Hamilton Beach Faces Tough Times Despite Revenue Gains in Q3 2024
Hamilton Beach Brands Holding Company (HBB) struggled during the third quarter of 2024, as rising operating expenses and a unique pension termination charge affected profits. However, the company did see revenue growth due to strong consumer demand in key markets and its recent acquisition of HealthBeacon, representing a significant step into healthcare technology.
Price Trends and Earnings Insights
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Q3 Financial Overview
In Q3, Hamilton Beach reported earnings per diluted share of 14 cents, a dramatic drop of 81% from 74 cents during the same period last year. This decline was largely due to increased operating expenses and substantial non-cash pension termination costs.
Quarterly revenues increased by 2% year over year, reaching $156.7 million, up from $153.6 million. This growth was mainly driven by a favorable product mix and higher sales in the U.S. and Mexican markets, even as revenues shrank in Latin America and Canada. The Global Commercial sector also witnessed weaker performance amidst declining international demand. The HealthBeacon acquisition, completed in early 2024, added $1.2 million to revenues this quarter.
Profitability Analysis
Gross profit rose by 9.6% to $43.9 million compared to $40.1 million the previous year. The gross margin expanded by 190 basis points to 28%, thanks to a favorable product mix and reduced production costs.
Nevertheless, operating profit fell by 26%, dropping to $10.6 million from $14.4 million the previous year, mainly due to rising Selling, General and Administrative (SG&A) expenses, which included stock compensation tied to share price appreciation and fees related to HealthBeacon’s expenses.
Net income reached $1.9 million, a significant drop from $10.3 million in Q3 2023. Income tax expenses decreased to $0.7 million, down from $2.8 million in the prior-year quarter.
Cost Controls and Cash Flow
Hamilton Beach recorded a slight reduction in its cost of sales, which fell to $112.8 million from $113.5 million during Q3 2023. This reduction in product costs contributed to gross margin expansion.
However, SG&A expenses surged year over year to $33.3 million from $25.6 million, primarily driven by elevated employee-related costs, including an additional $2.9 million in non-cash equity incentive compensation. The integration of HealthBeacon further accounted for $1.8 million in SG&A costs. The previous year’s non-recurring insurance recovery of $0.9 million also impacted this year’s expenses.
Operating cash flow totaled $35.2 million in Q3 2024, down from $68.7 million the preceding year, reflecting a move toward a normalized post-pandemic working capital environment. Capital expenditures remained steady at $2.3 million year over year.
The company incurred one-time, non-cash pension termination expenses of $7.6 million, related to finalizing its over-funded U.S. defined benefit pension plan. This decision reclassified historical losses and released $13.3 million in surplus assets, expected to support other employee retirement benefits and enhance free cash flow in the coming two years.
Liquidity and Capital Management
At the end of Q3, Hamilton Beach had $22.6 million in cash and cash equivalents, a significant increase from just $1.6 million a year ago. Net debt decreased to $22.5 million, down from $49.7 million last year. This improved liquidity facilitated growth initiatives, including the HealthBeacon acquisition, and allowed the company to return value to shareholders through $4.7 million in dividends and $9.3 million in share buybacks in the first nine months ending September 30.
Future Direction
Looking ahead, Hamilton Beach anticipates a slight increase in 2024 revenues, with a notable rise in operating profit owing to a projected expansion in gross margin. Management expects operating cash flow, excluding cash used for investments, to approach the upper end of the $25-35 million range. The company is focusing on six key initiatives to drive growth and enhance cash flow, including boosting sales in North America, expanding premium offerings, and integrating HealthBeacon to enter the home healthcare market.
Strategic Expansion
In February 2024, Hamilton Beach completed the acquisition of HealthBeacon, a digital health technology company specializing in chronic condition management tools. This acquisition generated $1.2 million in revenues during the latest quarter. The integration of HealthBeacon is on track, with expectations of contributing to operating profit by 2025. Hamilton Beach’s strategy involves expanding its premium small appliance market presence and enhancing digital capabilities to spur long-term growth.
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