Eastern Company (The)

deepen and diversify our customer relationships to position us to capture emerging opportunities, reduce volatility, and support sustainable long-term performance. Turning to our balance sheet, we have repurchased approximately 118,000 shares through the end of the third quarter. This represents almost 2% of our outstanding shares and demonstrates our ongoing commitment to allocating capital to benefit our shareholders. We also reduced debt by $7 million and and entered into a new $100 million revolving credit facility with Citizens Bank that provides us with additional flexibility to enhance our priorities, including continued investments into long-term growth initiatives and potential M&A opportunities. Given the proactive steps we have taken and our historically strong balance sheet, we are confident that Eastern Company is well equipped to weather the cyclical market downturn and to capitalize on opportunities when our markets return to healthier positions. With that, I'll hand it over to Nick to dig a little deeper into the quarter. Nick?

Thanks, Ryan. I'll focus my review today on the company's financial results from continuing operations for the third quarter of 2025. Net sales in the third quarter of 2025 decreased 22% to $55.3 million from $71.3 million in last year's third quarter. The decline was primarily due to decreased sales of returnable transport packaging products and truck mirror assemblies of 9.9 million and 6.4 million respectively. Our backlog as of September 27, 2025 decreased 23.6 million or 24% to 74.3 million from 97.2 million as of September 28, 2024. driven by decreased orders for returnable transport packaging products of $15.2 million, latch and handle assemblies of $4.7 million, and truck and mirror assemblies of $3.6 million. Gross margin as a percentage of net sales was 22.3% for the third quarter of 2025 compared to 25.5% for the prior year period. The decrease was primarily due to an increase in raw material costs incurred as we transitioned from customer-provided material to in-house sourcing on a mirror project, as well as the impact of reduced volumes. As a percentage of net sales, product development costs were 1.6 percent for the first nine months of 2025 compared to 1.8 percent for the 2024 period. Selling general and administrative expenses decreased 0.7 million or 6.5% in the third quarter of 2025 compared to the last year's period. The decrease was primarily due to 1.1 million of lower compensation charges offset by restructuring charges of 0.3 million. Other expenses increased 0.1 million in the third quarter of 2025 compared to the same period in 2024. The increase was the result of lower lease income. Net income from continuing operations for the third quarter of 2025 was $0.6 million, or $0.10 per diluted share, compared to net income of $4.7 million, or $0.75 per diluted share, for the 2024 period. Now turning to a non-GAAP measure, Adjusted net income from continuing operations for the third quarter of 2025 was $0.8 million, or $0.13 per diluted share, compared to net income of $4.7 million, or $0.75 per diluted share, for the prior year period. At the end of Q3 2025, our senior net leverage ratio was 1.64 compared to 1.23 to 1 at the end of 2024. In addition, we paid dividends of $0.7 million in this year's third quarter. Subsequent to the quarter close, we entered into a new $100 million revolving credit facility with Citizens Bank. As of September 27, 2025, inventories totaled $56.8 million or $1.6 million up from the end of 2024. During the third quarter of 2025, we repurchased 36,413 shares of common stock under the share repurchase program Eastern's board authorized in April 2025. To date, we have repurchased 118,000 shares or approximately 2% of our outstanding stock. This completes my financial review.

I'm going to turn the call back over to Ryan.

Thanks, Nick. clearly spent a challenging macroeconomic environment in the heavy-duty truck and automotive segment, as you've certainly heard from other industry participants during this earnings season. Trucks are getting older, and we are well into a freight recession. It really is only a matter of time until trucks' market begins to bounce back. We are seeing some marginal improvements in Q4 already, but we'll have to see where it goes from there. On the positive side, Eastern's new leadership team is fully in place and operating full speed ahead. Together, we have successfully implemented a much-needed restructuring and plant closure program. Through cost containment and operational improvements, and even with the reduced volume, we're making our operations more efficient and profitable. We're also staying nimble and close to our customers to mitigate the effects of changing dynamics on our businesses. Given this, I believe we are very well positioned for success going forward. Lastly, we are looking for acquisition opportunities that fit our size and strategic criteria, taking a very disciplined and opportunistic approach as we evaluate companies. With that, operator, I'll open it up for questions.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star 1 on your phone at this time if you wish to ask a question.

And please hold while we poll for questions. And the first question today is coming from Garvit Bendati from Singular Research. Garvit, your line is live.

Yeah, hello. Hi.

So, a few questions from , from Singular Research. Firstly, on the gross margins, you have seen contractions during this quarter. So, is it temporary, or should we expect structurally lower margins going forward as well?

Yeah, there certainly was a mix. element associated to the gross margin reduction within the quarter, especially comparing to the third quarter of prior year. So I'd say in general, I won't call it a one-off, but I think the trend definitely leans towards improved gross margins in the future, back towards maybe the norm that we've seen in the past. But Nick, maybe you want to expand upon that some.

Yeah, so the gross margins were impacted by reduced volumes. So as we expect the volumes to come back to a normal state in the future, we will see the gross margins impacting as well.

Okay. Okay. Understood.

And then on the, you know, overall demand side, you know, You have indicated that you're seeing some recovery, but if you can just throw some more light on, you know, is it, you know, are you seeing, you know, early signs of recovery in the heavy-duty truck market, or do you expect, you know, volumes to bounce back in the coming quarter and going into FY26? Is that... something that we should sort of take forward from your comments?

Yeah, so I'll take this one, Nick. I think we certainly have seen some bounce back in the fourth quarter. That being said, we haven't seen volumes begin to return to the more historical norms. You know, we certainly watch this very closely, as I'm sure you do as well. You know, right now, the truck industry, the heavy truck industry is forecasting some recovery next year. We're seeing some in the fourth quarter here. We're not sure if that's transitory associated with some of the changes in tariffs or not, but we are seeing some limited additional volume in the fourth quarter. Right now, forecasts that we've received show a soft first half of 2026. That's what we're planning for. And then some incremental improvements towards the end of 2026. That being said, We frankly don't know. We are well positioned to react as our customers need us to. We're ready to ramp up. And if things are going to remain difficultly slow for the next few months, we have positioned our factories to operate that need as well. That being said, yes, we've seen some limited volume improvements here. in October and we're expecting that through November and we'll kind of see what happens in December and then in the beginning part of the year.

Okay, got it.

And then on the, I think last quarter you had mentioned about USPS vehicle program contract that you had won from the government. Is there any update on that? How are you seeing the revenues ramping up there?

Yeah, that program certainly has been a bright spot. I know we've spoken about that many quarters in the past. I left that out of this note just because It has ramped up nicely. It's been an important part of our overall business. And for Everhard, it's this last quarter, actually, that Oshkosh became our largest customer for the quarter, recognizing it's not going to stay that way, but it's become an important part of our overall business. And it's been a nice project for us that has taken a while for it to come to fruition, but we're We're in full production. It's going to run full through next year, and we'll see as the contract continues how long that one will run, but it's been a nice one for us, for sure.

Okay, so is it possible for you to quantify the revenue contribution from the program, and would we see a material impact on revenues in FY26 as well from this program?

In terms of specific revenue on that, I would probably pause to be overly specific on that, just not to reveal too much in a public setting. I'm certainly happy to answer some questions for you offline as it pertains to that. If you take Everhard, though, as an important business within Eastern, Everhard has enjoyed some good volumes on that U.S. Postal Service program, but at the same time, have another important market segment for them is the Class 8 truck market. And when you think of truck market, specifically the sleeper cab portion of the truck market, the levers and latches and locks and things of that nature are an important part of Eberhard's business. That has obviously been a slow segment for us as we've spoken about in these prepared remarks, but also in the past we've seen that slow down. We expect that to bounce back in the future just as the truck market will bounce back. But for Eberhard specifically, the postal service program has been a nice offset to the softness of the truck market.

Okay. Understood.

And then lastly, on the big three, Has there been any increase in the pace of model refresh cycles? Have you seen, you know, pace increasing or has it slowed down further? And if so, you know, are you seeing any impact on the order flow there?

Yeah, it has been a very slow quarter. You know, really we've had two material impacts to our business within the quarter from a negative standpoint. One was the truck market and then the other was the automotive model changes. So that part of our market in the third quarter of our business has been significantly negatively impacted. If you look back, really the number of models launched this year is at a historical low for a very long time going back. And for that reason, we are forecasting and already seeing an increase in, um, model launches for next year and beginning right now where we're, you know, a number of months ahead of the actual launches where we tend to be, um, impacted favorably. And we're already starting to see specific to big three, our backlog improved there. So more to come, certainly more to come with that. And let's see where it goes, but the, uh, sort of change in direction from, um, EVs in this year certainly impacted the total launches, and we've had to make some adjustments accordingly for that. But yeah, so we are expecting that to improve some next year, and we'll be prepared for that as it comes.

Okay. Yeah, thank you. So that will be all from my side. Thank you.

Thank you, and once again, it will be star one on your phone if you wish to ask a question on today's call. And there were no other questions at this time. I would now like to hand the call back to Ryan Schroeder for closing remarks.

I'd just like to say thanks again for joining this morning. It clearly has been a very challenging quarter, but the company is in great shape looking forward. I look forward to giving you an update after the fourth quarter, and if you need any additional information in the meantime, please reach out to us. And with that, I will end the call. Thank you very much. Thank you.

This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.