STRATTEC(STRT) - 2025 Q3 - Earnings Call Transcript

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 [6][21] - 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 [8][20] - Adjusted EBITDA rose to $12.9 million, representing 9% of sales, up from 4.4% in the prior year period [8][20] 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% [14] - The modest improvement in sales year-over-year was attributed to favorable pricing actions, improved product mix, and new program launches [12] Market Data and Key Metrics Changes - Approximately 65% of the company's products are imported into the U.S. from Mexico, with over 90% of that volume being USMCA compliant, minimizing tariff impacts [16][17] - The estimated annualized impact of recently announced U.S. tariffs is between $9 million to $12 million in added costs before mitigation [10][17] 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 [9] - The company is taking proactive steps to manage tariff risks, including adjusting logistics routes and engaging in pricing discussions with customers [10][11] Management 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 [13] - The company is monitoring automotive production and the impacts of tariff exposure on sales, ensuring preparedness for any material impacts [30] 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 [21][22] - Capital expenditures for the year are projected to be around $7.5 million, with a focus on equipment upgrades and IT infrastructure [37] 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 [29] 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 [30] Question: What is the mix of price realization versus labor cost savings from headcount reduction? - The price benefit in the quarter was about $2.5 million, with the remainder coming from labor cost savings [31] Question: How much will the 12% headcount reduction save on an annualized basis? - The full restructuring for both Milwaukee and Mexico is expected to save about $5 million annually, with $200,000 seen in the current quarter [34] 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 [37] 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 [38]