Hillman, a leading provider of products used in repair, maintenance, and remodel projects for both do-it-yourselfers and professionals, has had a remarkable year in 2024. The company’s success can be attributed to its strong relationships with customers, innovative business model, and strategic acquisitions.
One of the highlights of the year was Hillman winning Vendor of the Year awards from both Home Depot and Lowe’s, its two largest customers. This recognition not only reflects the company’s achievements but also demonstrates the deep partnership and trust that Hillman has built with its customers over the years.
In addition to these accolades, Hillman also made two significant acquisitions in 2024. The acquisition of Koch Industries, a provider of rope and chain-related hardware products, and Intex DIY, a supplier of wiping cloths and cleaning textiles, have further strengthened Hillman’s product offerings and market presence. These acquisitions provide opportunities for organic growth and allow Hillman to offer even more solutions to its customers.
Despite market challenges in 2024, including a decline in foot traffic and existing home sales, Hillman’s financial performance remained strong. The company reported net sales totaling $1.473 billion, just shy of the previous year’s results. Adjusted EBITDA increased by 3.5% in the fourth quarter, driven by improved gross margins and operating efficiencies.
Looking ahead to 2025, Hillman is implementing performance-based equity compensation for its top executives, focusing on return on invested capital metrics. This move aims to align executive compensation with the company’s financial performance and shareholder value creation.
Hillman’s two largest businesses, Hardware and Protective Solutions (HPS) and Robotics and Digital Solutions (RDS), also performed well in 2024. HPS saw a 23% increase in adjusted EBITDA, highlighting the value that Hillman brings to its customers. RDS, while historically strong in margins, is now poised to contribute significantly to Hillman’s financial performance and cash flow, thanks to strategic investments and a new business strategy.
In conclusion, Hillman’s success in 2024 is a testament to its customer-centric approach, innovative business model, and strategic growth initiatives. With a strong leadership team in place and a focus on driving shareholder value, Hillman is well-positioned for continued growth and success in the future. Hillman is a company with a bright future ahead. With a strong leadership team, talented employees, loyal customers, and reliable suppliers, the company is well-positioned for success. The CEO, along with his team, is fully aligned on the path forward and is excited about the opportunities for growth.
The company’s strategy to achieve $2 billion in net sales over the next three to five years is ambitious but achievable. By focusing on growing and protecting the core business, taking care of customers, and winning new business, Hillman expects to see 2% to 3% top-line growth per year. Additionally, strategic acquisitions will play a critical role in scaling the business and creating opportunities for long-term growth.
Technology also plays a key role in Hillman’s growth strategy. The company is implementing plans to leverage the cloud and artificial intelligence to make operations more effective and efficient. This investment in technology will not only improve customer experience but also strengthen relationships with partners.
Hillman’s competitive moat is another key factor in its success. The company’s field sales and service team, ability to ship directly to retail locations, 60 years of experience, company-owned brands, and long-standing relationships with customers all contribute to its strong position in the market.
Despite challenges in the macro environment, Hillman has proven its ability to navigate difficult times and continue growing its bottom line. With optimism for an uptick in home improvement activity in the coming years, the company is poised to capitalize on market opportunities and continue its growth trajectory.
Overall, Hillman is a company with a solid foundation, a clear growth strategy, and a commitment to innovation and customer satisfaction. With a focus on driving organic growth, strategic acquisitions, and leveraging technology, Hillman is well-positioned to achieve its ambitious sales goals and continue its success in the years to come. In 2024, the market may have presented challenges, but Hillman is confident that their business will continue to grow in 2025. The HPS business has remained solid and stable, even in difficult times. Throughout the past year, Hillman has made significant enhancements to their global supply chain, transitioning sourcing volume out of China and into other countries such as Vietnam, Taiwan, and India. This strategic move, along with investments in infrastructure, has allowed Hillman to build a more efficient distribution network that is poised for growth. Additionally, their sales and service organization has never been stronger.
Under the leadership of Brett Hillman, the grandson of the founder Max Hillman, Hillman has seen substantial growth in their business. Brett has assembled a top-notch team and implemented new strategies that are already making a positive impact. With new business launches in both core product categories and newly acquired ones from Koch and Intex, Hillman is set to regain growth momentum in 2025.
On the RDS front, with Scott Moore at the helm as President, Hillman believes that RDS will experience growth in the upcoming year. The MinuteKey 3.5 strategy has been executed ahead of schedule, breathing new life into RDS teams. Hillman has secured agreements with their top two RDS partners to have MinuteKey 3.5 machines in all their stores by the end of 2026. These machines offer enhanced capabilities and customer-friendly features, leading to increased revenue.
With a focus on generating attractive returns on invested capital, Hillman is approaching RDS investments more prudently. They expect some attrition with customers outside of their top three partners but anticipate RDS-related CapEx to peak in 2025 and then decline as the MinuteKey 3.5 rollout is completed. Once fully deployed, RDS is projected to generate around $50 million of free cash flow annually.
Reflecting on their recent achievements, Hillman has seen success in normalizing inventory levels, paying down debt, executing new business wins, and setting up streamlined operations. With a strong foundation in place, Hillman is poised to continue their growth trajectory in 2025 by leveraging their unique business model to win new business and execute further M&A.
In conclusion, Hillman’s confidence in their business growth for 2025 is well-founded. With a solid foundation, strong leadership, and strategic investments in place, Hillman is ready to tackle the challenges and opportunities that the market may present in the coming year. In the full-year 2024, adjusted SG&A as a percentage of sales increased to 31.6% from 29.5%. This increase was driven by a variety of factors, including a larger standard employee bonus expense accrual in Q4 2023 compared to Q4 2024. Additionally, the annual increase was due to higher standard employee bonus expenses and IT expenses in 2024 compared to 2023.
One significant factor contributing to the increase in SG&A expenses was the $8.6 million write off of receivables from True Value, following their Chapter 11 filing in October 2024. This charge impacted the company’s adjusted EBITDA for the year, which increased by 10.2% to $241.8 million, including the True Value charge. Despite this charge, the adjusted EBITDA to net sales margin during the year improved to 16.4% compared to 14.9% in the previous year.
In terms of cash flow and the balance sheet, operating activities generated $183 million in cash during 2024, down from $283 million in 2023. This decrease was partly due to higher capital expenditures of $85 million in 2024 compared to $66 million in 2023. The company used its free cash flow to pay down $48 million of debt and fund the acquisitions of Koch and Intex.
The company ended 2024 with $674 million of net debt, down from $722 million at the end of 2023. The company also repriced its term note, lowering the interest rate margin and improving its net debt to trailing 12-month adjusted EBITDA ratio to 2.8x. The company aims to maintain a long-term adjusted EBITDA to net debt leverage ratio at or below 2.5x.
Looking ahead to 2025, the company expects full-year net sales to be between $1.495 billion to $1.575 billion, with a midpoint of $1.535 billion. The company anticipates a 10% increase in adjusted EBITDA to $265 million, with adjusted gross margins above 47%. Free cash flow for the year is expected to be between $90 million to $110 million, impacted by elevated CapEx for the expansion of MinuteKey 3.5 fleet and fastener racking.
Overall, the company remains focused on managing expenses, investing in growth opportunities, and maintaining a healthy balance sheet to drive shareholder value in the long term. In Q1 of 2025, Hillman is expecting negative free cash flow and a slight increase in leverage as they build inventory to support their busy spring and summer seasons. This is a typical pattern for Hillman in a normal year, with cash flow expected to improve in the following quarters and leverage gradually decreasing throughout the year.
The company has factored in several assumptions for their 2025 guidance. These include an increase in interest expense of $45 million to $55 million, cash interest up $40 million to $50 million, cash taxes up $15 million to $25 million, CapEx of approximately $90 million, and restructuring and other expenses totaling around $10 million. Additionally, the fully diluted weighted average share count is expected to be approximately 201 million shares.
Hillman’s success in managing costs and executing M&A in 2024 has been a positive for the company. Looking ahead, they are focused on building on this success and believe that their competitive mode and strong customer relationships will enable them to achieve growth in 2025. The company is committed to driving share gains and generating top-line and bottom-line growth throughout the year.
During a Q&A session, Hillman’s leadership expressed optimism about the year ahead and their commitment to stakeholders, including customers, suppliers, team members, and investors. They are determined to fulfill their promises and are eager to update stakeholders on their progress throughout the year.
Regarding specific questions about the business, Hillman’s management discussed organic growth, the potential for sustainable growth in their RDS segment, and gross margin assumptions for the year. They highlighted the expansion of their services beyond home and office to include auto fobs and transponders, which they believe will open up new opportunities for growth. Additionally, they emphasized their readiness to take advantage of future tailwinds in the housing market and their confidence in their gross margin assumptions for the year.
Overall, Hillman is focused on driving growth, managing costs effectively, and leveraging their competitive advantages to deliver positive results in 2025. They are committed to keeping stakeholders informed and are dedicated to achieving their goals for the year. Thank you for your question, Matthew. We are excited about the growth prospects for our RDS business in 2025. As Robert mentioned, we are confident that we will see a return to growth as early as the first quarter. This growth is largely driven by the rollout of MinuteKey 3.5 with our major customers.
While we do not expect to reach our historic growth levels right away, which have been in the low-double digits, we anticipate seeing low to mid-single-digit growth in the business. This growth trajectory is supported by the positive impact of our ongoing initiatives and partnerships.
In terms of the impact of attrition, we are actively managing this aspect of our business. We are focused on retaining our existing customer base while also attracting new customers through innovative solutions and exceptional service. Our team is dedicated to addressing any challenges related to attrition and ensuring that we maintain a strong and stable customer base.
Overall, we are optimistic about the growth potential of our RDS business in 2025 and beyond. We are committed to delivering value to our customers and driving sustainable growth in the long term. Thank you for your interest and support. In a recent conference call, executives from a leading industrial company discussed their plans for the year ahead, particularly in terms of customer alignment, pricing strategies, and business performance in Canada.
One of the key points addressed was attrition and customer alignment. The company has reached an agreement with one of its top customers on a better profile for both parties, which may add some negative pressure for the year. However, the company remains confident that their actions, including the 3.5 rollout and other initiatives, will more than cover this pressure throughout the year.
Regarding capital investment, the company emphasized the importance of ensuring a quick return and a high return on invested capital for major customers. They stated that they would not invest in situations where the payback doesn’t make sense, indicating a strategic approach to capital allocation.
In terms of pricing, the company expects to be neutral for the year overall, with plans to take price in strategic categories in the second half of the year. This decision is driven by inflation across the business, rather than tariff-related factors.
The executives also provided insights into the company’s Canadian business operations. Despite market pressures and challenges in industrial production, the company has seen new business wins in Canada that offset some of the pressure. The Canadian team has been commended for their efforts to maintain profitability in challenging market conditions, with a focus on setting up the business for success when the economy improves.
Overall, the company remains confident in its strategies and teams, both in customer alignment and business operations, as they navigate challenges and opportunities in the industrial sector. Thank you for the insightful questions and detailed responses provided by Douglas Cahill and Jon Michael Adinolfi during the recent conference call. It is always informative to hear about the company’s progress and plans for the future.
One of the key topics discussed was the rollout of the 3.5 RDS, which is expected to be completed by the end of 2026. Adinolfi mentioned that the rollout is heavily indexed towards 2026, with machines being put in place at a higher rate starting in the back half of this year. The company finished last year ahead of expectations in terms of delivering machines into the marketplace, which is a positive sign for the progress of the rollout.
In addition to the RDS rollout, there was also a focus on new business growth, with a projected 2.5% increase in 2025. Adinolfi highlighted that the growth is primarily driven by the hardware side of the business, with new products such as concrete screws, structural screws, and construction fasteners being rolled out. The company also has exciting new opportunities in the protective slot side of the business, as well as growth with major customers in various categories.
Furthermore, the acquisition environment for 2025 was discussed, with Adinolfi expressing optimism about the market. He mentioned that there are more potential deals on the table now compared to previous discussions, and the company is actively looking at acquisitions that would complement Hillman’s existing portfolio and align with their culture and customer base.
Overall, it is clear that Hillman is focused on strategic growth initiatives, including the RDS rollout, new business development, and potential acquisitions. The company’s leadership team appears confident in their ability to navigate the current market environment and capitalize on opportunities for long-term success. Thank you to Douglas Cahill and Jon Michael Adinolfi for sharing their insights and outlook for the future. The nice thing about it is when you think about our core business, we’ve done a nice job expanding that in the HPS business, the EBITDA rate. I think our goal over the next several years would be to hang on to the rate in HPS. As you’ve heard us talk about there over a three to five year period, it’s probably like only 1% expansion and that’s really leveraging the fixed cost that we have in the business.
And then what you do is you get the nice mix up because of RDS back to growth. We’ve had this nice margin expansion in the whole business over the last couple of years with RDS being depressed. And so that getting that business back to growth is really important for us to not only grow EBITDA, but also gross margins over the longer term. So again, we feel really confident that with that business back to growth, I’m not going to predict the year, but a 20% EBITDA rate is not out of the question when you think about that mix shift.
David Manthey: And then ultimately, it sounds like you’re focused on returns on capital anyway. But based on your conversation earlier, we should assume that you would expect returns on capital to drift up gradually over time?
Robert Kraft: Yes. Well, obviously, when as we think about and you see in our proxy, we’ll have some goals around what returns on invested capital are in the business. And we would expect that we expand those every year at least for the next three to five at a minimum. Obviously, looking beyond that’s pretty tough from a modeling perspective. But where we’re coming from and where we’re going, we believe there’s nice expansion in ROIC over the next several years.
In terms of new business, Rocky mentioned that about 2.5% of new business is baked into the midpoint of the outlook for the year. This new business is already committed, but the challenge lies in the market volumes and replan associated with that business due to market conditions. The company is confident that they can not only hit the 2.5% mark but potentially exceed it if market volumes remain stable or improve.
Regarding risks tied to pricing and tariffs, the company incurs costs of $1 million to $2 million for changing stickers in the marketplace. This cost is for the traditional hardware channel and not every location. As for tariffs, the company is navigating those challenges with a strategic approach.
Overall, the company remains optimistic about its growth prospects and is focused on expanding returns on capital over the next few years. The team expresses gratitude to customers, vendors, suppliers, and the hardworking Hillman team for their contributions and looks forward to updating stakeholders in the near future. Shannon here with some important information for anyone considering investing in Hillman Solutions. Before you make any decisions, it’s crucial to take a closer look at what the experts are saying.
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Please note that this article is a transcript of a conference call produced for The Motley Fool. While we strive for accuracy, there may be errors or inaccuracies in this transcript. The Motley Fool does not take responsibility for any investment decisions based on this content and encourages readers to conduct their own research.
Disclosure: The Motley Fool has positions in and recommends Hillman Solutions. For more information, please refer to our disclosure policy.
For the original Hillman Solutions (HLMN) Earnings Call Transcript published by The Motley Fool, click here.
In conclusion, before investing in Hillman Solutions or any other stock, it’s essential to take the time to gather all the necessary information and make informed decisions. The world of investing can be volatile, but with the right guidance and knowledge, you can set yourself up for success. The year 2020 has been a challenging one for people around the world. From the global pandemic caused by the novel coronavirus to civil unrest and political turmoil, it’s safe to say that many of us are looking forward to turning the page and starting fresh in the new year.
As we approach the end of 2020, it’s important to reflect on the lessons we’ve learned and the resiliency we’ve shown in the face of adversity. The pandemic has forced us to adapt to new ways of living and working, from wearing masks and practicing social distancing to transitioning to remote work and virtual learning. It has also highlighted the importance of taking care of our physical and mental health, as well as the need for social connection and community support.
The Black Lives Matter movement has sparked conversations about racial inequality and systemic racism, leading to calls for justice and reform in law enforcement and other institutions. The protests and demonstrations that have taken place around the world have shown the power of collective action and the importance of standing up for what we believe in.
On the political front, the 2020 U.S. presidential election has been one of the most contentious in recent history, with record voter turnout and ongoing disputes over the results. It has underscored the importance of democracy and the need for transparency and accountability in government.
Despite these challenges, there have been moments of hope and inspiration in 2020. Healthcare workers and first responders have been hailed as heroes for their tireless efforts to care for those affected by the pandemic. Essential workers in industries like food service, transportation, and retail have kept our society running during these uncertain times.
As we look ahead to 2021, there is reason to be optimistic. With the development of vaccines for COVID-19 and the promise of new leadership in the United States, there is hope for a brighter future. It’s up to all of us to continue to work together, support each other, and strive for a world that is more just, equitable, and sustainable for all.
In conclusion, 2020 has been a year like no other, filled with challenges and opportunities for growth. As we prepare to close this chapter and begin a new one, let’s remember the lessons we’ve learned and the strength we’ve shown in the face of adversity. Let’s move forward with hope and determination, knowing that we have the power to create positive change in our world.
