Hello, and welcome to the Hamilton Beach Brands Holding Company Second Quarter 2022 Earnings Call. My name is Lauren, and I will be coordinating your call today. I will now hand you over to your host, Lou Anne Nabhan, Head of Investor Relations, to begin. Lou Anne, please go ahead.

Thank you, Lauren. Good morning, everyone, and welcome to our Second Quarter 2022 Earnings Conference Call and Webcast. Yesterday, after the market close, we issued our second quarter earnings release, filed our 10-Q with the SEC. Copies are available on our website. Our speakers today are Greg Trepp, President and Chief Executive Officer; and Michelle Mosier, Senior Vice President and Chief Financial Officer. Also participating in the Q&A will be Scott Tidey, Senior Vice President, Consumer Sales and Marketing. Our presentation today includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those either the prepared remarks or during the Q&A. Additional information regarding these risks and uncertainties is available in our earnings release and our annual report on Form 10-K for the year ended December 31, 2021. The company disclaims any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call, if at all. I'll now hand the call over to Greg.

Thank you, Lou Anne. Good morning, everyone. Thank you for joining us. We're going to take the next few minutes to discuss our good performance in the second quarter, along with our outlook for the second half. We are pleased with our second quarter results, which demonstrated another quarter of strong execution by our team in a challenging external environment. Revenue, gross margin and operating profit were in line with our expectations. We achieved our results against a difficult comparison to record sales in the quarter of '21, which increased nearly 12%. Last year's growth was impacted strong driven demand softness in our global and Latin American markets. The demand in the U.S. continue to be strong. This year, as we expected, revenue declined in all of our consumer except Canada. In our global commercial market, revenue increased 37%. The commercial market continues to benefit from the strong ongoing rebound of the food service and hospitality industries. We continue to make progress with all of our strategic initiatives. Several of them generated strong growth in the second quarter. We've been working to build on our progress and believe each new will generate growth in 2022 and beyond. our initiatives are focused on expanding our presence in markets where we have the opportunity to increase the sale of higher-priced, higher-margin products. These include the premium, commercial, in home health and wellness markets. We're also focused on growth of our core brands, Hamilton Beach and Proctor Silex. Our initiatives focused on accelerating our transformation and leveraging partnerships and acquisitions are going very well. In the second quarter, e-commerce remained strong. Online revenue increased and accounted for 37% of our total. We continue to accelerate our digital transformation by investing in online selling capabilities and digital marketing for all of our brands and…

Thank you, Greg, and good morning, everyone. Let me discuss our second quarter 2022 results compared to the second quarter of 2021, and then I'll discuss our outlook. Net sales decreased 4.6% to $147.5 million compared to a record $154.7 million last year. As Greg discussed, decline in most of our consumer markets compared to the prior year, which included a favorable impact of U.S. government stimulus checks on consumer spend, partially. Offsetting the overall decline in consumer markets with a revenue increase of $4.1 million in our global commercial market. Also contributing to the decrease in total revenue compared to prior year is our transition from a company-managed model to a licensing model for our consumer businesses in Brazil and China, which we completed at the end of . In the second quarter, the improvement in gross profit margin to 21.7% from 18.4% last year, primarily due to a full quarter of price increases that offset higher product and transportation costs. Additionally, the prior year included significant carrier storage charges that did not repeat this year. Selling, general and administrative expenses were $26.5 million compared to $27 million. The decrease was primarily due to incremental expenses incurred last year during our relocation to a new U.S. distribution center. Additionally, expenses decreased for outside services and our overall employee-related costs declined as a result of lower accruals for incentive compensation due to a lower stock price. Operating profit was $5.4 million compared to $900,000 last year. And our effective tax rate for the 6 months ended June 30, was compared to 38.1% in the prior year. The prior year was high due to the inclusion of interest and penalties on unrecognized tax benefit as a discrete expense. In the second quarter of this year, we had a change in position…

Our first question comes from Justin Kleber from Baird.

It's Justin Kleber, Baird. Congrats on the quarter. Just wanted to ask, first off, on looking back at 2Q, Greg, you mentioned revenue was in line with your internal expectations. Curious if that was the case across both commercial and consumer markets.

Justin, yes, basically, yes. I think there's a little bit of movement within the retail between -- across North America, but commercial was right at maybe a little higher than we thought and retail was basically in line. I think overall is right around where we thought and really mainly because of -- on the retail side, we had such a big comp here to offset from last year.

Yes, okay. You mentioned a more cautious approach for the back half of the year within consumer, I think makes sense given the everything going on in the environment, what we're hearing from retailers, specifically. Curious how those commercial expectations though today compare to your initial plan. It sounds like maybe you're performing a bit better within that segment than you initially planned for? Is that the case? Or are we kind of just in line on the commercial business?

Well, I think, as you know, Justin, we often will look at baseline upside and downside as we look at our outlook. And certainly commercial has the potential to go higher than we expect. But right now, we're sort of keeping in line with our base outlook with what we thought before. But really, it's -- there is real strength globally, I would say, China being the exception. And we're chasing on the a little bit. So I do there could be some upside there. It could be on the retail also, there is some on that. I think it's tough to sort of on that. But as I've mentioned, in appliances, really do hold up pretty well even if things pull back across the economy. So I just think when we think across all the things that might happen, I do think that the retail, we softened it a little bit, but that's probably just to be cautious more than anything else. I think the biggest factor probably in all that is retailers, through their -- the backup of inventory they have across the whole store, that sort of comes back online, that will free up some open-to-buy dollars for the holiday season. If that stays backed up, that may crimp their orders a little bit. So I think that's kind of got us a little bit. That's the one factor that is really, really hard to predict. So I think for that reason, pull it back a little bit.

That's helpful color. Maybe just a follow-up there, Greg. So we all know that there's an inventory across retail, broadly speaking, and it seems to be impacting reorder plans. I guess I want to just make sure I understand what you're saying specifically or what you're seeing within your category and your business. Are your retail partners becoming more with orders they've already placed? Or is it more about just maintaining some conservatism as you think about heading into the holiday and how successful they are at kind of working down the excesses, I guess, just across the store?

Yes, Justin, this is Scott. I would say it kind of varies across the retailer. We've got some that are actually very bullish and keeping very good cadence on bringing in product. We really haven't seen any change, and they actually want to be in a better inventory position going into the fourth quarter. Where others, we feel like in general, small kitchen appliance is not an area that's overstocked across most of ours, but they have other departments that are overstocked. So there's the overall open-to-buy dollars across the company may be limited. And so they're trying to try to figure out how do they work down their weeks of supply, maybe by a week or two, and we certainly saw that with the retailers. But it really is mixed. I mean, again, there's -- there's some that are business as usual and some that have pulled back to get rid of some of their own goods or seasonal goods that they still own while others are being still very bullish and trying to grab some more share.

That's helpful color. Scott, just maybe 2 more here from me on the -- nice progress on margin during the quarter. Greg, you mentioned taking another price increase here in 3Q. How do we think about, I guess, the stickiness of pricing? What's historically been the case across the industry and your business specifically? And I ask it from the standpoint of we're starting to see a decline in input costs, as you mentioned, and I assume transportation costs will continue to normalize as demand softens. So do you hold on to those price increases? Or do you think that some of that gets rolled back if these cost pressures start to or continue to decline?

Well, I think generally, the commodity -- the input cost for production have stopped going up, some are up. So I think on the cost side, as we went into this year, the back half of this year is cost negotiations and position on the purchase side of things from our suppliers. The commodity costs were relatively flat, really was all coming from the container cost increases. And container costs are coming down, but they're way, way up from where they were a year ago, as you know. So there's a lot of news in the press that cost dropping, but it's dropping from a record high. So I think what will happen as we go into next year -- it's a very competitive marketplace. And to remain strong, and we're working very closely with the retailers on those costs going up. And my guess is they're going to make sure we work very closely when they come down. And so that's what we usually always say. We got to keep our margins in that historical range and trying to drive revenue and control our costs, and that's how we're going to get operating profit expansion. So I think it's more likely than not that as we go into the future, we'll just stay in this gross margin range that we're in and just work closer with retailers to rightsize the competitive pricing.

Okay. We have no further questions registered. So I'll now hand you back over to Greg for closing remarks.

Thank you. As we look to the balance of the year, we're focused on executing well on our 6 strategic initiatives that are designed to increase revenue, expand operating margin and deliver strong cash flow over time. Our commercial business is experiencing record growth and the strong order flow continues. We have a long list of new products introduced in 2021 and 2022 to drive growth. The small market is projected to stay strong. While declining compared to a robust 2021, it remains well above pre-pandemic levels. We're also focused on continuing to execute well as we navigate through many ongoing external challenges. We believe we are well-positioned to address them just as we have throughout this year. I am incredibly grateful to our team for all their hard work, diligence and good thinking, which they continue to demonstrate . That concludes our presentation. Thank you again for joining the call.

This concludes today's call. Thank you for joining. You may now disconnect your lines.