Hamilton Beach(HBB) - 2019 Q2 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements Hamilton Beach Brands' unaudited consolidated financial statements are presented, covering balance sheets, operations, cash flows, and segment performance | Metric | June 30, 2019 | Dec 31, 2018 | June 30, 2018 | | :--- | :--- | :--- | :--- | | Total Assets | $305.7M | $330.4M | $323.3M | | Total Liabilities | $246.6M | $265.0M | $277.3M | | Total Stockholders' Equity | $59.1M | $65.4M | $46.0M | | Metric | Q2 2019 | Q2 2018 | Six Months 2019 | Six Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $148.4M | $157.9M | $293.8M | $304.6M | | Gross Profit | $35.7M | $40.9M | $70.4M | $78.6M | | Net Loss | $(0.9)M | $(0.9)M | $(2.7)M | $(1.3)M | | Diluted Loss Per Share | $(0.07) | $(0.06) | $(0.20) | $(0.09) | - For the six months ended June 30, 2019, net cash used for operating activities was $42.1 million, an improvement from the $56.2 million used in the same period of 2018[19] - The company operates through two reportable segments: Hamilton Beach Brands, Inc. (HBB), a designer and distributor of small appliances, and The Kitchen Collection, LLC (KC), a specialty retailer of kitchenware[26][27] - In the second quarter of 2019, the company recorded a $3.2 million expense for a contingent loss related to a patent infringement lawsuit[46] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting Q2 2019 revenue decline, segment results, liquidity, capital resources, and the full-year outlook Consolidated Financial Summary Consolidated revenue decreased 6.0% in Q2 2019 and 3.5% for the six months, driven by declines at HBB and KC, resulting in a wider net loss | Metric | Q2 2019 | Q2 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $148.4M | $157.9M | (6.0)% | | Gross Profit | $35.7M | $40.9M | (12.7)% | | Operating (Loss) Income | $(0.3)M | $0.4M | (179.7)% | | Net Loss | $(0.9)M | $(0.9)M | 8.0% | | Metric | YTD 2019 | YTD 2018 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $293.8M | $304.6M | (3.5)% | | Gross Profit | $70.4M | $78.6M | (10.5)% | | Operating Loss | $(2.4)M | $(0.2)M | 1,403.1% | | Net Loss | $(2.7)M | $(1.3)M | 109.4% | - Selling, general and administrative (SG&A) expenses decreased by $4.5 million in Q2 2019, primarily due to lower expenses at KC from store closures and a $3.7 million decline in an environmental reserve at HBB, which was partially offset by a one-time $3.2 million charge for a patent litigation contingency[60] Segment Results HBB's Q2 revenue decreased 3.7% with lower operating profit, while KC's revenue dropped 19.7% due to store closures, though its operating loss narrowed - HBB's Q2 revenue decreased by $5.0 million (3.7%) YoY, primarily due to lower sales volume in U.S. consumer and global commercial markets, partially offset by growth in the international consumer market[68] - HBB's Q2 operating profit decreased by $1.2 million, as a $2.8 million decline in gross profit was only partially offset by a $1.5 million decrease in SG&A expenses[69] - KC operated 162 stores at June 30, 2019, a reduction from 199 stores at June 30, 2018[74] - KC's Q2 revenue fell by $4.5 million (19.7%) YoY, mainly from the closure of 37 underperforming stores and a decline in comparable store sales due to lower customer traffic[75] Liquidity and Capital Resources Net cash used for operating activities improved due to working capital management and inventory reduction, with total debt decreasing and sufficient liquidity maintained - Net cash used for operating activities decreased by $14.1 million in the first six months of 2019 compared to 2018, primarily due to efficient working capital management, including a significant decline in inventory[80] - Total debt decreased by $14.5 million to $91.0 million as of June 30, 2019, compared to June 30, 2018, with the debt-to-total capitalization ratio improving from 69.6% to 60.6%[97][100] - At June 30, 2019, HBB had $81.5 million in borrowings and $31.8 million in excess availability under its credit facility, while KC had $9.5 million in borrowings and $0.8 million in excess availability[84][89] Outlook The company anticipates a seasonal uplift, with HBB expecting moderate growth and KC an improved loss, projecting increased consolidated net income and cash flow for 2019 - For the full year 2019, HBB expects moderate revenue growth and moderately increased operating profit compared to 2018, targeting cash flow before financing to exceed $20 million[105] - For 2019, KC anticipates a revenue decrease due to store closures but expects its operating loss and use of cash to improve compared to 2018[106] - Consolidated 2019 net income is expected to increase, and cash flow before financing activities is expected to increase significantly over 2018[107] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate and foreign currency risks using swaps and forward contracts, with sensitivity analysis showing limited impact from hypothetical market changes - The company is subject to interest rate risk from its floating-rate financing arrangements and uses interest rate swap agreements to reduce this exposure[110] - HBB operates internationally and is exposed to foreign currency exchange rate risk, primarily from the Canadian dollar, Mexican peso, Chinese yuan, and Brazilian real, using forward foreign currency exchange contracts to mitigate this risk[112][113] - A hypothetical 10% weakening of the U.S. dollar at June 30, 2019, would decrease the fair value of the company's foreign currency-sensitive financial instruments by $1.9 million[114] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting identified - Based on an evaluation by management, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[115] - No changes in the company's internal control over financial reporting occurred during the second quarter of 2019 that have materially affected, or are reasonably likely to materially affect, these controls[116] Part II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings, including a patent infringement lawsuit and environmental obligations, are incorporated by reference from Note 6 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 6, "Contingencies," in the financial statements[119] Item 1A. Risk Factors No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for December 31, 2018 - There have been no material changes to the risk factors for the Company since the Annual Report on Form 10-K for the year ended December 31, 2018[120] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 129,687 shares of Class A Common Stock for $2.3 million under its $25 million stock repurchase program, with $22.7 million remaining | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | May 2019 | 46,405 | $18.39 | | June 2019 | 83,282 | $17.78 | | Total Q2 2019 | 129,687 | $18.00 | - As of June 30, 2019, $22.7 million remained available for purchase under the company's $25.0 million stock repurchase program[121] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - None reported[122] Item 4. Mine Safety Disclosures No mine safety disclosures were reported - None reported[122] Item 5. Other Information No other information requiring disclosure under this item was reported - None reported[123] Item 6. Exhibits This section lists the exhibits filed with the 10-Q report, including officer certifications and XBRL data files - The exhibits filed with this report include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act, as well as XBRL data files[125]