EML - NASDAQ

Good morning, everyone, and welcome to The Eastern Company’s First Quarter Fiscal Year 2025 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Marianne Barr, Investor Relations. Marianne, the floor is yours.

Good morning and thank you everyone for joining us this morning for a review of the Eastern Company’s results for the first quarter of 2025. With me on the call are Ryan Schroeder, Chief Executive Officer and Nicholas Vlahos, Chief Financial Officer. The company issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the Investors 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 11, 2025, for the fiscal year 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, I’ll turn the call over to Ryan.

Thank you, Marianne, and thank you, everyone, for joining us today. At the highest level, I’ll say this, the first quarter met our earnings expectations yet still with plenty of challenges in the marketplace. Revenues came in at $63.3 million, down slightly from Q1 of 2024, EBITDA came in at $4.8 million and earnings per share at $0.31 per share, very close to where we expected it to come in for the year – for the quarter. A few high-level updates before I turn it over to Nick on more details from the quarter. These updates are from really the last time that we spoke. We have made meaningful structural changes in Big 3 Precision. We’ve been able to sell the ISBM Blow Mold business, also known as Centralia Mold. Furthermore, within Big 3, we’ve been able to close the Dearborn facility and improve our structural competitiveness within our racking business. Additionally, we’ve been able to complete a share buyback program of 200,000 shares. I’m also happy to report that the Board approved an additional share buyback program of additional 400,000 shares. Also throughout the quarter and the first part of the year, we’ve been able to complete our leadership team transition plans, and I’m very happy about the leadership team. I’ll touch on that within each of the portfolio businesses a bit more as we get further into things. And then lastly, I’d like to say, I’m extremely pleased to have Chan Galbato join us on our Board of Directors. Previously, Chan was the CEO of Cerberus Operations and Advisory Company. There, he was on a number of different boards, probably most notably as Co-Chairman of Albertsons. Most recently, Chan was the Chairman of New Flyer Industries. I’m super excited to have Chairman join the Board. 2025 will be a year of enhancing our strategic growth plans, eliminating bureaucracy and optimizing our cash flow. So with that, I’d like to turn it over to Nick on additional details for the quarter.

Thanks, Ryan. I’ll focus my review today on the company’s financial results from continuing operations for the first quarter of 2025. Net sales in the first quarter of 2025 decreased 2% to $63.2 million from $64.6 million in last year’s first quarter. The decline was primarily due to decreased sales of truck mirror assemblies and truck accessories, offset by increased sales of returnable transport packaging products. Our backlog as of March 29, 2025, decreased 9% to $85.9 million compared to $94.0 million as of March 30, 2024. The decrease was primarily driven by decreased orders for returnable transport packaging products, truck mirror assemblies, and latch and handle assemblies. Gross margin as a percentage of net sales for the first quarter of 2025 was 22.4% compared to 23.9% for the prior year period. The decrease was due to higher raw material costs, partially offset by price increases. As a percentage of net sales, product development costs were 2% for both the first quarter of 2025 and 2024. Selling, general and administrative expenses decreased $0.8 million or 8% in the first quarter of 2025 compared to the last year’s period. The decrease was primarily due to lower payroll-related expenses of $0.5 million, offset by higher sales commissions of $0.3 million. Other income and expense increased $0.2 million in the first quarter of 2025 compared to the last year’s period. The decrease was primarily due to favorable gains on security transactions in 2024 that did not occur in 2025 and current year restructuring expenses. Net income from continuing operations for the first quarter of 2025 was $1.9 million or $0.31 per diluted share compared to $2.1 million or $0.34 per diluted share for the 2024 period. Now turning to non-GAAP measure. Adjusted net income from continuing operations for the first quarter of 2025 was $2 million or $0.32 per diluted share compared to adjusted net income of $2.1 million or $0.34 per diluted share for the prior year period. At the end of the first quarter of 2025, our senior net leverage ratio was 1.45 compared to 1.23 at the end of 2024. In addition, we invested $0.8 million in capital expenditures and paid dividends of $0.7 million in the first year’s quarter. As of March 29, 2025, inventories totaled $56.1 million, up $0.2 million from the end of fiscal year 2024. During the first quarter of 2025, we repurchased 50,000 shares of common stock under the share repurchase program Eastern Board’s authorized in August 2023, bringing us to a total of 200,000 shares repurchased and completed – completing the 2023 authorization. On April 30, 2025, the Board of Directors authorized a new share repurchase program authorizing the company to repurchase up to 400,000 shares of its common stock. The program extends until May 2030. That completes my financial review. I’ll now turn the call back to Ryan.

Thanks Nick. Now I’ll speak a bit more about each of the three portfolio companies. Let’s start with Eberhard. Most of you know, but I’ll repeat for those that don’t. Eberhard designs and engineers and manufactures a wide range of security hardware such as latches, locks, hinges, handles and related components for industrial, work truck, military and specialty applications. I’ll start with

Thank you very much. [Operator Instructions] We do have a question in. And your question is coming from Ross Davisson of Banetton Capital. Ross, your line is live.

Hi, Ryan. Hi, Nick. Thanks for taking the question. On returnable packaging, I was curious if you could just give us kind of a way to think about the outlook for that business. Specifically, I am wondering, obviously, there is a lot of change in the supply chain and there is a lot of uncertainty. Is there a potential tailwind there if there is production move around? Would your customers need more of your help in any of those scenarios?

Yes. Thank you very much for the question, Ross. I’d say this. It’s been a quite quiet market in the returnable packaging, particularly in the Automotive segment. So we’ve certainly seen that from a volume standpoint. That being said, when you think about tariffs and you think about all the supply chain uncertainty, the Big 3 Precision business is almost completely insulated from that being that we’re made in America, our supply chain is for the vast majority of it, on American supply chain. So we are really uniquely positioned. We think there is some demand that’s being pent up. And if and when it does break loose, we are well positioned to jump on it. And that’s why a lot of our heavy lifting, as we mentioned about with Dearborn and some other improvements we made within the business from a cost structure standpoint is going to allow us to be competitive, but also very responsive if there is a significant breakthrough. Historically speaking, these markets do tend to be a bit lumpy, and we’ve certainly seen a more soft pattern here recently with all the uncertainty in the marketplace. So we’re encouraged that in many cases, we believe we’re in the trough and we believe many of our customers are sort of in a wait-and-see mode with regard to trade talks and tariff ramifications. But at some point in time, regardless of the – if those deals get done or don’t get done, they’re going to have to break some programs loose. And we’ll be – we are very well positioned regardless. So yes, I would – that’s how I’d frame it up. I don’t know, Nick, if you have anything else to add.

Yes. I would say, as more production is brought back into the United States, Big 3 is in a good position to take advantage of that due to their focus of their locations in North America and already having the experience of producing the returnable packaging that a lot of companies will be able to utilize more because more of their supply chain is local compared to overseas, which you do not get – typically have returnable packaging.

That’s great. That makes sense. Thanks for that. And then just on gross margin, it’s lower than it had been sort of the last 1.5 years. You referenced higher raw material costs, some price increases. Is it – should we expect sort of the levels you are at sort of where we are going to be for a while? Is there – are there near-term opportunities to sort of raise that gross margin? Any help there thinking about it would be appreciated?

Yes. So Ryan, I’ll jump in on this question. So part of this also was sales mix as well. And with that, we do expect with some of our higher margin products to start getting a better velocity in the market, start selling more. And therefore, that will also help to support the margin as well. But we are always focused on taking out as much cost as possible from our cost of goods sold as well.

Okay, great. Thank you. Thanks for the answers.

Thank you very much. [Operator Instructions] Okay. I’m not seeing any further questions. So I will now hand back over to Ryan for any closing comments.

Thank you, Jenny. Yes. So in closing here, you are going to see with The Eastern Company a relentless execution for top decile performance. That’s going to be really the central theme of everything that we’re doing. We’re going to be looking at strategic growth and operational focus going into the remainder of the year, where we’ve been very active as we’ve been touching on here today in the call on the Big 3 transformation. I don’t believe it’s completely finished yet, but we’re approaching the end of that. We’re going to have cost discipline. This is obviously very uncertain times. We’re going to control the things that are within our control. And we’ve done much of that in the first quarter. That’s going to be a continued focus going on through the second quarter and the remainder of the year. And from a tariff standpoint, it’s obviously front and center to virtually every company and business in North America and maybe around the world. We have an organization that is very aggressive on tariff management. This is mainly within the Velvac and Eberhard business. But I’ve been very impressed with the team’s ability to manage that on an hour-by-hour and day-by-day business. I’m happy that through the first quarter, they have been able to more or less neutralize the tariffs that we have seen come through. I’m not suggesting that, that’s going to completely be the case going forward, but the plans thus far have supported doing exactly that. And then in a related sense, we’re going to continue to have nimble supply chains. The efforts I touched on with regard to Velvac in-sourcing and Eberhard having a number of efforts in adjusting our supply chain for our best use of success in the long run. And then I’d like to close out with our balance sheet is in quite good shape. And with that, M&A is now a priority again. We’re going to be extremely disciplined, but we’re excited to start looking at deals come through here at the remainder of the year and even into 2026. So with that said, we look forward to giving you an update in Q2. If you have any additional questions or need any additional information, please don’t hesitate to reach out. And with that, I’ll close the call and hand it back to Jenny, our operator.