Hillman Solutions - Earnings Call - Q2 2025

Executive Summary

• Hillman delivered a solid Q2: revenue $402.8M (+6.2% YoY), Adjusted EBITDA $75.2M (+10.1% YoY), with sequential margin improvement as tariff-related pricing began to flow ahead of most cost recognition and RDS margins improved.
• Management raised FY25 guidance midpoints: Net Sales to $1.535–$1.575B (midpoint +$20M) and Adjusted EBITDA to $265–$275M (midpoint +$5M); leverage now expected ~2.4x vs prior 2.5x, and a new $100M share repurchase program was authorized; both are key stock catalysts in the near term.
• HPS led growth (+8.7% YoY) aided by Intex, new wins and price; RDS posted its second consecutive growth quarter with 32.0% adj. EBITDA margin as MinuteKey 3.5 rollout gains traction; Canada remained soft (-5.6% YoY) amid macro/FX headwinds but is expected to return to top-line growth in H2.
• Tariff cadence: most pricing is in place by Q3 while tariff costs start hitting late Q3; expect a Q3 timing tailwind and parity by Q4; annualized tariff run-rate revised to ~$150M from ~$250M earlier in the year.
• Consensus estimates from S&P Global were unavailable at query time; we therefore cannot quantify beats/misses versus Street for Q2 or forward periods (S&P Global data not returned).

What Went Well and What Went Wrong

• What Went Well

  • Strong execution and sequential margin lift: Adjusted EBITDA margin improved to 18.7% (+70 bps YoY; +340 bps vs Q1) with sequential adjusted gross margin expansion to 48.3% as RDS margins recovered and tariff price began to flow.
  • HPS outperformance: Revenue +8.7% YoY and adj. EBITDA +14.7% with margin +80 bps to 16.8% on contributions from Intex, new wins, and price; market volume down only ~1% in HPS.
  • Confidence and capital returns: Raised FY25 revenue/EBITDA midpoints; Board approved first-ever $100M buyback since 2021—management plans $20–$25M annual deployment, targeting dilution offset and opportunistic repurchases.

• What Went Wrong

  • Canada softness: Q2 Canada revenue -5.6% YoY with FX headwinds; adj. EBITDA margin -40 bps YoY to 14.3%; market volumes soft, though H2 top-line growth is expected.
  • Gross margin YoY down modestly: Adjusted gross margin 48.3% vs 48.7% in Q2’24, driven by mix (Intex lower gross margin) despite sequential improvement.
  • Tariff cash headwind and H2 volume pressure: Q2 cash from ops included ~$32.5M tariff cash drain; H2 implied market volumes down ~9% as price rolls through—management remains prudent on elasticity and macro.

Transcript

Speaker 3

Morning and welcome to the second quarter 2025 results presentation for Hillman Solutions Corp. My name is Tawanda, and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. The company's earnings release presentation and 10-Q were issued this morning. These documents and a replay of today's presentation can be accessed on the Hillman investor relations website at ir.hillmangroup.com. I would now like to turn the call over to Michael Koehler with Hillman.

Speaker 0

Thank you, Tawanda. Good morning, everyone, and thank you for joining us. I'm Michael Koehler, Vice President of Investor Relations and Treasury. Joining me on today's call are Hillman's President and Chief Executive Officer, Jon Michael Adinolfi, or JMA as we call him, and Hillman's Chief Financial Officer, Rocky Kraft. Before we get into today's call, I would like to remind our audience that certain statements made today may be considered forward-looking and are subject to the Safe Harbor provisions of applicable securities laws. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions, and other factors, many of which are beyond the company's control and may cause actual results to differ materially from those projected in such statements. Some of those factors that could influence our results are contained in our periodic and annual reports filed with the SEC.

For more information regarding these risks and uncertainties, please see slide two in our earnings call slide presentation, which is available on our website, ir.hillmangroup.com. In addition, on today's call, we will refer to certain non-GAAP financial measures. Information regarding our use of and reconciliations of these measures to our GAAP results are available in our earnings call slide presentation. JMA will begin today's call by providing some commentary on our strong second quarter results and then give an update on our guidance. Following JMA's comments, Rocky will give a more detailed walk through our financials and guidance before turning the call back over to JMA for some closing comments. We will open the call up for your questions. It's now my pleasure to turn the call over to our President and CEO, Jon Michael Adinolfi. JMA?

Speaker 5

Thanks, Michael. Good morning, everyone, and thank you for joining us. We executed well and took great care of our customers during the second quarter of 2025, driving strong results on both the top and bottom line. We are pleased with our results for the first half of the year and are positioned well for continued top and bottom line growth in the second half of the year. Let me take a moment to provide an update on some topics we discussed last quarter. We told you that our business is well positioned to operate in any environment, and we delivered solid results during both quarters this year. We told you that we would cover tariff-related cost increases, and we have. We told you that the resilience of Hillman Solutions Corp.'s business should prove volumes to be better than our guide, and they were.

We told you that we would optimize the country of origin where we source our products with our dual faucet strategy, and we have. The Hillman team did a fantastic job during the quarter. I am proud of how we worked together to navigate this dynamic environment while not losing sight of our long-term goals. Based on our performance so far this year and the excellent job this team has done, we are raising the midpoint of both of our full-year 2025 net sales and our full-year 2025 adjusted EBITDA guidance. We now expect our full-year 2025 net sales to be between $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion. The low end of our net sales guidance represents 4% growth over 2024, and the high end of our guidance represents 7% growth over 2024.

As for our bottom line, we now expect our full-year 2025 adjusted EBITDA to be between $265 million to $275 million, with a midpoint of $270 million. The low end of our 2025 adjusted EBITDA guidance represents 10% growth over 2024, and the high end of our guidance represents 14% growth over last year. Let me spend one minute on how we're thinking about 2026 based on what we know today. We expect full-year 2026 net sales to grow in the high single to low double digits and adjusted EBITDA to grow in the low to mid-single digits, both in an environment where we are assuming market volumes are flat. Rollover price and our typical new business wins will drive our top line in 2026. Considering the tariff comp next year, we will remain focused on managing margins, operating efficiently, and controlling costs.

Rocky will share more details on our guidance and outlook for the remainder of the year in a bit. Hillman has a long track record of performing through all kinds of economic environments since we were founded over 60 years ago. Historically, our consistent growth and solid performance has been driven by our competitive moat, steady demand for our products tied to everyday repair and maintenance projects, and great long-term relationships with our customers. Hillman's value-added moat, which consists of over 1,200 sales and service reps in our customer stores, direct-to-store delivery capability, category management, and deeply integrated retail partnerships, is unlike any company in our space. Today, we are successfully managing the current tariff environment while not losing sight of taking great care of our customers, winning new business, and consistently striving to make our operations more efficient.

We continue to deliver orders on time and in full to our customers, which has been demonstrated by our excellent fill rates for the first half of the year. From a supply chain and operations standpoint, we continue to execute our dual faucet strategy. We've made progress reducing our exposure to suppliers based in China, where we are confident that we can end 2025 with the ability to source approximately 20% of our products from China. This compares to 2018 when we sourced nearly 50% of our products from China. The dual faucet strategy is the concept of buying product not only from multiple suppliers, which has always been our strategy, but from multiple suppliers in multiple countries. We know tariffs can change the market quickly.

We are prepared for this and have built a flexible supply chain that allows us to deliver quality products at the best overall value for our customers. We are confidently navigating the tariff situation and executing our plan to set Hillman up for long-term success with our customers and long-term growth. Now let's turn to our results for the second quarter. Net sales in the second quarter of 2025 totaled $402.8 million, which increased 6.2% versus the second quarter of last year. Driving our top line growth was a 4% increase from Intex, which we acquired in 2024, 2% from new business wins, and 2% from price. These were partially offset by a 2% headwind from market volumes. For the quarter, adjusted EBITDA increased 10.1% to $75.2 million compared to $68.4 million last year. Adjusted EBITDA margins improved by 70 basis points to 18.7%.

Adjusted gross margins for the quarter totaled 48.3%, which were down slightly from 48.7% during the year-ago quarter, but improved sequentially from 46.9% for the first quarter of 2025. Driving our sequential margin performance for the quarter was improved margins in RDS and a modest amount of tariff-related price. Our biggest segment, Hardware and Protective Solutions, or HPS, had a great quarter with 8.7% growth versus the comparable period. Adjusted EBITDA increased by 14.7% to $51.5 million. Our results were driven by contributions from the Intex acquisition, new business wins, and price, offset by just 1% decline in HPS market volume. Net sales in Robotics and Digital Solutions, or RDS, were up 2.3% versus the year-ago quarter. This is our second consecutive quarter of growth for RDS, which confirms our MiniQ 3.5 strategy is working. Adjusted gross margins and adjusted EBITDA margins both improved sequentially, totaling 73.1% and 32% respectively.

As of today, we have over 2,200 MiniQ 3.5 machines in the field. We remain on track to finalize the rollout of these kiosks to our two largest customers by the end of 2026. Now turning to Canada, net sales in our Canadian business were down 5.6% compared to the prior year quarter. Sales volumes and adjusted EBITDA improved sequentially as we moved from winter into the spring selling season. Market volumes improved but remained soft, and FX headwinds weighed on Canada's results. For the second half of the year, we expect Canada to return to top line growth, and for the full year, we continue to expect that adjusted EBITDA margins will remain above 10% in Canada. Overall, Hillman is in a great position with our customers and will continue to successfully execute in this environment.

With that, let me turn it over to Rocky to talk financials and guidance. Rocky?

Speaker 1

Thanks, JMA. Let me dive right into our results, and then I'll get to our guidance. Net sales in the second quarter of 2025 totaled $402.8 million, an increase of 6.2% versus the prior year quarter. Second quarter adjusted gross margins decreased by 40 basis points to 48.3% versus the prior year quarter, but improved 140 basis points sequentially. The Intex acquisition we made in August of 2024 has gross margins below our fleet. This drove the step down in margins versus last year. Additionally, we saw a modest amount of tariff-related price during the quarter, which helped our margins improve sequentially while entering into our busier spring selling season where we leverage more of our fixed costs. Adjusted SG&A as a percentage of sales decreased to 29.7% during the quarter, from 30.7% from the year-ago quarter.

Adjusted EBITDA in the second quarter totaled $75.2 million, improving 10% versus the year-ago quarter. Our adjusted EBITDA to net sales margin during the quarter improved by 70 basis points to 18.7% from a year ago. Let me now turn to cash flows. For the quarter, net cash provided by operating activities was $48.7 million, and we generated $31.2 million of free cash flow, even with a $32.5 million cash headwind from tariffs. Turning to leverage and liquidity, we ended the second quarter of 2025 with $674.7 million of total net debt outstanding, which decreased by $29 million from the end of the first quarter. Liquidity available totaled $246.9 million, consisting of $212.7 million of availability on our credit facility and $34.2 million of cash in equivalents.

At quarter end, our net debt to trailing 12-month adjusted EBITDA ratio improved to 2.7 times versus 2.9 times a quarter ago and 2.8 times at the end of 2024. We maintain that our long-term adjusted EBITDA to net debt leverage ratio target remains at or below 2.5 times. This will give us the flexibility to grow via M&A and use our improved financial strength to play offense. Last week, our board approved a $100 million share repurchase program. This is the first time Hillman has had an SRP in place since coming public in 2021. We are comfortable with our leverage ratio and feel it prudent to have an active plan in place. We intend to buy stock back to offset dilution resulting from employee stock awards. Doing so will have a minimal impact on our leverage.

We will also seek to buy stock back when we believe there is a disconnect between the value of our company and the value of where the stock is traded. We anticipate deploying between $20 million and $25 million annually, depending on the market. We believe these repurchases will be accretive to earnings per share, drive shareholder value, and will be an attractive place to invest capital. Similar to the SRP, our Board also approved a shelf registration statement. Similar to the SRP, we felt it's good public company governance to have a shelf on file. To be clear, we do not intend to use this shelf to raise capital of any kind in the foreseeable future. We are simply putting the mechanism in place now. Now let me turn to our guidance.

While Hillman's business is generally resilient because of the demand for our products used for repair and maintenance projects around the home, we are not immune to declining foot traffic at our retail partners and a consumer watching their spending. Our top- and bottom-line guides contemplate a volume decline, which we believe is a prudent outlook for the year, considering existing home sales are projected to remain flat. On our last call, we told you that our guidance was conservative and our volumes would be better than our guide. So far, that has proven to be the case. Now we have more clarity on how tariffs will impact our business, and there is less uncertainty around our expectations for the year. As such, we have increased the low end of our net sales guidance by $40 million. This raises the midpoint as the top end remains unchanged.

Our updated net sales guidance is now between $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion, reflecting 5.6% growth over last year and a $20 million increase from our previous guide. We are also increasing the low end of our adjusted EBITDA guidance by $10 million. This raises the midpoint as the top end remains unchanged. Our updated adjusted EBITDA guidance is now between $265 million and $275 million, with a midpoint of $270 million, reflecting 11.7% growth over last year and a $5 million increase from our previous guide. In addition, we calculate the annualized run rate for tariffs to be approximately $150 million. The team has done a great job working with our customers to get a price.

We are confident we will end the year around 2.4 times leverage, assuming we hit the midpoint of our guidance, even after deploying some cash to execute a modest share repurchase. Before I turn it back to JMA, I wanted to thank the Hillman team, who has worked extremely hard to deliver such a strong quarter with healthy growth on both the top and bottom line. As we look ahead, we are confident in our ability to carry this momentum forward with disciplined execution and a focus on our strategic priorities. We are well positioned to build on this foundation and expect to see sustained growth throughout the remainder of the year while we focus on growing with our customers and driving shareholder value. JMA, back to you.

Speaker 0

Thanks, Rocky. As Rocky said, the team has done a great job this year. I am confident Hillman is positioned for long-term success and long-term growth. To our 1,200+ frontline sales and service folks, our operations team, product team, and all the support functions across the organization, I am so proud of how the entire Hillman team continues to execute and win. I'd also like to extend my appreciation to our customers, vendors, partners, and shareholders for their ongoing trust and support. We're proud of the growth we delivered this quarter and remain confident in our ability to execute and build on the momentum throughout the year and beyond. With that, I'll turn it back to Tawanda for the Q&A portion of our call. Tawanda, please open the call for questions.

Speaker 3

Thank you. Ladies and gentlemen, to ask a question, please press star 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Lee M. Jagoda with CJS Securities Inc. Your line is open.

Hi, good morning.

Speaker 0

Morning, Lee.

I have two questions. One is kind of bigger picture and one is more numbers related. On the bigger picture stuff, in the recent past, you've talked about focusing a little more on the pro channel, and I'd love to understand how your competitive advantages in the retail channel would translate to the pro channel and kind of give you the right to win. Any examples of recent success would be great.

Speaker 5

Lee, thanks. I'll take that one. From the pro perspective, today 25%+ of our business is pro-related. To me, especially in areas like fasteners, we have the permission to play. We have the products. We've got brands like PowerCrow, for instance, where we just launched a full range of structural products. We've got a full range of products in a number of different areas in fastening. Today, those pros are using our products. We have focused on supporting our customers where they support the pro. As our customers continue to expand and we have other opportunities in channels like LBM, that our customers are serving the pro, we're going to continue to lean in there. We are very excited about the opportunity as we go forward. At this point, we've got success in the fact that that area continues to grow for us.

I won't go into great detail on this call, but we'll have some future updates where we'll talk about some of the things we're doing in pro and how we'll continue to lean in. Thanks for the question.

Sure. Rocky, just one for you on numbers. Now that we have that clarity on the tariff impact, I know last quarter you were able to give us some guidance in terms of the cadence for EBITDA and how price rolls in versus when costs hit the P&L. Can you give us an update on what the back half cadence should look like?

Speaker 0

Yeah, Lee. As you know, it depends on the product, but given what we have from an inventory perspective, we'll start feeling the costs from tariffs late in the third quarter. That said, every product tends to be different, and there are a lot of moving parts as you think about it. That means we believe we'll have a very strong third quarter because most of the price, if not all, will be in place. We'll begin to feel the tariff cost. As we go into the fourth quarter, we should see tariff cost and price both fully in the run rate. The only other thing I would say, as you heard during our prepared remarks, the cash hits us right away. It was a cash drain in the second quarter.

It'll be a little bit of a cash negative in the third quarter, but we still feel really good about where we're taking the business and really, really happy with how the team has done working with our customers to, in some cases, move products, in other cases, get price where we need to cover, and we feel like we're in really good shape for the rest of the year.

Okay, great. I'll let others hop in the queue. Thanks.

Speaker 5

Thanks, Lee.

Speaker 0

Thanks, Lee.

Speaker 3

Please stand by for our next question. Our next question comes from the line of Wim Cotter with Stifel. Your line is open.

Thank you. Good morning. Question I have for next year around the guidance. You said rollover pricing and new business wins against a flat market. Does that assume, is that clarity, does that assume just new business wins you did this year, or does that assume you go back to steady state next year? On that note, business wins have kind of cooled this year. Do you have confidence that you're able to fully accelerate and get back to that level of growth next year? Thanks.

Speaker 0

There are two things I would say there. This is Rocky. First off, you know, we still expect that we'll be at or above, slightly above our 2% new business wins, which we've done, you know, for many years in a row. As we look to 2026, yeah, we have pretty good clarity around that if you assume we do our 2% to 3%. Again, to be clear, we're not giving a guide that we think the markets are flat in 2026. What we're saying is if you assume the markets are flat, if you think about our implied guide in the back half, it would suggest that volumes are down 9% in the back half. It would assume that that's down 6% for the full year in 2025. That gets us to some really interesting levels.

That level of being down this year, quite frankly, if you take COVID out, it will be the worst market year we've seen in Hillman since 2008 or 2009. Again, we think we're being prudent because we are putting a lot of price in market. Everybody's putting a lot of price in market. Clearly, there will be some impact on volumes. I think, you know, while not a guide, assuming markets are flat next year, I think is prudent at this point in time. I mean, it's the beginning of August.

Thanks for that. Second question, you did say, correct me if I'm wrong, annualized impacts now $150 million regarding tariffs. I guess as you think about that impact, and we've had a lot of fluidity, things change, I guess we had some certainty at the end of July. Do you have kind of full visibility of that number, all the nuances? I know steel went from 25% to 50%, but that's on the components. Do you have full visibility into that? Is there any fluidity or risk in your pricing, i.e., things could change, somebody's saying, hey, let's wait six weeks, etc.? I'll stop there. Thanks.

Yeah, again, this is Rocky. As you can imagine, the $150 million is a very round number. There's a ton of fluidity in that. There's a lot of reasons, not only what the administration might do, but there's also fluidity around what volumes do in the back half. That clearly impacts that number. As we think about it, we've covered our net tariff exposure. We're confident that anything that happens going forward, particularly as you start thinking about how it rolls through our inventory, will most likely not impact 2025 as much as it will 2026. I have to tell you, our customers have been great. We have spent a lot of time making sure that we work with our customers to get the right amount of tariff price. They understand that we're just covering the tariff price as if it were a tax.

We're not trying to maintain our margins, and they understand that. I think that's a positive. So far, everything we've done with our customers has been executed very well. We thank our customers. As we think about the future, if there is fluidity to your point, and it changes, which it's likely to, we will be changing what our pricing is with our customers, either up or down.

Thanks, I'll pass on.

Speaker 3

Thank you. Please stand by for our next question. Our next question comes from the line of Michael Edward Francis with Hillman Solutions Corp. Your line is open.

Speaker 2

Hey, guys. Nice quarter. I wanted to go back to the back half cadence question that Lee asked. More pointedly, I think last time you mentioned you're expecting about 300 basis points of gross margin give back from tariff prices. Is that still accurate? Is there anything you can kind of do to level set us on how we should think about gross margins 3Q and 4Q?

Speaker 0

Yeah, I'd like to not get into specifics around gross margin. What I would tell you is that 300 basis point degradation was in the face of $250 million of tariff price. We've said that we believe that number has come down to $150 million, so it's a safe assumption that that impact has come down relative to how we think about the future. As you think about the rest of the year and as we think about our EBITDA margin for the full year, you can probably safely assume we'll be up about 100 basis points year over year. It's probably a safe way to think about it. Now, to remind everyone, there's a little bit of a tariff windfall in that because of the timing of pricing.

We've been paying those tariffs now for 45 to 90 days, depending on the tariff, and it is a cash drain to the company. Rightfully so, that price has been put in place.

Speaker 2

Good. I know it doesn't seem like demand has deteriorated much, if at all. You talked about volumes implied in the back half of 9%. I just wanted to see what you're seeing on R&R and if that 9% number is just sort of a conservative approach to the market or if there's some deterioration happening right now that you're seeing.

Speaker 0

Right now we feel that is the right guide. That's why we're sticking with a minus 9. We do feel like there will be some pressure in the back half of the year. Overall, we were actually pleased with what we did in Q2 as we came out and we called our sales number and actually hit it and exceeded it. We feel good about where we're positioned. Until price is fully read into the marketplace, it's hard to really change that view. We'll give you an update when we come back and deliver our Q3 earnings. We feel good about where we are right now. We feel like we're being prudent, as Rocky said earlier in his prepared remarks.

Speaker 2

Appreciate the color. I'll pass it on.

Speaker 0

Thanks.

Speaker 2

Awesome. Thanks.

Speaker 3

Our next question comes from the line of Matthew Adrien Bouley with Barclays Bank PLC. Your line is open.

Morning, everyone. Thanks for taking the questions. I wanted to ask around elasticity. Just a very helpful color there around the volumes down 9% in the second half. I think in Q2 here you had price up 2% and volume down 2%. Thinking about that 2026, up high singles to low doubles on price, I guess I just wanted to double-check on the assumption that you're not expecting to have sort of an offsetting volume impact in 2026, mirroring price. Just kind of expand on that and help us understand the conviction around minimizing that elasticity. Thank you.

Speaker 0

Yeah, Matt. I think we would start by telling you that, you know, when you think about, you know, repair and maintenance, if somebody needs to fix something, and we spent a lot of time talking about this on the last quarterly call, they're going to fix it. There's not a lot of elasticity in price for a lot of our products. Clearly, we're not going to say there's no elasticity. That's one of the reasons that we've guided for the market to be down in the back half. As we think about next year, again, I want to be clear that a flat market was not our guidance. Our guidance were what we said, our comments, because it's not really guidance, just directionally around 2026, that was that in the situation where the market is flat.

Now, if you start to compound what our markets have done over the last several years, you have to go back many years to find levels where we would be going into 2026 if you assume that our markets are down, you know, 9% in the back half. I would say, do we have a lot of conviction that the markets will be flat right now? It's August, whatever, 3rd, 4th, 5th. Your guess is as good as ours. Do we expect that markets will be down, say, something like mid-single digits? I think we have a lot of conviction that that will not be the case, that these markets will be around flat next year. Are they up a couple? Are they down a couple?

Hard telling, and will depend upon a lot of factors that are really hard to predict when you are in the first week of August.

Okay, got it. No, that's super helpful. Secondly, on the margin side, I guess a two-parter. One is if you could just clarify that short period where the tariffs on China were at 145%. I'm just curious if there's any kind of small temporary impact from that. If you could just clarify that. Secondly, if I do the back of the envelope on 2026, it seems like you're suggesting maybe the EBITDA margin down about 100 basis points next year. If you could just kind of speak to, is that simply the price and cost, you know, the math around how that impacts the rate, or is there anything else that's kind of impacting that EBITDA margin in 2026? Thank you.

Let me try to do that in two pieces. First, on your first question, I think we paid the $145. Honestly, I'm looking at my team right now for about two weeks, so it's not material to anything that we would be disclosing or talking about. As you think about the rate, you're in the ballpark around what we think about rate for next year. Again, during the third quarter of this year, there will be a bit of timing around a windfall around tariffs. That said, we will hang on to full price as we think about going into the fourth quarter and into next year, pending the fluidity that we answered in an earlier question. Again, happy to laugh that I'll call it slight period of windfall in tariffs is what's driving the lack of leverage between the top line and the EBITDA rate.

The one thing I would say, and JMA, you may want to comment here, we're running this business, I think, better than we ever have. I've been here for seven or eight years. As the numbers move around, we're highly confident that we can do the right things to create the right type of profitability in this business in any environment.

Speaker 5

Rocky's right. We've set up the global supply chain, which Jason prepared remarks. I think you guys have seen what we've done over the last several quarters and actually a couple of years where we've built more resiliency in their supply chain. We've improved our cost position, and now we actually have multiple countries of origin to be able to diversify our supply base. We feel like our input costs are in good shape. We're running our business from a freight perspective and are pleased with where we are there. Obviously, everybody's dealing with some level of inflation, which we're managing, and we're going to continue to manage the business as we go forward. We do feel like we're positioned well to deal with the back half and into 2026.

All right. Thanks, guys. Good luck.

Speaker 0

You're welcome. Thanks, man.

Speaker 3

Our next question comes from the line of Brian Christopher McNamara with Canaccord Genuity Corp. Your line is open.

Thanks, guys. Thanks for taking the question. Good morning and good working with strong results. First on pricing, we haven't seen much pricing on the shelves based on our work. I'm curious when you would expect that to hit the shelves on the retailer level, understanding that obviously each retailer will do things differently. Secondly, for Rocky maybe, I know in May you called out for H2 pricing of plus 17%, all set by a similar volume decline. I think you mentioned in one of the answers to the questions that H2 guide calls for 9% volume declines, but I don't think I heard what's built in for H2 pricing component.

Speaker 0

Yeah, maybe let me go first, Jon Michael Adinolfi, and then you can answer the question about retailers.

Thank you for answering my question.

Yeah, the guide would assume that in the second half, we have about 6.5% total price in the business.

Okay. JMA, what do you want to add?

Speaker 5

Brian, as you guys do quite a bit of work, and we appreciate your focus on our company and the work that you do at the shelf. I mean, there's prices been going into the marketplace at different times, so we're watching it like you are. Really, to Rocky's point, it's not my place to be commenting on what our retailers will do in the back half of the year. I think we'll have to stay posted for what we see.

Speaker 0

Yeah, and hey, Brian, just to clarify, when I said six and a half price, that's full year price, not the second half.

Okay. Secondly, look, existing home sales appear to be hopefully bumping along the bottom here on 4 million units. Where does that number need to go for you to see a material impact on your business and market volumes overall?

Speaker 5

It's a great question. We feel like, you know, we believe getting back to a $5 million number is where we would like to see it in the future. We don't have it perfectly correlated to what that growth would be if that's your follow-on question, but we feel like a $4.5 million unit number is more in line with where we expect the business to be and see some of our categories that have been negatively impacted by the decline in existing home sales improve. That's what we're hoping for as we go forward. Also, in our guide, we know we're looking for the businesses today, and we feel confident with it running at $4 million-ish for what we've talked about in 2025.

Got it. Thanks, guys. I'll pass it on.

Thanks, Brian.

Speaker 0

Thank you.

Speaker 3

Our next question comes from the line of David John Manthey with Robert W. Baird & Co. Incorporated. Your line is open.

Thank you. Good morning, guys. The first question is on the change in tariff expectations. You went to a $37.5 million per quarter run rate assumption, and you were at $52.5 million previously. In the second half, that would be like $50 million upside. I think you said you raised the guidance by $40 million. Is that just reflective of the tariffs kind of rolling in through the third quarter?

Speaker 0

Yeah, the only thing I would say about the math that you just did, Dave, is remember, it's not going to, the tariff cost isn't going to hit us till late in the third quarter. It's going to begin hitting us. I think your run rate numbers are right, but again, it's just a period of time where we have a price and not tariff cost. It's not like a whole quarter or a big period of time. I'm not sure if that answers your question, but again, remember that tariff cost isn't going to start hitting us until well into the third quarter.

I assumed it was a timing issue. To the previous question on shelf prices, you talked about prices to your customers. Is there a disconnect between those things? Are you able to go and raise price to the retailer and then they don't change shelf price for a time, or are those more in lockstep? If all goes well based on the timing you just discussed, do you expect to be ahead of tariffs in the third quarter, meaning you'll over-earn? I think you've kind of implied that. You'll hit sort of price-cost neutrality as the tariffs fully flow in and the price changes fully flow in. By the time you get to the fourth quarter of 2025, those will be matched up as well as you can based on what you know currently about tariff pricing.

Speaker 5

Yeah, so Dave, the last question that you asked there, that is accurate. That's the way to look at the benefit in Q3, and then we're at parity, if you will, or alignment in Q4. That's the right way to think about it. As far as pricing and retailers, each retailer is going to be different depending on their accounting and how they operate. In fairness, I don't think it's my place to comment on how and when you'll see the pricing at the shelf. We partner with our customers. They are fair and balanced, and these are not easy conversations for any of the companies or our sales teams that are having the conversations with our customers. We're aligned with them and we're working with them to either deal with price or mitigate cost through country of origin changes. That's how we're running the business.

That's about as far as I can go.

Very good. Thank you.

Thanks. Thank you. Take care.

Speaker 3

Our next question comes from the line of Reuben Garner with The Benchmark Company LLC. Your line is open.

Speaker 2

Thank you. Good morning, guys. Congrats on the strong, strong results and outlook. I have some technical difficulties, so sorry if I repeat any questions. On the pricing and volume outlook for the back half, is it right to assume that the pricing is probably more like in the low teens within the hardware section? That's where you're implying you're going to see most of the, excuse me, Hardware and Protective Solutions section, and that's where you're going to see most of the declines in volume or what you're implying. Can you tell us when the pricing actually went into place and what you've seen from a volume standpoint since then?

Speaker 0

Yeah, let me take the first part and I'll let JMA take the second part, Reuben. Yeah, I mean, there is more pricing in HTS than there would be, and as an example, RDS with Canada. That reason is because there are more tariff direct impacts on those businesses. I'll start, JMA. The pricing, you know, some is in place, some is going in place, some went in place last week, some is going in place as we speak. Basically, every customer, every product is different, and so we deal with it on a case-by-case basis. As we sit today, we're confident that we have our tariff exposure covered.

Speaker 5

I don't have anything to add. Thanks, Rocky.

Speaker 2

Got it. I know you've been working on mitigation efforts. Can you give any update or details there? Still on track to get it down, at least get China down to 20%. What kind of markets are you taking it to? What are the tariff implications in those markets based on what you know today? I know it's fluid.

Speaker 5

Yeah, it's fluid. I'll give you a couple of nuggets, Reuben. From our perspective, we feel like we're in very good shape with our movement of product out of China and our dual faucet strategy. We do still have confidence that we have the ability to be approximately 20% out of China by year-end. We are moving it to, pick a name of the country. These are not in volume order, but places like Thailand, Vietnam, and India are a few that would benefit from the moves that we're making right now. Our product and our operations teams are doing a great job. Our sourcing team is doing a great job working with those suppliers. We've had opportunities that we've been developing over the last several years that now we're going to start moving volume to. We have other new opportunities that we'll be moving to.

It is fluid, like you said. As things settle down and we see where the best place for us to have the most competitive product for our customers and the best value and the right quality is, we'll end up making a determination of where we'll round out. Reuben, we'll have a lot to update you and everyone else on in future quarters. It is fluid, and I'm actually really proud of what the team's doing and the partnership with our customers to make sure that we can take care of our customers and ultimately our end users. A lot of moving pieces.

Speaker 2

Great. Thanks, guys. Good luck.

Speaker 5

Welcome. Thanks a lot.

Speaker 3

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Mr. Jon Michael Adinolfi for closing remarks.

Speaker 0

Thank you, everyone, for joining us this morning. We look forward to updating you on our progress soon. Hope everybody has a great day. Take care. I'm ready to disconnect.

Speaker 3

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.