Hamilton Beach 2007 Annual Report Download - page 31

[27]
ongoing basis. Specifically, HBB plans to leverage its core
brands, as well as pursue opportunities to build its brand
portfolio. New brand initiatives could enhance HBB’s position
broadly, help HBB target specific markets, such as higher-end
consumers, or help HBB serve specific retailers with key names
that strengthen their brand offerings. Overall, HBB’s brand
programs represent a critically important part of the company’s
growth strategy.
Outlook for 2008 and Beyond
As a result of its ongoing focus on innovative new
products, HBB has a strong assortment of new products
planned for 2008 and 2009. However,
2008 is expected to be a difficult year
for HBB. The company is not
optimistic consumer markets will
improve in 2008, as the effects of high
gasoline prices, depressed home sales,
mortgage debt concerns and worries
of recession all have potential to
further dampen consumer spending.
If consumer spending softens further
and retailers choose to reduce shelf
space for the small electric kitchen
appliance category, it is possible the
overall market for these products in the United States
will decline in 2008. HBB is also concerned about material
cost increases.
The company is closely monitoring material costs and
working to mitigate cost increases through continued
implementation of programs initiated in prior years, as well as
through selective price increases when appropriate. However,
the timing of margin recovery is likely to adversely affect results
in 2008. While the company remains confident it will continue
to see performance improvements from its profitability and
growth programs over the next several years, it will be difficult
to improve net income performance if overall retail sales
decline. Specifically, efforts in product cost reduction, quality
improvement, product innovation, promotions and branding
are all expected to contribute to HBB profitability, although
overall profitability levels for 2008, and possibly beyond, could
fall below the company’s previous expectations.
Considering a challenging economic and retail
environment, HBB is proud of its team’s efforts to reach the
profitability level it did in 2007. As noted earlier, HBB’s goals
are to achieve a 10 percent minimum operating profit margin,
and to generate significant cash flow before financing activities.
While the company’s operating profit margin was 7.5 percent
in 2007 compared with 7.8 percent in 2006, HBB achieved a
high ROE(1) of 35.5 percent in 2007 and ROTCE of 14.5 percent.
(See reconciliations of non-GAAP ROTCE on page 43.) The
company intends to make further strides by placing more
emphasis on increasing overall sales volume and improving
profitability of select products, key customer accounts and
specific regional operations. HBB has programs in place to
improve operating profit in 2008 with a long-term
objective of attaining a 10 percent
operating profit margin. HBB
generated cash flow before financing
of $15.8 million in 2007 and expects to
continue to generate significant cash
flow before financing in future years.
In summary, HBB is optimistic
about the successful implementation
of its strategic programs and about its
prospects for continued improvement,
although the company is guarded
about the prospects for a rebound in
consumer spending in the near term.
In 2007, the HBB team worked in concert to accomplish
our objectives while putting forth extra effort on a number
of projects including the proposed spin-off. Although the
proposed spin-off did not occur, we do have a new name:
Hamilton Beach Brands. With the new name comes a sense of
pride for what we’ve accomplished in the past, as well as a sense
of enthusiasm for new opportunities ahead of us. I would like
to take this opportunity to thank our employees and suppliers
for their hard work and dedication and a special “thank you”
to our customers for their business. I look forward to our
continued success.
While breakthrough product
styling can help drive
revenues, constant attention
to costs and quality is critical
to improving profitability
at HBB over time.
Dr. Michael J. Morecroft
President and Chief Executive Officer
Hamilton Beach Brands, Inc.
(1) ROE = 2007 net income divided by 2007 average equity (a five-point average of equity at December 31, 2006 and each of 2007’s quarter ends).
Left: The new Hamilton Beach® liquid blu® 5-speed blender.