Strattec Security NASDAQ: STRT reported lower third-quarter fiscal 2026 sales but improved gross margin and strong cash generation, as management said restructuring actions and operational changes continued to support profitability despite a softer automotive production environment.
President and Chief Executive Officer Jennifer Slater said the company “delivered another solid quarter” and continued to make progress on its transformation plan. She said previously completed restructuring actions generated $1.9 million in savings during the quarter, which she described as a peak level as the company begins to lap benefits from earlier actions.
Strattec generated $11.4 million in operating cash flow in the quarter and ended the period with $107 million in cash on hand. Slater said that liquidity gives the company flexibility to continue investing in the business, support customers and navigate a dynamic industry backdrop.
“While sales were down from prior year, the decline was in line with expectations, and we continued to improve profitability, generate strong cash flow, and maintain a very strong balance sheet,” Slater said.
Sales decline reflects lower volume and EV cancellations
Senior Vice President and Chief Financial Officer Matthew Pauli said third-quarter sales declined 4.5% year over year, as lower volume and electric vehicle program cancellations were only partially offset by pricing benefits and tariff recoveries.
Pauli said the annual impact of customer cancellations on reduced EV platforms is approximately $9 million, with about two-thirds already reflected in year-to-date fiscal 2026 results. He said the largest customer declines in the quarter were with Ford and Hyundai Kia, both down a little more than 10% year over year. Sales to Tier 1 customers and Stellantis increased as those customers raised production.
By product category, Pauli said door handles and keys and locksets were steady, while power access and latches were down from the prior year. In response to an analyst question, Slater said the decline in power access was tied to customer build timing at Hyundai-Kia and Ford and was not expected to have a long-term impact.
Gross margin expands despite currency and tariff headwinds
Gross profit was $22.7 million, compared with $23.1 million in the prior-year quarter. Gross margin improved 50 basis points to 16.5%, which Pauli said reflected the value of the company’s transformation actions.
The quarter included approximately $1.7 million of restructuring savings and recoveries related to canceled customer programs. Those benefits were partly offset by higher labor and benefit costs, incremental tariff costs and foreign exchange pressure.
Pauli said incremental tariff costs have been running at an annual rate of approximately $5 million to $7 million, about half of which were IEEPA tariffs. He said the company has recovered a majority of tariff costs on a delayed basis through price increases or pass-throughs to original equipment manufacturers and will pursue past IEEPA tariff recoveries from the government, which would then be passed back to customers.
During the quarter, Strattec also made additional changes within its Mexico operations that are expected to provide $800,000 in incremental annualized savings beginning in the fourth quarter. Slater said the company is balancing cost optimization with the need to avoid disruptions to delivery or quality for customers.
Net income falls, but year-to-date earnings improve
Net income attributable to Strattec was $3.2 million, or $0.78 per diluted share, compared with $5.4 million, or $1.32 per diluted share, in the prior-year quarter. Adjusted net income was $3.7 million, or $0.90 per diluted share.
Pauli said the year-over-year earnings decline was primarily driven by unfavorable foreign exchange impacts in cost of goods sold and other income and expense. The company recorded a $900,000 currency loss in the current quarter, compared with a $235,000 foreign currency gain in the prior-year period. Pauli said most of the current-quarter loss reflected unrealized losses on peso forward contracts, driven by a sudden and short-lived strengthening of the U.S. dollar at quarter-end.
The currency loss reduced earnings per share by $0.16, Pauli said, adding that it could reverse at the end of the fourth quarter depending on peso trading levels and mark-to-market accounting requirements.
Adjusted EBITDA was $10.1 million, down from $12.5 million in the prior-year period, with foreign exchange cited as the primary reason for the decline. On a year-to-date basis, adjusted EBITDA was $37.9 million, up 23% from the prior-year period, while earnings per share rose 46%.
Transformation plan focuses on cost structure and growth
Slater said Strattec’s priority remains disciplined execution of its transformation plan, including daily operational execution, stronger processes, talent upgrades and improved systems. She said the company is working to build a more predictable and higher-performing business.
Management also outlined growth priorities, including capturing more content with existing customers, participating earlier in advanced development on new platforms and developing relationships with a more diverse set of customers that have U.S. production sites and are seeking local sourcing.
Slater said the company’s product strategy is anchored around engineering-led access systems organized into three categories: permission, motion and hold. She said the company is defining technical product roadmaps aligned with customer requirements and current and future technologies.
“We are very early in our execution on these growth initiatives,” Slater said, adding that Strattec has the balance sheet and financial flexibility to support the broader transformation.
Company expects fourth-quarter revenue decline
Looking ahead, Pauli said Strattec expects a moderate market environment, including the effects of canceled EV programs and lower production on certain key platforms. The company expects fourth-quarter revenue to decline 3% to 4% year over year, reflecting similar dynamics to the third quarter.
Over the next few years, Strattec is targeting gross margin of 18% to 20%, assuming the peso at its five-year average of MXN 19.50. Pauli said the company is currently operating in the 16% range. The company is also targeting selling, administrative and engineering expenses of approximately 10% to 11% of revenue over the next several years, excluding unusual items.
In the question-and-answer session, Sidoti & Company analyst John Franzreb asked what was needed to move gross margin from the current level toward the target range. Slater cited continued cost optimization, additional pricing opportunities and, over the longer term, volume. Pauli said the company’s trailing 12-month gross margin was just above 16.5%, compared with 15% in the prior fiscal year, and said management has line of sight to reach the 18% to 20% target.
Slater said the company’s actions are intended to build “a stronger company with improved resilience, better earnings power, and a clearer path to long-term value creation.”
About Strattec Security NASDAQ: STRT
Strattec Security Corporation is a Wisconsin‐based designer and manufacturer of mechanical and electronic locking systems for the global automotive market. Established more than five decades ago, the company supplies original equipment manufacturers (OEMs) and the aftermarket with a broad portfolio of lock and key solutions tailored to passenger cars, light trucks and commercial vehicles.
The company's product range includes mechanical locking systems such as door lock cylinders, ignition lock modules, key blanks and door handles, as well as electromechanical and keyless‐entry systems.
Read More
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider Strattec Security, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Strattec Security wasn't on the list.
While Strattec Security currently has a Hold rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
Enter your email address and we’ll send you MarketBeat’s list of ten stocks set to soar in Spring 2026, despite the threat of tariffs and what's happening in Iran. These ten stocks are incredibly resilient and are likely to thrive in any economic environment.
Get This Free Report
