Strattec Security (STRT) Q3 2025 Earnings Call May 09, 2025 09:00 AM ET Company Participants Deborah Pawlowski - Founding Partner & Senior Managing DirectorJennifer Slater - President, CEO & DirectorMatthew Pauli - SVP & CFO Conference Call Participants John Franzreb - Senior Equity AnalystNone - Analyst Operator Greetings, and welcome to the StratTech Third Quarter Fiscal Year twenty twenty five Financial Results. At this time, all participants are in a listen only mode. A question and answer session will ...

Financial Data and Key Metrics Changes - The company generated nearly $21 million in cash from operations in Q3, bringing the year-to-date total to $41.5 million, reflecting improved earnings power and disciplined working capital management [5][6] - Net income was $5.4 million for the quarter, or $1.32 per diluted share, compared to $1.5 million or $0.37 per share in the same quarter last year, marking a more than threefold increase [6][9] - Adjusted EBITDA rose to $12.9 million, representing 9% of sales, up from 4.4% in the prior year period [6][9] Business Line Data and Key Metrics Changes - Gross profit for the quarter increased to $23.1 million, up from $14.7 million in the prior year, with gross margin expanding by 560 basis points to 16% [12] - The company experienced a $4.4 million benefit from a stronger U.S. dollar and strategic pricing actions, which offset $800,000 in additional tariff expenses [12][13] Market Data and Key Metrics Changes - Approximately 65% of products are imported into the U.S. from Mexico, with over 90% of that volume being USMCA compliant, limiting tariff exposure [15] - The estimated annualized impact of recently announced U.S. tariffs is between $9 million to $12 million in added costs before mitigation [9][15] Company Strategy and Development Direction - The company is focused on strengthening its operational and financial position through restructuring efforts, with total annualized savings from restructuring activities now totaling approximately $5 million [7] - The company is actively managing tariff risks by adjusting logistics routes, engaging in pricing discussions, and shifting supply chain sources [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to absorb and adapt to changes while continuing to drive performance despite macro uncertainties [11] - The company is monitoring automotive production and the impacts of tariff exposure on customers to prepare for any material impacts on production [28] Other Important Information - Operating cash flow was strong at $20.7 million, a significant turnaround from the previous year, with a cash position of $62.1 million at the end of the quarter [18][19] - Capital expenditures for the year are projected to be around $7.5 million, with a focus on equipment upgrades and IT infrastructure [35] Q&A Session Summary Question: What was the absolute number of the impact of tariffs in the third quarter? - The incremental impact of tariffs in Q3 was $800,000, primarily for the month of March [27] Question: What kind of operating environment are you assuming with your customer base for the balance of the year? - The company is monitoring automotive production and tariff impacts, ensuring preparedness for any material impacts on production [28] Question: What is the mix of price realization versus labor cost savings from headcount reduction? - The pricing benefit in the quarter was about $2.5 million, with the remainder attributed to labor cost savings [29] Question: How much annualized savings comes from the 12% headcount reduction? - The full restructuring for both Milwaukee and Mexico is expected to yield about $5 million in annual savings, with $200,000 realized in the current quarter [32] Question: What will the CapEx budget look like for the balance of this year? - The CapEx budget for the rest of the year is projected to be around $2 million to $3 million, with a total of approximately $7.5 million for the full year [35] Question: Any thoughts about reinstituting the dividend? - The company is managing through near-term uncertainties and is considering internal and external capital allocation but is not ready to reinstate the dividend yet [36]

Financial Performance - Net sales for the three months ended March 30, 2025, were $144.1 million, a 2.3% increase from $140.8 million for the same period in 2024[13] - Gross profit for the three months ended March 30, 2025, was $23.1 million, compared to $14.7 million for the same period in 2024, representing a significant increase of 57.5%[13] - Net income attributable to STRATTEC SECURITY CORPORATION for the three months ended March 30, 2025, was $5.4 million, up from $1.5 million in the same period in 2024, reflecting a growth of 258.5%[13] - The company reported a comprehensive income of $5.7 million for the three months ended March 30, 2025, compared to $2.2 million for the same period in 2024, an increase of 156.5%[13] - Earnings per share attributable to STRATTEC SECURITY CORPORATION for the three months ended March 30, 2025, were $1.34, compared to $0.38 for the same period in 2024, representing a growth of 252.6%[13] - Net income for the nine months ended March 30, 2025, was $10,857 million, compared to $6,361 million for the same period in 2024, representing a 70.5% increase[17] - Revenue for the nine months ended March 30, 2025, was $413,053 million, an increase of 4.6% from $394,711 million in the same period of 2024[26] - Gross profit for the nine months ended March 30, 2025, was $59.2 million, compared to $46.9 million for the same period in 2024, reflecting a significant increase of 26.3%[13] Cash and Liquidity - Cash and cash equivalents rose to $62.1 million as of March 30, 2025, compared to $25.4 million as of June 30, 2024, indicating a growth of 144.4%[15] - The company reported a total cash and cash equivalents of $62,106 million at the end of the period, significantly up from $9,594 million at the end of March 31, 2024[17] - Net cash provided by operating activities was $41,501 million for the nine months ended March 30, 2025, compared to a net cash used of $7,223 million in the prior year[17] - The company had no borrowings outstanding under the $40.0 million STRATTEC revolving credit agreement as of March 30, 2025, indicating strong liquidity management[78] - The company believes that the combination of the revolving credit line, existing cash, and anticipated operating cash flows will be sufficient to meet future operating and capital expenditure needs[78] Expenses and Costs - Engineering, selling, and administrative expenses increased to $16.0 million for the three months ended March 30, 2025, compared to $12.7 million for the same period in 2024, reflecting a rise of 25.5%[13] - The company incurred restructuring costs of $0.8 million and $1.1 million for the three and nine months ended March 30, 2025, respectively[34] - The company’s depreciation expense for the nine months ended March 30, 2025, was $10,952 million, down from $12,774 million in the same period of 2024[17] - The company incurred warranty payments of $485,000 during the three months ended March 30, 2025[39] - The company estimates an annual impact of $9-$12 million increase in cost of goods sold due to additional tariffs[56] Shareholders' Equity and Liabilities - The company’s total shareholders' equity increased to $234.6 million as of March 30, 2025, compared to $225.6 million as of June 30, 2024, reflecting a growth of 4.4%[15] - The company’s total liabilities increased to $123.3 million as of March 30, 2025, from $118.3 million as of June 30, 2024, an increase of 4.2%[15] - The warranty reserve balance at the end of the period was $10,745,000, with a provision charged to expense of $284,000 for the three months ended March 30, 2025[39] - The restructuring reserve balance at the end of the period was $578,000, with a restructuring charge of $809,000 for the three months ended March 30, 2025[35] Operational Insights - The company is focusing on improving profitability and sustainable sales growth through upgraded systems, processes, and enhanced productivity in manufacturing operations[54] - The company is reviewing its product portfolio to optimize its cost structure and enhance working capital management[54] - North American light vehicle production is expected to decline by approximately 6-8% in fiscal 2026, with a recovery anticipated in fiscal 2027 and 2028[55] - The company achieved a year-to-date sales growth of 5%, driven by new program launches, pricing actions, and increased volumes[55] Compliance and Governance - The Company maintained compliance with all financial covenants as of March 30, 2025[36] - The company was in compliance with all covenants under its credit facilities as of March 30, 2025[78]

Q3 FY2025 Financial Results Conference Call May 9, 2025 Nasdaq: STRT Jennifer Slater President and CEO Matthew Pauli Senior Vice President and CFO www.strattec.com Safe Harbor Statement Safe Harbor Statement Certain statements contained in this presentation contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words or phrases such as "anticipate," "believe," "could," "expect," "intend ...

Core Insights - Strattec Security (STRT) reported quarterly earnings of $1.50 per share, exceeding the Zacks Consensus Estimate of $0.95 per share, and showing a significant increase from $0.37 per share a year ago, resulting in an earnings surprise of 57.89% [1] - The company achieved revenues of $144.08 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 2.30% and showing growth from $140.77 million year-over-year [2] - Strattec Security has consistently surpassed consensus EPS estimates over the last four quarters, achieving this four times [2] Earnings Outlook - The future performance of Strattec Security's stock will largely depend on management's commentary during the earnings call and the sustainability of the stock's immediate price movement based on the recently released numbers [3][4] - The current consensus EPS estimate for the upcoming quarter is $0.91 on revenues of $142.01 million, and for the current fiscal year, it is $3.67 on revenues of $551.82 million [7] Industry Context - The Automotive - Original Equipment industry, to which Strattec Security belongs, is currently ranked in the bottom 28% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact investor sentiment and stock performance [5]

Financial Performance - Net sales for the third quarter were $144.1 million, an increase of $3.3 million, or 2.4%, driven by $2.5 million in price increases and $2.2 million from a favorable product mix [5]. - Net income attributable to STRATTEC was $5.4 million, or $1.32 per diluted share, compared to $1.5 million, or $0.37 per diluted share, in the prior-year period, representing a 260% increase in net income [9]. - Adjusted EBITDA for the quarter was $12.9 million, or 8.9% of sales, compared to $6.2 million, or 4.4%, in the prior-year period, reflecting a 450 basis point improvement [9]. - Gross profit increased by $8.4 million to $23.1 million, with gross margin expanding by 560 basis points to 16.0% [6]. - Net income for the third quarter of fiscal 2025 was $5.7 million, significantly up from $1.1 million in the same quarter of fiscal 2024, marking a year-over-year increase of 407% [27]. - The company reported adjusted net sales of $413 million for fiscal 2025, compared to $537 million for fiscal 2024, showing a decrease of 23.2% [29]. Cash Flow and Liquidity - STRATTEC generated $20.7 million in cash from operations in the third quarter of fiscal 2025, compared to a cash use in the prior-year period [11]. - The company had $62.1 million in cash and cash equivalents as of March 30, 2025, up $19.5 million from the end of the second quarter [12]. - Cash and cash equivalents at the end of the period were $62.1 million, up from $25.4 million at the end of the previous fiscal year, indicating a substantial increase of 144% [27]. - The cash flow from investing activities showed a net cash used of $1.2 million in the third quarter of fiscal 2025, compared to $1.7 million in the same quarter of fiscal 2024 [27]. - STRATTEC's capital expenditures for the period were $1.2 million, reflecting a change in accounts payable of $1.2 million [28]. Cost Management and Restructuring - The company reduced its headcount by 12% in the first nine months of fiscal 2025, contributing to cost savings initiatives [3]. - Restructuring actions in Mexico are expected to generate approximately $5 million in annual cost reductions, with full realization anticipated by the first quarter of fiscal 2026 [10]. - Engineering, selling, and administrative expenses increased by $3.3 million, or 25.9%, to $16.0 million, reflecting investments in the business and higher compensation costs [7]. - The estimated annual impact of tariffs is approximately $9 million to $12 million, prompting the company to implement mitigation actions [3]. Balance Sheet and Equity - STRATTEC SECURITY CORPORATION reported total current assets of $287.2 million as of March 30, 2025, an increase from $253.8 million on June 30, 2024, representing a growth of 13.2% [24]. - Total current liabilities increased to $123.3 million as of March 30, 2025, compared to $118.3 million on June 30, 2024, reflecting a rise of 4.3% [24]. - STRATTEC's retained earnings increased to $261 million as of March 30, 2025, from $250.6 million on June 30, 2024, reflecting a growth of 4.5% [24]. - The company’s total shareholders' equity rose to $234.6 million as of March 30, 2025, compared to $225.6 million on June 30, 2024, an increase of 4% [24]. Other Financial Metrics - Adjusted EBITDA (Non-GAAP) was reported at $8.0 million, representing an increase from previous quarters [30]. - Net income attributable to STRATTEC (GAAP) was $5.2 million, with a diluted earnings per share of $1.05 [31]. - Adjusted net income attributable to STRATTEC (Non-GAAP) was $1.42 million, with adjusted diluted earnings per share of $0.36 [31]. - The company reported a 3.1% adjusted EBITDA as a percentage of adjusted net sales [30]. - Restructuring and similar charges amounted to $265,000, impacting overall financial performance [31]. - Executive transition costs were recorded at $973,000, indicating ongoing changes in management [31]. - Business transformation costs totaled $74,000, reflecting investments in operational improvements [31]. - The weighted average diluted shares outstanding were 4.06 million, showing a slight increase from previous periods [31]. - The company faced a retroactive FY23 one-time pricing recovery net impact of $(641,000) [30].

Company Overview - Strattec Security Corp. (NASDAQ: STRT) is an underfollowed auto parts supplier specializing in access control systems for vehicles, positioning itself as a significant player in its niche market [1]. Investment Philosophy - The investment approach focuses on value and deep value, emphasizing concentrated portfolios in a few key companies with thorough industry research [1]. - Key sectors of interest include financial services (regional banks and insurance), retail, software/technology, and waste management stocks [1]. Research and Analysis - The company places a strong emphasis on understanding qualitative aspects of investments, integrating these insights into valuations that support investment decisions [1]. - The investment philosophy also involves recognizing knowledge gaps and managing risks to avoid permanent capital losses [1]. Educational Background - The educational background includes a specialization in Accounting and a minor in Economics from Wilfrid Laurier University, with ongoing efforts to obtain a CPA designation [1]. Professional Role - Currently, the company operates in a large Financial Services firm in Toronto, Canada, in a non-investment risk-related role [1].

Company Overview - STRATTEC SECURITY CORPORATION is a leading provider of smart vehicle access, security, and authorization solutions for the global automotive industry [1] - The company has over 110 years of history and has been at the forefront of innovation in vehicle security, transitioning from mechanical to integrated electro-mechanical systems [3] - STRATTEC serves a broad range of customers, including leading automotive OEMs, offering advanced security systems and power access solutions [3] Upcoming Event - The company will present and host investor meetings at the LD Micro Invitational XV in New York, NY on April 10, 2025 [1] - The presentation is scheduled to begin at 9:30 a.m. Eastern Time, with a live audio webcast available for investors [2]

Group 1 - Strattec Security (STRT) is currently outperforming its peers in the Auto-Tires-Trucks sector, with a year-to-date performance increase of 4.3%, while the sector has seen an average decline of 18.9% [4] - The company holds a Zacks Rank of 1 (Strong Buy), indicating strong analyst sentiment and a positive earnings outlook, with a 33% increase in the consensus estimate for full-year earnings over the past quarter [3] - Strattec Security is part of the Automotive - Original Equipment industry, which has an average decline of 3.3% this year, further highlighting STRT's relative strength within this group [5] Group 2 - The Auto-Tires-Trucks group includes 100 companies and is currently ranked 13 in the Zacks Sector Rank, which measures the strength of sector groups based on the average Zacks Rank of individual stocks [2] - Another company in the same sector, Aptiv PLC (APTV), has also shown strong performance with a year-to-date increase of 5.7% and a Zacks Rank of 2 (Buy) [4][5] - Investors in the Auto-Tires-Trucks sector are encouraged to monitor both Strattec Security and Aptiv PLC for their continued solid performance [6]

Automotive parts supplier Strattec Security Corp. (STRT) appears to be trading cheap at the moment from a valuation standpoint. Its forward sales multiple of 0.33 is lower than the industry. The company also has a Value Score of A. Image Source: Zacks Investment ResearchMany investors favor the P/CF ratio because cash flow is harder to manipulate on the income statement, making it a reliable indicator of a company’s financial health. At 4.51, STRT’s P/CF is intriguingly below the industry’s 22.98, as well a ...