Hamilton Beach Brands Holding Company — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Hamilton Beach designs, markets and distributes consumer and commercial small appliances and specialty housewares. It reports one operating segment. Amounts below are in millions except per-share data.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $128.3 | $146.4 |
| Gross profit / margin | $20.9 / 16.3% | $28.2 / 19.3% |
| Operating income (loss) | ($5.1) | $12.7 |
| Net income (loss) | ($4.8) | $7.2 |
| Diluted EPS | ($0.34) | $0.51 |
| Operating cash flow | $34.9 | ($20.8) |
- Revenue fell 12.4%. Consumer products generated $113.4 million, commercial products $13.4 million and licensing $1.4 million. Lower unit volume and unfavorable customer/product mix drove the decline; price increases partly offset it.
- Gross margin fell 3.0 percentage points, primarily from unfavorable mix and fixed-cost deleveraging, partly offset by lower outside warehousing and labor costs.
- SG&A increased $10.5 million, mainly because Q1 2022 included a $10.0 million insurance recovery that did not recur. Net interest expense rose $0.5 million, reflecting higher rates partly offset by lower average debt.
- Q1 2022 other expense included $2.1 million of accumulated foreign-currency losses released upon liquidation of the Brazilian subsidiary; current-period currency results were a $0.1 million gain. The effective tax rate was 24.7% on the 2023 loss versus 32.0% on 2022 income.
Cash, debt and liquidity
- Operating cash flow improved to $34.9 million, chiefly because working capital provided $39.9 million, versus using $24.9 million in Q1 2022. Receivables and inventory movements were significant contributors. Investing cash outflow was $0.6 million; financing cash outflow was $33.0 million, including $31.6 million of net revolving-credit repayments and $1.5 million of dividends.
- At March 31, 2023, cash and cash equivalents were $2.2 million; cash, cash equivalents and restricted cash totaled $3.2 million. Inventory was $131.5 million, down from $156.0 million at December 31, 2022 and $195.6 million a year earlier.
- Revolver borrowings were $79.3 million, down from $110.9 million at year-end 2022 and $119.3 million at March 31, 2022. The $150 million facility had $53.1 million of excess availability at quarter-end; the weighted-average interest rate was 5.10%. The company reported compliance with all financial covenants.
- Management expects cash on hand, facility availability and operating cash flows to meet operating needs and commitments over the next 12 months. The facility expires June 30, 2025. Interest-rate swaps covered $50 million of borrowings, with an additional $25 million in delayed-start swaps.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management emphasizes that results are seasonal: most revenue and operating profit typically occur in the second half, during the fall holiday-selling season. Q1 results are not necessarily indicative of full-year results.
- Risks cited include softer consumer demand, retailer inventory rebalancing, sourcing and transportation constraints, inflation and interest rates, supplier or customer disruption, foreign exchange, tariffs, competition, product liability and regulatory matters. The company reported no material changes to its previously disclosed risk factors.
- Environmental investigation and remediation accruals were $3.3 million at March 31, 2023. The company estimated reasonably possible additional costs of up to $1.5 million. The U.S. pension plan termination process, begun in 2022, may take up to an estimated 24 months; the plan remained overfunded, and the company expected no further required minimum contributions.
- Management assessed disclosure controls and procedures as effective at quarter-end and reported no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether softer demand and retailer inventory rebalancing persist, and how they affect sales, product mix and gross margin.
- Whether working-capital cash generation is sustainable; Q1 operating cash flow benefited materially from working-capital movements.
- Revolver availability, borrowing costs and covenant compliance as interest rates and business needs change.
- Progress and final costs of the pension-plan termination and environmental remediation, including potential costs beyond accrued amounts.
- The effect of seasonality on full-year results; Q1 performance alone is not a reliable full-year indicator.