Eastern Q3 2024 Earnings Report

Eastern EPS Results

• Actual EPS: $0.75
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Eastern Revenue Results

• Actual Revenue: $71.27 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Eastern Announcement Details

• Quarter: Q3 2024
• Date: 11/5/2024
• Time: After Market Closes
• Conference Call Date: Wednesday, November 6, 2024
• Conference Call Time: 11:00AM ET

Eastern (NASDAQ:EML) designs, manufactures, and sells engineered solutions to industrial markets in the United States and internationally. The company offers turnkey returnable packaging solutions, which are used in the assembly processes of vehicles, aircraft, and durable goods, as well as in production processes of plastic packaging products, packaged consumer goods, and pharmaceuticals; designs and manufactures blow mold tools and injection blow mold tooling products, and 2-step stretch blow molds and related components for the stretch blow molding industry; and supplies blow molds and change parts to the food, beverage, healthcare, and chemical industries. It also provides rotary latches, compression latches, draw latches, hinges, camlocks, key switches, padlocks, and handles; and development and program management services for custom electromechanical and mechanical systems for original equipment manufacturers (OEMs) and customer applications. In addition, the company designs and manufactures proprietary vision technology for OEMs and aftermarket applications, as well as offers aftermarket components to the heavy- and medium-duty truck, motorhome, and bus markets. The Eastern Company was founded in 1858 and is based in Shelton, Connecticut.

Eastern Q3 2024 Earnings Call Transcript

[Operator]

Good morning, and welcome to the Essen Companies Third Quarter Fiscal Year 20 24 Earnings Call. At this time, all participants are in a listen only mode, and we will open for questions following the presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Mary Anne Barr, Treasurer of The Eastern Company. Mary Anne, over to you.

[Speaker 1]

Good morning, and thank you, everyone, for joining us this morning for a review of The Eastern Company's results for the Q3 of 2024. With me on the call are James Materitonda, Chair of Eastern's Board of Directors and the company's CFO, Nicolas Vallejo. The company issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the Investors section of the company's website, www.easterncompany.com, where you will find the release under Financial News. Please note that some of the information you will hear during today's call will consist of forward looking statements about the company's future financial performance and business prospects, including without limitation, statements regarding revenue, gross margin, operating expenses, other income and expenses, taxes and business outlook.

[Speaker 1]

These forward looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward looking statements. We undertake no obligation to review or update any forward looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings, including Form 10 ks filed with the SEC on March 12, 2024 for the fiscal year 2023 and Form 10 Q filed with the SEC on November 5, 2024. In addition, during today's call, we will discuss non GAAP financial measures that we believe are useful as supplemental measures of Eastern's performance. These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.

[Speaker 1]

A reconciliation of each of the non GAAP measures discussed during today's call to the most directly comparable GAAP measure can be found in the earnings press release. With that introduction, I'll turn the call over to Jim.

[Speaker 2]

Thank you, Mary Anne, and good morning to those who are joining us by phone as well as those participating via the web. Operationally, the Q3 was a strong period for the Eastern Company with substantial year over year improvements in top and bottom line results. Actions were taken to improve pricing and strengthen gross margins. At the same time, Eastern's Board of Directors believes that there are more actions to be taken and significant progress to be made, and we have appointed a new leader to take Eastern to the next level. Before I go into details of our new CEO appointment, I'll talk about another significant step recently taken at Eastern.

[Speaker 2]

As discussed during our Q2 earnings call in August, we have been continuing the process of evaluating all of the company's businesses for long term performance and growth potential. During that process, we determined that the Big 3 mold business, one of the 2 businesses within the Big 3 precision products, no longer fits our long term business and financial strategy. Accordingly, we recently began taking steps to sell Big 3 mold and reclassified it as discontinued operations. Unlike Big 3's returnable packaging business, which holds excellent potential for Eastern, mold is a complex niche business that especially given today's market dynamics offers many fewer opportunities for synergy and require significant capital investment to remain competitive. The sale of Mote will put Eastern in a better position to play to the company's strengths.

[Speaker 2]

In addition, we will now be able to focus all of our resources on Eastern's best in class manufacturing and assembling capabilities in the commercial vehicle, automotive and other industrial end markets. With that introduction, I'll turn the call over to Nick for a more detailed review of our Q3 financial results. Nick?

[Speaker 3]

Thank you, Jim, and good morning, everyone. As Jim noted in his opening comments, we recently made the decision to sell Big 3 Mold Business and determined that it met the criteria for classification for held for sale accounting and discontinued operations. The loss recognized in the write down of the Big 3 Mould business to fair value in the Q3 was $19,200,000 net of tax. I'll focus my review today on Eastern's financial results from continuing operations for the Q3. For the Q3, net sales increased 15 percent to $71,300,000 from $62,000,000 in the 2023 period, primarily due to increased demand for returnable trans packaging products and truck mirror assemblies and truck accessories.

[Speaker 3]

Our backlog as of September 28, 2024 rose 13% to $97,200,000 compared to 86,200,000 as of September 30, 2023. The increase was primarily driven by increased orders for various truck mirror assemblies and returnable transport packaging products. Gross margin as a percentage of sales in the 3rd quarter was 25.5 percent compared to 24.9% in the 2023 period. The increase in margin primarily reflected improved price cost alignment and other cost savings initiatives. As a percentage of net sales, product development costs were 1.5% for the Q3 of 2024 compared to 2.3% for 2023 period.

[Speaker 3]

Selling and administrative expenses increased $1,900,000 or 22% for the Q3 of 2024 compared to last year's period. The increase was primarily due to higher payroll related and legal and professional expenses. Other income and expense for the Q3 of 2024 increased $100,000 compared to the 2023 period. The increase in other income of $100,000 was primarily driven by lower pension expense when compared to the prior year period. Net income for the Q3 of 2024 was $4,700,000 or $0.75 per diluted share compared to the net income of $3,500,000 or $0.55 per diluted share for the 2023 period.

[Speaker 3]

Adjusted net income from continuing operations, a non GAAP measure, for the Q3 of 2024 was $4,700,000 or $0.75 per diluted share compared to adjusted net income from continuing operations of $3,500,000 or $0.55 per diluted share for the prior year period. Adjusted EBITDA from continuing operations, a non GAAP measure for the Q3 of 2024 was $8,700,000 compared to $6,700,000 for the 2023 period. At the end of the third quarter, our senior net leverage ratio was 1.4 compared to 1.2:one at the end of the second quarter. In addition, we invested $7,600,000 in capital expenditures and paid dividends of $2,100,000 for the 1st 9 months of fiscal 2024. We generated $8,300,000 from operations during the 1st 9 months of fiscal 2024 compared to $18,200,000 during the 1st 9 months of fiscal 2023.

[Speaker 3]

Cash flow from operating activities in the 2024 period was lower compared to last year's period, primarily due to increases in accounts receivable of $11,700,000 due to increases in revenue in the Q3 of 2024 compared to the corresponding period in 2023 and approximately $3,000,000 in accounts receivable due to pre billing to cover material costs on a specific job. As of September 28, 2024, inventories totaled $58,100,000 down $300,000 from the end of fiscal year 2023 and a decrease of $1,900,000 from the end of last year's Q3. During the Q3 of 2024, we repurchased 50,000 shares of common stock under the share repurchase program our Board authorized in August 2023, bringing us to a total of approximately 110,000 shares repurchased under the buyback program. That completes my financial review. I'll now turn the call back to Jim.

[Speaker 2]

Thank you, Nick. At this point, I'd like to provide further details on Eastern's newly appointed Chief Executive Officer. As we announced yesterday, we are pleased to have Ryan Schroeder join us as CEO effective today. Ryan is a seasoned executive with a strong record of leading manufacturing companies to peer beating sustained long term growth. Ryan brings a history of growing businesses both organically and through acquisition.

[Speaker 2]

Most recently, he served as CEO of PlascoLite LLC, a global leader of acrylic and polycarbonate sheet with more than 120 production lines and 2,000 employees worldwide. Prior to that, Ryan was President of IMI Norgen, a leader in industrial automation with some 2,200 employees across 17 facilities. And before that, Ryan spent 12 years at the engineering firm Parka Hannifin in a variety of roles, including General Manager of Global Valves, Plant Manager and Supply Chain Manager of the company's Mobile Cylinders division. Ryan has extensive background in sales, lean operations, finance and supply chain management, all of which will be valuable to Easter. Ryan will share his vision for achieving long term sustained growth in our next quarterly call.

[Speaker 2]

So we hope you'll join us for that discussion. Operator, I'd now like to open the floor to questions. We will take questions from the web first. But before we do that, please provide directions to those on the phone about how they can ask questions.

[Operator]

No problem. We will be conducting our question and answer session.

[Speaker 3]

All right. So the first question we have via the web is, congratulations to the new CEO. Where do you want the company to be in 6 months?

[Speaker 2]

We have pretty ambitious long term plans. And certainly, we have shorter term plans, quarterly, yearly. And the short term plans, we don't comment on specifically as far as the numbers or our ambitious long term plans. But short term plans include, of course, actions to achieve the long term plans. So you can rest assured that we look at all of ways to achieve the long term plans, which as I stated are pretty ambitious.

[Speaker 3]

Thank you, Jim. Operator, there are no further questions via the web. Do you have any questions on the conference call?

[Operator]

I'm not seeing anyone in the queue at the moment. Not seeing anyone in the queue just yet. No, I'm not seeing any questions at the moment.

[Speaker 3]

Thank you, operator. Jim, there are no further questions. I'll turn the call over to you for closing remarks.

[Speaker 2]

Thank you all for your time today. As you've heard, the Q3 was a productive period for Eastern. We've now advanced the most important elements of the company's business transformation and believe it's much better positioned to grow and prosper. We look forward to introducing you to Ryan Schroeder on our next earnings call. If there's any information you need in the meantime, please reach out to Nick or me.

[Speaker 2]

Thank you.

[Operator]

Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.