Hillman Solutions Corp. (HLMN) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed sentiments: strong business wins and optimistic guidance are positive, but negative cash flow, increased net debt, and unclear management responses create concerns. The Q&A highlights potential growth in Pro and RDS segments, but challenges in PS business and tariff impacts persist. Despite positive feedback on strategies and acquisitions, financial health issues and lack of specific guidance temper the outlook. Given the small-cap nature, market reaction may be muted, resulting in a neutral stock price movement.
Key Financial Performance
Net Sales (Q1 2026) $370.1 million, an increase of 3% year-over-year. Growth was driven by a nearly 5% lift from new business wins and a 2% headwind from core performance. Factors included weather impacts, customer destocking, and economic uncertainty.
Adjusted EBITDA (Q1 2026) $50.1 million, a decrease of 8% year-over-year. Decline attributed to high-cost inventory due to tariffs, soft volume, and the slower nature of the first quarter.
Adjusted Gross Margin (Q1 2026) 45.6%, a decrease of 130 basis points year-over-year. Impacted by high-cost inventory and tariff-related costs.
Hardware and Protective Solutions (HPS) Segment Sales Increased 1.2% year-over-year. Hardware sales grew 7%, driven by a 3% lift from new business wins and a 4% lift in core performance. Protective Solutions sales decreased 17% due to reduced promotional activity, destocking, and lower glove sales.
Robotics and Digital Solutions (RDS) Segment Sales Increased 6% year-over-year. Adjusted EBITDA for RDS grew 11.4% to $16.2 million. Growth driven by the MinuteKey 3.5 rollout, with approximately 3,900 machines in the field.
Canadian Business Sales Increased 15.1% year-over-year. Growth driven by a 15% increase in new business wins, including specialty fasteners, builders hardware, and Pro initiatives.
Net Cash Used for Operating Activities (Q1 2026) $19.5 million, with free cash flow at negative $34.3 million. Reflects preparation for spring and summer selling seasons and modest inventory trimming.
Net Debt (End of Q1 2026) $710 million, an increase of $44 million from the end of 2025. Net debt to trailing 12-month adjusted EBITDA ratio was 2.6x, up from 2.4x at the end of 2025.
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Operating Highlights
MinuteKey 3.5 rollout: The rollout of MinuteKey 3.5 kiosks is gaining traction, with approximately 3,900 machines in the field, an increase of over 400 since February. The company expects to end 2026 with over 5,000 machines deployed.
Delaney Hardware acquisition: The acquisition expands Hillman's Pro distribution channel by adding door hardware to its product categories, contributing over $10 million in net sales for 2026.
Campbell Chain & Fittings acquisition: This acquisition strengthens Hillman's position in the industrial MRO channel and is expected to contribute over $20 million in net sales for 2026.
Pro channel expansion: Hillman is targeting the Pro channel as a critical initiative, expanding its addressable market by $12 billion to over $18 billion. The company is focusing on industrial MRO and Pro distribution, including specialty distribution and LBM.
Canadian market growth: Net sales in Canada increased by 15.1% in Q1 2026, driven by new business wins in specialty fasteners, builders hardware, and Pro initiatives.
Operational discipline: Hillman focused on operational discipline and consistent execution, navigating macroeconomic uncertainties and tariff impacts effectively.
Supply chain flexibility: The company highlighted its dual faucet supply chain, which provides flexibility to adapt to changing tariff policies and ensures high-quality product delivery.
Long-term growth targets: Hillman aims to grow total net sales to $2.5 billion by 2030, targeting 8%-12% annual growth through core performance, new business wins, and M&A.
Adjusted EBITDA growth: The company plans to grow adjusted EBITDA at a low double-digit CAGR, maintain leverage of 2.5x or below, and achieve a high-teens return on invested capital.
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Risk or Challenges
Economic Environment: Uncertainty in the economic environment is impacting consumer behavior, which has affected sales performance, particularly in January and February.
Customer Destocking: Customer destocking activities have negatively impacted sales, particularly in the Protective Solutions segment.
Tariff Costs: Higher reciprocal tariffs have increased costs, impacting adjusted gross margins and EBITDA. The timing of these costs has created volatility in earnings and cash flow.
Promotional Activity: A decrease in promotional off-shelf activity has negatively impacted the Protective Solutions segment.
Inflation and Oil Prices: Rising oil prices could lead to increased costs in packaging and freight, which may impact margins if inflation persists.
Segment-Specific Challenges: The Protective Solutions segment experienced a 17% decline due to lower sell-through of gloves and reduced promotional activity. This segment is expected to remain below 2025 levels for the full year.
Leverage and Liquidity: Net debt increased to $710 million, with a leverage ratio of 2.6x, slightly higher than the previous year, which could constrain financial flexibility.
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Guidance & Outlook
Long-term growth targets: Hillman aims to grow total net sales to $2.5 billion by 2030, targeting 8%-12% annual growth driven by core performance, new business wins, and M&A.
Pro channel expansion: Hillman plans to grow its Pro channel, expanding its addressable market by $12 billion to over $18 billion. This includes industrial MRO, Pro distribution, and partnerships with retail customers.
MinuteKey 3.5 rollout: Hillman expects to deploy over 5,000 MinuteKey 3.5 machines by the end of 2026, enhancing its Robotics and Digital Solutions segment.
Acquisitions: Recent acquisitions of Campbell Chain & Fittings and Delaney Hardware are expected to contribute $30 million in net sales in 2026, supporting growth in industrial MRO and Pro distribution.
2026 Net Sales Guidance: Hillman raised its full-year net sales guidance to $1.63 billion-$1.73 billion, with a midpoint of $1.68 billion, representing 8% growth over the prior year.
2026 Adjusted EBITDA Guidance: The company expects adjusted EBITDA to be between $275 million and $285 million for 2026.
2026 Free Cash Flow Guidance: Hillman anticipates free cash flow of $100 million to $120 million for the full year.
Adjusted Gross Margins: Expected to be between 46%-47% for 2026, with sequential improvement throughout the year.
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Shareholder Return Plan
Share Buyback Program: During the quarter, Hillman Solutions Corporation deployed $10.1 million to buy back 1.2 million shares at an average price of $8.29 per share. The repurchase activity accelerated as the company opportunistically bought more stock back given the valuation and share price. The objective remains to offset dilution resulting from employee equity grants and to opportunistically buy stock back if there is a meaningful discount between the value of Hillman and where the stock is trading. The company plans to continue buying stock on a regular basis.
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Key Q&A
Q:Where are the customers from an inventory position standpoint, and how should we think about this dynamic over the next couple of quarters?
A:Destocking was primarily seen in the PS business. The overall business and customers are expected to rebalance throughout 2025 into 2026, with the worst of the destocking behind them.
Q:What has been the initial feedback from customers and the sales force around the Pro strategy? Are there any early successes?
A:The feedback has been excellent, with customers appreciating the ability to get products needed for job sites. Early successes include a large Pro win in Canada. Pro is growing faster than DIY, and the company is optimistic about achieving its $2.5 billion target.
Q:Is gross margin normalizing this quarter or next quarter? What is the trajectory of gross margin through 2026?
A:Q1 is considered the low watermark for gross margin due to tariff-impacted inventories. Margins are expected to step up throughout the year, reaching 46%-47% for the full year, with potential to exceed this range in the second half of the year.
Q:Can you explain the mechanisms within your P&L for freight and how you offset higher prices?
A:Packaging costs are impacted by oil prices and are included in product costs. Ocean freight costs take 6-8 months to flow through inventory, while U.S. freight costs impact the P&L immediately. Fuel surcharges are being implemented by some carriers, but they are not expected to materially impact 2026 results. Adjustments to pricing are made as needed.
Q:What about delivery costs and their impact on the P&L?
A:Delivery costs, including fuel for vehicles and outbound freight, are real but not material. These costs are tracked in SG&A, and adjustments are made if necessary.
Q:What is the outlook for the PS business, and are there any structural issues?
A:The PS business faced challenges due to promotional activity and rising prices, but the core business is healthy. It is expected to remain below 2025 levels but improve as the year progresses. Excluding promotional impacts, the business is expected to be flat to slightly up in 2026.
Q:How would refunds from tariffs be utilized, and why is the net impact of tariffs neutral?
A:Refunds would be used to offset prior costs, with no material change expected in future payments. The net impact of tariffs is neutral because the tailwind from IEEPA going away is offset by headwinds from Section 232 and 122 tariffs.
Q:Can you provide details on the improvement through the quarter and the exit rate for March?
A:March showed sequential improvement with a normal spring build, following a tough start in January and February. The company is moving in the right direction, with positive growth in March continuing into April.
Q:What is the outlook for the RDS business, and when will it peak in terms of sales?
A:RDS sales momentum is expected to continue through 2026, with mid-single-digit growth projected over five years. The rollout of new initiatives is driving growth, and favorable comps are expected after the second quarter of this year.
Q:What do the recent acquisitions bring to the company, and how will profitability be improved?
A:The Campbell acquisition complements the cook chain business and opens new industrial customer opportunities. The Delaney acquisition adds lock sets to the portfolio, enhancing the residential Pro segment. Both acquisitions are expected to contribute to top-line and bottom-line growth.
Q:Has the RDS business reached a bottoming on the margin side?
A:Profitability in the RDS business is expected to remain steady throughout the year, with growth in automotive keys and other segments driving improvements.
Q:What is the current deal environment for M&A, and is a third deal likely this year?
A:The M&A pipeline has expanded with the focus on the Pro segment. There is a high probability of another deal this year, with several opportunities in the pipeline.
Q:Review of Unclear Management Responses
A:Management avoided providing specific month-over-month differences in sales improvement during the quarter, stating only that March showed sequential improvement and April continued the trend. Additionally, they did not break out specific numbers for the impact of tariffs or promotional activities on the PS business, citing complexity and immaterial changes.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Adinolfi JMA
Campbell Chain
Campbell Delaney
Delaney Hardware
Delaney sale
IEEPA tariff
Jon Adinolfi
Koehler
MRO
MinuteKey rollout
Pro channel
builder hardware
category
core
customer Canada
distribution
end acquisition
entry
expansion
fastener builder
flow cash
glove PS
income statement
initiative
lift
lock
market Rocky
offering
oil
ruling
sale amount
specialty fastener
stock
summer selling
volume nature
HLMN Transcript
Hillman Solutions Corp. (HLMN) Q1 2026 Earnings Call Transcript
Unknown4-28
The earnings call reveals mixed sentiments: strong business wins and optimistic guidance are positive, but negative cash flow, increased net debt, and unclear management responses create concerns. The Q&A highlights potential growth in Pro and RDS segments, but challenges in PS business and tariff impacts persist. Despite positive feedback on strategies and acquisitions, financial health issues and lack of specific guidance temper the outlook. Given the small-cap nature, market reaction may be muted, resulting in a neutral stock price movement.
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.
HLMN Slides
HLMN Report
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