A Member of Pat McKeough’s Inner Circle recently asked for his advice on Hillman Solutions, a leading North American provider of hardware-related products and solutions for home improvement, hardware, and farm and fleet stores.
Pat likes the company’s upside potential for earning following its recent acquisition. However, debt is high, and the housing market will need to rebound to help the firm realize its goals.
Hillman Solutions Corp. (Symbol HLMN on Nasdaq; www.hillmangroup.com) provides hardware-related products and merchandising services to home improvement and other retailers across North America.
Founded in 1964, the company offers more than 112,000 products to its 26,000 retail customers. Those include Home Depot (symbol HD on New York), Tractor Supply (symbol TSCO on Nasdaq), and Ace Hardware.
In July 2021, Hillman combined with Landcadia Holdings III Inc., a special purpose acquisition company (SPAC).
SPACs are a specialized kind of IPO (Initial Public Offering, or new stock issue). One key difference is that SPACs, also referred to as “blank-check companies,” raise money from investors without providing a detailed business plan. The SPAC goes through an IPO-like process, raising some money and getting listed on an exchange.
The SPAC’s next goal is to find another business to buy, usually within two years. Then the two companies merge, giving the purchased company a relatively quick stock exchange listing and the liquidity that comes with it.
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By agreeing to a reverse merger with Landcadia Holdings III, Hillman was able to avoid all the complications and costs involved with going public through an IPO.
Hillman then began trading on the Nasdaq exchange under the HLMN symbol on July 15, 2021.
Hillman announced in January 2024, that it had acquired Koch Industries Inc., a leading provider and merchandiser of rope and twine, chain and wire rope, and related hardware products. Koch’s customers include local and national retailers in the traditional hardware channel and the farm-and-fleet channel in the U.S. Koch has annual sales of about $45 million. The purchase price has not yet been disclosed.
Hillman Solutions’ sales and earnings were flat in the latest quarter
In the three months ended December 28, 2024, Hillman’s revenue rose 0.5%, to $349.6 million from $347.8 million a year earlier. Excluding one-time items, the company earned $20.6 million, or $0.10 a share, up slightly from $20.5 million, or $0.10.
The Koch acquisition has been a good one for Hillman. Those assets let it enter a new product category, as well as cross-sell Koch’s products to its existing customers using its 1,100-member sales and service team and its direct-to-store shipping approach.
However, Hillman’s long-term debt of $691.7 million is a high 45.2% of its market cap. That adds risk.
The shares trade at just 14.0 times estimated earnings of $0.56 a share for 2025—but the company will need improved housing markets to realize that forecast.
Recommendation in Pat’s Inner Circle: Hillman Solutions Corp. is a hold.
