Stock Story -
Hardware products and merchandising solutions provider Hillman Solutions (NASDAQ:HLMN) fell short of analysts' expectations in Q2 CY2024, with revenue flat year on year at $379.4 million. The company's full-year revenue guidance of $1.46 billion at the midpoint also came in 2.9% below analysts' estimates. It made a non-GAAP profit of $0.16 per share, improving from its profit of $0.13 per share in the same quarter last year.
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Hillman (HLMN) Q2 CY2024 Highlights:
- Revenue: $379.4 million vs analyst estimates of $385.2 million (1.5% miss)
- EPS (non-GAAP): $0.16 vs analyst estimates of $0.14 (13.8% beat)
- The company dropped its revenue guidance for the full year from $1.52 billion to $1.46 billion at the midpoint, a 3.6% decrease
- EBITDA guidance for the full year is $245 million at the midpoint, above analyst estimates of $234.7 million
- Gross Margin (GAAP): 48.7%, up from 43% in the same quarter last year
- Adjusted EBITDA Margin: 18%, up from 15.3% in the same quarter last year
- Free Cash Flow of $42.48 million is up from -$6.08 million in the previous quarter
- Market Capitalization: $1.78 billion
Established when Max Hillman purchased a franchise operation, Hillman (NASDAQGM:HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.
Professional Tools and EquipmentAutomation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Hillman grew its sales at a weak 3.6% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Hillman's recent history shows its demand slowed as its revenue was flat over the last two years.
This quarter, Hillman missed Wall Street's estimates and reported a rather uninspiring 0.2% year-on-year revenue decline, generating $379.4 million of revenue. Looking ahead, Wall Street expects sales to grow 4.2% over the next 12 months, an acceleration from this quarter.
Operating MarginHillman was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 3.2%. This result is surprising given its high gross margin as a starting point.
On the bright side, Hillman's annual operating margin rose by 3.6 percentage points over the last five years
This quarter, Hillman generated an operating profit margin of 8.3%, up 2.9 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.
EPSWe track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.
Hillman's full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it's at a critical moment in its life.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. Hillman's EPS grew at an astounding 157% compounded annual growth rate over the last two years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.
Diving into Hillman's quality of earnings can give us a better understanding of its performance. Hillman's operating margin has expanded 1.3 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
In Q2, Hillman reported EPS at $0.16, up from $0.13 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Hillman to perform poorly. Analysts are projecting its EPS of $0.47 in the last year to hit $0.49.
Key Takeaways from Hillman's Q2 Results We enjoyed seeing Hillman exceed analysts' EPS expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street's estimates. On the other hand, its revenue fell short and it lowered its full-year revenue guidance. Overall, this was a mixed quarter for Hillman, with a weaker top-line but stronger bottom-line. The stock traded up 3.6% to $9.40 immediately after reporting.
