Holley Narrows 2026 Outlook as Q3 Core Sales Rise

Holley Inc. (HLLY) narrowed the upper end of its full-year 2026 sales and adjusted EBITDA guidance in response to the current consumer environment, even as third-quarter core sales, profitability and free cash flow increased. The automotive aftermarket company said tariffs, freight costs, minor product-launch delays and evolving macroeconomic conditions are keeping its outlook measured.

For 2026, Holley now expects net sales of $610 million to $625 million, compared with its previous range of $610 million to $640 million. Its projected core business growth rate, which excludes the impact of portfolio rebalancing, is now approximately 2% to 5%, versus 2% to 7% previously.

The company also set adjusted EBITDA guidance at $127 million to $132 million, narrowing the prior range of $127 million to $137 million. Holley maintained its capital-expenditure forecast of $15 million to $20 million and depreciation and amortization guidance of $24 million to $26 million. Expected interest expense, excluding mark-to-market effects on an interest-rate collar, was revised to $40 million to $44 million from $42 million to $47 million.

Core sales and margins increase

Third-quarter net sales rose 2.3% year over year to $141.6 million from $138.4 million. Excluding divested businesses and the effects of the company’s strategic portfolio rebalancing, core net sales increased approximately 6.7%. Holley said 27 brands generated growth across its direct-to-consumer and business-to-business channels, while three of its four divisions posted core growth.

Product innovation contributed about $6.4 million of quarterly revenue, marking a third consecutive quarter of growth for the initiative, led by the Safety & Racing and Modern Truck & Off-Road businesses. Direct-to-consumer e-commerce sales benefited from 65% year-over-year growth in Modern Truck & Off-Road, while third-party marketplace sales increased about 8%.

International operations performed well in Canada and Australia, partly offset by regional instability elsewhere. Powersports declined slightly because of shipment timing. Holley also said changes to its marketing calendar and lower in-stock rates weighed on European sales.

Gross margin increased 73 basis points to 44.0%. Selling, general and administrative expenses, including research and development, declined to $36.4 million from $38.2 million.

GAAP net income was $7.8 million, compared with a loss of $0.8 million a year earlier. Adjusted net income rose to $7.7 million from $3.3 million, while adjusted diluted earnings per share doubled to $0.06 from $0.03.

Adjusted EBITDA increased to $29.4 million from $27.1 million, and adjusted EBITDA margin expanded 120 basis points to 20.8%. Free cash flow, another non-GAAP measure, rose 60% to $8.8 million from $5.5 million as net cash provided by operating activities increased to $14.1 million.

Cost savings and portfolio changes support profitability

Holley said its long-term strategic initiatives generated $18.6 million in revenue and $6.1 million in cost savings during the quarter. Completed or implemented purchasing savings and tariff-reduction projects accounted for about $3.8 million, while operational improvements contributed approximately $2.3 million.

The company has continued to exit lower-performing operations and redirect investment toward higher-growth businesses. Year to date, it has divested four brands, reduced two facilities and removed about 7,000 low-margin stock-keeping units, or roughly 16% of its portfolio. The divestitures also cleared approximately 95,000 square feet of warehouse space and reduced full-time employees by more than 5%.

Holley estimates its portfolio actions could deliver a $3 million to $5 million annualized benefit and expand adjusted EBITDA by 150 to 200 basis points. The company also expects more than $12 million in one-time net cash generation, faster deleveraging and an improvement of more than 5% in inventory turns.

Separate cost actions have included two manufacturing-site consolidations, reductions of more than 115 employees and contractors, lower non-value-added SG&A spending, and fewer production and distribution days during periods of lower seasonal demand. Holley reported $8.3 million of year-to-date operational efficiencies and continues to target $5 million to $7 million of operating savings in 2026, including benefits from improved product quality and lower warranty expense.

Debt reduction reaches year-end target early

Holley repaid another $10 million of debt during the third quarter, in addition to a previously announced $15 million repayment. Total debt reduction since September 2023 reached $125 million.

The company’s Credit Agreement Total Leverage Ratio fell to 3.5 times at quarter-end, a four-year low that met its 2026 year-end target one quarter early. Net debt stood at $451.0 million, down from $457.8 million at the end of the second quarter. Holley’s longer-term leverage target remains approximately 3.0 times.

Inventory declined by about $10 million through the first nine months of 2026, compared with the company’s full-year reduction target of $10 million to $15 million. Holley said it is tightening inventory planning, reducing excess stock and reviewing safety-stock levels and supplier order terms.

The company’s capital-allocation framework remains focused on strategic acquisitions, debt reduction and opportunistic share repurchases. Holley reported approximately $2 million of share repurchases year to date.

Recent strategic activity included the acquisition of SXTH Element, which expands Holley’s Modern Truck & Off-Road presence with products for Toyota trucks and sport-utility vehicles. The company also announced a collaboration with Amotiv, beginning with Flowmaster-branded oil filters engineered by Ryco. Additional distribution and operational initiatives involving North America, Australia and New Zealand are under evaluation for 2027 and beyond.

Management said execution continued into the fourth quarter but identified tariffs, freight rates, product-launch timing and uncertain consumer and macroeconomic conditions as constraints on the outlook. Other risks cited in the presentation include the company’s ability to complete portfolio changes, maintain demand, manage supply-chain costs, integrate acquisitions and achieve expected cost savings.