Company Overview

Hillman Solutions Corp (HLMN) is a leading provider of hardware products, fasteners, and merchandising solutions across North America. With a rich history spanning over 60 years, the company has established itself as a trusted partner to major retailers, home improvement centers, and independent hardware stores. Hillman's diverse product portfolio, expansive distribution network, and exceptional customer service have positioned it as a cornerstone in the hardware and home improvement industry.

The company was founded in 1964 by brothers Max and Sydney Hillman, who recognized the growing demand for hardware products and set out to build a business that could efficiently serve the needs of retailers across the United States. Over the decades, Hillman has steadily grown its operations, expanding its product offerings and geographical reach to become a dominant player in the industry. In its early years, the company focused on selling fasteners, keys, and other hardware items to local hardware stores. As the retail landscape evolved, Hillman adapted by expanding its product offerings and customer base to include home improvement centers, mass merchants, pet supply stores, and other retailers across the United States, Canada, and Mexico.

Business Segments

Today, Hillman operates through three distinct business segments: Hardware and Protective Solutions (HPS), Robotics and Digital Solutions (RDS), and Canada. The HPS segment is the company's largest, accounting for approximately 74.2% of total net sales in the thirty-nine weeks ended September 28, 2024. This segment encompasses a wide range of hardware items, including fasteners, threaded rod, keys, and personal protective equipment (PPE) such as gloves and eyewear. The RDS segment, which makes up around 15.4% of net sales, focuses on key duplication, engraving, and other robotic and digital solutions. The Canada segment, contributing 10.3% of net sales, provides similar hardware and identification products to the Canadian market.

Financials and Liquidity

Hillman's financial performance has been relatively consistent, with the company generating $1.48 billion in revenue and an operating income of $60.9 million in 2023. The company's adjusted EBITDA, a key metric used to measure its underlying profitability, was $182.6 million in 2023, representing a healthy margin of 12.3%. For the most recent fiscal year (2023), Hillman reported revenue of $1.48 billion, a net loss of $9.59 million, operating cash flow of $238.03 million, and free cash flow of $172.27 million.

In the most recent quarter (Q3 2024), Hillman reported revenue of $393.3 million, a decrease of 1.4% year-over-year. Net income for the quarter was $7.4 million, up from $5.1 million in Q3 2023. Operating cash flow was $75.39 million, and free cash flow was $33.51 million. The company's balance sheet remains solid, with a net debt to adjusted EBITDA ratio of 3.3x as of the end of 2023, providing the company with ample financial flexibility to invest in growth initiatives and pursue strategic acquisitions.

Hillman's liquidity position is strong, with a debt-to-equity ratio of 0.64 as of September 28, 2024. The company had $59.82 million in cash and $264.82 million available on its $375 million revolving credit facility. The current ratio stands at 2.32, while the quick ratio is 0.76.

Key Strengths

One of Hillman's key strengths is its extensive distribution network, which allows the company to efficiently serve its diverse customer base. The company operates 13 distribution centers across the United States and Canada, enabling it to deliver products quickly and reliably to its retail partners. Hillman's field sales and service teams, numbering over 1,100 individuals, further enhance its customer service capabilities, ensuring that its retail partners receive the support they need to maintain optimal in-store inventory and merchandising.

The company's product innovation and strategic acquisitions have also been critical to its success. Hillman continually invests in developing new and improved hardware solutions, such as its recent launch of the MinuteKey 3.5 self-service key duplication kiosks, which offer enhanced features and functionality. Additionally, Hillman has successfully integrated several strategic acquisitions, including Koch Industries in 2024 and Intex DIY in 2024, which have expanded the company's product offerings and customer reach. A key milestone in Hillman's history was the acquisition of Resharp in 2019, which expanded the company's capabilities in key duplication and engraving. This acquisition allowed Hillman to provide a more comprehensive suite of products and services to its retail customers.

Challenges and Resilience

Despite the challenges posed by the COVID-19 pandemic, which resulted in temporary store closures and supply chain disruptions, Hillman has demonstrated its resilience and adaptability. The company quickly implemented cost-saving measures, optimized its inventory management, and leveraged its strong customer relationships to navigate the turbulent environment. As a result, Hillman was able to maintain its profitability and continue to invest in its long-term growth. However, the company faced another significant challenge in 2023 when it experienced a ransomware attack that disrupted its operations. Hillman was able to recover from this incident and maintained strong relationships with its customers, further demonstrating its resilience.

In 2024, Hillman faced additional challenges, including increased supply chain costs, foreign currency fluctuations, and the bankruptcy filing of a large customer, True Value, which accounted for 3% of Hillman's net sales in the period. Despite these obstacles, the company has maintained its strong market position and continued to grow its adjusted EBITDA.

Future Outlook

Looking ahead, Hillman remains well-positioned to capitalize on the expected recovery in the home improvement and hardware sectors. The company's diversified product portfolio, extensive distribution network, and strong customer relationships position it to benefit from the anticipated rebound in existing home sales and increased consumer spending on home renovation projects. Moreover, Hillman's ongoing focus on product innovation and strategic acquisitions will likely continue to drive its topline growth and enhance its competitive positioning in the market.

For 2024, Hillman has increased its guidance, projecting net sales in the range of $1.455 billion to $1.485 billion, with a midpoint of $1.47 billion, representing a 4% increase over the previous midpoint. The company expects adjusted EBITDA to reach approximately $250 million, a 14% increase from 2023. Free cash flow is projected to be between $100 million and $115 million, with a midpoint of $107.5 million.

Looking further ahead to 2025, Hillman anticipates returning to its historic organic growth algorithm of 6% per year for top-line growth and high single to low double-digit organic adjusted EBITDA growth, assuming a healthy macro environment. In the longer term, with active M&A, the company expects top-line growth of high single to low double digits and adjusted EBITDA growth in the low to mid-teens.

The hardware and home improvement industry has seen a compound annual growth rate (CAGR) of approximately 6% over the past 5 years, providing a favorable backdrop for Hillman's growth strategies. The company's geographic diversification, with operations in the United States (89.5% of revenue in Q3 2024), Canada (9.5%), and Mexico (1%), allows it to tap into multiple markets and mitigate regional economic fluctuations.

In conclusion, Hillman Solutions Corp (HLMN) is a well-established and respected player in the hardware and home improvement industry. With its comprehensive product offerings, efficient distribution capabilities, and strong customer relationships, the company is poised to capitalize on the industry's growth opportunities and deliver sustained value for its shareholders. As Hillman continues to execute on its strategic priorities, investors may find the company's long-term prospects compelling. The company's history of adaptation, resilience, and commitment to providing high-quality products and services to its retail partners has allowed it to navigate various challenges over its 60-year history and emerge as a leading provider of hardware-related solutions in North America. In 2021, Hillman went public through an initial public offering, providing the company with additional resources to fund growth initiatives. This included investments in its Robotics and Digital Solutions segment, which offers self-service key duplication and engraving kiosks. While this segment has faced some headwinds in recent years due to reduced foot traffic in retail stores, Hillman has remained focused on improving the performance of this business and continues to innovate in this area to drive future growth.