Eastern Company (The)

Good morning and welcome to the Eason Company's third quarter fiscal year 2024 earnings call. At this time, all participants are in a listen-only mode and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Marianne Barr, Treasurer of the Eason Company. Marianne, over to you.

Good morning, and thank you, everyone, for joining us this morning for a review of the Eastern Company's results for the third quarter of 2024. With me on the call are James Materitanda, Chair of Eastern's Board of Directors, and the company's CFO, Nicholas Lake. The company issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the investor section of the company's website, www.easterncompany.com, where you will find the release under financial news. Please note that some of the information you will hear during today's call will consist of forward-looking statements about the company's future financial performance and business prospects, including without limitation, statements regarding revenue, gross margin, operating expenses, other income and expenses, taxes and business outlook. These forward-looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward-looking statements. We undertake no obligation to review or update any forward-looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings, including Form 10-K, filed with the SEC on March 12, 2024, for the fiscal year 2023, and Form 10-Q, filed with the SEC on November 5, 2024. In addition, during today's call, we will discuss non-GAAP financial measures that we believe are useful as supplemental measures of Eastern's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. A reconciliation of each of the non-GAAP measures discussed during today's call to the most directly comparable GAAP measure can be found in the earnings press release. With that introduction, I'll turn the call over to Jim.

Thank you, Mary Ann. And good morning to those who are joining us by phone, as well as those participating via the web. Operationally, the third quarter was a strong period for the Eastern Company, with substantial year-over-year improvements in top and bottom line results. Actions were taken to improve pricing and strengthen gross margins. At the same time, Eastern's board of directors believes that there are more actions to be taken and significant progress to be made, and we have appointed a new leader to take Eastern to the next level. Before I go into details of our new CEO appointment, I'll talk about another significant step recently taken at Eastern. As discussed during our Q2 earnings call in August, we have been continuing the process of evaluating all of the company's businesses for long-term performance and growth potential. During that process, we determined that the big three mold business, one of the two businesses within the big three precision products, no longer fits our long-term business and financial strategy. Accordingly, we recently began taking steps to sell big three mold and reclassified it as discontinued operations. Unlike Big Three's returnable packaging business, which holds excellent potential for Eastern, mold is a complex niche business that, especially given today's market dynamics, offers many fewer opportunities for synergy and requires significant capital investment to remain competitive. The sale of mold will put Eastern in a better position to play to the company's strengths. In addition, We will now be able to focus all of our resources on Eastern's best-in-class manufacturing and assembling capabilities in the commercial vehicle, automotive, and other industrial end markets. With that introduction, I'll turn the call over to Nick for a more detailed review of our Q3 financial results. Nick.

Thank you, Jim, and good morning, everyone. As Jim noted in his opening comments, we recently made the decision to sell Big Three Mold Business and determined that it met the criteria for classification for held for sale accounting in discontinued operations. The loss recognized in the write down of the Big Three Mold Business to fair value in the third quarter was 19.2 million net of tax. I'll focus my review today on Eastern's financial results from continuing operations for the third quarter. For the third quarter, net sales increased 15% to 71.3 million from 62 million in the 2023 period, primarily due to increased demand for returnable trans packaging products and truck mirror assemblies and truck accessories. Our backlog as of September 28th, 2024 rose 13% to 97.2 million compared to 86.2 million as of September 30th, 2023. The increase was primarily driven by increased orders for various truck mirror assemblies and returnable transport packaging products. Gross margin as a percentage of sales in the third quarter was 25.5% compared to 24.9% in the 2023 period. The increase in margin primarily reflected improved price cost alignment and other cost savings initiatives. As a percentage of net sales, product development costs were 1.5% for the third quarter of 2024 compared to 2.3% for 2023 period. Selling administrative expenses increased 1.9 million or 22% for the third quarter of 2024 compared to last year's period. The increase was primarily due to higher payroll related and legal and professional expenses. Other income and expense for the third quarter of 2024 increased 0.1 million compared to the 2023 period. The increase in other income of 0.1 million was primarily driven by lower pension expense when compared to the prior year period. Net income for the third quarter of 2024 was 4.7 million or 75 cents per diluted share compared to the net income of 3.5 million or 55 cents per diluted share for the 2023 period. Adjusted net income from continuing operations, a non-GAAP measure, for the third quarter of 2024 was 4.7 million or 75 cents per diluted share compared to adjusted net income from continuing operations of 3.5 million or 55 cents per diluted share for the prior year period. Adjusted EBITDA from continuing operations, a non-GAAP measure for the third quarter of 2024 was 8.7 million compared to 6.7 million for the 2023 period. At the end of the third quarter, our senior net leverage ratio was 1.4 compared to 1.2 to 1 at the end of the second quarter. In addition, we invested 7.6 million in capital expenditures and paid dividends of $2.1 million for the first nine months of fiscal 2024. We generated $8.3 million from operations during the first nine months of fiscal 2024 compared to $18.2 million during the first nine months of fiscal 2023. Cash flow from operating activities in the 2024 period was lower compared to last year's period, primarily due to increases in accounts receivable of $11.7 million due to increases in revenue in the third quarter of 2024 compared to the corresponding period in 2023, and approximately $3 million in accounts receivable due to pre-billing to cover material costs on a specific job. As of September 28, 2024, inventories totaled $58.1 million, down $0.3 million from the end of fiscal year 2023, and a decrease of $1.9 million from the end of last year's third quarter. During the third quarter of 2024, we repurchased 50,000 shares of common stock under the share repurchase program our board authorized in August 2023. bringing us to a total of approximately 110,000 shares repurchased under the buyback program. That completes my financial review. I'll now turn the call back to Jim. Thank you, Nick.

At this point, I'd like to provide further details on Eastern's newly appointed chief executive officer. As we announced yesterday, we're pleased to have Ryan Schroeder join us as CEO effective today. Ryan is a seasoned executive with a strong record of leading manufacturing companies to peer-beating, sustained long-term growth. Ryan brings a history of growing businesses both organically and through acquisition. Most recently, he served as CEO of Plasco Light LLC, a global leader of acrylic and polycarbonate sheet with more than 120 production lines and 2,000 employees worldwide. Prior to that, Ryan was president of IMI Norgan, a leader in industrial automation with some 2,200 employees across 17 facilities. And before that, Ryan spent 12 years at the engineering firm Parker Hannafin in a variety of roles, including general manager of global valves, plant manager, and supply chain manager of the company's mobile cylinders division. Ryan has extensive background in sales, lean operations, finance, and supply chain management, all of which will be valuable to Easter. Ryan will share his vision for achieving long-term sustained growth in our next quarterly call. So we hope you'll join us for that discussion. Operator, I'd now like to open the floor to questions. We will take questions from the web first, but before we do that, please provide directions to those on the phone about how they can ask questions.

No problem. We will be conducting our question and answer session. If you would like to ask a question via the phone lines, please press star 1 on your phone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For any participants using speaker equipment, it may be necessary to pick up your phone before you press the keys. So that's star 1 if you'd like to ask a question on the phone lines.

All right, so the first question we have via the web is congratulations to the new CEO. Where do you want the company to be in six months?

We have pretty ambitious long-term plans. And certainly we have shorter-term plans, quarterly, yearly. And the short-term plans, we don't comment on specifically as far as the numbers or our ambitious long-term plans. But short-term plans include, of course, actions to achieve the long-term plans. So you can rest assured that we look at all of ways to achieve the long-term plans, which, as I stated, are pretty ambitious.

Thank you, Jim. Operator, there are no further questions via the web. Do you have any questions on the conference call?

I'm not seeing anyone in the queue at the moment, but just a reminder to those on the lines, you can press star 1 if you would like to ask a question. Not seeing anyone in the queue just yet. No, I'm not seeing any questions at the moment.

Thank you, operator. Jim, there are no further questions. I'll turn the call over to you for closing remarks.

Thank you all for your time today. As you've heard, the third quarter was a productive period for Eastern. We've now advanced the most important elements of the company's business transformation and believe it's much better positioned to grow and prosper. We look forward to introducing you to Ryan Schroeder on our next earnings call. If there's any information you need in the meantime, please reach out to Nick or me. Thank you.

thank you very much this does conclude today's conference you may disconnect your phone lines at this time and have a wonderful day thank you for your participation