year. Sally will provide more specific details about our outlook shortly, but we do expect revenue to return to our historical rate of growth in the mid-single-digit range in 2026, even if we face a roughly $22 million sales headwind from the expiration of our license agreement with Bartesian at the end of 2025. In closing, while 2025 tested our organization in unprecedented ways, we emerged stronger and more resilient. The decisive actions we took have positioned Hamilton Beach Brands to return to growth while maintaining our market leadership, which includes our position as the number two small kitchen appliance brand in the US by units sold and number four in terms of dollars, a position we intend to strengthen even further. We believe that our diversified business model, strong brand portfolio, and the strategic investments we've made in premium, commercial, and health divisions are multiple avenues for growth. The foundation we've built through manufacturing diversification, pricing optimization, and strategic cost management position us to capitalize on improving market conditions while continuing to invest in the segments that represent our greatest growth opportunities. We entered 2026 with renewed confidence in our ability to deliver sustainable long-term growth and shareholder value. I want to thank our global team for their exceptional dedication and execution throughout this difficult year. Their resilience and commitment to our customers and shareholders have been instrumental in positioning us for the recovery ahead. With that, I'll turn it over to Sally.