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01/10 16:34
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call indicates a positive outlook, with a focus on new business wins and consistent order patterns. The company maintains a strong relationship with retail partners and anticipates high single to low double-digit growth. Despite tariff challenges, the company is optimistic about market recovery and operational efficiency. Shareholder return plans and strategic partnerships are likely to boost the stock price. The market cap suggests a moderate reaction, leading to a positive sentiment prediction.
Net Sales Net sales in the third quarter of 2025 totaled $424.9 million, an increase of 8% versus the prior year quarter. This growth was driven by a 10-point increase from price, 2 points from the Intex acquisition, and 2 points from new business wins, partially offset by a 6-point headwind from market volumes.
Adjusted EBITDA Adjusted EBITDA in the third quarter of 2025 totaled $88 million, improving 36% versus the year-ago quarter. This increase was driven by price increases, contributions from Intex, and new business wins, partially offset by market volume declines.
Adjusted EBITDA Margins Adjusted EBITDA margins improved by 420 basis points to 20.7% compared to the prior year quarter. This improvement was attributed to price increases and cost management.
Adjusted Gross Margin Adjusted gross margin for the quarter totaled 51.7%, marking a 350 basis point improvement from 48.2% during the year-ago quarter. This was driven by improved contributions from Robotics and Digital Solutions (RDS) and benefits from price-cost timing.
Hardware and Protective Solutions (HPS) Segment Net sales in the HPS segment grew by 10% versus the comparable period. Adjusted EBITDA increased by 57.3% to $65.8 million, driven by contributions from Intex, new business wins, and price-cost improvements, partially offset by a 5.5% decline in market volume.
Robotics and Digital Solutions (RDS) Segment Net sales in the RDS segment increased by 3.3% versus the year-ago quarter. Adjusted gross margins and adjusted EBITDA margins were near historic norms at 74.2% and 31.4%, respectively. Growth was driven by the rollout of Mini Key 3.5 machines.
Canadian Business Net sales in the Canadian business were nearly flat, down 0.2% compared to the prior year quarter. New business wins were offset by soft market volumes and foreign exchange headwinds. Adjusted EBITDA margins remained above 10%.
Leverage Leverage improved to 2.5x net debt to trailing 12-month adjusted EBITDA, down from 2.7x a quarter ago and 2.8x at the end of 2024. This improvement was due to debt reduction and EBITDA growth.
Free Cash Flow Free cash flow for the quarter was $9.1 million, impacted by approximately $30 million of tariff-related costs.
Mini Key 3.5 rollout: Hillman has successfully rolled out over 3,000 Mini Key 3.5 machines, an increase of over 800 in the last 3 months. The rollout is on track to finalize by the end of 2026 for their two largest customers.
Net sales growth: Net sales for Q3 2025 increased by 8% year-over-year, reaching $424.9 million, the highest in the company's history. Growth was driven by a 10-point increase from price, 2 points from the Intex acquisition, and 2 points from new business wins.
Canadian market performance: Net sales in Canada were nearly flat, down 0.2% year-over-year, with new business wins offset by soft market volumes and FX headwinds.
Operational efficiency: Adjusted EBITDA increased by 36% year-over-year to $88 million, with margins improving by 420 basis points to 20.7%. Adjusted gross margin also improved by 350 basis points to 51.7%.
Tariff management: Hillman successfully managed tariff-related costs, holding $60 million of new tariffs in inventory and maintaining excellent fill rates above 95%.
Debt reduction and leverage improvement: Hillman reduced its net debt to $672 million and improved its leverage ratio to 2.5x, achieving its long-term target.
Share repurchase program: The company initiated a $100 million share repurchase program, buying back 326,000 shares in Q3 2025 at an average price of $9.72 per share.
Tariff Volatility: The company is facing challenges in managing the evolving tariff environment, which has increased costs and impacted gross margins. Tariff-related costs amounted to $30 million in the quarter, and $60 million of new tariffs are in inventory.
Market Volume Headwinds: Market volumes have been flat or declining, with a 6-point headwind from market volumes in the quarter. This trend is expected to continue, presenting challenges to growth.
Supply Chain Management: While the company has a dual faucet strategy to mitigate risks, the need to manage relationships with multiple suppliers across countries adds complexity and potential risks to the supply chain.
Foreign Exchange (FX) Impact: The Canadian business faced headwinds from foreign exchange fluctuations, which could continue to impact financial performance.
Price-Cost Timing Dynamics: The timing of price increases and tariff costs has created a dynamic that benefited the current quarter but is expected to normalize, potentially impacting future margins.
Economic Uncertainty: The company operates in a market with flat existing home sales, which are 20% below the 10-year average. This economic uncertainty could impact future growth.
Net Sales Guidance for 2025: Hillman expects full year 2025 net sales to be between $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion. This represents 4% to 7% growth over 2024.
Adjusted EBITDA Guidance for 2025: The company has increased the low end of its guidance and now expects full year 2025 adjusted EBITDA to be between $270 million to $275 million, with a midpoint of $272.5 million. This represents 12.7% to 14% growth over 2024.
Market Conditions and Growth Expectations: Hillman is optimistic about macroeconomic indicators, such as a 50 basis point decrease in 30-year mortgage rates, which may drive existing home sales. The company expects continued growth for the remainder of 2025 and into 2026.
2026 Preliminary Outlook: Hillman anticipates full year 2026 net sales to grow in the high single to low double digits, driven by rollover price and new business wins. Adjusted EBITDA is expected to grow in the low to mid-single digit range, assuming no change to the current tariff environment.
Mini Key 3.5 Rollout: The rollout of Mini Key 3.5 kiosks is on track to be finalized for the two largest customers by the end of 2026, with over 3,000 machines already deployed.
Share Repurchase Program: Hillman's Board approved a $100 million share repurchase program, marking the first active SRP since going public in 2021. During Q3 2025, $3.2 million was deployed to buy back 326,000 shares at an average price of $9.72 per share. The company anticipates an annual spend of $20 million to $25 million on stock repurchases. The objective is to offset dilution from employee equity grants and opportunistically buy stock when there is a perceived discount between the company's value and stock price. These repurchases are expected to be accretive to earnings per share and drive shareholder value.
The earnings call indicates a positive outlook, with a focus on new business wins and consistent order patterns. The company maintains a strong relationship with retail partners and anticipates high single to low double-digit growth. Despite tariff challenges, the company is optimistic about market recovery and operational efficiency. Shareholder return plans and strategic partnerships are likely to boost the stock price. The market cap suggests a moderate reaction, leading to a positive sentiment prediction.
The earnings call reveals mixed signals: improved leverage ratios and a $50 million tariff cost reduction are positives, but market volumes are down, and guidance remains flat. The Q&A highlights concerns about tariffs and market volumes, though management shows confidence in pricing strategies. With a market cap of $1.73 billion, the stock is likely to have a moderate reaction, leading to a neutral sentiment prediction.
The earnings call reveals several challenges: economic uncertainty, tariff impacts, and withdrawn cash flow guidance, all negatively affecting sentiment. Although there is slight sales and EBITDA growth, declining gross margins, negative free cash flow, and rising debt levels overshadow these positives. The Q&A indicates uncertainty in M&A valuations and unclear management responses on pricing and tariffs, further dampening sentiment. Given the company's market cap, this negative sentiment is likely to result in a stock price decline of -2% to -8% over the next two weeks.
The earnings call reveals several concerns: a significant tariff impact, a 17% expected decline in market volumes, and a withdrawal of free cash flow guidance, all indicating financial uncertainty. Although there is a slight increase in net sales and EBITDA, the negative cash flow and elevated debt ratio are worrying. The lack of a clear shareholder return plan and unclear management responses further add to the negative sentiment. Given these factors and the small-cap nature of the company, a negative stock price movement of -2% to -8% is anticipated.
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