• Adjusted EBITDA: Increased 18% to $68.4 million compared to $58 million in Q2 2023.

• Adjusted EBITDA Margin: Improved to 18%.

• Net Sales: Totaled $379.4 million, essentially flat from the year-ago quarter.

• Adjusted Gross Margin: Increased by 570 basis points to 48.7% from 43% in the prior year quarter.

• Free Cash Flow: Generated $42.5 million in Q2 2024.

• Net Debt to Adjusted EBITDA Ratio: Ended the quarter at 2.9 times.

• Full-Year Adjusted EBITDA Guidance: Increased to $240 million to $250 million, reflecting a 12% increase over 2023.

• Full-Year Net Sales Guidance: Revised to $1.44 billion to $1.48 billion, reflecting a 1% decrease over 2023.

• Hardware and Protective Solutions (HPS) Sales: Increased by 3.5%.

• Robotics and Digital Solutions (RDS) Sales: Decreased by 8% compared to the year-ago quarter.

• Canadian Business Sales: Decreased by 10.1% compared to the prior year quarter.

• Warning! GuruFocus has detected 5 Warning Sign with HLMN.

Release Date: August 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hillman Solutions Corp (NASDAQ:HLMN) reported an 18% increase in adjusted EBITDA for the second quarter of 2024, outperforming expectations.

• The company increased its full-year adjusted EBITDA guidance to a range of $240 million to $250 million, reflecting a 12% increase over 2023.

• Hillman Solutions Corp (NASDAQ:HLMN) maintained strong fill rates at 95%, indicating efficient operations and customer satisfaction.

• The company successfully reduced its net debt to trailing 12-month adjusted EBITDA ratio to 2.9 times, the lowest since 2009.

• Hillman Solutions Corp (NASDAQ:HLMN) is actively pursuing accretive, low-risk tuck-in acquisitions, with a new acquisition expected by the end of the third quarter.

Negative Points

• Hillman Solutions Corp (NASDAQ:HLMN) revised its full-year net sales guidance downward to $1.44 billion to $1.48 billion, reflecting a 1% decrease over 2023.

• The macroeconomic environment remains soft, impacting net sales expectations and market volumes, which were down about 4% for the quarter.

• Net sales in the Canadian market decreased by 10.1% compared to the prior year quarter, due to a softer economy and FX headwinds.

• The Robotics and Digital Solutions (RDS) segment experienced an 8% decline in net sales, impacted by lighter foot traffic and discretionary spending.

• Hillman Solutions Corp (NASDAQ:HLMN) faces challenges in the DIY segment, with existing home sales impacting sales of pet tags and keys.

Q & A Highlights

Q: Can you provide more details on the M&A prospects and areas Hillman is looking to expand into? A: Douglas Cahill, Chairman, President, and CEO, mentioned that while they can't disclose specifics about the acquisition expected to close by the end of the third quarter, it is similar to the Koch acquisition. Hillman is looking at adjacent aisles to their current offerings, such as plumbing and electrical, which align with their existing logistics and customer relationships.

Q: What is your visibility on home center foot traffic and trends in R&R? A: John Adinolfi, COO, stated that foot traffic has been challenging but slightly less negative recently. Hillman uses technology like Placer AI to monitor foot traffic and is focusing on growing new categories and taking new business despite these challenges.

Q: What is surprising you about the market this year, and what solutions are you considering? A: Douglas Cahill noted that the market's softness was unexpected, particularly after March. The professional segment remains active, but DIY activity has decreased, likely due to lower existing home sales. Hillman is focusing on maintaining performance and is hopeful for improvement in the fall.

Q: What is the outlook for RDS, and why do you expect growth in 2025? A: Douglas Cahill explained that the new minuteKEY 3.5 machine aligns with retailer needs and is expected to drive growth. The liquidation of Redbox has also provided new service opportunities without capital investment. Hillman is optimistic about RDS returning to growth in 2025.

Q: How will the leadership transition affect Hillman, and what changes can be expected? A: Robert Kraft, CFO, stated that the transition to John Adinolfi as CEO will not change the strategic direction or daily operations, as the team has been working together for years. The organization has been structured to support this transition and continue Hillman's growth trajectory.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.