HAWKINS INC

Hawkins, Inc. is a leading water treatment and specialty ingredients company that formulates, manufactures, distributes, and blends products for its Water Treatment, Food and Health Sciences, and Industrial Solutions customers. The company operates in a highly competitive industry and competes with many producers, distributors and sales agents offering products equivalent to substantially all of the products it offers, and many of its competitors are larger and may have greater financial resources, although no one competitor is dominant in all of the markets it serves. Hawkins competes by offering quality products with outstanding customer service at competitive prices coupled with value-added services or product formulation where needed, and because of its long-standing relationships with many of its suppliers, it is often able to leverage those relationships to obtain products when supplies are limited or to obtain competitive pricing.

The company's primary competitors are not named individually in the filing, but it notes that it competes with many producers, manufacturers, distributors and sales agents, many of whom are larger and may have greater financial resources, more product offerings and a broader geographic reach. Hawkins' stated competitive advantages include superb service and support, quality products, personalized applications, trustworthy and creative employees, and the ability to leverage long-standing supplier relationships to obtain products when supplies are limited or to obtain competitive pricing. The company believes that the high level of service provided by its route drivers, who typically serve as route driver, salesperson and trained technician, allows it to serve as the trusted water treatment expert for many of the municipalities and other customers it serves.

Hawkins generates revenue from the sale of water treatment, specialty ingredients, and chemistry products to customers in a wide variety of industries. The company's revenue is primarily transactional in nature, with revenue recognized upon transfer of control of the promised products to the customer, and the majority of its contracts have a single performance obligation and are short term in nature. Less than 5% of its Water Treatment Group revenue relates to construction and engineering contracts that involve the design, engineering, and construction of long-lived assets, with revenue recognized over time using a cost-to-cost input method. The company's primary customer segments include municipalities, industrial manufacturers, food and beverage producers, pharmaceutical companies, agricultural customers, and nutrition companies, and in fiscal 2026, 2025, and 2024, none of its customers accounted for 10% or more of total sales.

The Water Treatment segment specializes in providing chemicals, filtration media and systems, equipment, services and solutions for potable water, municipal and industrial wastewater, industrial process water, mainly non-residential swimming pool water and agricultural water, and operates out of 53 warehouses in 28 states, primarily located in the eastern two-thirds of the United States. For fiscal 2026, Water Treatment segment sales were $543.3 million ¹, an increase of $96.8 million, or 22%, from $446.5 million ² in fiscal 2025, and gross profit for the segment was $145.0 million ³, or 27% of sales, compared to $121.8 million ⁴, or 27% of sales, in the prior year. The Food and Health Sciences segment specializes in processing and formulation solutions as well as ingredient distribution to manufacturers in the nutrition, food, pharmaceutical, and agricultural markets, offering a diverse product portfolio including base chemistry, acid based reactions, minerals, vitamins and amino acids, excipients, botanicals and herbs, sweeteners and enzymes, fertilizers, and food-grade and pharmaceutical salts and ingredients. For fiscal 2026, Food and Health Sciences segment sales were $320.7 million ⁵, a decrease of $1.9 million, or 1%, from $322.6 million ⁶ in fiscal 2025, and gross profit for the segment was $67.3 million ⁷, or 21% of sales, compared to $71.9 million ⁸, or 22% of sales, in the prior year. The Industrial Solutions segment specializes in providing industrial chemicals, products and services to industries such as industrial manufacturing, chemical processing, electronics, energy, plating, and surface finishing, with principal products being acids and alkalis, and conducts its business primarily through manufacturing locations and terminal operations. For fiscal 2026, Industrial Solutions segment sales were $219.7 million ⁹, an increase of $14.3 million, or 7%, from $205.4 million ¹⁰ in fiscal 2025, and gross profit for the segment was $32.8 million ¹¹, or 15% of sales, compared to $31.8 million ¹², or 15% of sales, in the prior year.

During fiscal 2026, the company completed six acquisitions, the most significant being the acquisition of WaterSurplus, Inc. on April 25, 2025 for approximately $149.9 million ¹³ paid at closing, with an additional earnout of up to $53.7 million ¹⁴ based on cumulative gross profit for the first five years. Other acquisitions included Redbird Chemical, Inc. for $4.6 million ¹⁵, StillWaters Technology, Inc. for $4.3 million ¹⁶, the lactate business of MakWood, Inc. for $1.9 million ¹⁷, PhillTech, LLC for $5.0 million ¹⁸, and Hendrickson Enterprises, LLC and Polymer Technologies, LLC for approximately $1.5 million ¹⁹. The aggregate annual revenue of these six businesses acquired in fiscal 2026 totaled approximately $48 million ²⁰, as determined using the applicable twelve-month period preceding each respective acquisition date. The company did not repurchase any shares of its common stock during the three or twelve months ended March 29, 2026, and as of that date, 731,544 ²¹ shares remained available to be purchased under the share repurchase program. Cash dividends paid in fiscal 2026 were $15.7 million ²², compared to $14.6 million ²³ in fiscal 2025.

For fiscal 2026, total sales were $1,083.7 million ²⁴, an increase of $109.3 million, or 11%, from $974.4 million ²⁵ in fiscal 2025. Gross profit was $245.1 million ²⁶, an increase of $19.5 million, or 9%, from $225.5 million ²⁷ in fiscal 2025. Operating income was $121.3 million ²⁸, an increase of $2.1 million, or 2%, from $119.2 million ²⁹ in fiscal 2025. Net income was $81.5 million ³⁰, a decrease from $84.3 million ³¹ in fiscal 2025. Diluted earnings per share were $3.91 ³², a decrease of $0.12, or 3%, from $4.03 ³³ in fiscal 2025. Pro forma diluted EPS was $3.95 ³⁴, an increase of $0.32, or 9%, from fiscal 2025. Operating cash flow was $144.3 million ³⁵, an increase of $33.2 million, or 30%, from $111.1 million ³⁶ in fiscal 2025.

A major growth vector is the continued expansion of the Water Treatment segment through acquisitions, as evidenced by the six acquisitions completed in fiscal 2026, including WaterSurplus for $149.9 million ³⁷ paid at closing, which delivers sustainable water treatment solutions to customers throughout the United States. The company expects to continue to invest in existing and new branches to expand the Water Treatment group's geographic coverage, and the Water Treatment segment operates out of 53 warehouses in 28 states, primarily located in the eastern two-thirds of the United States. The aggregate annual revenue of the six businesses acquired in fiscal 2026 totaled approximately $48 million ³⁸, as determined using the applicable twelve-month period preceding each respective acquisition date, and the WaterSurplus acquisition alone contributed $34.6 million ³⁹ in sales for fiscal 2026.

Another growth vector is the Food and Health Sciences segment, which specializes in processing and formulation solutions as well as ingredient distribution to manufacturers in the nutrition, food, pharmaceutical, and agricultural markets, and offers a diverse product portfolio. The company acquired the lactate business of MakWood, Inc. for $1.9 million ⁴⁰ on July 2, 2025, which included the customer list and associated brand name, and this acquisition is included in the Food and Health Sciences segment. The segment's products are sold nationally, and in certain cases, internationally, and the company's extensive product portfolio, combined with value-added services including product formulation, sourcing, distribution, processing and blending, positions this segment as a one-stop ingredient solutions provider to its customers.The company notes that it focuses on total profitability dollars when evaluating financial results as opposed to profitability as a percentage of sales, as sales dollars tend to fluctuate as raw material prices rise and fall, particularly in its Water Treatment and Industrial Solutions segments. The LIFO inventory valuation method and the resulting cost of sales are consistent with the company's business practices of pricing to current chemical raw material prices.

The company anticipates total capital expenditures to be approximately $55 million ⁴¹ for fiscal 2027, compared to $58.2 million ⁴² in fiscal 2026 and $41.1 million ⁴³ in fiscal 2025. The company operates a fleet of approximately 400 ⁴⁴ commercial vehicles with power units, primarily in its Water Treatment Group, which are highly regulated, including by the U.S. Department of Transportation. As of March 29, 2026, the company had approximately 1,200 ⁴⁵ employees across the United States, substantially all of which were full-time employees, with approximately 45% ⁴⁶ of employees being female or racially and ethnically diverse, and approximately 8% ⁴⁷ covered by a collective bargaining agreement.

Capital allocation priorities include funding acquisitions, capital expenditures, and returning capital to shareholders through dividends and share repurchases. The company paid cash dividends of $15.7 million ⁴⁸ in fiscal 2026 and $14.6 million ⁴⁹ in fiscal 2025, and cash dividends declared and paid per common share were $0.7500 ⁵⁰ in fiscal 2026, compared to $0.7000 ⁵¹ in fiscal 2025. The board of directors has authorized the repurchase of up to 2.6 million ⁵² shares of outstanding common stock, and as of March 29, 2026, 731,544 ⁵³ shares remained available to be purchased under the share repurchase program. The company did not repurchase any shares during fiscal 2026. The company's credit agreement provides a $400.0 million ⁵⁴ senior secured revolving credit facility, and at March 29, 2026, the company had $244 million ⁵⁵ outstanding under the facility.

The company faces headwinds from fluctuations in the prices and availability of raw materials, which may be cyclical in nature, and the cyclicality of commodity markets such as the market for caustic soda primarily results from changes in the balance between supply and demand and the level of general economic activity. The company does not engage in futures or other derivatives contracts to hedge against fluctuations in future prices, and while it attempts to pass commodity pricing changes to its customers, it may be unable to or be delayed in doing so. The company also faces headwinds from disruptions within its supply chain and transportation network, as raw materials are transported by truck, rail, or barge or ship by third-party providers, and the costs of transporting products or necessary raw materials could be negatively affected by factors outside of its control, including rail service interruptions or rate or fuel surcharge increases, extreme weather events, tariffs, charges placed on incoming vessels or railcars, rising fuel costs and capacity constraints.

The company faces constraints from the highly competitive environment in which it operates, as many competitors are larger and may have greater financial resources, more product offerings and a broader geographic reach, and competitors' pricing decisions could compel the company to decrease its prices, which could adversely affect its margins and profitability. The company also faces constraints from the seasonality of its Water Treatment segment, which has historically experienced higher sales during April to September primarily due to a seasonal increase in chemicals used by municipal water treatment facilities and pools, and from the seasonality of agricultural product sales within its Food and Health Sciences Group, which primarily corresponds with the planting season. Demand in both of these areas is also affected by weather conditions, as either higher or lower than normal precipitation or temperatures may affect water usage and the timing and the amount of consumption of products.

The company operates in a highly competitive industry and faces significant competition and price pressure from many producers, manufacturers, distributors and sales agents, many of whom are larger and may have greater financial resources, more product offerings and a broader geographic reach, and competitors' pricing decisions could compel the company to decrease its prices, which could adversely affect its margins and profitability. Fluctuations in the prices and availability of raw materials, which may be cyclical in nature, could have a material adverse effect on operations and margins, as the company does not engage in futures or other derivatives contracts to hedge against fluctuations in future prices, and while it attempts to pass commodity pricing changes to its customers, it may be unable to or be delayed in doing so. The company is subject to numerous federal, state and local environmental, health and safety laws and regulations, and the nature of its business exposes it to risks of liability under these laws, including potential liability for the costs of removal or remediation of certain hazardous substances, which could be substantial. The company's businesses expose it to potential product liability claims and recalls, and although it maintains product liability insurance, there can be no assurance that the type or level of coverage is adequate or that it will be able to continue to maintain existing insurance or obtain comparable insurance at a reasonable cost, if at all. The company is also subject to risks from disruptions within its supply chain and transportation network, as raw materials are transported by truck, rail, or barge or ship by third-party providers, and significant delays or increased costs relating to transportation could materially affect its financial condition and results of operations.

Management's message emphasizes the company's evolution from a bulk commodity distributor into a specialty ingredients company, as reflected in the realignment of reporting segments effective beginning with the first quarter of fiscal 2026 to better reflect how the company manages operations and allocates resources. Key themes include a focus on total profitability dollars rather than profitability as a percentage of sales, given that sales dollars tend to fluctuate as raw material prices rise and fall, and the strategic priority of pursuing acquisitions to strengthen the company's position in existing markets, increase market share and product offerings, and expand into new markets. Management highlights that the company believes it creates value for customers through superb service and support, quality products, personalized applications and trustworthy, creative employees, and that the high level of service provided by route drivers allows the company to serve as the trusted water treatment expert for many of the municipalities and other customers it serves.