Executive Summary / Key Takeaways

• Hillman Solutions (HLMN) delivered record net sales and Adjusted EBITDA in Q3 2025, demonstrating resilience amidst market headwinds and tariff volatility, driven by strategic pricing and operational efficiencies.
• The company is aggressively expanding its "competitive moat" through a unique direct-to-store service model, proprietary brands, and a significant rollout of its MinuteKey 3.5 kiosks, which are enhancing revenue and customer engagement.
• HLMN is committed to a profitable growth strategy targeting $2 billion in net sales over the next three to five years, combining organic growth from new business wins and market recovery with strategic, accretive acquisitions.
• Despite ongoing tariff-related cost pressures and market volume declines, management reiterates strong full-year 2025 guidance, projecting robust Adjusted EBITDA growth and improved leverage, with a disciplined approach to capital allocation including a new share repurchase program.
• Key risks include persistent tariff fluidity, broader economic slowdowns impacting consumer spending, and foreign currency fluctuations, though Hillman's diversified supply chain and essential product offerings provide a strong defensive posture.

The Enduring Moat: Hillman's Foundation for Growth

Hillman Solutions Corp. (HLMN), established in 1964, has cultivated a robust position in the North American hardware-related products and merchandising services industry. The company's core business revolves around providing essential items such as fasteners, keys, personal protective equipment, and builders' hardware to a diverse customer base spanning hardware stores, home centers, mass merchants, and industrial OEMs. This foundational strength, rooted in the essential nature of its 112,000 SKUs tied to everyday repair and maintenance, has historically enabled consistent performance across various economic cycles.

Hillman's overarching strategy aims to achieve $2 billion in net sales over the next three to five years, a target underpinned by a multi-pronged approach. This includes driving organic growth through new business wins and an anticipated return to 2% to 3% market volume growth, complemented by a disciplined M&A strategy targeting two to three accretive acquisitions annually. The company's history of strategic acquisitions, such as Koch Industries in January 2024 (rope and chain products) and Intex DIY in August 2024 (cleaning textiles), demonstrates its capability to expand offerings into adjacent categories and leverage its existing infrastructure.

Central to Hillman's competitive advantage is its "moat," a set of unique differentiators that solidify its market position. This moat comprises over 1,200 dedicated field sales and service representatives who actively manage in-store aisles and service kiosks, significantly reducing labor burdens for retailers. Approximately 65% of Hillman's sales are shipped directly to retail locations, bypassing customer distribution centers and ensuring high fill rates and timely delivery. Furthermore, Hillman's 60 years of category management expertise, coupled with its portfolio of approximately 90% company-owned brands like Power Pro and OOK, positions it as a trusted partner offering solutions beyond mere products. These deeply integrated retail partnerships, averaging nearly 30 years with its top five customers, underscore Hillman's indispensable role in the hardware ecosystem.

Technological Edge: MinuteKey 3.5 and Digital Transformation

Hillman's technological differentiation is most evident in its Robotics and Digital Solutions (RDS) segment, particularly with the rollout of its MinuteKey 3.5 kiosks. These self-service key duplication and engraving machines represent a significant leap forward, offering enhanced capabilities that extend beyond traditional home and office keys. The MinuteKey 3.5 machines can duplicate smart auto fobs, auto transponders, and RFID fobs, and feature an "endless aisle" concept, significantly broadening the product offering. All new machines are equipped with credit card readers, streamlining customer transactions directly at the kiosk.

As of Q3 2025, Hillman had deployed over 3,000 MinuteKey 3.5 machines, an increase of more than 800 in the preceding three months, and is on track to complete the rollout to its two largest customers by the end of 2026. This initiative is already generating a "healthy lift in revenue" compared to the MinuteKey 3.0, contributing to improved margins in the RDS segment. For investors, this technological advancement translates into a stronger competitive moat, driving higher revenue per machine, enhancing customer convenience, and offering retailers a revenue-sharing model without requiring their capital or resources.

Beyond RDS, Hillman is investing in broader digital transformation, including cloud migration and leveraging artificial intelligence. These initiatives are designed to enhance operational effectiveness and efficiency across the company, aiming to simplify business processes and strengthen relationships with partners. This strategic investment in technology is crucial for managing its vast SKU portfolio and extensive retail network, ultimately contributing to its long-term growth and competitive standing.

Competitive Landscape and Strategic Positioning

Hillman operates in a highly competitive market, facing both direct and indirect rivals. Direct competitors include industrial and hardware distributors like Fastenal Company and W.W. Grainger, Inc. , tool manufacturers such as Stanley Black & Decker, Inc. , and large home improvement retailers like The Home Depot, Inc. .

Hillman differentiates itself from Fastenal and Grainger through its specialized focus on retail merchandising and branded consumer hardware, leveraging its in-store service model to build deeper customer loyalty in consumer-facing segments. While Fastenal (FAST) and Grainger excel in broad distribution scale and industrial supply, Hillman's "secret sauce" of 1,200 field reps and direct-to-store delivery provides a unique value proposition that rivals struggle to replicate. Compared to Stanley Black & Decker (SWK), Hillman's strength lies in its diverse product variety and mass-market appeal for everyday hardware, often at more accessible price points, while SWK typically leads in higher-end industrial tools. Against The Home Depot , Hillman positions itself as a critical wholesale and merchandising partner, offering specialized solutions that enhance HD's offerings rather than competing directly for retail customers.

However, Hillman faces vulnerabilities. Its supply chain, while diversifying, still has dependencies that could impact costs during disruptions, a challenge that more robust logistics networks of competitors like Grainger might mitigate more effectively. Furthermore, while investing in digital, Hillman's pace of digital innovation may lag behind the advanced e-commerce platforms of Grainger (GWW) or the omnichannel strategies of Home Depot (HD), potentially affecting its ability to capture growth in rapidly evolving digital channels. Indirect competitors, including online marketplaces like Amazon (AMZN), also pose a threat by offering alternative purchasing options that could impact traditional retail sales.

Despite these challenges, Hillman's competitive advantages, particularly its strong brand portfolio and established retail partnerships, create significant barriers to entry for new players. The company's ability to offer integrated solutions, from product supply to in-store merchandising, makes it a preferred partner for retailers seeking to optimize their hardware categories.

Financial Performance and Operational Momentum

Hillman's financial performance in Q3 2025 underscored its operational strength, achieving record net sales of $424.9 million, an 8% increase year-over-year. This robust top-line growth was primarily driven by a 10-point increase from price, 2 points from the Intex acquisition, and 2 points from new business wins, partially offset by a 6-point headwind from market volumes. The company also reported a record Adjusted EBITDA of $88 million, a significant 36% increase from the prior year, with Adjusted EBITDA margins expanding by 420 basis points to 20.7%.

Gross margin performance was particularly strong, reaching 51.7% in Q3 2025, a 350 basis point improvement year-over-year and 340 basis points sequentially. This was attributed to improved contributions from the RDS segment and favorable price-cost timing dynamics.

The Hardware and Protective Solutions (HPS) segment saw net sales increase by $29.8 million, largely due to price increases of $28.6 million and contributions from the Intex acquisition. The Robotics and Digital Solutions (RDS) segment also returned to growth, with net sales up 3.32% year-over-year, driven by $4.6 million in price increases. Canada's net sales remained nearly flat, impacted by soft market volumes and foreign exchange headwinds.

Operationally, Hillman has effectively managed the dynamic tariff environment, successfully covering increased costs through strategic pricing actions. The company's "Dual Faucet strategy" has been instrumental in diversifying its global supply chain, aiming to reduce its reliance on Chinese suppliers from nearly 50% in 2018 to approximately 20% by the end of 2025, by sourcing from countries like Vietnam, Taiwan, and India. This proactive approach, coupled with consistent fill rates above 95%, highlights Hillman's commitment to operational excellence.

Liquidity, Capital Allocation, and Outlook

Hillman's financial health is further evidenced by its improving liquidity and disciplined capital allocation. As of September 27, 2025, working capital increased to $397.9 million, driven by seasonality and tariff costs. The company's net debt to trailing 12-month Adjusted EBITDA ratio improved to 2.5x, reaching its long-term target of at or below 2.5x. This improved leverage provides flexibility for future M&A opportunities and other shareholder value initiatives. Liquidity stood at $277 million, including $239 million of available borrowings under its revolving credit facility.

In a move to enhance shareholder value, Hillman's Board of Directors authorized a $100 million share repurchase program on July 31, 2025. The company deployed $3.2 million in Q3 2025 to repurchase 326,000 shares, aligning with an anticipated annual spend of $20 million to $25 million to offset dilution and opportunistically acquire stock. This initiative is expected to be accretive to earnings per share.

For the full year 2025, Hillman reiterated its net sales guidance of $1.535 billion to $1.575 billion, with a midpoint of $1.555 billion, representing 5.6% growth over 2024. Adjusted EBITDA guidance was increased to a midpoint of $272.5 million, reflecting 12.7% growth over 2024. This outlook assumes approximately 6 points of price, 3 points from the Intex acquisition, and 2 points from new business wins, partially offset by a 6-point headwind from market volumes. While Q4 2025 is expected to see a normalization of the price-cost timing dynamic, leading to a step down in gross margin rates, the company anticipates ending the year around 2.4x leverage.

Looking ahead to 2026, Hillman projects high single to low double-digit net sales growth, driven by rollover pricing and new business wins, assuming flat market volumes. Adjusted EBITDA is expected to grow in the low to mid-single digits, acknowledging a difficult margin comparison due to the 2025 price-cost timing benefit. Capital expenditures for the RDS segment are expected to peak in 2025 and decline by approximately $20 million in 2026, with the segment projected to generate around $50 million in annualized free cash flow once the MinuteKey 3.5 rollout is complete.

Risks and Considerations

Despite its strengths, Hillman faces several risks. The fluidity of the tariff environment remains a significant concern, with potential for increased working capital and cost of sales, and the risk that price increases could impact future demand. Unfavorable economic conditions, including inflationary pressures on costs and potential recessions, could impact consumer discretionary spending and, consequently, demand for Hillman's products. Foreign currency exchange rate fluctuations, particularly against the Chinese Yuan, Taiwan dollar, and Canadian dollar, also pose a risk to profitability. Additionally, exposure to variable interest rates on its debt means a 1% change could impact annual interest expense by approximately $3.3 million. While Hillman's business model is resilient, a prolonged downturn in the housing market or a significant decline in repair and remodel activity could temper growth expectations.

Conclusion

Hillman Solutions Corp. stands as a resilient and strategically positioned company, leveraging its deep industry experience, robust competitive moat, and a clear vision for growth. The company's record-breaking Q3 2025 performance, driven by effective pricing strategies and operational efficiencies, underscores its ability to thrive even in challenging market conditions. Hillman's commitment to technological innovation, particularly with the MinuteKey 3.5 rollout, and its disciplined capital allocation, including debt reduction and share repurchases, are key drivers for long-term shareholder value.

While the company acknowledges ongoing risks from tariff volatility and macro-economic headwinds, its diversified supply chain, essential product offerings, and strong customer partnerships provide a solid foundation. Hillman's strategic roadmap to $2 billion in net sales, fueled by organic expansion and targeted acquisitions, positions it for sustained profitability and market share gains. Investors looking for a company with a proven track record of execution and a clear path to future growth, underpinned by unique competitive advantages, will find Hillman Solutions a compelling consideration.