STRATTEC(STRT) - 2026 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Sales increased by 6% to $137.5 million, driven by pricing, favorable sales mix, higher content value, new program launches, and tariff recovery [5][8] - Gross margin improved to 16.5%, expanding 330 basis points year-over-year [5][10] - Net income nearly quadrupled to $5 million, or $1.21 per diluted share, with adjusted earnings per share growing 163% to $1.71 [5][12] - Cash from operations reached $14 million for the quarter, totaling $25 million year-to-date [6][13] - The company has a strong balance sheet with $99 million in cash and total debt of only $2.5 million [6][14] Business Line Data and Key Metrics Changes - Gross margin increased by $5.6 million to $22.7 million, driven by pricing actions, higher production volumes, and restructuring savings [9][10] - Selling, Administrative, and Engineering expenses rose to $17.9 million, or 13% of sales, influenced by a one-time charge related to a voluntary retirement program [11][12] Market Data and Key Metrics Changes - North American automotive production is expected to remain flat to moderately decline, impacting the company's sales forecasts [16] - The company anticipates a year-over-year revenue decline of approximately 3%-4% in the second half of the fiscal year [9][42] Company Strategy and Development Direction - The company is focused on transforming its operations, improving profitability, and investing in employee development and innovation [5][7] - Strategic priorities include supporting organic growth, process modernization, and evaluating M&A opportunities for long-term growth [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges such as supply chain disruptions and foreign exchange pressures but expressed confidence in the company's transformation and operational improvements [5][16] - The company is optimistic about its ability to deepen customer relationships and achieve sustainable, profitable growth [16][17] Other Important Information - The company implemented a voluntary retirement program expected to generate $3.4 million in annualized savings [6][11] - Capital expenditures for the fiscal year are expected to be less than $10 million, focusing on new product programs and equipment investments [14] Q&A Session Summary Question: Impact of supply chain disruptions on revenue - Management noted slight impacts from supplier issues and chip challenges but indicated minimal overall impact on sales [19][20] Question: Outlook for selling and administrative expenses - Management expects SAE to remain in the 10%-11% range for the second half of the year, with some adjustments for merit increases [22][23] Question: Timing of savings from the early retirement plan - The $3.4 million in savings will be phased in, with about $400,000 benefit realized in the current quarter and expected to reach $800,000 per quarter by the fourth quarter [24] Question: Factors affecting free cash flow - Management confirmed intentional inventory build-up and restructuring costs will impact cash flow in the upcoming quarter [25][26] Question: Conversations with potential new customers - The company is engaging with potential customers regarding access products and digital key technology, with long sales cycles expected [33][34] Question: Product line review updates - Management deprioritized the switch business but remains focused on power access products and digital key technology [40] Question: Clarification on revenue expectations - Management clarified that revenue is expected to decline 3%-4% year-over-year in the second half [42]