Earnings Labs

Hamilton Beach Brands Holding Company (HBB)

Q3 2025 Earnings Call· Wed, Nov 5, 2025

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Transcript

Operator

Operator

Thank you for standing by. At this time, I would like to welcome everyone to today's Hamilton Beach Brands Third Quarter 2025 Earnings Conference Call. [Operator Instructions] So with further ado, I will turn the call over to Brendon Frey, partner with ICR. Brendon, you have the floor.

Brendon Frey

Analyst

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 Tidey, 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 remarks and uncertainties is available in our 10-Q, our earnings release and our annual report on Form 10-K for the year ended December 31, 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?

R. Tidey

Analyst

Thank you, Brendon, 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 purchases 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 onetime incremental tariff costs 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 mix 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 margin -- 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. We took decisive actions, implementing increases at the end of June and August that align with the current tariff rate increases. Our retail partners have been understanding and acceptance of necessary price adjustments, which were carefully balanced to maintain our competitive market position while protecting margins. Our…

Sally Cunningham

Analyst

Great. Thank you, Scott. Good afternoon, everyone. As Scott detailed, our third quarter sales trend improved compared with the second quarter. And while gross margins were down year-over-year, the pressure was largely temporary and the impact from the peak tariff rate on China is now fully behind us. Turning to our results, starting with revenue. Total revenue in the third quarter was $132.8 million, down 15.2% from last year's third quarter, but up 300 basis points compared with the second quarter's year-over-year performance. The revenue decline was primarily driven by lower volumes in our U.S. consumer business, reflecting overall softness in consumer demand as well as timing of retailer purchases, specifically one large retailer that delayed orders for most of the third quarter. As a reminder, some retailers paused buying in the second quarter to assess inventory levels and price increases flowing from the new tariffs implemented by the United States in April 2025. While most retailers resumed buying in the second quarter, the [indiscernible] negatively affected volumes during the early part of the third quarter. Turning to gross profit and margin. Gross profit was $28 million or 21.1% of total revenue in the third quarter compared to $43.9 million or 28% in the year ago period. The decline in gross profit margin was primarily due to the flow of onetime incremental tariff costs of $5 million, the majority of which are related to the temporary 125% China tariff costs that were in effect for a period of time earlier this year. Additionally, gross margin was impacted by a delay between tariff-related rising costs and the effective date of pricing adjustments. This created a temporary compression of gross profit margin that we expect to normalize in future periods. It is important to note that excluding the $5 million of 125%…

Operator

Operator

[Operator Instructions] Your first question is from the line of Adam Bradley with AJB Capital.

Adam Bradley

Analyst

Thank you for the color around the gross margins. Can you please clarify the 370 basis point or $5 million tariff cost, was that a charge? Or how should we think about that? In the past, I believe you used FIFO accounting, and it's taken time for costs to flow through the P&L. And this seems different. What we hear you saying is that the $5 million charge was recognized in the quarter that those purchases were made. Just some clarity around that to help us understand that better.

Sally Cunningham

Analyst

Okay. Sure. Adam, so the costs relate to the 125% tariff that was temporarily put in place in the April time frame earlier this year. So you are right. These are costs that were incurred in April of this year that did flow through our P&L in the third quarter. And what it really represents is some containers that we had on the water when this spike in tariff occurred that we are not able to -- or we made the decision to not pass on to the consumer. And so for us to absorb as a onetime cost, and that flowed through in its entirety in the third quarter. And I think that's a little bit different from kind of the more go-forward increased tariffs that we're seeing from IEPPA in from China and other Asian countries. which we do consider part of our go-forward kind of cost structure and that we have taken actions to cover those additional expenses.

Adam Bradley

Analyst

Okay. So the $5 million that you paid, you didn't -- it's not a charge on the P&L separately. It just flowed through in your cost of goods?

Sally Cunningham

Analyst

Correct.

Operator

Operator

[Operator Instructions] We do have a follow-up from Adam Bradley.

Adam Bradley

Analyst

And can you expand a little bit on a more normalized rate from your largest retailer. Can you give us a little bit more color around that? The second quarter earnings report, you shared that they had pretty -- I may be paraphrasing here, but paused orders. And then it sounds like from what you are stating in this Q3 report that they continue to pause orders. Did they -- did you lose shelf space? Did -- are you back to normal ordering patterns? Are you almost back? What kind of color can you give us on that to help us understand sales trends?

R. Tidey

Analyst

Yes, Adam, this is Scott. So yes, on that customer and specifically, they -- you're right, they did pause placing orders. Their inventories got lower throughout that time period. But if you look now, we've been shipping them now for several months, and we feel like the business is back on track. As we indicated, we had a very robust promotional event in October, and that customer was included, and we exceeded our expectations with that customer. And we really, now looking into the fourth quarter, we feel like we're going to be having a record number of promotional activities this fourth quarter. And that customer, along with many of our other retailers will be part of that.

Adam Bradley

Analyst

Are you experiencing any catch-up of inventory to replace what was lost? Or is it more of a normal flow?

R. Tidey

Analyst

I think we're kind of in the normal flow right now. I mean we had a little bit of a catch-up. The market has been a little bit different depending on the category of lower in units, but up in dollars because of price increases. But I think we're kind of back into a normalized pattern with this customer.

Adam Bradley

Analyst

Okay. Great. Are you seeing a different behavior from other large customers? Or is it consistent with some of the larger ones?

R. Tidey

Analyst

No. I think for the most part, we feel like we're in a normal cadence with a lot of our -- a lot of -- I mean, actually probably with all of our retail partners. There was definitely that time period where they stalled in the second quarter, took a hard look. Some people were sitting on higher cost inventory that due to these surprising 125% tariffs and everybody is trying to figure that out. But I think really for the last -- most of the third quarter, with the exception of this one retailer, we were shipping as normal and promoting.

Operator

Operator

At this time, there are no further audio questions. I will now hand the call back over to our speakers for any closing remarks.

Adam Bradley

Analyst

Thank you, Tamika. I think that's it from the Hamilton Beach brands. Appreciate everybody's time.

Operator

Operator

This concludes today's call. Thank you for joining. You may now disconnect your lines.