Hillman Solutions Corp. (HLMN) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals: strong EBITDA growth, improved margins, and debt management are positive, but declining Canadian sales and reduced free cash flow due to tariffs are concerning. The Q&A session highlights management's optimism in new business initiatives and lack of concern over chip shortages, but also reveals uncertainties in achieving long-term growth targets. The market cap suggests moderate sensitivity to these factors. Overall, the balanced positive and negative aspects, combined with cautious guidance adjustments, suggest a neutral stock reaction within the next two weeks.
Key Financial Performance
Net Sales (2025) $1.552 billion, a 5.4% increase year-over-year. The increase was driven by a 3-point contribution from the acquisition of Intex DIY, a 2-point contribution from new business wins, and a 5.5-point contribution from price increases to cover higher costs due to tariffs. This was partially offset by a 5% decline in market volumes.
Adjusted EBITDA (2025) $275.3 million, a 13.9% increase year-over-year. The increase was driven by the timing of price increases and tariff costs, as well as efficient operations and supply chain management. Record margins and earnings were achieved due to pre-tariff lower-priced goods flowing through the income statement.
Hardware and Protective Solutions (HPS) Net Sales (2025) $1.2 billion, a 7.8% increase year-over-year. Growth was driven by pricing for tariffs, new business wins in power screws, rope, and chain, and strong partnerships with retail partners.
Hardware and Protective Solutions (HPS) Adjusted EBITDA (2025) $196.3 million, a 26% increase year-over-year. This was attributed to effective pricing strategies and operational efficiency.
Robotics and Digital Solutions (RDS) Net Sales (2025) $220.2 million, a 1.6% increase year-over-year. Growth was driven by the installation of over 1,800 MinuteKey 3.5 kiosks and enhanced capabilities of these machines.
Canadian Business Net Sales (2025) A 6.6% decrease year-over-year. The decline was due to soft market volumes and a 2-point headwind from foreign exchange rates.
Adjusted Gross Profit Margin (2025) 48.7%, a 60 basis point increase year-over-year. The improvement was due to pricing strategies and operational efficiencies.
Adjusted SG&A as a Percentage of Sales (2025) 31%, a decrease from 31.6% in 2024. This reflects improved cost management.
Free Cash Flow (2025) $35.1 million, a decrease from $98.1 million in 2024. The decline was primarily due to a $65 million tariff impact.
Net Debt to Adjusted EBITDA Ratio (2025) 2.4x, an improvement from 2.8x in 2024. This reflects better debt management and increased EBITDA.
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Operating Highlights
MinuteKey 3.5 kiosks: Installed over 1,800 new kiosks in 2025, with enhanced capabilities like auto key duplication and endless aisle, driving comparable net sales increases. Nearly 3,500 machines are now in the field.
Market volumes: Market volumes were down about 5% in 2025, with existing home sales remaining soft at 4.06 million, well below the 10-year average of 5 million.
Canadian market: Net sales in Canada decreased by 6.6% in 2025 due to soft market volumes and a 2-point FX headwind.
Operational efficiency: Global supply chain and operations team delivered high efficiency, with on-time and in-full shipping and high fill rates.
Adjusted EBITDA: Achieved record adjusted EBITDA of $275.3 million in 2025, a 13.9% increase from 2024, driven by pricing strategies and tariff cost management.
Pro business expansion: Assembled a team with deep Pro knowledge to grow the Pro business, aiming to diversify customer base and broaden go-to-market channels.
M&A pipeline: Healthy pipeline with several bolt-on acquisition opportunities under consideration.
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Risk or Challenges
Tariffs Impact: The company faced significant challenges due to tariffs in 2025, which impacted operating cash flow by approximately $65 million. This issue is expected to normalize in 2026 but remains a notable risk.
Market Volumes: Market volumes were down about 5% in 2025, with existing home sales remaining soft at 30-year lows. This decline in home sales is a headwind to home improvement projects, directly impacting sales.
Canadian Business Performance: Net sales in the Canadian business were down 6.6% in 2025 due to soft market volumes and a 2-point headwind from foreign exchange rates. Adjusted EBITDA margins in Canada were just shy of 10%.
Supply Chain and Tariff Costs: The timing of price increases and tariff costs created temporary benefits in 2025, but these are expected to normalize in 2026, potentially impacting margins and profitability.
Economic and Market Conditions: The company does not anticipate any meaningful changes in macroeconomic conditions that could provide tailwinds in 2026, indicating continued challenges in the broader market environment.
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Guidance & Outlook
2026 Net Sales: Estimated to be between $1.6 billion and $1.7 billion, with a midpoint of $1.65 billion, representing a 6.3% growth compared to 2025.
2026 Adjusted EBITDA: Expected to range between $275 million and $285 million, with a midpoint of $280 million, reflecting a 1.7% growth compared to 2025.
2026 Free Cash Flow: Projected to be between $100 million and $120 million, with a midpoint of $110 million, reflecting a 90%+ conversion of adjusted net income into free cash flow.
Market Conditions: No significant changes in macroeconomic conditions are expected to provide tailwinds for Hillman in 2026.
New Business Wins: Anticipated to outpace 2025, contributing to top-line growth.
Adjusted Gross Margins: Expected to normalize to 46%-47% in 2026 due to the full realization of tariff pricing and costs.
Capital Expenditures: Planned investment of $70 million to $75 million in 2026, consistent with 2025 levels, focusing on MinuteKey 3.5 fleet expansion and merchandising solutions.
Stock Repurchase Program: Continued repurchasing of stock to offset dilution from employee equity grants and opportunistic buybacks.
Leverage Ratio: Expected to end 2026 at approximately 2.1x, assuming no major events and midpoint performance of guidance.
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Shareholder Return Plan
Stock Repurchase Program: During 2025, Hillman Solutions Corp. invested $12.4 million to buy back 1.4 million shares of stock at an average price of $9.07 per share. For 2026, the company expects to continue repurchasing stock under its stock repurchase program. The objective remains to offset any dilution caused by employee equity grants and opportunistically buy back stock.
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Key Q&A
Q:Can you walk through the cadence of the gross margins for the year, particularly for Q1?
A:The gross margin for the year is expected to be between 46% and 47%. Q1 will be the low point due to it being the lowest volume quarter and having the highest cost inventory flowing through. Margins will step up sequentially in Q2 and reach the high end of the range in the second half of the year.
Q:What gives you confidence in new business wins being higher year-over-year in 2026 versus 2025?
A:The company has a solid set of initiatives, new product launches, and a strong business development team. They are optimistic due to their national sales meeting and participation in the International Builder Show, showcasing products like Power Pro. They are confident in winning new business despite a tough environment.
Q:What is causing the deterioration in sales in Protective Solutions?
A:The decline is attributed to near-term dynamics, including channel inventory balancing in Q4. However, the business has new products launching in 2026 and has successfully integrated the Intex DIY business, which is performing well in a tough market.
Q:Can you quantify the headwind from customer transition in the RDS business?
A:The customer transition will continue in Q1 and Q2 of 2026, after which it will be behind. The RDS business is performing well, with 3.5 rollouts progressing and the team focusing on fine-tuning technology. Growth is expected to continue in 2026.
Q:What is the incremental EBITDA margin expectation as existing home sales improve?
A:The company expects incremental EBITDA margins to be above 20%, with RDS potentially achieving 30%.
Q:What are the expectations for the Canadian market in 2026?
A:The Canadian market is under pressure, but the sales team is optimistic about new initiatives. The economy is expected to improve in the spring season, leading to growth in 2026.
Q:Are the long-term targets of 6% organic revenue growth and 10% EBITDA growth still achievable?
A:The company acknowledges that RDS has not been as significant a growth driver as expected. They plan to discuss long-term targets in more detail during the March Investor Day, suggesting an evolution rather than a revolution of these targets.
Q:Are there any concerns about chip shortages affecting RDS and MinuteKey 3.5 growth goals?
A:The company does not anticipate chip shortages to be a challenge. They are well-positioned for retrofits and new builds for 3.5 and expect to transition to maintenance mode by the end of 2026.
Q:Why has the guidance for 2026 been adjusted to a midpoint of 6% growth?
A:The adjustment reflects a softer-than-expected Q4 and early-year performance due to weather. The company has adopted a conservative approach, assuming a few points down in the market.
Q:Is there a specific existing home sales number that would significantly impact the business?
A:There is no specific number, but a range of mid-4s to 5 million existing home sales would be favorable for the business, particularly for home improvement and Pro segments.
Q:What is the outlook for M&A activity in 2026?
A:The company is optimistic about completing 1 to 2 deals in 2026. Opportunities include both previously paused deals and new ones, with the M&A team actively evaluating options.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the long-term targets of 6% organic revenue growth and 10% EBITDA growth, deferring a detailed discussion to the March Investor Day. Additionally, they did not provide a precise existing home sales number that would significantly impact the business, only offering a general range.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Canada controllables
DIY point
Day month
FX point
Full Results
HPS result
Intex DIY
Investor Day
JMA end
JMA tariff
Liquidity borrowing
MinuteKey fleet
MinuteKey investment
MinuteKey kiosk
MinuteKey machine
Pro
Rocky
SGA percentage
balance sheet
contributor
conversion income
customer base
digit
end rollout
flow midpoint
flow tariff
improvement
income statement
line record
midpoint increase
point contribution
price increase
sale margin
sale market
spend
stock
tariff cash
win market
HLMN Transcript
Hillman Solutions Corp. (HLMN) Q4 2025 Earnings Call Transcript
Unknown2-17
The earnings call presents mixed signals: strong EBITDA growth, improved margins, and debt management are positive, but declining Canadian sales and reduced free cash flow due to tariffs are concerning. The Q&A session highlights management's optimism in new business initiatives and lack of concern over chip shortages, but also reveals uncertainties in achieving long-term growth targets. The market cap suggests moderate sensitivity to these factors. Overall, the balanced positive and negative aspects, combined with cautious guidance adjustments, suggest a neutral stock reaction within the next two weeks.
Hillman Solutions Corp. (HLMN) Q3 2025 Earnings Call Transcript
Positive11-4
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.
Hillman Solutions Corp. (HLMN) Q2 2025 Earnings Call Transcript
Unknown8-5
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.
Earnings call transcript: Hillman Solutions Q1 2025 results meet expectations
Unknown4-29
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.
HLMN Slides
HLMN Report
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