Hillman (HLMN)

Hardware products and merchandising solutions provider Hillman (NASDAQ:HLMN) fell short of the market’s revenue expectations in Q1 CY2025 as sales rose 2.6% year on year to $359.3 million. On the other hand, the company’s full-year revenue guidance of $1.54 billion at the midpoint came in 0.5% above analysts’ estimates. Its non-GAAP profit of $0.10 per share was in line with analysts’ consensus estimates.

Company Overview

Established when Max Hillman purchased a franchise operation, Hillman (NASDAQ:HLMN) designs, manufactures, and sells industrial equipment and systems for various sectors.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Fortune Brands Home & Security (NYSE:FBHS), Stanley Black & Decker (NYSE:SWK), and Spectrum Brands (NYSE:SPB).

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Hillman’s sales grew at a sluggish 3.9% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Hillman’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

This quarter, Hillman’s revenue grew by 2.6% year on year to $359.3 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 4.9% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below the sector average.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

Hillman has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 44.1% gross margin over the last five years. That means Hillman only paid its suppliers $55.85 for every $100 in revenue.

This quarter, Hillman’s gross profit margin was 46.9%, in line with the same quarter last year. On a wider time horizon, Hillman’s full-year margin has been trending up over the past 12 months, increasing by 2.6 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Hillman was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.7% was weak for an industrials business. This result is surprising given its high gross margin as a starting point.

On the plus side, Hillman’s operating margin rose by 1.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Hillman generated an operating profit margin of 4.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Hillman’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Hillman’s EPS grew at a spectacular 15.5% compounded annual growth rate over the last two years, higher than its flat revenue. This tells us management responded to softer demand by adapting its cost structure.

We can take a deeper look into Hillman’s earnings to better understand the drivers of its performance. While we mentioned earlier that Hillman’s operating margin was flat this quarter, a two-year view shows its margin has expanded by 3.9 percentage points. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Hillman reported EPS at $0.10, in line with the same quarter last year. This print beat analysts’ estimates by 3.2%. Over the next 12 months, Wall Street expects Hillman’s full-year EPS of $0.52 to grow 8.7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Hillman has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3%, lousy for an industrials business.

Taking a step back, an encouraging sign is that Hillman’s margin expanded by 3.8 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Hillman burned through $21.31 million of cash in Q1, equivalent to a negative 5.9% margin. The company’s cash burn was similar to its $6.08 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Hillman historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.9%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Hillman’s ROIC increased by 1 percentage points annually over the last few years. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Hillman reported $36.31 million of cash and $811.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $251.7 million of EBITDA over the last 12 months, we view Hillman’s 3.1× net-debt-to-EBITDA ratio as safe. We also see its $29.51 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Hillman provide full-year revenue and EBITDA guidance that slightly beat analysts’ expectations. We were also glad its EBITDA slightly exceeded Wall Street’s estimates, though its revenue slightly missed. Still, this quarter had some key positives. The stock remained flat at $7.56 immediately after reporting.

Updated: May 16, 2025 at 11:37 PM EDT

Before investing in or passing on Hillman, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Hillman’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was uninspiring over the last five years. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its operating margins reveal poor profitability compared to other industrials companies.

Hillman’s P/E ratio based on the next 12 months is 14.2x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $10.86 on the company (compared to the current share price of $8.06).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.