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 ...

Financial Data and Key Metrics Changes - The company generated $9.4 million in cash from operations in Q2 2025, totaling approximately $21 million for the first half of the fiscal year, a significant improvement compared to the cash used in the first half of fiscal 2024 [9] - Revenue increased by nearly 10% year-over-year, despite the previous year's second quarter benefiting from $4 million in retroactive pricing [10] - Adjusted EBITDA for the quarter was $8 million, up 60% compared to the same period last year, with an adjusted EBITDA margin expanding 180 basis points to 6.1% [26] - Net income for Q2 was up 29% to $1.3 million or $0.32 per diluted share, while adjusted non-GAAP net income was $2.6 million or $0.65 per diluted share, an 81% increase from the prior year [24][27] Business Line Data and Key Metrics Changes - Sales of power access products grew 27% year-over-year, driven by new programs and higher value content, while engineered latches increased by 20% [17][18] - The mature product line of keys and locksets continued to decline, indicating a shift in demand towards higher value products [18] Market Data and Key Metrics Changes - Approximately 70% of sales are shipped to the U.S., with the remaining 30% sold to OEMs globally, highlighting the company's reliance on the U.S. market [22] - The company is actively managing the impact of tariffs and is in discussions with customers and suppliers to mitigate potential risks [13][14] Company Strategy and Development Direction - The company is focused on stabilizing the business, optimizing costs, and evaluating its product portfolio as part of its transformation strategy [10] - Efforts to improve operational excellence in Milwaukee operations are expected to yield $1.2 million in annualized savings [11] - The company is also exploring organic growth initiatives and operational efficiencies to enhance its financial structure [64] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the progress made in transforming the company but acknowledged that there is still significant work to be done [33] - The ongoing tariff situation is viewed as a challenge, but management is confident in the actions being taken to advance the company through operational excellence and commercial initiatives [30][63] Other Important Information - The Milwaukee facility has been listed for sale, and the company is evaluating its manufacturing operations to identify further cost reduction opportunities [12] - Free cash flow increased by $12.5 million compared to the previous year's second quarter, attributed to improved operating performance and reduced net working capital [28] Q&A Session Summary Question: Assessment of progress in company evaluation - Management feels positive about the progress but acknowledges that it is still early in the process [33] Question: Examples of higher value products contributing to top line - Growth in power access products, particularly power sliding doors and power lift gates, has been significant [35] Question: Background on $8 million in new pricing - The pricing reflects negotiations with customers regarding contract extensions and support [37] Question: Stability of tooling benefits - Significant progress has been made, but the pace of reduction in tooling costs is expected to level out [40] Question: Impact of wage increases in Mexico - The last impact of the 20% wage increase was seen in Q2, with a lesser merit increase expected moving forward [50] Question: Status of real estate listing - The facility was listed in January, and initial interest has been positive [54] Question: Run rate EBITDA power - Management indicated that the current run rate may not be sustainable due to historical pricing impacts [59] Question: Sales trends with Stellantis - Sales to Stellantis were down about 10% year-over-year, but no significant changes in platforms were noted [79]

Q2 FY2025 Financial Results February 7, 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," "may," " ...

Group 1 - The core investment strategy focuses on long-only investment, evaluating companies from an operational and buy-and-hold perspective, rather than market-driven dynamics [1] - The articles emphasize understanding the long-term earnings power of companies and the competitive dynamics within their industries [1] - The majority of recommendations will be holds, indicating a cautious approach to market conditions, with only a small fraction of companies deemed suitable for purchase at any given time [1] Group 2 - The articles aim to provide important information for future investors and introduce a healthy skepticism towards a generally bullish market [1] - There is a clear distinction made between the author's opinions and professional investment advice, highlighting the need for readers to conduct their own due diligence [2][3]

Financial Performance - Net sales for the second quarter of fiscal 2025 were $129.9 million, an increase of $11.4 million (9.6%) compared to the prior year[58]. - Gross profit for the second quarter of fiscal 2025 was $17.2 million, with a gross profit margin improvement from 11.4% to 13.2% year-over-year[59]. - Net sales in the first half of fiscal 2025 reached $269.0 million, an increase of $15.1 million (5.9%) compared to the prior year period[65]. - The company delivered 6% sales growth over the first six months of fiscal 2025, driven by new program launches and increased volumes[56]. - Ford Motor Company net sales grew 18% in the second quarter of fiscal 2025, attributed to increased volume of key & lockset products[60]. - Hyundai Motor Group net sales increased 21% in the second quarter of fiscal 2025 due to higher demand for power access solutions[60]. Cost and Expenses - Material costs increased by $10.0 million year-over-year in the first half of fiscal 2025 due to higher production levels[67]. - Engineering, selling, and administrative expenses for the first half of fiscal 2025 were $28.9 million, compared to $26.1 million in the prior year[68]. Tax and Compliance - The effective income tax rate for the second quarter of fiscal 2025 was 22.5%, down from 25.3% in the prior year[64]. - The company was in compliance with all covenants under its credit facilities as of December 29, 2024[75]. Cash Flow and Liquidity - As of December 29, 2024, the company had $42.6 million in cash and cash equivalents, with $40.1 million held domestically[72]. - Cash provided by operating activities for the first half of fiscal 2025 was $20.8 million, a significant increase from a cash use of $6.9 million in the prior year period[72]. - The company believes its cash on hand and anticipated operating cash flows will be adequate to meet future funding requirements[75]. Investment and Capital Expenditures - Net cash used in investing activities was $3.0 million in the first half of fiscal 2025, compared to $2.4 million in the prior year[73]. - Capital expenditures for new product programs and equipment upgrades were $3.0 million in the current year, down from $4.4 million in the prior year[73]. Working Capital - Primary working capital as a percentage of sales (PWC %) was 24% as of December 29, 2024, compared to 22% as of June 30, 2024[76]. - Accounts receivable, net was $92 million with a PWC % of 18% as of December 29, 2024[76]. - Inventory, net was $82 million with a PWC % of 16% as of December 29, 2024[76]. Strategic Focus - The company is focused on improving its cost structure and driving cash flow through enhanced asset and working capital utilization[56]. - The company had no borrowings outstanding under the $40 million STRATTEC revolving credit agreement as of December 29, 2024[75].

Group 1 - Strattec Security reported quarterly earnings of $0.65 per share, exceeding the Zacks Consensus Estimate of $0.28 per share, and showing an increase from $0.26 per share a year ago, resulting in an earnings surprise of 132.14% [1] - The company achieved revenues of $129.92 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 3.85% and increasing from $118.53 million year-over-year [2] - Strattec Security has outperformed consensus EPS estimates in all four of the last quarters and has topped consensus revenue estimates three times during the same period [2] Group 2 - The stock has underperformed the market, losing about 11.6% since the beginning of the year, while the S&P 500 has gained 3.1% [3] - The current consensus EPS estimate for the upcoming quarter is $0.69 on revenues of $137.1 million, and for the current fiscal year, it is $2.76 on revenues of $537.6 million [7] - The Automotive - Original Equipment industry, to which Strattec Security belongs, is currently ranked in the bottom 33% of over 250 Zacks industries, indicating potential challenges for stock performance [8]

STRATTEC SECURITY CORPORATION Generated $9.4 million in Cash from Operations in Fiscal 2025 Second Quarter MILWAUKEE, WI, February 6, 2025 – STRATTEC SECURITY CORPORATION (Nasdaq: STRT) ("Company"), a leading provider of smart vehicle access, security and authorization solutions for the global automotive industry, reported financial results for its second quarter of fiscal year 2025, which ended December 29, 2024. STRATTEC President and CEO Jennifer Slater said, "Our solid financial results reflect the focu ...

Company Performance - Strattec Security's shares have increased by 15% over the past month and reached a new 52-week high of $43.27, with a year-to-date gain of 68% compared to the Zacks AutoTires-Trucks sector's 11.6% and the Zacks Automotive - Original Equipment industry's -19.7% return [1] - The company has consistently exceeded earnings expectations, reporting an EPS of $0.92 against a consensus estimate of $0.56 in its last earnings report on November 4, 2024 [2] Earnings Forecast - For the current fiscal year, Strattec Security is projected to achieve earnings of $2.76 per share on revenues of $537.6 million, reflecting a -32.19% change in EPS and a -0.03% change in revenues [3] - The next fiscal year is expected to see earnings of $2.78 per share on revenues of $560.2 million, indicating a year-over-year change of 0.72% in EPS and 4.2% in revenues [3] Valuation Metrics - Strattec Security has a Value Score of A, with Growth and Momentum Scores of B, resulting in a combined VGM Score of A [6] - The stock trades at 15.4X current fiscal year EPS estimates, which is above the peer industry average of 14.2X, and has a trailing cash flow multiple of 5.3X compared to the peer group's average of 5.5X [7] - The PEG ratio stands at 1.54, indicating that while the stock is performing well, it may not be in the top tier from a value perspective [7] Zacks Rank - Strattec Security holds a Zacks Rank of 1 (Strong Buy), supported by favorable earnings estimate revisions from analysts [8] - The recommendation is for investors to select stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B, which applies to Strattec Security, suggesting potential for future growth [9] Industry Comparison - In comparison to industry peers, XPEL, Inc. has a Zacks Rank of 2 (Buy) and shows a solid performance, with expected earnings of $2.04 per share on revenues of $418.08 million for the current fiscal year [10][11] - XPEL, Inc. shares have gained 17.5% over the past month, trading at a forward P/E of 26.66X and a P/CF of 19.82X, indicating a competitive position within the Automotive - Original Equipment industry [12]

Group 1 - The core investment strategy focuses on long-only investment, evaluating companies from an operational and buy-and-hold perspective, rather than market-driven dynamics [1] - The articles emphasize understanding the long-term earnings power of companies and the competitive dynamics within their industries [1] - The majority of recommendations will be holds, indicating a cautious approach to market conditions, with only a small fraction of companies deemed suitable for purchase at any given time [1] Group 2 - The articles aim to provide important information for future investors and introduce a healthy skepticism towards a generally bullish market [1] - There is a clear distinction made between the author's opinions and professional investment advice, highlighting the need for readers to conduct their own due diligence [2][3]

Financial Data and Key Metrics Changes - The company generated $11.3 million in cash from operations, a substantial increase from the previous year, raising the cash balance to $34 million at the end of the quarter [11] - Revenue increased by 2.7% year-over-year, with net sales rising by 9.1% when excluding the impact of one-time retroactive pricing from the previous year [12][28] - Gross margin for the quarter was 13.6%, benefiting from ongoing price improvement and favorable sales mix, although last year's first quarter had a significant one-time pricing benefit [13][32] - Net income for the first quarter was $3.7 million or $0.92 per diluted share, down from the previous year on a GAAP basis but improved when excluding adjustments related to the one-time retroactive pricing benefit [39] Business Line Data and Key Metrics Changes - Total net sales for the first quarter reached $139.1 million, an increase of $3.6 million or 2.7% [28] - Sales of power door products to Hyundai/Kia increased significantly, driven by inventory stocking to meet production build rates, while sales to Ford rose by 19% due to new latch content on F-Series pickups [30] - Growth was primarily in power access, door handles, and latches, while there was a decline in sales of legacy keys and lock sets [31] Market Data and Key Metrics Changes - The automotive industry is experiencing headwinds due to broader macroeconomic conditions, with demand for products influenced by production rates [14] - The company is focusing on improving its operating model and product offerings to address these market challenges [15] Company Strategy and Development Direction - The company is prioritizing the development of a winning product portfolio, driving operational efficiencies, and enhancing team talent [16][21] - A market-driven approach is being taken to define the future product roadmap, focusing on areas where the company can add value and create a defensible position [17] - The company is re-evaluating its supply chain, inventory, and operational processes to modernize operations and improve profitability [19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the company's ability to uncover potential operating efficiencies and strengthen profitability despite industry challenges [9][10] - The company aims to address headwinds with innovative products and a focus on increasing profitable content on next-generation platforms [15] - Management acknowledged the variability in profitability due to seasonal business patterns and customer/product mix [43] Other Important Information - The company announced the appointment of Linda Redmann as Chief People Officer and Chey Becker-Varto as Chief Commercial Officer to enhance talent management and drive revenue growth [23][25] - Capital expenditures are anticipated to be approximately $15 million in fiscal 2025, focusing on new product initiatives and productivity improvements [40] Q&A Session Summary Question: Impressions of the company relative to expectations - Management noted a strong history in the automotive industry, a solid product portfolio, and good people as key strengths [42] Question: Sustainability of gross margin - Management indicated that gross margin is subject to variability in volume and sales, with seasonal impacts and customer/product mix affecting profitability [43] Question: Expectations for unit volumes in 2025 - Management highlighted that industry production levels will significantly influence unit volumes, with a focus on being powertrain-agnostic [45] Question: Process of reducing pre-tooling balance - Management emphasized the importance of aligning the organization and defining accountability to drive performance improvement [46] Question: Pricing adjustments relative to inflation - Management confirmed progress in pricing adjustments, noting a return to a more normalized pricing environment [48] Question: Growth opportunities in power tailgates - Management is exploring opportunities within the product portfolio to grow the customer base and leverage new team expertise [49] Question: Prospects for stock buyback or reinstating dividends - Management stated that the focus is on ensuring a stable business before considering cash uses like stock buybacks or dividends [52]