Strattec Security Q4 Earnings Call Highlights

Key Points

• Record fiscal 2026 performance: Revenue rose 2.5% to $579.4 million, while gross margin expanded 150 basis points to 16.5% and adjusted EBITDA increased 15% to $50.5 million. Restructuring, pricing actions and operational improvements helped offset automotive production volatility, EV program cancellations and foreign-exchange pressure.
• Strong balance sheet and capital allocation: Strattec generated $46.3 million in full-year operating cash flow, ended the year with $108.2 million in cash and no debt, and authorized a new $40 million share-repurchase program. Management is prioritizing buybacks, automation, customer-program investments and selective acquisitions rather than reinstating a dividend.
• Challenging fiscal 2027 outlook: North American vehicle production is expected to decline about 2%, while production at Ford, Stellantis and GM could fall nearly 6%. Foreign exchange remains a significant risk, though management expects canceled EV programs to no longer be a major incremental headwind and continues targeting 18%–20% gross margins over the next several years.

Strattec Security NASDAQ: STRT reported record fiscal 2026 revenue and higher profitability as restructuring, pricing and operational improvements helped offset automotive production volatility, foreign exchange pressure and canceled electric-vehicle programs.

President and Chief Executive Officer Jennifer Slater said fiscal 2026 revenue reached $579.4 million, while gross margin expanded 150 basis points to 16.5%. The company generated $46.3 million in operating cash flow and ended the year with $108.2 million in cash and no debt.

“Fiscal 2026 was a year of progress as we continued to reshape Strattec into a more resilient, higher-performing business,” Slater said on the company’s earnings call.

Fourth-Quarter Results

Fourth-quarter net sales were $151.8 million, essentially unchanged from the prior-year period and above management’s earlier expectations. Senior Vice President and Chief Financial Officer Matthew Pauli said the company had initially expected quarterly sales to decline 3% to 4%, based on third-party estimates for original equipment manufacturer production. Actual OEM production declined 1.4% during the quarter.

Compared with the year-earlier quarter, canceled OEM EV programs reduced sales by $3.2 million. That impact was partly offset by $1.4 million in pricing benefits and certain customer inventory builds, Pauli said.

Fourth-quarter gross profit declined to $23.6 million from $25.4 million a year earlier, with gross margin at 15.6%. Pauli attributed the year-over-year comparison to unfavorable foreign exchange rates and lower tooling gains. On a constant-currency basis, gross margin improved due to lower tariff costs, pricing actions and restructuring savings, partly offset by higher costs associated with supplier-related quality and delivery issues.

Net income attributable to Strattec was $3.9 million, or $0.95 per diluted share, compared with $8.3 million, or $2.01 per diluted share, in the prior-year quarter. The quarter included business transformation and executive-transition costs, as well as $2.9 million of discrete income-tax adjustments related to changes in tax regulations.

On an adjusted basis, fourth-quarter net income was $8.4 million, or $2.06 per diluted share, unchanged from the previous year. Adjusted EBITDA was $12.5 million, compared with $13 million a year earlier.

Full-Year Margin and Cash-Flow Progress

For the full year, sales increased 2.5% from $565.1 million in fiscal 2025. Pricing contributed 2% to the increase, while volume growth was less than 1%, in line with the broader North American automotive market.

Full-year gross profit rose to $95.4 million from $84.6 million, while adjusted EBITDA increased 15% to $50.5 million. Adjusted EBITDA margin improved 100 basis points to 8.7%, and fiscal 2026 earnings per share increased 9% to $5, according to Pauli.

Strattec realized about $6 million in savings from restructuring actions during fiscal 2026 and $9.5 million in cumulative savings since fiscal 2025. Slater said the company consolidated test-lab operations in Auburn Hills, Michigan, added 16 automated assembly stations and freed up 91,000 square feet of production space at its Milwaukee facility. The company also reduced manufacturing headcount by an additional 7%.

Management said automation remains a significant opportunity, with automated assembly stations representing 9% of the company’s total assembly stations. Slater said the company is pursuing simple automation projects with payback periods typically under one year, while also considering more comprehensive automation for future customer programs.

Capital Allocation and Strategic Priorities

Strattec generated $9.7 million in fourth-quarter operating cash flow and repurchased approximately 110,000 shares for $7.4 million during the period. The repurchase represented about 2% of shares outstanding, Pauli said.

The board authorized a new $40 million share-repurchase program. Management said it plans to use the authorization to offset equity dilution and repurchase shares opportunistically, while preserving capital for organic investments and potential acquisitions.

The company is not currently considering reinstating a dividend, Pauli said. Instead, its capital allocation priorities include investment in new customer programs, automation, process modernization, opportunistic buybacks and acquisitions that can add scale or diversify its customer, product and program base.

Slater said Strattec is focused on opportunities that fit within its three product pillars: Permission, which includes secure vehicle-entry technologies; Motion, covering powered access systems; and Hold, consisting of latching products. The company has also invested in commercial talent and pipeline-management tools to engage customers earlier in vehicle development cycles.

Management said it expects to continue manufacturing in Milwaukee but may pursue a sale-leaseback transaction for the portion of the facility it needs, as the site remains larger than required for current operations.

Fiscal 2027 Outlook

Management expects automotive conditions to remain challenging in fiscal 2027. Based on current third-party forecasts, Strattec expects North American production to decline about 2%, while production at its three largest customers—Ford, Stellantis and General Motors—is projected to decline nearly 6%.

Pauli said the production decline is expected to be relatively consistent throughout the fiscal year, aside from typical second-quarter holiday shutdown seasonality. He said canceled EV programs represented an approximately $10 million headwind from fiscal 2025 to fiscal 2026 and that the effect has been “flushed out” for fiscal 2027.

Foreign exchange remains a major headwind. Pauli said that if the Mexican peso had traded at its five-year average of 19.50 per U.S. dollar, Strattec’s fiscal 2026 gross margin would have been about 100 basis points higher. A 5% change in the U.S. dollar relative to the peso could affect annual manufacturing costs by roughly $4 million before hedging.

The company continues to target gross margins of 18% to 20% over the next several years, assuming the peso returns to its five-year average. For fiscal 2027, Strattec expects an effective tax rate of approximately 24% to 25%, normalized operating cash flow of about $10 million per quarter, subject to working-capital changes, and about $12 million in capital expenditures.

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.

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