Hamilton Beach Earnings Decline in Q3, Revenues Increase Y/Y

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By Ronald Tech

Hamilton Beach Brands Holding Company HBB faced a challenging third-quarter 2024, with profitability hindered by increased operating expenses and a one-time pension termination charge. Despite these headwinds, the company made strides in revenue growth, bolstered by solid consumer demand in key markets and the addition of HealthBeacon, which signals its foray into healthcare technology.

Management is focused on margin improvement and cash flow optimization, with initiatives aimed at expanding market share, enhancing premium product offerings and leveraging digital capabilities to support long-term growth.

Hamilton Beach Brands Holding Company Price, Consensus and EPS Surprise

 

Hamilton Beach Brands Holding Company Price, Consensus and EPS Surprise

Hamilton Beach Brands Holding Company price-consensus-eps-surprise-chart | Hamilton Beach Brands Holding Company Quote

Q3 Results

Hamilton Beach reported quarterly earnings per diluted share of 14 cents, down 81% from 74 cents in the same quarter of 2023. The bottom-line reduction was caused by higher operating expenses and significant non-cash pension termination expenses.

Total quarterly revenues grew 2% year over year to $156.7 million from $153.6 million. This improvement stemmed primarily from a favorable product mix and higher volume, with notable growth in the U.S. and Mexican consumer markets. However, revenues in Latin America and Canada declined, and the Global Commercial market was weaker due to international demand softness. The acquisition of HealthBeacon, completed in early 2024, contributed $1.2 million to this quarter’s revenues.

Profitability Metrics

Gross profit grew 9.6% to $43.9 million in third-quarter 2024 from $40.1 million in the prior year. The gross margin expanded 190 basis points to 28% in third-quarter 2024, driven by a favorable product mix and lower production costs.

Operating profit, however, decreased 26% to $10.6 million in third-quarter 2024 from $14.4 million in third-quarter 2023. This decline was primarily due to increased Selling, general and administrative (SG&A) expenses, including stock compensation tied to share price appreciation and the addition of HealthBeacon’s expenses.

Net income for the quarter was $1.9 million, a significant decline from $10.3 million in third-quarter 2023, with income tax expenses reduced to $0.7 million in third-quarter 2024 from $2.8 million in the prior-year quarter.

Costs & Cash Flow

For third-quarter 2024, Hamilton Beach reported a slight decrease in cost of sales to $112.8 million from $113.5 million in third-quarter 2023. Lower product costs drove the gross margin expansion.

Hamilton Beach’s SG&A expenses rose year over year to $33.3 million in third-quarter 2024 from $25.6 million, largely attributed to higher employee-related costs, including an additional $2.9 million in non-cash equity incentive compensation due to stock price appreciation. HealthBeacon’s integration further contributed $1.8 million to SG&A. The absence of a $0.9-million non-recurring insurance recovery from the previous year increased expenses.

The operating cash flow totaled $35.2 million in third-quarter 2024, down from $68.7 million the previous year due to a more normalized post-pandemic working capital environment. Capital expenditure was stable at $2.3 million year over year.

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The company reported one-time, non-cash pension termination expenses of $7.6 million, resulting from finalizing the termination of its over-funded U.S. defined benefit pension plan. This move reclassified historical losses and freed up $13.3 million in surplus assets, which are expected to support other employee retirement benefits and bolster free cash flow in the next two years.

Liquidity & Capital Allocation

The company closed the quarter with $22.6 million in cash and cash equivalents, a significant improvement from $1.6 million at the end of third-quarter 2023. Net debt declined to $22.5 million from $49.7 million a year earlier. This enhanced liquidity allowed the company to fund growth initiatives, including the HealthBeacon acquisition, and return value to shareholders through $4.7 million in dividends and $9.3 million in share repurchases for the first nine months ended Sep 30.

Management Guidance

Hamilton Beach expects a slight year-over-year increase in 2024 revenues, with operating profit anticipated to grow significantly, buoyed by a gross margin expansion. Management forecasts that operating cash flow less cash used for investing activities will approach the high end of $25-35 million. The company continues to focus on six initiatives to fuel revenue growth, improve margins and sustain strong cash flow. Key drivers include boosting sales in the North America market, expanding premium offerings, and integrating HealthBeacon to establish a presence in home healthcare solutions.

Other Developments

In February 2024, Hamilton Beach acquired HealthBeacon, a medical technology firm focused on digital devices for managing chronic conditions. This acquisition added $1.2 million in revenues in the third quarter. The integration of HealthBeacon is progressing as planned, and the company anticipates HealthBeacon to contribute to operating profit starting in 2025. HBB’s strategic initiatives, including expanding its presence in the premium small appliance market and accelerating digital transformation, are expected to drive long-term growth.

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