Hawkins, Inc. 2025 Annual 10-K Review

Hawkins, Inc. (NASDAQ: HWKN) is a leading formulator, manufacturer, distributor and blender of specialty chemicals and ingredients. Serving three primary end markets—Water Treatment, Industrial and Health & Nutrition—Hawkins leverages a national footprint of facilities to deliver high-quality products and value-added services nationwide. Fiscal 2025 marked another year of growth, strategic acquisitions and margin expansion, underpinning Hawkins’ position as a diversified specialty product leader.

Warren.AI 💰 8.0 / 10

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Table of Contents

• Business Overview
• Segment Breakdown
• Fiscal 2025 Financial Highlights
• Profitability & Margins
• Cash Flow, Liquidity & Capital Allocation
• Strategic Acquisitions & Integration
• Risk Factors & Mitigations
• Outlook & Guidance
• Investment Thesis & Score

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Business Overview

Hawkins divides its operations into three reportable segments:

1. Water Treatment

• Formulates and distributes chemicals, products and equipment to treat potable water, industrial process water, wastewater, pools and agricultural water systems.
• Delivers on-site troubleshooting, route-based service and technical support from 50+ facilities.

1. Industrial

• Supplies core bulk chemicals such as acids, alkalis, salts and agricultural blends to industries including chemical processing, energy, food, electronics, feed and pharma.
• Operates manufacturing plants producing bleach, liquid phosphates, blended specialty products and custom formulations.

1. Health & Nutrition

• Offers nutraceutical, functional food/beverage, personal care and supplement manufacturers a broad portfolio of minerals, vitamins, amino acids, botanicals, enzymes and excipients.
• Provides value-added formulation, processing, sourcing and quality compliance from facilities in California and New York.

Hawkins differentiates through superb customer service, deep technical expertise, personalized formulations and a reliable U.S. supply chain.

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Segment Breakdown

Water Treatment

• Fiscal 2025 Sales: $446.5M (23% Y/Y growth)
• Gross Margin: 27% of segment sales (flat Y/Y)
• Key drivers: Legacy volume growth + acquisitions (Amerochem, Waterguard, Wofford, Intercoastal)

Industrial

• Fiscal 2025 Sales: $382.5M (7% Y/Y decline)
• Gross Margin: 19% of segment sales (up from 16%)
• Dynamics: Modest volume growth offset by price headwinds on bulk commodities; margin benefit from absence of prior-year environmental charge.

Health & Nutrition

• Fiscal 2025 Sales: $145.5M (1% Y/Y decline)
• Gross Margin: 22% of segment sales (up from 19%)
• Drivers: Mix shift toward higher-margin distributed specialty ingredients; stable national & emerging global demand.

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Fiscal 2025 Financial Highlights

Metric	FY’25	FY’24	Y/Y Change
Sales	$974.4M	$919.2M	+6%
Gross Profit	$225.5M	$193.6M	+16%
Gross Margin	23.1%	21.1%	+200 bps
Operating Income	$119.2M	$104.0M	+15%
Operating Margin	12.2%	11.3%	+90 bps
Net Income	$84.3M	$75.4M	+12%
Net Margin	8.7%	8.2%	+50 bps
Diluted EPS	$4.03	$3.59	+12%
Cash Flow from Ops	$111.1M	$159.5M	-30%

Key Drivers:

• Acquisition Impact: $78M sales come from four new Water Treatment bolt-ons in F’25.
• Margin Expansion: Benefit from prior-year LIFO reserve release and absence of a $7.7M environmental charge.
• EPS Growth: Driven by operating leverage and disciplined SG&A control.

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Profitability & Margins

• LIFO Accounting: Majority of inventory on LIFO basis. FY’25 LIFO reserve released $1.6M (FY’24 release of $15.4M) to cost of goods sold.
• SG&A Intensity: 11% of sales in FY’25, up from 10% due to acquisition-related costs and increased variable costs.
• Segment Profit: Water Treatment ($59.6M, 13.3%), Industrial ($45.1M, 11.8%), Health & Nutrition ($14.5M, 10.0%).

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Cash Flow, Liquidity & Capital Allocation

• Operating Cash Flow: $111.1M in F’25, down from $159.5M due to working capital build (higher receivables & inventory).
• Capital Expenditures: $41.1M for capacity expansions, equipment upgrades, safety & environmental projects.
• Acquisitions: $87.4M in F’25 (Wofford, Intercoastal, Waterguard, Amerochem).
• Shareholder Returns:
• Dividends: $14.6M paid (7¢ per share per quarter).
• Buybacks: 206K shares for $20.7M.
• Liquidity:
• New Revolver: $400M facility maturing April 2030; $149M drawn.
• Debt/EBITDA: ~1.5x; within covenant of 3.5x.

Liquidity Runway: Operations plus $251M undrawn revolver gives ample cushion for M&A and share repurchase.

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Strategic Acquisitions & Integration

F’25 Water Treatment Bolt-Ons:

• Amerochem (NC) – Jan 2025
• Waterguard (NC) – Oct 2024
• Wofford (MS) – Jun 2024
• Intercoastal (MD/VA/DE) – Jun 2024

F’24 Notables:

• Miami Products & Chemical (OH bleach mfg.)
• Water Solutions Unlimited (IN/IL/MI) – $60M + earnout
• EcoTech (AR)

Integration Success Factors:

• Cross-selling into larger Hawkins network to drive margin synergies.
• Shared logistics reduces freight costs.
• Consolidated back-office functions improve SG&A leverage.

Post-Year Acquisition:

• WaterSurplus – $150M for membrane filtration & PFAS solutions (Apr 2025), further diversifying solutions and markets.

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Risk Factors & Mitigations

Commodity Price Volatility

• LIFO cost flows track current chemical prices; frequent price pass-throughs to customers.

Seasonal & Weather Sensitivity

• Water Treatment peaks Apr–Sep; Agriculture in Q2. Mitigated via multi-segment exposure.

Regulatory & Environmental

• Subject to EPA, DOT, FDA, USDA regulations.
• PCB remediation accrual ($7.7M) at Rosemount, MN; fully reserved.

Supply Chain & Logistics

• Own/leased fleet + third-party carriers.
• Geographic footprint reduces single-route risk.

Operational Hazards

• Chemical spills, natural disasters, transport incidents.
• Comprehensive insurance coverage (subject to limits).

Debt Covenants

• Leverage ratio <3.5x, fixed charge coverage >1.15x; ample headroom.

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Outlook & Guidance

• Sales Growth: Mid-single digit organic growth + tuck-in M&A.
• Margins: Expect stable gross margins (22–24%) and SG&A ~11–12%.
• CapEx: ~6% of sales to support capacity & safety.
• Cash Returns: Continue dividend growth and opportunistic share repurchases.
• M&A: High-conviction targets in complementary geographies or technologies.
• Net Debt/EBITDA Goal: Maintain below 2.5x even with tuck-in deals.

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Investment Thesis & Score

Hawkins, Inc. stands out as a steady mid-cap specialty chemicals play with:

• Diversified End Markets: Water, industrial, nutrition.
• Margin Resilience: 200 bps gross margin expansion in F’25.
• Cash Flow Discipline: 11% FCF yield (pre-acquisitions).
• Proven M&A Track Record: Successful integrations of 8+ bolt-ins since F’24.
• Scale & Infrastructure: National footprint with route sales + terminals + plants.

Risks to Monitor: Commodity cycles, weather seasonality and regulatory compliance costs.

Investment Score: 8.0
A solid balance of growth, margin improvement and financial strength suggest Hawkins offers well-positioned upside with controlled risks. Investors seeking defensive specialty chemical exposure with an income tilt (3.0% dividend yield) and accretive M&A optionality should consider adding Hawkins to their portfolio.