Eastern Q3 Earnings Call Highlights

Key Points

• Third-quarter sales rose 36% to $75 million, while net income from continuing operations climbed to $3.4 million. Growth was driven by a rebound in truck mirror and returnable packaging shipments, alongside contributions from acquired businesses.
• Eastern’s backlog reached approximately $126 million, up 70% year over year, providing visibility into the next several quarters. The company cautioned about normal seasonal slowdowns and potential increases in material, freight and logistics costs.
• The newly acquired Sungear and Crown Precision businesses added $5.4 million in sales and generated positive cash flow, but contributed little to earnings as Eastern works to improve their margins and operations. Cash fell to $7.9 million during the quarter, partly due to higher receivables.

Eastern NASDAQ: EML reported a 36% increase in third-quarter sales as truck-related shipments rebounded and its recently acquired aerospace and defense businesses contributed their first full quarter of revenue.

Net sales rose to $75 million from $55.3 million a year earlier, while net income from continuing operations increased to $3.4 million, or $0.57 per diluted share, from $0.6 million, or $0.10 per share. Operating profit more than tripled to $5.6 million from $1.7 million.

CEO Ryan Schroeder said higher volumes, operating changes and pricing actions contributed to the improvement. Adjusted EBITDA from continuing operations more than doubled to $7.6 million from $3.5 million a year earlier.

Truck and packaging shipments drive growth

Eastern’s existing businesses saw a rebound led by truck mirror assemblies at Velvac and returnable transport packaging at Big 3, Schroeder said. Mirror shipments rose $7.4 million year over year, while returnable packaging shipments increased $5.7 million. Sales of latch and handle assemblies rose $1.1 million, Chief Financial Officer Nicholas Vlahos said.

Schroeder said a Class 8 fleet replacement cycle was underway, with rising fuel costs favoring newer, more efficient engines. He also said demand for returnable packaging was supported by automakers’ heavy vehicle launch schedules.

Gross margin expanded to 23.9% from 22.3% a year earlier. Schroeder said unprofitable rack contracts at Big 3 that weighed on first-half results were behind the company and that improved quoting practices were contributing to stronger margins as volume recovered.

Vlahos said tariff costs on China-sourced products were approximately $2.3 million, down from approximately $4 million a year earlier. Eastern mostly recovered those costs through pricing actions, he said. Gross margin also included $0.2 million of noncash expense related to the fair-value adjustment of acquired inventory.

Adjusted net income from continuing operations was $3.6 million, or $0.60 per diluted share, compared with $0.8 million, or $0.13 per share, a year earlier. Selling and administrative expenses rose to $11.3 million from $9.6 million, but declined as a share of sales to 15% from 17.4%.

Acquired businesses add sales, but margins need work

Sungear and Crown Precision, acquired June 1, contributed $5.4 million in third-quarter sales. Schroeder said the businesses generated positive cash flow but did not contribute meaningfully to the bottom line.

Their current product mix is weighted toward complex, low-volume first-run parts, limiting the throughput needed to support margins, he said. Eastern is working to improve processes, shorten lead times and add operational management depth.

In response to a question from Tieton analyst Bill Dezellem, Schroeder said Eastern had made meaningful progress repricing unfavorable business and updating long-term agreements with key customers. He said customers had largely been supportive, although the work remained ongoing and the company intended to make further progress over the next three to six months.

Schroeder also said Eastern was working to remove operational bottlenecks, particularly at Sungear, and broaden the acquired businesses’ customer base. Opportunities involving products already in production can typically take about six or seven months to convert, though some take up to a year, he said. New programs can take considerably longer.

Backlog supports outlook as cash declines

Eastern ended the quarter with backlog of approximately $126 million, up 70% from a year earlier and essentially unchanged from the end of the second quarter. Schroeder said the company expects most of the backlog to convert over the next two to three quarters, providing visibility through the balance of 2026 and the first half of 2027.

He cautioned that customers typically reduce production during the fourth-quarter holiday season and that the first quarter is generally Eastern’s slowest. The company expects a return to more typical seasonality, though from a higher base.

Schroeder said Eastern was monitoring rising material, freight and logistics costs, as well as the possibility that truck production moderates next year. He expects the company to recover higher input costs through pricing over the coming quarters, while noting a timing gap between cost increases and price adjustments.

The quarter used approximately $3.2 million of operating cash as receivables rose with shipments and earlier increases in payables and accrued expenses partially unwound, Vlahos said. Cash declined to $7.9 million from $15.1 million at the end of the second quarter. Operating cash flow for the first nine months was $8.9 million, up from $5 million a year earlier.

Eastern repaid $2 million of long-term debt during the quarter, leaving a balance of $39.7 million, and paid its regular quarterly dividend of $0.11 per share. It did not repurchase shares during the quarter.

About Eastern (NASDAQ:EML)

The Eastern Company NASDAQ: EML is a diversified manufacturer of engineered products serving industrial, security and transportation markets. The company develops and produces products used in commercial vehicles, industrial equipment, specialty vehicles and other applications where security, access control and engineered components are required. Its product offerings include locks, latches, access hardware and other security-related components, as well as vehicle mirrors and related equipment.

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