Eastern NASDAQ: EML reported lower second-quarter sales and adjusted earnings from continuing operations, while management pointed to a sharply higher backlog, improving heavy-truck demand and its newly acquired aerospace and defense businesses as support for a stronger second half of fiscal 2026.
Net sales from continuing operations declined 12% to $61.8 million from $70.2 million in the prior-year quarter. Chief Financial Officer Nicholas Vlahos said the decline reflected lower shipments of truck mirror assemblies, returnable transport packaging, and latch and handle assemblies. Those declines were partially offset by $1.7 million in aerospace sales from the company’s newly acquired businesses.
Eastern recorded GAAP net income from continuing operations of $5.6 million, or $0.94 per diluted share, compared with $2 million, or $0.33 per diluted share, a year earlier. The result included a one-time, non-cash bargain purchase gain of approximately $6.5 million tied to the acquisitions of Sungear, LLC and Crown Precision.
Excluding the bargain purchase gain and other items, adjusted net income from continuing operations was $0.9 million, or $0.15 per diluted share, down from $3.5 million, or $0.57 per diluted share, in the second quarter of 2025. Adjusted EBITDA from continuing operations fell 49% to $3.4 million from $6.7 million.
Backlog rises 45% as truck orders recover
Chief Executive Officer Ryan Schroeder said Eastern saw sequential improvement in sales, gross margin and adjusted EBITDA, even though year-over-year results remained lower. The company’s backlog stood at $126.2 million as of July 4, up $39 million, or 45%, from $87.1 million a year earlier and up from $82.2 million at the end of the first quarter.
The backlog increase included $19 million of acquired aerospace orders, along with higher orders for truck mirror assemblies, returnable transport packaging, and latch and handle assemblies. Management said roughly half of the year-over-year backlog increase came from existing operations, with the rest stemming from the new aerospace and defense platform.
Schroeder said the majority of the backlog is expected to convert to revenue during the remainder of 2026. Backlog increased across each business, including sequential gains of 29% at Velvac and 19% at Eberhard.
Heavy-truck build-rate recovery has been a primary driver of demand at Velvac and Eberhard, according to management. Schroeder said the company saw stronger activity from customers including PACCAR and Daimler Truck North America during June and July, and expects the trend to continue through the rest of 2026 and into 2027.
At Eberhard, the company’s largest work-truck body customer is emerging from a prolonged downturn, while a new door and actuation program for a customer’s next-generation side-by-side ATV remains on schedule. Velvac is managing higher demand while completing the stabilization of an enterprise resource planning system that went live April 1.
Big 3 margin pressure largely resolved
Gross margin was 20.6% in the second quarter, compared with 23.3% in the year-earlier period. Vlahos attributed the year-over-year decline to lower volume, the runoff of below-margin contracts at Big 3 Precision, and tariff-related costs on China-sourced products.
The company incurred approximately $1.9 million in tariff costs in the quarter, compared with approximately $2.4 million a year earlier, and said it recovered most of those costs through pricing. Management said tariff-related price adjustments have generally flowed through within about 30 days of tariff changes.
Schroeder said Big 3 had accepted a block of rack orders below its minimum margin threshold to fill capacity during a weaker demand period. The company tightened its quoting process and added review and accountability measures for pricing decisions. Those lower-margin contracts have now largely run off, he said, while new business is being booked at normal margins.
Management reported meaningful improvement in Big 3 gross margin in the final month of the quarter and further improvement in July. Big 3’s order book has also been bolstered by automotive model launches, with Schroeder saying the rack backlog is largely filled through the remainder of the year.
Aerospace acquisitions add new platform
Eastern completed the acquisitions of California-based Crown Precision and Sungear on June 1 for $7.85 million. The businesses manufacture high-tolerance components for commercial aerospace and defense applications and contributed one month of sales during the quarter.
Management said the two businesses could generate roughly $5 million to $6 million of quarterly revenue, or close to $20 million annually, although their first month under Eastern was softer. Their combined backlog was just over $18 million, with management expecting about half to be suitable for 2026 revenue.
The acquired operations had near break-even gross margins during the first month, partly reflecting acquisition accounting inventory step-up effects. Vlahos said Eastern’s longer-term gross-margin target for the businesses is 20% to 30%, supported by pricing actions, operational improvements and efforts to increase throughput.
Schroeder said the acquired businesses were profitable during the first half of 2026 after pricing actions taken last year and are expected to be accretive to Eastern’s results this year. He described the acquisitions as the first steps in building a precision manufacturing platform serving aerospace and defense markets.
Cash flow, debt and capital returns
Cash from operations totaled $12 million during the first six months of 2026, compared with $1.9 million in the prior-year period. Eastern ended the quarter with $15.1 million in cash, $66 million of inventory and $36.8 million of accounts receivable.
Long-term debt was $41.7 million at quarter end, up from $33.9 million at year-end, primarily reflecting borrowings for the acquisitions. The company had $59 million available under its $100 million revolving credit facility and said it remained in compliance with its loan covenants.
Eastern paid a quarterly dividend of $0.11 per share and repurchased 19,529 shares during the second quarter, bringing first-half repurchases to more than 40,000 shares. As of July 4, 256,000 shares remained available under the existing repurchase authorization. The company also invested $1.5 million in capital expenditures during the first half.
About Eastern (NASDAQ:EML)
Eastern NASDAQ: EML, based in West Haven, Connecticut, is a diversified industrial manufacturer specializing in secure hardware and metal finishing services. The company operates through two primary segments: Industrial Hardware Products and Security Products, complemented by a Metal Coatings division. Its Industrial Hardware Products segment produces cold-headed fasteners, forgings, hinges and precision components for heavy commercial vehicles, hydraulic cylinders and industrial machinery.
The Security Products segment designs and manufactures a wide range of lock and latch solutions, including padlocks, door hardware, cabinet locks and rental security towers for commercial and institutional applications.
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