Hamilton Beach Brands Holding Co: Form 10-Q for the period ended Sep 30, 2025

(Dollars in thousands, except as noted and per share data)

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management’s current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in these forward-looking statements are set forth below under the heading “Forward-Looking Statements.” Accordingly, this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Our operations are managed and reported in two operating segments, each of which is a reportable segment for financial reporting purposes: (1) Home and Commercial Products and (2) Health.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

For a summary of the Company’s critical accounting policies, refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as there have been no material changes from those disclosed in the Annual Report.

RESULTS OF OPERATIONS

The market for small electric household and specialty housewares appliances is fairly steady throughout the year, however the Company’s revenue typically increases during the second half of the year and peaks during the fourth quarter due to the fall holiday-selling season.

Third Quarter of 2025 Compared with Third Quarter of 2024

Effective income tax rate 18.4 % 27.4 %

The following table identifies the components of the change in revenue:

Revenue - Revenue decreased $23.9 million, or 15.2%, to $132.8 million compared to $156.7 million in the prior year. The revenue decline was primarily driven by lower volumes in the Company’s U.S. Consumer business, including a delay in orders from one large retailer for most of the third quarter as they assessed inventory levels and pricing in response to the tariffs implemented by the U.S. in April 2025. Partially offsetting this decline was revenue growth in the Commercial and Health businesses.

Gross profit - As a percentage of revenue, gross profit margin decreased to 21.1% compared to 28.0% in the prior year primarily due to the flow through of a one-time incremental tariff cost of $5.0 million, which negatively impacted margin by 370 basis points. Most of these costs were from a temporary spike in tariff rates on imports from China to 125%. Additionally, a delay between tariff related rising costs and pricing adjustments temporarily reduced our margins during the third quarter.

Selling, general and administrative expenses (SG&A) - Selling, general and administrative expenses decreased by $8.2 million compared to the third quarter of 2024. The decrease was primarily driven by $6.8 million of lower personnel costs, including reduced stock-based compensation expense due to changes in stock price and benefits associated with the restructuring actions taken by management in the second quarter.

Interest (income) expense, net - Interest expense, net was $0.2 million for the three months ended September 30, 2025 compared to $0.1 million for the three months ended September 30, 2024.

Pension termination expense - During the third quarter of 2024, a one-time non-cash expense of $7.6 million was incurred in connection with the termination of the Company’s U.S. defined benefit pension plan related to the reclassification of historical unrecognized losses from Accumulated Other Comprehensive Income.

Other (income) expense, net - Other expense, net was $0.6 million for the three months ended September 30, 2025 compared to $0.3 million for the three months ended September 30, 2024.

Income tax expense (benefit) - The effective tax rate was 18.4% and 27.4% for the three months ended September 30, 2025 and 2024, respectively. The effective tax rate was lower for the three months ended September 30, 2025 due to an increase in foreign derived tax benefits, partially offset by a valuation allowance on a capital loss.

First Nine Months of 2025 Compared with First Nine Months of 2024

Effective income tax rate 25.1 % 34.7 %

The following table identifies the components of the change in revenue:

Revenue - Revenue decreased by $47.3 million, or 10.7%, to $393.9 million compared to $441.2 million in the prior year. The revenue decline was primarily driven by lower volumes in the Company’s U.S. Consumer business due to softness in the U.S. market and some retailers paused buying in the second quarter in order to assess inventory levels and price increases flowing from the new tariffs implemented by the United States in April 2025. While retailers resumed buying in the second quarter, the pause impacted early third quarter sales, especially for one large retailer that delayed orders for most of the third quarter.

Gross profit - As a percentage of revenue, gross profit margin decreased to 24.4% from 25.9% in the prior year primarily due to the flow through of a one-time incremental tariff cost of $5.0 million, which negatively impacted margin by 130 basis points. Most of these costs were from a temporary spike in tariff rates on imports from China to 125%.

Selling, general and administrative expenses (SG&A) - Selling, general and administrative expenses decreased $10.0 million compared to 2024. The decrease was primarily driven by $8.6 million of lower personnel costs, including reduced stock-based compensation expense due to changes in stock price and benefits associated with the restructuring actions taken by management in the second quarter.

Interest (income) expense, net - Interest expense, net was $0.3 million for both the nine months ended September 30, 2025 and 2024.

Pension termination expense - During the third quarter of 2024, a one-time non-cash expense of $7.6 million was incurred in connection with the termination of the Company’s U.S. defined benefit pension plan related to the reclassification of historical unrecognized losses from Accumulated Other Comprehensive Income.

Other (income) expense, net - Other expense, net decreased by $1.1 million for the nine months ended September 30, 2025 driven by currency gains of $0.8 million in the current year compared to currency losses of $0.8 million in the prior year.

Income tax expense (benefit) - The effective tax rate was 25.1% compared to 34.7% in the prior year. The effective tax rate was lower for the nine months ended September 30, 2025 due to an increase in foreign derived tax benefits and a reduction in foreign losses subject to a valuation allowance, partially offset by a valuation allowance on a capital loss.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Our cash flows are provided by dividends paid or distributions made by HBB. The only material assets held by us are the investments in our consolidated subsidiary. As a result, certain statutory limitations or regulatory or financing agreements could affect the levels of distributions allowed to be made by our subsidiary. We have not guaranteed any of the obligations of HBB.

Our principal sources of cash to fund liquidity needs are: (1) cash generated from operations and (2) borrowings available under the HBB Facility. Our primary use of funds consists of working capital requirements, operating expenses, payment of dividends, repurchase of shares, capital expenditures and payments of principal and interest on debt.

The HBB Facility expires on December 13, 2029. We believe funds available from cash on hand, the HBB Facility and operating cash flows will provide sufficient liquidity to meet our operating needs and commitments arising during the next twelve months.

The following table presents selected cash flow information:

Operating activities - Net cash used for operating activities was $14.6 million, compared to cash provided of $35.2 million in the prior year, reflecting a $49.8 million decrease. The decline was primarily driven by a $27.5 million reduction in accounts payable due to lower purchasing activity from decreased sales volume and inventory turnover, as well as shorter payment terms with new suppliers under the Company’s China diversification initiatives. The decrease also reflects less non-cash expense adjustments to net income and changes in other assets and liabilities, primarily related to payment of income taxes and the use of pension surplus assets.

Investing activities - Net cash used for investing activities in 2025 decreased $10.5 million compared to 2024. The 2024 period included the HealthBeacon acquisition and a U.S. Treasury bill investment, partially offset by the extinguishment of our secured loan to HealthBeacon. None of these activities recurred in the first nine months of 2025.

Financing activities - Net cash used for financing activities was $12.7 million in 2025 compared to net cash used for financing activities of $14.6 million in 2024. The change is due to a decrease in share repurchases during the first nine months of 2025.

Capital Resources

HBB does not expect to make voluntary repayments within the next twelve months under the HBB Facility as the rate of return to invest excess cash exceeds the average interest rate of the HBB Facility. A material decrease in interest rates could cause HBB to re-evaluate. The obligations under the HBB Facility are secured by all of HBB’s U.S. assets. As of September 30, 2025, the borrowing base under the HBB Facility was $116.1 million and borrowings outstanding were $50.0 million. As of September 30, 2025, the Excess Availability under the HBB Facility was $66.1 million.

The maximum availability under the HBB Facility is governed by a borrowing base derived from advance rates against eligible trade receivables and inventory of HBB. As of September 30, 2025, interest on outstanding loans under the HBB Facility accrues at a per annum rate equal to, at HBB’s option, either Term Secured Overnight Financing Rate (SOFR) (as defined in the HBB Facility) plus 1.65% or the Base Rate (as defined in the HBB Facility) plus 0.00%. As of September 30, 2025, the HBB Facility requires a fee of 0.20% per annum on the unused commitment thereunder. The weighted average interest rate applicable to the HBB Facility for the nine months ended September 30, 2025 was 3.26% (after giving effect to the interest rate swap agreements described below).

To reduce the exposure to changes in the market rate of interest, we have entered into interest rate swap agreements for a portion of the HBB Facility. Terms of the interest rate swap agreements require us to receive a variable interest rate and pay a fixed interest rate. We have interest rate swaps with notional values totaling $50.0 million as of September 30, 2025 at an average fixed interest rate of 1.59%.

The HBB Facility contains customary representations and warranties, events of default and covenants, including, among other things, covenants applicable to HBB and its subsidiaries limiting indebtedness, liens, investments, dispositions and restricted payments. Additionally, if Excess Availability (as defined in the HBB Facility) is less than $15.0 million at any time, the HBB Facility will require that HBB maintain a minimum Fixed Charge Coverage Ratio (as defined in the HBB Facility) of 1.00 to 1.00 until Excess Availability is greater than or equal to $15.0 million for 30 consecutive days. As of September 30, 2025, we were in compliance with all applicable financial covenants in the HBB Facility.

The Company has an arrangement with a financial institution to sell certain U.S. trade receivables of a single customer on a non-recourse basis. See Note 2 - Transfer of Financial Assets included in the unaudited consolidated financial statements contained in Part I of this Form 10-Q.

Contractual Obligations, Contingent Liabilities and Commitments

For a summary of the Company’s contractual obligations, contingent liabilities and commitments, refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations, Contingent Liabilities and Commitments” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as there have been no material changes from those disclosed in the Annual Report.

Off Balance Sheet Arrangements

For a summary of the Company’s off balance sheet arrangements, refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Off Balance Sheet Arrangements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as there have been no material changes from those disclosed in the Annual Report.

FORWARD-LOOKING STATEMENTS

The statements contained in this Form 10-Q that are not historical facts are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act. These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Such risks and uncertainties include, without limitation: (1) uncertain or unfavorable global economic conditions and impacts from tariffs, inflation, rising interest rates, recessions or economic slowdowns; (2) changes in costs, including transportation costs and tariffs, of sourced products; (3) the Company’s ability to source and ship products to meet anticipated demand; (4) changes in or unavailability of quality or cost effective suppliers; (5) the Company’s ability to successfully manage constraints throughout the global transportation supply chain; (6) delays in delivery of sourced products; (7) changes in the sales prices, product mix or levels of consumer purchases of small electric and specialty housewares appliances; (8) changes in consumer retail and credit markets, including the increasing volume of transactions made through third-party internet sellers; (9) bankruptcy of or loss of major retail customers or suppliers; (10) exchange rate fluctuations, changes in the import tariffs and monetary policies and other changes in the regulatory climate in the countries in which the Company operates or buys and/or sells products; (11) the impact of tariffs on customer purchasing patterns; (12) customer acceptance of changes in costs of or delays in the development of new products; (13) product liability, regulatory actions or other litigation, warranty claims or returns of products; (14) increased competition, including consolidation within the industry; (15) changes in customers’ inventory management strategies; (16) shifts in consumer shopping patterns, gasoline prices, weather conditions, the level of consumer confidence and disposable income as a result of economic conditions, unemployment rates or other events or conditions that may adversely affect the level of customer purchases of the Company’s products; (17) changes mandated by federal, state and other regulation, including tax, health, safety or environmental legislation; (18) the Company’s ability to identify, acquire or develop, and successfully integrate, new businesses or new product lines; and (19) other risk factors, including those described in the Company’s filings with the Securities and Exchange Commission, including, but not limited to, the Annual Report on Form 10-K for the year ended December 31, 2024. Furthermore, the future impact of unfavorable economic conditions, including inflation, changing interest rates, availability of capital markets and consumer spending rates remains uncertain. In uncertain economic environments, we cannot predict whether or when such circumstances may improve or worsen, or what impact, if any, such circumstances could have on our business, results of operations, cash flows and financial position.

INTEREST RATE RISK

We enter into certain financing arrangements that require interest payments based on floating interest rates. As such, our financial results are subject to changes in the market rate of interest. There is an inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and business financing requirements. To reduce the exposure to changes in the market rate of interest, we have entered into interest rate swap agreements for a portion of our floating rate financing arrangements. We do not enter into interest rate swap agreements for trading purposes. Terms of the interest rate swap agreements require us to receive a variable interest rate and pay a fixed interest rate.

For the purpose of risk analysis, we use sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in interest rates. We assume that a loss in fair value is an increase in our receivables. The fair value of our interest rate swap agreements was an asset of $2.3 million as of September 30, 2025. A hypothetical 10% relative decrease in interest rates would cause a decrease of $0.1 million in the fair value of interest rate swap agreements. Additionally, a hypothetical 10% relative increase in interest rates would cause an increase of $0.1 million in the fair value of interest rate swap agreements. Neither would have a material impact to the Company’s interest expense for the nine months ended September 30, 2025.

FOREIGN CURRENCY EXCHANGE RATE RISK

We operate internationally through our foreign operating subsidiaries and enter into transactions denominated in foreign currencies, principally the Canadian dollar, the Mexican peso and, to a lesser extent, the Chinese yuan and the European Union euro. As such, our financial results are subject to the variability that arises from exchange rate movements. The fluctuation in the value of the U.S. dollar against other currencies affects the reported amounts of revenues, expenses, assets and liabilities. The potential impact of currency fluctuation increases as international expansion increases.

We use forward foreign currency exchange contracts to partially reduce risks related to transactions denominated in foreign currencies and not for trading purposes. These contracts generally mature within twelve months and require us to buy or sell the functional currency in which the applicable subsidiary operates and buy or sell U.S. dollars at rates agreed to at the inception of the contracts.

For the purpose of risk analysis, we use sensitivity analysis to measure the potential loss in fair value of financial instruments sensitive to changes in foreign currency exchange spot rates. We assume that a loss in fair value is either a decrease to our assets or an increase to our liabilities. The fair value of our foreign currency exchange contracts was a net payable of $0.7 million as of September 30, 2025. Assuming a hypothetical 10% weakening of the U.S. dollar as of September 30, 2025, the fair value of foreign currency-sensitive financial instruments, which represents forward foreign currency exchange contracts, would be decreased by $1.6 million compared with its fair value as of September 30, 2025.

Evaluation of Disclosure Controls and Procedures

Company management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2025. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2025.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified during the quarter ended September 30, 2025, in connection with the evaluation by the Company’s management required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

On February 2, 2024, we acquired HealthBeacon, as discussed in Note 8 – Acquisitions in Part I, Item 1 in this Quarterly Report on Form 10-Q. We are currently integrating HealthBeacon into our operations and internal control processes, and, as permitted by the SEC rules and regulations, we have not yet included HealthBeacon in our assessment of the effectiveness of our internal control over financial reporting. HealthBeacon will be included in management’s evaluation of internal control over financial reporting as of December 31, 2025.

PART II

OTHER INFORMATION

There are no material changes to the risk factors for the Company from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”) and the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2025.