HBB - Earnings call transcript Q2 2018 | Hamilton Beach Brands Holding Company

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Operator

Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hamilton Beach Brands Holding Q2 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Instructions]. [Operator you. Thank Investor you Nabhan, for Beach Hamilton Lou begin Relations your Holding, may conference. Brands Anne Consultant

Lou Anne Nabhan

at Thank you, America Chief for Tiffany, posted. second and Jim XXXX President good morning, everyone. Officer; Executive and be earnings Holding Greg and when call the release and transcript Brands documents on those Chief quarter remarks Vice Welcome conference are website can and on second quarter the to a risks website and of Officer Beach filed for will Scott webcast results. found a participate statements, in to Q&A. President, the or to Beach forward-looking will Treasurer Hamilton and materially SEC. available, could A call Tidey, Taylor, results which Company. Vice Trepp, be today's the results presentation Financial www.hamiltonbeachbrands.com. after closed, with XXXX earnings prepared subject Senior in actual Also, posted either differ to the this that Today's the discuss Marketing the an the uncertainties replay will company's Both us with Sales during XX-Q President, afternoon, Yesterday, Brands. company be contains announcing cause North Q&A Hamilton second is, company's and and quarter expressed market the from the issued

and XX-Q. updated conference which disclaims non-GAAP quarterly these the call now, reconciliation earnings and today's statements, until call in company risks discussed earnings included uncertainties release. The turn regarding to next information The And release obligation all. included of our non-GAAP. Additional Greg. over be in call, Also, are if at amounts these to considered was our during certain any not these I'll may amounts forward-looking update our are

Gregory Trepp

Kitchen increase revenues will growth Collection. first Hamilton My of Thank you, and our for continued our Beach, progress Beach business our At quarter. strategic two segments, morning, second initiatives remarks Anne. momentum everyone, in Good performance thanks and the a Brands with the cover our X.X% expanded call. and from joining Lou Hamilton quarter drove revenue

revenue consumer in was commercial sales higher from global last and increased of sales markets. and U.S. price increasing mainly the resulted price margin quarter. new The Our primarily XX.X% margin the growth in and to products, of higher gross higher in second quarter result products year's second XX.X% profit new of

increase a an litigation. professional declined increase expenses. revenues as While included the services in driven profit main because our profit expenses items of SG&A. incurred an increase and in in SG&A million employee-related Two mostly expenses our and price fees gross higher during higher professional during drivers fees. compensation, quarter. were services the improved, substantial operating accrued Increased $X.X Higher the of outside a of quarter, employee-related by the incentive We outside stock our in and patent increase result and

offset can't expenses the litigation, prevail. them specifics our we're bottom to in we're and had we will believe Beach line with on Hamilton coming that While happy not the obviously, we impact provide working the quarters. But these about

the market, at of drivers revenues impact benefit detail additional growth our and our innovation. some commitment consumer second consumer and We product revenue a performing our continue that to the gross initiatives. we I'll provide to are are of our strategic growing are driven margins on U.S. pleased In solid quarter well, pace of realize

in Beach coffee using addition under performing participation segment. either consumers the well. ground have to invested a line For full Professional example, that or single we from cup Hamilton flexibility and on brand in allows products expanding and our our In the brew in FlexBrew this some CHI machines focus to a sold our Western, you new benefited cups segment, the K single coffeemaker premium are only-the-best brew serve. Wolf names. Gourmet, allow extremely to We is FlexBrew pot

commercial products should back Under continue service of distribution markets. drip are and the brand, chains grow a Western, expand Gourmet presence of the be Griddle to increasing incremental in this lines line coffeemaker and for enhanced global In Precision later introduced, and products CHI our our and generate year. continues half serving so year, Multi-Function Our growth. to Wolf the that this recently Cooker, to well, and automatic all will Hamilton hospitality product the should growing Professional food Gourmet we're we global all introduced distributors, Beach Wolf business,

being differentiated and products performance, of Juice newer at introduced also line, line product Vacuum of Examples Otto e-commerce of reliability we chains and and our regional introduced Extractor knife are commercial and channel penetration laundry increased our our outsourcing, marketing growth. drive Quantum expected new Our global believe sharpeners to strengths reputation We've products just and will We're blender. generate Commercial is commercial leveraging incremental high-performance products our coffee-serving Chamber driving among expansion. new Examples Sealers care that are for are that drive and growth. category others. products new to

and last product and over current spending remainder placements that is second of to As based anticipated the with the the year, and of year half a increase compared strong commitments, of consumer result moderately sales half expect in at provided expected on we promotions customer second of revenues levels. this the volumes year introductions new

participation points comprehensive a of our $XXX help more anticipated to result full our our growth is is the to advantage competitive price drive a great market slightly our ability margin than XX has $X as this revenue to goals. in placements of year products. brands, industry increased reach significant that luxury in Hamilton billion believe Additionally, that and Beach overall, categories. priced, higher to growth of marketplace, be higher We will expected well-known our million sales over coverage from including value strength

fixed margins are strategic expected As costs. operating sales leveraging while to levels, initiatives, prudently we a as move towards time the invest in increase to over target result of continuing our

continued Kitchen results. closure in time, delivering same also retail comment traffic stores XXX downward results. the at traffic I'm to business. revenues and Foot quarter, Collection in strong operating but and proud foot gross Declining of of XX comparable our the store continues currently modestly the revenues of to Next, Collection a result contributed year expenses. sales. let on the controlling team margins, the create trends operates second stores. underperforming At for In our last second to stores SG&A effect end since and positive inventory Kitchen lower reducing headwinds pressure on the quarter on decline had me operating

the lease expirations and through continue commitments. or our natural manage ongoing store portfolio to know, renegotiations you As principal is strategy to aggressively rent

of for reported, XX% in expect terms and core with provide landlords as continued leases up in end XX of the sales will the a acceptable to of the to stores deteriorate and flexibility reach lease effectively over store duration come our pace the with to closings details that stores. This if mall our Collection more quarter XXX sustaining the we to two early store to about XXXX of our second periods, favorable cost call of in stores for could the locations. As by lease future Jim optimize smaller profitable group about turn of over or Kitchen XXXX, If certain the of time less XXX renewal segments, be overview for With outlet results. let months me us our we terminations, approximately to more portfolio cannot average remainder increase.

James Taylor

compared expenses X.X% outlook this for Hamilton partly provide included Greg, Beach offset year second decrease to compared second second to consolidated our year. $XXX to $XX.X on half morning, growth with Kitchen increased to Consolidated million the million year. everyone. increased a last last the I'll of $XX.X for Collection in $XXX.X revenue results I'll to and quarter of This quarter. the revenues And Thanks, year. good a with by revenues of a million, at first this million million. second in of $XX.X quarter compared at report X.X% year's XX% million last amount $XXX.X then Operating

driven the and at by million driver but increase employee-related items. expenses. Beach was for the Hamilton SG&A in Greg service on The consolidated the and main was SG&A the A increase $X.X the increase As $X.X Beach detail mentioned, legal mainly increase. in professional fees. provided at specifics outside cost let Hamilton a million expenses two increase me fees provide in on $X.X and million employee-related some the Greg our color in additional

quarter. accrued by XX% employee-related Our our price the stock compensation, equity the We our the estimates on because a compensation stock the respective non-cash second quarter at increase cost stock an based the increased driven quarter. including adjustment end incentive in of component each price increase of $XXX,XXX during of adjust non-cash primarily the in for incentive

the movement variations Beach the decreases a and of can the Consolidated price year year. operating this quarter a Kitchen million of our Collection year. the and reduced at depending in store in and second $X.XX negative such, to which from modest average in Kitchen million transaction in As this cause both revenues operating loss lower $X a $XXX,XXX during primarily the profit million at store a last due significant traffic, to expenses second with included resulted profit million Hamilton last These Collection, comparable amounts transactions $X.X $X.X operating in sales of of on $X.X and in decrease quarter quarter. from operating were an positive At decline results in customer of loss last compared sales of the decreased to compared stock million year value. number

$XXX,XXX at line June resulted As had results. currency by the interest decline primarily the Greg of $XXX,XXX below expenses driven since year-over-year, an borrowings in because positive with contributed unfavorable operating balances increase by XX, year. second well to a compared of outstanding at of the foreign modestly last closure underperforming as Hamilton mostly profit which This interest also operating revenue million rates. from Beach, on subsidiaries. as effect inter-company $X.X expense Hamilton movements Beach, average in was Other quarter mentioned, was remeasurement higher stores our XXXX the increased Consolidated of the increase the but

rate to Our the decreased XX.X% of year, effective the income because corporate reduction of XX.X% from last primarily rate. federal tax tax U.S.

XXXX will in be range. the We our tax year that rate income to XX% full continue effective to XX% expect

of last XX, sales June a half million XX result this based compared of Consolidated December at million million per with on anticipated a of forecast By $XX.X inventory months. June $X.XX XX, end loss first compared XXXX, of to or a and XXXX of $X year. XXXX on implemented of for levels of $X.X year $X $XXX,XXX per net Beach year. Beach million second As a of XX, compared XX, year of Debt we this million $X.X these as the increased as the the at $XXX.X comparable Kitchen $XX.X or as income was support levels net compared Hamilton at million to this result the and half loss $X.X to over as customer expect to were and hand demand. income was These XXXX net trailing Collection Hamilton XXXX. of million the for million net and amounts with $XX.X XXXX, million $XX.X XXXX both we year. income share EBITDA share a inventory be XX, quarter at December Cash of second XX, primarily of higher last reported of was as million net as activity, included that $XXX,XXX and $X.XX consolidated in $X XXXX. last of June compared to to growth million of year XXXX Debt June $X.X million

the year. outlook our this for half of to Turning second

product We half of revenues Hamilton higher products. to the profit expected by expect margin of operating product cost increases price last are driven and and be to higher by offset to adjustments to Anticipated be increases second placements. moderately year Beach at compared sales

market tariffs, Hamilton effects, we commodity to the continue only United currency monitor we tariffs and While costs, Beach closely from July small prices will tend number adjust placements as in the product to and as States of product well as potential and other China enacted to as impact permits. input expected to products, by necessary on conditions continue additional are imports

resulting Capital with XXXX second in same absence million in significantly our half. count. are expect of gross half that result result Beach half continue expenditures our income U.S. in of full compared in focus provisional - income expected rate for an Cash which a for million $X.X the was of half business, to on Kitchen second XXXX of operating income the of to Reform $X.X legislation. store XXXX be significantly effective was Tax recorded as in expanded half controlling the full be Collection XXXX, in XXXX. margins, second the both activities compared the year decline for the and to XXXX, reduced maintaining with with moderately foot expected compared for lower Hamilton to at of to in a period and working Kitchen before optimizing than to the year charge revenues flow to outlook anticipated first is We of At the in the plans strong mostly reduction the year traffic Collection XXXX expenses continue capital. is net overall a XXXX, second be half the higher the financing increase second tax and corporate as XXXX higher and of

the second XXXX, traffic of provided the further profit We expect second deteriorate be the half half does of foot than year operating to to in expected. not comparable

outlet year of the realized second flow Without the to the to expected to to XXXX. of $XXX,XXX forecasted Collection increase expects a of is approximately before rate loss $XXX,XXX was losses Kitchen Capital pre-tax significantly While smaller XXXX. at Collection of will in resolve Kitchen offset cost over and to is changes Cash in capital store are in resolve due of XXXX, activities full its in to income of a use anticipated the at in We be cash improvement profitable Kitchen half the the XXXX, net stores than XXXX expected income effective loss. net this benefit net on and higher financing working traffic, focusing an the more substantial group to time the tax an strategy the operate net of business enable lower higher operating of locations. anticipated half on believe expenditures mall in Kitchen year. optimizing be is favorable store in now half expected income expanded increase which in and Collection's Collection first effectively substantial the first portfolio XXXX in in

remarks. were recorded of So, XXXX. our to back the benefit lower full the consolidated in company, provisional income half operator charges year consolidated tax we same Q&A. the and and over second including substantially for of I'll line effective the period XXXX, the That rate expect XXXX increase overall, the net absence tax concludes the to in that prepared turn the for a

Operator

line [Operator Benedict Instructions] Your first with question comes from Peter of the Baird.

open. Your line is

Peter Benedict

of questions Hi guys. Couple Good here. morning.

the retail happening in there here HP wins it - are revenue - either good. been First just on any is top-line, the higher predominantly obviously growth there market price accelerating commercial's being clearly is the account and the organic segment. then that on or Was nicely product placed new expanded really distribution it the are at the side

in the year the So, where acceleration here just you've understand been? really what rank half maybe first versus you the to drove can trying or if of

Scott Tidey

different perspective, is think certainly Yeah, U.S. distributed units. from evenly Hey, it's retailer across fairly or category. any in a that there one Peter. the particular, say been but can't one any I that's business I is one in consumer This Canada thing Scott.

existing we've retailers As of across a business. earlier, on on that got FlexBrew has and feel good growth we're line. going a the single-serve Greg been of And half doing our amount back of mentioned focused on seeing we very lot our certainly lot well coffee that into support like category a

Gregory Trepp

is And Peter, Greg. this

to front, win. commercial by I've big is driven being see as not happy On it's the one been

distribution our U.S. service and food are is chains well global which seeing are those Our internationally. really nice we expand the into where been in in And regional chains. rolled business, movement both really goal with up has to as as

or from. So, it from to big again it's And order, to in some one win nice be nice close broad-based growth of to comment, nice customers. wasn't of broad out one I growth number is terms coming think due a big on pretty awards Scott's just thing the coming our seems that

Peter Benedict

think you you generally hear. grower. you the market can mid-single-digits mean forward, kind That's grow I single-digit think the to sustainable guys you single-digit these market, been we has think said good HP Is than you this, - faster pace of as I be going think may or something growth mean the Do you is given clearly been think I are for for rates to do you've that higher orders able seeing? the low

Gregory Trepp

is is there the being we're at average now coming consumer to in back more and Well, clarity that we've pace think assuming will just business go one we in of unknown, half what is big feel we be our and our that but we the our the - have then There caveat buying placements. really in as space about promotions so dynamic and we holidays, on good whole a I the done, they traditionally are is going buying is think a much level.

with assumption, big are a average also. So, spiked and year really we up poised belief is that bullish something come that faster we [ph] will our A higher of little and have market back drivers to that because that grows that down. than market the than few think bit last

from growing a little little probably think a could faster that's of So, I a sort assuming a in but think a is range a probably market fair I little if be could think deal, of a more, you that's assumption. standpoint, think low than we less bit real more it single-digit be the

Peter Benedict

Okay. Thanks for that.

first the quarter. we nice was got a mix you've from saw the margin, what less Moving gain about was obviously, some benefits trends How here? up the but costs, are but will about little there, in think those a maybe gross again, going should have transportation over to input that? you to we it assuming more costs, than think be flattish things I year-over-year positive, how continue mean there are gross margins that assume rising forward, should mix do I

Gregory Trepp

do think that. parts on But cost we to so things try product less think the or from the that our certainly like we've margins far, side, degree all a in I switches Well, and or the those cost, but line. of freight past keep we definitely about mitigated to moving we've we talked there the input number feel are through cost in tariffs pricing to

two a back or also the to be our our a think, very be is could of year, our bit margins high view you in kind half, Peter, and last higher so with I as get line promotional scenario is there could where a it than period, little average. back

So, back I hold many volatility say top-line, there or want higher think on to to signal cost assumption that's go general I'd I leverage in I - going get just would kind margin will sort too the moving there so we're half, drive is of of think much and we our to fixed our confident therefore that. - and of be because don't is parts it assume that is

of for range turns in a sort and we'll how keep now historical see it it out. So,

Peter Benedict

Okay, that's fair.

fees expenses, thing is that? $X.X you of going about of kind forward this one-time the to just is the mentioned, quarter. of that's expected kind that's or it's to forward. do just think offset in we of hit professional more something that kind of I a million, How that remarks the On mean prepared going continue efforts

James Taylor

resolved this specifics. at the Peter, speak can't Yeah. I it hasn't litigation. stage. been respect But We We Jim. say will is in that this

would expect our to there outlook. ongoing that would be ourselves, I we that and expenses baked into associated So, that's with think defend

we'll expense where ongoing expect we we can some with we we that But of see have hope it. we associated goes. would think it to So, and will prevail, level

Peter Benedict

couple a that's cash on Okay, flow. then something sheet, there and fair. Balance

said products to or stuff buying that's tariff - HB few I not inventory XX%, in you you is expect Are so the line. guys up the at impacting of ahead know So, playing really get that you you the tariff the role? just that

Gregory Trepp

position. really XXXX we're sales think mean two number we the certainly nominal we half - demand. we to in I we things. brought ahead in back of to are given the of And strong, actual buying feel the buying inventory inventory One the products as sales tariffs what associated tariffs. mean subject did I forecast to QX, in the versus with have really our then the really not the back that the But it's have XXXX. We're forecasted of lag benefit past, in I the is said some while is, half of correspond somewhat higher Yeah.

By we'll year, the good XXXX inventory anticipated to customer levels the So, demand. we end comparable very be position based should those work on down and the expectations. of relatively a in and

Peter Benedict

versus any the driving are what's partners, And thanks. you color are accounts with when your growing What's retail that? - different that, are to can receivables different dealing commercial you're terms Okay, give rapidly, there partners. terms on some us retail

Gregory Trepp

upon We I Yeah. It's not of that the obviously a lift in time. really you're a And a it's in timing quarter, point think revenues timing. quarter. mostly term, the second at had the depending looking in within

good with just and we timing. receivables So, really feel the quality it's

Peter Benedict

even cash cash for to flow, how flow flows would Okay. was for I to better year be last one And flow mean the XXXX normally On it the that negative half similar you make - or the is here. we're free improvement you cash correctly? you than suggest just then, expectation free you year back The for higher understanding it I the do significant half, would that year. expect this free first sure or guys. consolidated - were want cash do in obviously, in so

Gregory Trepp

Yeah.

Beach I cash think we the we Hamilton of feel cash flow, the business. good as the feel, the free generation we side flow prepared in remarks, indicated about on

be the in side. there, - on or with a mean out number exactly where give just and some because going think in I to But is we will the can't to come I always get put XXXX, free going can be receivable use substantial line the cash. quarter to timing the as take. of flow I KC of indicated, cash predict it's you but difficult think it's a movement I It's fourth

Peter Benedict

I'll last And one hop then and up. Okay.

you kind of a see where as debt the year-end, kind what's you the like? do sense, Just by sitting of look leverage guys get

Gregory Trepp

the debt and to down, we feel free we're flow from be position. leverage end ability cash to come to in much good where a and sort the the quarter, at where paydown we of second expect We And are we'll obviously be substantially debt. of with pretty that stronger going

I think good in a So, we'll be position leverage very at year-end.

Peter Benedict

right. much, have. all Thanks That's so All guys. I

Gregory Trepp

Thanks, Peter.

Operator

There are Greg I further over conference this now Trepp to turn queue no in questions time. at closing will remarks. back for Mr. the

Gregory Trepp

Thank Okay. you, everybody.

As you've over we're retail long-term. focused business right heard environment, in acceptable that this and looking continue. If to morning, on difficult today. it we're pleased size to deliver position value with our better Collection the for to further concludes call continued our our growth to strategic top-line progress And Kitchen increasing expect continues momentum a the shareholder driven initiatives by returns, we operate and the

So, thank us. for you everybody joining

Operator

will PM for Eastern XXXX. the is The X, concludes through XXXXXXX. for be in today is is QX This call. for the ID number Holding XX:XX the August Thank call dial conference replay XXXX Time on replay This for at Time XXXXXXX. beginning today's Conference XXX-XXX-XXXX. PM you today's available Earnings ID number the to XX:XX replay for replay Again, Beach participating number Call. Eastern conference Brands Hamilton The conference

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Hamilton Beach Brands Holding (HBB) 2 Aug 182018 Q2 Earnings call transcript