Hillman Solutions' Q3 2025: Contradictions Emerge on Volume Forecasts, Tariff Pricing, and Supply Chain Outlook

Date of Call: November 04, 2025

Financials Results

• Revenue: $424.9M, up 8% YOY (Q3 2025 net sales, company record)
• Gross Margin: Adjusted gross margin 51.7%, up 350 bps vs 48.2% year-ago and up 340 bps sequentially (Q2 2025: 48.3%)
• Operating Margin: Adjusted EBITDA margin 20.7%, up 420 basis points vs prior-year quarter; adjusted EBITDA $88.0M, up 36% YOY (record)

Guidance:

• Reiterated full-year 2025 net sales guidance of $1.535B–$1.575B (midpoint $1.555B, ~5.6% growth vs 2024).
• Increased full-year 2025 adjusted EBITDA guidance to $270M–$275M (midpoint $272.5M; low end raised $5M; midpoint +12.7% vs 2024).
• Expect to end year around ~2.4x net leverage and remain committed to debt paydown and opportunistic M&A/repurchases.
• Q4: price fully reflected while tariffs will burden COGS causing a step-down in gross margin versus Q3.
• 2026 directional: in a flat market, expect net sales up high-single to low-double digits and adjusted EBITDA growth in low- to mid-single digits.

Business Commentary:

• Record Financial Performance:
• Hillman reported record net sales of $424.9 million for Q3 2025, with an 8% increase year-on-year, and adjusted EBITDA rose by 36% to $88 million.

• Growth was driven by a 10-point increase in price, contributions from In-Tax acquisition, and new business wins, despite a six-point headwind from market volumes.

• Hardware and Protective Solutions and Robotics and Digital Solutions:

• The Hardware and Protective Solutions (HPS) segment grew by 10%, with an adjusted EBITDA increase of 57.3% to $65.8 million.
• Contributions from In-Tax acquisition, new business wins, and improved price-cost timing were key drivers, offsetting a 5.5% decline in HPS market volume.

• In the Robotics and Digital Solutions (RDS) segment, net sales were up 3.3%, with over 3,000 MiniKey 3.5 machines deployed, reflecting the successful rollout of the MiniKey 3.5 strategy.

• Tariff Management and Financial Health:

• Hillman successfully managed increased tariff costs, maintaining operations and delivering orders on time with excellent fill rates above 95%.
• The company reduced leverage to 2.5 times, compared to 2.7 times a quarter ago, and generated $26.2 million in cash from operating activities.
• Despite tariff volatility, Hillman maintained financial discipline and continued to pay down debt while exploring M&A opportunities.

* Guidance and Market Outlook: - For the full year 2025, Hillman increased the low end of its adjusted EBITDA guidance by $5 million, expecting $270 million-$275 million. - The company expects flat market volumes for 2026, with high single to low double-digit top-line growth driven by rollover price and new business wins, and low to mid-single-digit EBITDA growth assuming no change in tariffs.

Sentiment Analysis:

Overall Tone: Positive

• Management called Q3 a record quarter with "highest net sales and adjusted EBITDA" in company history; net sales +8% and adjusted EBITDA +36%. They reiterated 2025 top-line guidance and raised the adjusted EBITDA midpoint, noted improved leverage to 2.5x, and described multiple growth drivers (price, In-Tax, new business) and a strong rollout of MiniKey 3.5—all supporting a positive outlook.

Q&A:

• Question from Pete Lucas (Lee Yehoda / CJS Securities): Have you seen competitive opportunities or pressures as other suppliers change ability to import? What have you seen in order patterns from largest retail customers vs. sell-through? Given today’s results and guidance, what, if anything, has changed for your 2026 view?
  Response: No change to the 2026 view; company sees competitive opportunities as some competitors struggle, order patterns are consistent, and the 2026 assumption (flat market -> top-line up high-single to low-double digits; EBITDA low- to mid-single digits) remains intact.

• Question from Andrew Carter (Steeple): On HPS, is the observed elasticity (price up, volume down) real-time or helped by inventory moves? Also, you previously cited ~$150M of tariff exposure—is that still accurate and how do tariff changes flow through pricing and P&L?
  Response: Tariff exposure remains approximately $150M and tariff changes take time to flow through inventory; price/volume effects vary by customer/product but store-direct model mutes channel inventory swings.

• Question from Reuben Garner (Benchmark): Are the second-half implied market volume declines driven by tariff-related elevated prices or broader consumer activity? Also, how much of the sequential gross margin improvement was from RDS versus price-cost timing and what drove the RDS pickup?
  Response: It's difficult to isolate drivers of demand; however, the largest driver of Q3 margin improvement was the price-cost timing dynamic, with RDS contributing roughly ~100 bps from MiniKey 3.5 rollout and improved profitability.

• Question from Matthew Bulli (Barclays): Are you seeing more elasticity or pushback on price than expected given peers' experiences, and how receptive have customers been to increases? Also, what did you mean by October showing 'green shoots'?
  Response: Price realization has largely proceeded as expected; conversations have been challenging but retailers have been fair and cooperative, and October POS trends were modestly improved indicating early signs of stabilization.

• Question from David Manthey (Baird): To confirm, the 2026 revenue outlook (high-single to low-double digits) assumes a flat market? Also, why was SG&A elevated in Q3?
  Response: Yes—the 2026 directional top-line assumes a flat market; Q3 SG&A was elevated mainly due to a larger bonus accrual and should normalize.

• Question from Brian McNamara (Cantor Fitzgerald): When did the recent price increases hit retail shelves? Has there been pushback at retailer or in-store levels? How have commodity moves (e.g., lumber) affected demand? Any change in M&A activity?
  Response: Price increases cascaded late August/early September and customer pushback has been measured and fair; larger-ticket categories tied to inputs (e.g., lumber) have pressured demand for big projects, and inbound M&A interest is increasing.

Contradiction Point 1

Volume Expectations and Market Dynamics

It involves differing expectations regarding market volume declines, which impact revenue forecasts and investor expectations.

Second-half volume was down 7% in the market. Is the decline driven by tariff-induced price increases or broader consumer activity trends? - Reuben Garner (Benchmark)

2025Q3: It is virtually impossible to figure out what's driving consumer impact, whether it's price increase or whether it's whatever other thing that's happening in the external environment. The 7% is the implied number at the midpoint of our guide. We were relatively confident that market volumes wouldn't be down to 9%, but they wouldn't be bigger than that either. - Jon Michael Adinolfi(CEO)

Given the 2% price increase and 2% volume decline in Q2, does the company assume no offsetting volume impact in 2026 with high single-digit to low double-digit price growth? - Matthew Bouley (Barclays)

2025Q2: We, for many quarters, have received feedback that the market was down 9%. The market was effectively down 9%. But I will say this, if the market isn't down 9%, it's down 10%. And I'll stick with my math. - Jon Michael Adinolfi(CEO)

Contradiction Point 2

Tariff Impact and Pricing Strategy

It involves changes in the company's pricing strategy and the impact of tariffs, which are critical for financial forecasting and investor expectations.

Have you observed signs of price fatigue or elasticity compared to peers who haven't achieved full price realization? - Matthew Bulli (Barclays)

2025Q3: It's gone as expected with lots of twists and turns. Price has played out about as expected. It hasn't been easy, but our customers understand. They live in the same world we live in and have been fair, I would say, relative to how price has rolled out. - Jon Michael Adinolfi(CEO)

Has your expectation of a 300-basis-point gross margin reduction from tariffs remained unchanged? - Michael Francis (William Blair)

2025Q2: We believe we're in a good place right now. Having said that, the $150 million is a very round number. There's a ton of fluidity in that. Our customers have been great, and we have spent a lot of time making sure that we work with our customers to get the right amount of tariff price. - Robert O. Kraft(CFO)

Contradiction Point 3

Supply Chain and Service Levels

It highlights a discrepancy in the company's outlook on their ability to maintain service levels amidst supply chain challenges, which could impact operational efficiency and customer satisfaction.

Hardware and Protective Solutions segment: price increased by 12.5%, volume decreased by 3.3%. Is this a real-time elasticity measure, or were other factors affecting volume? - Andrew Carter(Steeple)

2025Q3: We feel good about our service levels, and there are no major disruptions. Our supply base has been supportive. - Jon Michael Adinolfi(CEO)

How do current supply chain issues differ from those during the pandemic, and what are potential scenarios for 2026? - David Manthey(Baird)

2025Q1: We feel good about our service levels, and there are no major disruptions. Our supply base has been supportive. - Jon Michael Adinolfi(CEO)

Contradiction Point 4

Price Escalation and Consumer Elasticity

It involves differences in the company's ability to pass on tariff-driven price increases to consumers and the impact on market volumes.

Have you observed any price fatigue or elasticity in cases where peers haven’t achieved full price realization? - Matthew Bulli (Barclays)

2025Q3: It's gone as expected with lots of twists and turns. Price has played out about as expected. It hasn't been easy, but our customers understand. They live in the same world we live in and have been fair, I would say, relative to how price has rolled out. - Jon Michael Adinolfi(CEO)

How will Canadian operations be affected by tariffs and market pressures? - Unidentified Analyst (CJS Securities)

2024Q4: We are pursuing another round of strategic pricing for the second half of 2025. And this one will be unrelated to tariffs. In fact, we believe that we're more than offsetting tariff costs with this strategic pricing effort. - Jon Michael Adinolfi(CEO)

Contradiction Point 5

Market Growth and Tariff Impact

It highlights differing perspectives on the impact of tariffs on market growth and consumer behavior.

Were second-half volume numbers down 7% as mentioned? Is the elevated price from tariffs driving the decline? Or is it broadly due to reduced consumer activity? - Reuben Garner (Benchmark)

2025Q3: It is virtually impossible to figure out what's driving consumer impact, whether it's price increase or whether it's whatever other thing that's happening in the external environment. The 7% is the implied number at the midpoint of our guide. We were relatively confident that market volumes wouldn't be down to 9%, but they wouldn't be bigger than that either. - Jon Michael Adinolfi(CEO)

How are you addressing tariffs and have they been factored into your guidance? - Ryan Merkel (William Blair)

2024Q4: We are managing tariffs similarly to 2018 by pricing at a dollar-for-dollar basis. We're prepared to execute once there's clarity on tariff developments. - Jon Michael Adinolfi(CEO)