Strattec Security NASDAQ: STRT reported lower first-quarter fiscal 2027 sales and earnings amid weaker customer production volumes, foreign-exchange pressure and supply-chain-related costs, while management pointed to sequential margin improvement, cash generation and continuing restructuring savings.
Net sales for the quarter were $147.2 million, down 3.4% from $152.4 million a year earlier. Chief Financial Officer Matthew Pauli said lower customer production volumes reduced sales by $6.2 million, partly offset by $1 million in net pricing benefits. North American automotive production declined 3.8% during the quarter, while production among Strattec’s three largest customers fell 6.8%.
Net income attributable to Strattec declined to $4.8 million, or $1.19 per diluted share, from $8.5 million, or $2.07 per diluted share, in the prior-year quarter. On an adjusted basis, net income was $7.5 million, or $1.85 per diluted share, compared with $9.2 million, or $2.22 per diluted share, a year earlier.
Margins Improve Sequentially Despite Year-Over-Year Pressures
Gross profit was $24.3 million, compared with $26.3 million in the prior-year period, and gross margin was 16.5%, down 80 basis points year over year. Pauli attributed the decline primarily to lower production volumes and $1.4 million of unfavorable foreign-exchange effects, which reduced the year-over-year gross-margin comparison by about 90 basis points.
The company also faced elevated premium freight and overtime costs tied to supply-chain challenges. Those headwinds were partly offset by pricing benefits, $900,000 in restructuring savings, lower overhead costs and favorable product mix.
However, gross margin improved sequentially from 15.6% in the fourth quarter, even as sales declined. Adjusted EBITDA rose to $13.5 million, or 9.2% of sales, from $12.5 million in the previous quarter. Compared with the year-earlier quarter, adjusted EBITDA declined from $15.6 million, or 10.2% of sales.
“Our first quarter results reflect continued progress in transforming Strattec into a more resilient, higher-performing business,” President and Chief Executive Officer Jennifer Slater said. She said the company remained focused on productivity, cost reductions, customer service and disciplined capital allocation.
Restructuring and Transformation Efforts Continue
Strattec implemented additional restructuring actions in its Mexico operations during the quarter that are expected to generate $1.3 million in annualized savings. Slater said restructuring initiatives implemented since the company began its transformation in fiscal 2025 are expected to produce more than $10 million in annualized savings.
Management said it sees further opportunities to improve its cost position through supply-chain initiatives, automation and more efficient manufacturing processes. The company’s commercial strategy is organized around “Permission,” for secure vehicle entry; “Motion,” for powered access systems; and “Hold,” for latching solutions.
Strattec’s selling, administrative and engineering expenses were $17.9 million, or 12.2% of sales, up from $15.9 million, or 10.4% of sales, in the prior-year period. The increase was driven primarily by $2.4 million in business-development expenses associated with advancing acquisition opportunities, as well as investments in talent and outside support for the transformation.
Excluding business development, business transformation and executive transition costs, adjusted selling, administrative and engineering expenses decreased $200,000 to $15 million, or 10.2% of sales. Pauli said the quarter also included about $1 million in engineering and development recoveries that can vary by project. For fiscal 2027, the company expects adjusted quarterly expenses, excluding unusual items, to run at $16.5 million to $17 million as it continues selected investments.
Cash Balance Rises as Company Repurchases Shares
Cash from operations was $10.8 million, compared with $11.3 million in the prior-year quarter, aided by customer collections. Strattec repurchased approximately 68,000 shares for $5 million during the quarter.
The company ended the period with $111.8 million in cash and cash equivalents, up from $108.2 million at fiscal year-end, and carried no debt. Management said its capital allocation priorities include funding customer programs and organic growth, investing in automation and modernization, maintaining flexibility through automotive cycles, repurchasing shares opportunistically and pursuing disciplined acquisitions.
Slater said Strattec has an active acquisition pipeline and is evaluating opportunities based on strategic fit, financial returns, capital requirements and execution risk. She did not provide a timetable or target acquisition size, noting that potential deals differ and that the company does not want acquisition activity to detract from the transformation of its existing operations.
Fiscal 2027 Outlook Reflects Lower Auto Production
Management expects a challenging automotive environment for fiscal 2027. Current third-party forecasts point to an approximately 2% decline in North American automotive production during the fiscal year, including a nearly 6% decline in production at the Detroit Three.
Strattec expects lower volume to remain a gross-margin headwind and forecast fiscal 2027 gross margin of 15% to 16%, compared with its long-term target range of 18% to 20%. Pauli said the second quarter is expected to be similar to the company’s outlook for the year, with holiday production schedules contributing to lower volume.
Material-cost inflation is expected to emerge later in the year, although management said it expects foreign-exchange benefits, at current rates, to help offset those costs. The company expects a normalized fiscal 2027 effective tax rate of 23% to 25% and operating cash flow of roughly $10 million per quarter, subject to working-capital variability. That would place the company on track for approximately $40 million in operating cash flow for the year.
On organic growth, Slater said automotive programs are long-cycle and that results over the next two years will follow North American production. The company is working with existing and prospective customers on future platforms and content opportunities, but she said it likely will not have clearer visibility beyond the next two years until the end of its fiscal year.
About Strattec Security (NASDAQ:STRT)
Strattec Security Corporation NASDAQ: STRT designs and manufactures automotive access, security and vehicle-control products. Its offerings include mechanical and electronic locks, latches, keys, ignition systems, power-liftgate and sliding-door systems, actuators, and related security components used in passenger vehicles and commercial vehicles.
The company supplies automotive original equipment manufacturers and other transportation-industry customers. Its products are developed for applications such as vehicle entry, theft deterrence, body access and electronic control, and are produced and supported through operations in North America and other international locations.
Strattec traces its history to the early automotive components industry and became an independent publicly traded company after being spun off from Briggs & Stratton Corporation in 1995.
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