Hamilton Beach Brands Holding Company — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The company designs, markets and distributes consumer and commercial small appliances and specialty housewares. Its business is seasonal, with most revenue and operating profit typically generated in the second half of the year.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $153.6m | $150.8m | $419.0m | $444.7m |
| Gross profit / margin | $40.1m / 26.1% | $34.8m / 23.1% | $88.4m / 21.1% | $95.1m / 21.4% |
| Operating profit / margin | $14.4m / 9.4% | $9.4m / 6.2% | $10.1m / 2.4% | $27.5m / 6.2% |
| Net income | $10.3m | $5.9m | $5.7m | $18.2m |
| Diluted EPS | $0.74 | $0.43 | $0.40 | $1.30 |
Q3 revenue increased 1.9%; management attributed the increase mainly to higher unit volume, partly offset by lower average selling prices. Q3 gross margin improved as lower product costs and distribution and warehousing costs more than offset lower pricing. Nine-month revenue declined 5.8%, reflecting lower volume and selling prices across most markets amid softer consumer demand and retailer inventory rebalancing. Nine-month SG&A rose $10.8m, primarily because a $10.0m insurance recovery recognized in Q1 2022 did not recur.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $68.7m, versus cash used of $40.2m in 2022. Management attributed the improvement mainly to working-capital actions; working capital provided $64.3m, compared with $62.1m used in the prior-year period.
- Investing cash outflow was $2.4m; financing cash outflow was $65.7m, including $59.7m of net revolving-debt repayments and $4.5m of dividends.
- At September 30, cash and cash equivalents were $1.6m; revolving borrowings were $51.3m, compared with $110.9m at December 31, 2022 and $146.1m a year earlier. The $150m secured revolving facility had $96.9m of excess availability. It expires June 30, 2025.
- Management said cash on hand, facility availability and operating cash flows are expected to meet operating needs and commitments for the next 12 months. The company was in compliance with facility financial covenants at quarter-end.
- Accounts payable rose to $116.1m from $61.8m at year-end. Supplier payment obligations placed in the company’s supplier-finance tracking program were $72.8m at September 30, versus $23.3m at December 31, 2022.
Outlook, risks and notable items
- The filing provides no quantified earnings or revenue guidance. Management cautioned that year-to-date results are not necessarily indicative of full-year results because of seasonality.
- Risks cited include consumer demand and pricing, retailer inventory levels, sourcing and transportation constraints, supplier or customer disruption, costs and tariffs, foreign exchange, competition, product liability and litigation, and uncertain economic conditions, including inflation and interest rates.
- On October 27, 2023, strategic partner HealthBeacon entered Irish examinership. Hamilton Beach agreed to provide secured loans of up to €1.85m (approximately $2.0m); about €0.3m (approximately $0.3m) was outstanding as of November 1. Repayment is due within 120 days of the examinership’s commencement unless extended by Hamilton Beach.
- Environmental remediation accruals were $3.4m at September 30; additional costs of up to $1.4m were considered reasonably possible. The company also disclosed ordinary-course legal and regulatory matters and said their ultimate disposition was not expected to materially adversely affect its financial condition, results or cash flows.
- The company repurchased 139,649 shares for $1.5m during the first nine months and had $20.5m remaining under its repurchase authorization, which was scheduled to end December 31, 2023.
Important facts for investors to verify
- Whether Q3 margin improvement persists given lower pricing and the year-to-date decline in sales and operating profit.
- How sustainable the operating cash-flow improvement is, including the effects of accounts-payable growth and supplier-finance participation.
- Current borrowing-base availability, floating-rate borrowing costs, covenant headroom and the facility’s June 2025 maturity.
- The status and recoverability of the HealthBeacon loan and any further funding commitment.
- Updates on environmental remediation estimates, pension-plan termination and any material legal or product-liability developments.