Eastern Q1 2025 Earnings Call Transcript

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May 7, 2025

There are 5 speakers on the call.

Operator

morning, everyone, and welcome to The Eastern Company's First Quarter Fiscal Year twenty twenty five Earnings Call. At this time, all participants have been placed on a listen only mode and the floor will be 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, Investor Relations. Mary Anne, the floor is yours.

Speaker 1

Good morning, and thank you, everyone, for joining us this morning for a review of The Eastern Company's results for the first quarter of twenty twenty five. With me on the call are Ryan Schroeder, Chief Executive Officer and Nicholas Vallejo, Chief Financial Officer. 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 03/11/2025, for the fiscal year 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, I'll turn the call over to Ryan.

Speaker 2

Thank you, Mary Anne, and thank you, everyone, for joining us today. At the highest level, I'll say this, the first quarter met our earnings expectations, yet still with plenty of challenges in the marketplace. Revenues came in at $63,300,000 down slightly from Q1 of twenty twenty four. EBITDA came in at $4,800,000 and earnings per share at $0.31 per share, very close to where we expected it to come in for the year or for the quarter. A few high level updates before I turn it over to Nick on more details from the quarter.

Speaker 2

These updates are from, really, the last time that we spoke. We've made meaningful structural changes in Big three Precision. We've been able to sell the ISBN blow mold business, also known as Centralia mold. Furthermore, within Big three, we've been able to close the Dearborn facility and improve our structural competitiveness within our Racking business. Additionally, we've been able to complete a share buyback program of 200,000 shares.

Speaker 2

I'm also happy to report that the Board approved an additional share buyback program of additional 400,000 shares. Also throughout the quarter and the first part of the year, we've been able to complete our leadership team transition plans, and I'm very happy about, the leadership team. I'll touch on that within each of the portfolio businesses a bit more as we get further into things. And then lastly, I'd like to say I'm extremely pleased to have Chan Delvado join us on our Board of Directors. Previously, Chan was the CEO of Cerberus Operations and Advisory Company.

Speaker 2

There, he was on a number of different boards, probably most notably as cochairman of Albertsons. Most recently, Chan was the Chairman of New Flyer Industries. I'm super excited to have Chairman join the board. 2025 will be a year of enhancing our strategic growth plans, eliminating bureaucracy and optimizing our cash flow. So with that, I'd like to turn it over to Nick on additional details for the quarter.

Speaker 3

Thanks, Ryan. I'll focus my review today on the company's financial results from continuing operations for the first quarter of twenty twenty five. Net sales in the first quarter of twenty twenty five decreased 2% to $63,200,000 from $64,600,000 in last year's first quarter. The decline was primarily due to decreased sales of truck mirror assemblies and truck accessories, offset by increased sales of returnable transport packaging products. Our backlog as of 03/29/2025 decreased 9% to $85,900,000 compared to $94,000,000 as of 03/30/2024.

Speaker 3

The decrease was primarily driven by decreased orders for returnable transport packaging products, truck mirror assemblies and latch and handle assemblies. Gross margin as a percentage of net sales for the first quarter of twenty twenty five was 22.4% compared to 23.9% for the prior year period. The decrease was due to higher raw material costs, partially offset by price increases. As a percentage of net sales, product development costs were 2% for both the first quarter of twenty twenty five and 2024. Selling, general and administrative expenses decreased $800,000 or 8 percent in the first quarter of twenty twenty five compared to last year's period.

Speaker 3

The decrease was primarily due to lower payroll related expenses of $500,000 offset by higher sales commissions of $300,000 Other income and expense increased $200,000 in the first quarter of twenty twenty five compared to the last year's period. The decrease was primarily due to favorable gains on security transactions in 2024 that did not occur in 2025 and current year restructuring expenses. Net income from continuing operations for the first quarter of twenty twenty five was $1,900,000 or $0.31 per diluted share compared to $2,100,000 or $0.34 per diluted share for the 2024 period. Now turning to non GAAP measure. Adjusted net income from continuing operations for the first quarter of twenty twenty five was $2,000,000 or $0.32 per diluted share compared to adjusted net income of $2,100,000 or $0.34 per diluted share for the prior year period.

Speaker 3

At the end of the first quarter of twenty twenty five, our senior net leverage ratio was 1.45 compared to 1.23 at the end of twenty twenty four. In addition, we invested $800,000 in capital expenditures and paid dividends of 700,000 in the first year's quarter. As of 03/29/2025, inventories totaled $56,100,000 up $200,000 from the end of fiscal year '20 '20 '4. During the first quarter of twenty twenty five, we repurchased 50,000 shares of common stock under the share repurchase program Eastern Boards authorized in August 2023, bringing us to a total of 200,000 shares repurchased and completing the 2023 authorization. On 04/30/2025, the Board of Directors authorized a new share repurchase program authorizing the company to repurchase up to 400,000 shares of its common stock.

Speaker 3

The program extends until May 2030. That completes my financial review. I'll now turn the call back to Ryan.

Speaker 2

Thanks, Nick. Now I'll speak a bit more about each of the three portfolio companies. Let's start with Eberhard. Most of you know, but, I'll repeat for those that don't. Eberhard designs and engineers and manufactures a wide range of security hardware such as latches, locks, hinges, handles and related components for industrial, work truck, military and specialty applications.

Speaker 2

I'll start with Zach Gorney. So Zach joined, at the very end of last year as the President of Eberhard. He's doing a fantastic job and, has done, really nice work updating their strategy. Furthermore, in that work, they've reorganized the commercial team there and brought in a great leader named Scott Meldow, who's leading the commercial team at Everhart. Scott has worked with both Zach and I in the past, so we're very, pleased with him joining.

Speaker 2

Thus far, they've been able to minimize the impact of tariffs. In some cases, that means passing some of those costs on. In others, it's about being nimble with our supply chain and brokers. Certainly, there's been some softness in those end markets that I mentioned that they serve. That being said, Eberhard really benefits from being very well diversified.

Speaker 2

And at this point, it's still pointed towards growth for 2025. Some of the key initiatives for Eberhard, there's going be continued focus and defined initiatives on the commercial front. We're also going to be doubling down on our efforts with new product development. Furthermore, we need to be very nimble with our supply chain. So I'm very pleased with the progress that's been made at Everhard and extremely encouraged about the future of that business.

Speaker 2

Next, let's turn to Velvet. Velvet designs, manufactures and supplies vision systems, mirrors and a broad range of components and accessories for the medium and heavy duty truck markets. The medium and heavy duty truck markets, for those that don't know, have been fairly significantly impacted over the last handful of months. And the ACT, which is most commonly used to track build rates, have shown an additional softness for the remainder of the year. We shall see in terms of how those build rates end.

Speaker 2

But as you may or may not know, Bellback from a mirror standpoint has a very significant market share, particularly on the Class eight truck market. So we're having to be as flexible as we possibly can to, being responsive to the changes in the volumes associated with our customers there. That being said, Dan McGrew and the team have been able to take market share and are extremely well positioned for growth in the future to those Class eight end markets. Furthermore, it's a bright spot within the business, but their efforts on their aftermarket business have continued to pay off. The team there has been able to grow that business even in the challenging environment associated with tariffs and everything else that organizations are going through.

Speaker 2

So key initiatives for Velvetac in 2025 and beyond is centered around vertical integration. They've done a lot of work on that already, bringing in some plastic injection molding parts. They're going to continue to work on that. Furthermore, we have big plans for expanding our aftermarket business. They do a fantastic job serving their customers there and I think have a strategic advantage going forward.

Speaker 2

And then like Eberhard, they need to continue to have a nimble supply chain. So like Eberhard, Valvac had a solid year last year. And like Eberhard, I think they are very well positioned for success going through the future. In the near term, they're obviously going to have to work through some of the challenges associated with end market demand and supply chain uncertainty. Moving on to Big three.

Speaker 2

So Big three designs, manufactures and delivers turnkey, innovative and sustainable packaging and material handling solutions as well as blow mold tooling. So like I mentioned earlier, we've completed the sale of the ISBM business, also known as Centralia Mold. We're happy to have completed that in very speedy order. And furthermore, we've been able to become very close. We're not quite done yet.

Speaker 2

But within the quarter, we're going to be completing our strategic review of the mold business, and we have a go forward plan with that. On the racking side, which is a significant part from a revenue standpoint for Big three Precision, we've been able to improve significantly the cost, input costs associated with that business. As I mentioned earlier, we've completed the closure of the Dearborn location. A portion of that business is rolled into the Centralia RAC business, and then the other portion is moved to a new small purpose focused facility in Sterling Heights, Michigan for the design of racks and prototyping them. With all of this said and all the efforts that Emilio, our president there, have and his whole team have been doing, we've begun to see, incremental significant improvements in the results of that business.

Speaker 2

We still have a ways to go, but I'm really encouraged with what that business has been able to do thus far. So going forward, we're going to finish, those rationalization efforts, which are all but complete. We're going to shift gears to operational efficiency efforts within the companies that, we're operating in. And we've already shifted to improving and bolstering our commercial growth plans. So with all that said, I'm very encouraged with the work that the teams have done at Big three, at Valvec and at Everhart.

Speaker 2

And I'm encouraged about the future of this business. So with that, I would like to open it up for any questions anyone might have. We'll pause for questions, and then I'll move on to my final comments before closing the call. Thank

Operator

you very much. We are now opening the floor for questions. If you would like to ask a question, you can press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press question.

Operator

Please wait a moment while we poll for any questions. I'm not seeing any questions come into the queue at this moment. We do have a question in. And your question is coming from Ross Davison of Banneton Capital. Ross, your line is live.

Speaker 4

Hi, Ryan. Hi, Nick. Thanks for taking the question. On returnable packaging, I was curious if you could just give us kind of a way to think about the outlook for that business. Specifically, I'm wondering, obviously, there's a lot of change in the supply chain and there's a lot of uncertainty.

Speaker 4

Is there a potential tailwind there if there's production moved around, would your customers need more of your help in any of those scenarios?

Speaker 2

Yes, thank you very much for the question, Russ. I'd say this, it's a quite quiet market in the returnable packaging, particularly in the automotive segment. So we've certainly seen that from a volume standpoint. That being said, when you think about tariffs and you think about all the supply chain uncertainty, the Big three Precision business is almost completely insulated from that, being that we're made in America, our supply chain is, for the vast majority of it, an American supply chain. So we are really uniquely positioned.

Speaker 2

We think there is a, some demand that's being pent up. And if and when it does break loose, we are well positioned to jump on it. And that's why a lot of our heavy lifting, as we mentioned about with Dearborn and some other improvements we made within the business from a cost structure standpoint, is going to allow us to be competitive but also, very responsive that there is a significant breakthrough. Historically speaking, these markets do tend to be a bit lumpy, and, we've certainly seen, a more soft pattern here recently with all the uncertainty in the marketplace. So we're encouraged that, you know, in in many cases, we we believe we're in the trough, and we and we believe many of our customers are sort of in a wait and see mode with regard to trade talks and tariff ramifications.

Speaker 2

But at some point in time, regardless of the if those deals get done or don't get done, they're going to have to break some programs loose. And we'll be we are very well positioned regardless. So yes, I would that's how I'd frame it up. I don't know, Nick, if you have anything else to add.

Speaker 3

Yes. I would say as more production is brought back into The United States, Big three is in a good position to take advantage of that due to their focus of their locations in North America and, already having the experience of producing the returnable packaging that a lot of companies will be able to utilize more because more of their supply chain is local, compared to overseas, which you do not get typically have returnable packaging.

Speaker 4

That's great. That makes sense. Thanks for that. And then just on gross margin, it's lower than it had been sort of the last year and a half. You referenced higher raw material costs, some price increases.

Speaker 4

Is it should we expect sort of the levels you're at sort of where we're to be for a while? Is there are there near term opportunities to sort of raise that gross margin? Any help there thinking about it would be appreciated.

Speaker 3

Yes. So Ryan, I'll jump in on this question. So part of this also was sales mix as well. And with that, we do expect, with some of our higher margin products to start getting a better velocity in the market, start selling more. And therefore, that will also help to support the margin as well.

Speaker 3

But we are always, focused on taking out as much cost as possible, from our cost of goods sold as well.

Speaker 4

Okay, great. Thank you. Thanks for the answers.

Operator

Thank you very much. Just a reminder, if there are any further questions, you can join the queue by pressing star one on your keypad. Okay. I'm not seeing any further questions. So I will now hand back over to Ryan for any closing comments.

Speaker 2

Thank you, Jenny. Yeah. So in closing here, you're gonna see with, with The Eastern Company a relentless execution for top decile performance. That's gonna be really the central theme of everything that we're doing. We're going to be looking at strategic growth and operational focus going into the remainder of the year, where, we've been very active, as we've been touching on here today in the call on the Big three transformation.

Speaker 2

I don't believe it's completely finished yet, but we're approaching the end of that. We're going to have cost discipline. This is obviously very uncertain times. We're going to control the things that are within our control. And we've done much of that in the first quarter.

Speaker 2

That's going to be a continued focus going on through the second quarter and the remainder of the year. And from a tariff standpoint, it's obviously front and center to virtually every company and business in North America and maybe around the world. We have an organization that is very aggressive on tariff management. This is mainly within the Velvac and Everhart business. But I've been very impressed with the team's ability to manage that on an hour by hour and day by day business.

Speaker 2

I'm happy that through the first quarter, they've been able to more or less, neutralize the tariffs that we have seen come through. I'm not suggesting that that's going to completely be the case going forward, but the plans thus far have supported doing exactly that. And in a related sense, we're going to continue to have nimble supply chains. The efforts I touched on with regard to Velvet in sourcing and Everhard having a number of efforts in adjusting our supply chain for our best use of success in the long run. And then I'd like to close out with our balance sheet is in quite good shape.

Speaker 2

And with that, M and A is now a priority again. We're going to be extremely disciplined, but we're excited to start looking at deals come through here at the remainder of the year and even into 2026. So with that said, we look forward to giving you an update in Q2. If you have any additional questions or need any additional information, please don't hesitate to reach out. And with that, I'll close the call and hand it back to, Jenny, our operator.

Operator

Thank you so much, Ryan. That does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.

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Earnings Conference Call
Eastern Q1 2025
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