EML - Earnings call transcript Q2 2021

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Operator

Good day, ladies and gentlemen and welcome to the Eastern Company’s Second Quarter Fiscal Year 2021 Earnings Call. [Operator Instructions] At this time, it is my pleasure to turn the floor over to your host, Chris Moulton, Head of Corporate Development. Sir, the floor is yours.

Chris Moulton

Thank you. Good morning and thank you for joining us today.

Eastern’s CEO, be CFO, Vlak; will Sullivan. John today President Gus and and Speaking will call open we that, After the up questions. for outlook. discussion that performance financial note including hear forward-looking taxes some the about today gross our statements information of will regarding business company’s and limitation business expense, income Please margin, and the consist operating statements we other of without during future will revenue, prospects, and expenses, or trends These are results could to cause projected and those risks statements. that differ forward-looking uncertainties to in statements subject forward-looking from significantly actual these

regarding refer rather. information Form discussed more XX-Q these risk our For risks and please in Thursday to uncertainties, filed – yesterday factors

during addition or in we I call non-GAAP as performance. addition, financial These will for call, useful to non-GAAP a should the Gus substitute of discuss measures believe for considered be With and Eastern’s In measures that results. that, turn not opening to remarks. in we as today’s isolation will are supplemental GAAP from over measures

Gus Vlak

Chris web. Form Thanks, phone via release our our to participating press who Thursday you last second those and on of the joined earnings those us released XXXX have results the Eastern’s and quarter on good afternoon. XX-Q We and morning

the them for executing through lot capped and a businesses. approximately to our our effort the resilience many growth. quarter of communities. sales of demand, and with focus challenges core stronger raw have can our on X,XXX proud with commitment XX our continue best and to of their and the during They pressure associated people even thank and in impressive, I from The our how this months. and record We of. way pandemic. want points: strong to they sales our of their businesses. Over global collective dedication the material agility cut each proud streamline company we second be The off shipping our are we sales and is costs, stepped have up margin historic a period, delivered record three quarter to people to summarize We taking of care customers, have a and emphasize

totaling commercial Across the across for all First, to of a as record now last X in the commercial well at constraints previous broad quarter. capacity vehicle were up operations launches, units the for our impact as new including the system with a the orders programs. growth, lock start continuing North as result new months. more the [indiscernible], continues near year-over-year locking covers X net to following truck demand with a Strong vehicle cable multiple XX% According year, modes, and our truck XX% Class sales economic Class markets as mirror freight the markets, ramp X integrated orders for well than grew recovery up the to for record solid sales compared first GDP XX% equipment range valuations. product FTR, Class and incredibly used rates strengthen and new industrial from June were by several month-over-month XX strong cover of America of shipping a XXX,XXX that we of popular, tonneau ReTrax produced across

red record levels. for result, a and near As the quarter rates the ending remained order backlog hot in second

the $XX backlog that’s the million, XX% Our increase of of second quarter the end reached end last over an at of year. the quarter

sales strong launches. related the OEM cost and Yet new we in component many half growth we of in not the acceleration that to for growth the also an materials which delays about experienced of In opportunities OEM to potential vehicle We delays are raw more the in our in continuation car the passenger shortages, our a strong support cases, these chronic the quarter. believe and if been shipping margins. back our facilities, second beyond. these key own delays posted production and and even despite sales pressured could quarter, in full to rates, We delays. excited of have challenges, freight supplier revenue robust,

to with of some the Just provide costs. perspective the magnitude of you rising

Similarly, the rates Over we ports grew increased examples price several the last July. months, from increased Asian materials between that in key our These container and container price per $X,XXX cold-rolled May than $XX,XXX of and use are to steel more many hot-rolled XXX% of for in of steel XXX%. raw XX the spot products. shipping by approximately per U.S. in by

pass been some Our share frequently to of is price but to in the price there and these realized we to costs. lag in customers, our to businesses a increases had relative the have absorb costs increases or these able rapid on of some escalation have

estimate the supply quarter. increases to we our customers our we points. several are result, of to margins ensure normalized suppliers stable in the were said, That with return across of prices and margins price in key cautiously although see are beginning raw that to that material many our disrupted remains of moderation more working materials, many still in we the rate a signs chain quarter As and and that hundred basis we optimistic coming we compressed the volatile, are second by are

our of now operations. discontinued execution growth continue businesses. strategy diversified core segment we we our the reporting our in as drive therefore, long-term And product to are Finally,

capabilities the that years resources to to for and I details signals in to place are and ensure resources aligned legacy for that we of and our this alternatives to each our strategy with that our these they growth financial over the such, will no XXX% results. businesses profitability are businesses, core as drive the come. go our them. commitment time that, in call We focus our people require John With to believe of As to over and and each of exploring of the strategic longer change turn reporting

John Sullivan

of second this Gus. Eastern’s focus My XXXX. will on you, Thank remarks for morning results quarter the

recognized meets exploring each this, for Products just that held-for-sale the the strategy. Diversified of the such, the that results of as the operations. our them. Diversified segment furthermore, within qualify Diversified reflected companies statements in financial discontinued And we no alternatives determined be As Gus noted, segment light the held-for-sale for operations Products align strategic periods consolidated of are in assets criteria longer segment presented. Product we as to the we with discontinued Therefore, and our financial And as had are all

business. segment of non-current second are the quarter of in the was current The the assets compared of par flow value approximately in and the allocated in for over recognized second and XX sheets presented. the loss divest with XXXX Products million unaudited Additionally, debt from write-down successfully quarter of $X.X to tax quarter cash next The balance discontinued to we reflected continuing of the periods would the for the the reduction. operations should be second now net of liabilities operations. anticipated as million majority XXXX months I’m focused the $XX to cash Diversified on each

global due For of XX% the the tooling increased second of truck to accessories, returnable products. packaging, second second products million quarter the increased quarter automotive, period compared Sales compared for XXXX, in XX% net to increased quarter increased $XX.X increased XX% in distribution and demand Net the to sales largely the of XXXX. in million to XXXX. sales for same existing to The quarter by price period same compared net XXXX. the second in in of XXXX products $XX.X new sales increases

sales quarter New of or of the margin raw to of The part XX% was second decline various compression freight and was second as Gross in the XXXX. a prices well mirror the many of to as rates. percent as materials products truck cams. in quarter compared in mirror margin due in included increases assemblies gross locks launches, cable in large unprecedented XX%

of XXXX the able million For year-over-year steel increased second example, to zinc respectively, increased hot-rolled increased and XXXX. same freight increased second copper the nickel $X.X iron of and XXX%, period, quarter price while XX%, costs XXX% increased Cold-rolled $X.X XX% scrap the steel or increased of XXX%, and XX%, to from months or quarter XXX% expenses July million X compared in XXXX XXXX. period second to XX% XX% increases these quarter same million the increases. X period were $X.X Price as of only XX, XXXX. offset portion development or in compared ended in to the to customers the to the for increased corresponding Product and a

expenses primarily expenses expenses, amortization X.X%. and As approximately in XXXX. million a $X.XX Selling incentive costs, second development product the which increased million compared $X.X was suspended other million and the for period compared expenses share second for second $X.XX increased in commissions, $X.X sales, per Net and diluted quarter XXXX. share income quarter to per the of payroll-related to quarter or of selling due in to period income expenses, $X.X percentage administrative XX% same the diluted in the same was net XXXX, or of were

were July and as of balance represents as result flow raw of by at selectively Inventories year-end an purchased the an quarter period as increase Now to XX% ounces $XX.X purchased XXXX for of certain flow in the In we XXXX. of – compared This inventory XXXX, materials. of lower XXXX. compared million of in key offset receivable. a and when prices last payable. of businesses of from second the pre anticipation end operations to to of increase was increase compared million quarter at sheet quarter, million an the XX, and for of primarily compared X, the cash XXXX partially was accounts increases in as at Accounts fiscal $XX.X the due significant and $X.X of of year shortages, in quick XXXX, year million to second second end July material of million million an sales, fiscal at the same end and XX% increased million $XX.X increase $XX.X the highlights. summary as of $XX.X our $XX.X receivables to our Cash

and As we and cash million of had of equivalents X, cash of untapped credit. $XX.X million $XX revolving line July

ratio our Our now X.Xx, that, is to are respectively. net charge the within both call questions. the operator which for turn our X.XX over leverage and I’ll well X.Xx, bank and of X.XX, of ratio was With fixed covenant

Operator

you. [Operator Instructions] Thank

Chris Moulton

some operator. in We have do questions you, Thank have come the via that webcast.

start So those. with let’s

the million we $XX explain charge the first took question. let’s you to can So One, restructuring go this quarter? that

John Sullivan

do have the we not assets continuously its we with fair the carrying exceed last and value fair determined that for and value, the this Yes. our do this of unions have an impairment, our operations reporting the we by evaluate Every fit of then long-term strategy. we and a write-down. impairment, unit discontinued In if each estimated quarter, amount the amount comparing reporting carrying we quarter, all

an impairment. result, our wanted on business. value and as we And fair focus businesses, core recorded to of the and – legacy So reevaluated a we these we

this, As recognized of of group into when we for discontinued sale. the $X.X goodwill write-off the part million operations held we classified a disposal approximately as

Chris Moulton

of question, And will completed operations? the you Okay. second the sale when have discontinued

Gus Vlak

we operations be that complete the months. discontinued are these next will we now reporting Well, confident these means able within that XX to

We to and set expect in we our and which us up that net million, to to support businesses. $XX sales of debt, the our to proceeds is the these these us of growth strengthen outstanding primarily the our reduce proceeds somewhere continue will of cash sheet area help core intend use balance

Chris Moulton

How first of Okay. half second XXXX? discontinued have quarter question. third in operations much And we the the EBITDA contribute a did and

John Sullivan

XX-Q. Note our we Also, from six identified And would to total Diversified can have reviewed in did XX-K report from reported you have actually, EBITDA EBITDA those, With it we of adjusted we numbers. been in the operations Well, Products relative the contributed the material Note would latest which discontinued the the reported reports, our XXXX, XXXX, the company. And net we XX, first kind our months, compute reported discontinued income EBITDA. for of but B for if segment XX-Q you operations, what from haven’t our been the segment. not those

Chris Moulton

Okay.

the have question. a fourth your earnings? is We of raw on impact What material prices

Gus Vlak

our to often higher fully with costs would raw at have actually we noticeable shipping was fairly cost of in the we of have in the the pass I unprecedented there quarter. these a But impact rapid yet rates. say we have the were mentioned, increased And Well, I prices sustained, we increases, lag past, able to sheer raise material because and customers, able think on these in although been the lag. of And scale the say is not line costs because to recover past prices more should the costs. as

As gross a estimate result, several our margins points. by we hundred that fell basis

in the as as our slows customers Our coming ability the price we down to increases recover work will rate quarters. with of improve

Chris Moulton

Okay. Question number of going? five, how is Big X Precision the integration

Gus Vlak

and the in we businesses. XXXX, are So, It’s core acquired X pleased of Big very our of one acquisition. with we Precision August

a have we leader other taken to promoted We leaders business, new drive help the hired on have steps January, for number several and business. inside a the growth. In brought of senior and we

On packaging are launch team, capitalize increase to years X his years, vehicle of with number believe X that well that launches scheduled of transfer to we including for in the positioned electric side the we business, new next the the on the are vehicles. of many the

BofA that They XXXX year. new new there for in average XXXX So, also XX XXXX, the to estimates is launches. estimate be roughly that vehicles will XX vehicle per

our bolt-on new will expand that customer do this diversify after offering base other The geographic some be coverage. help us to our will team and going new able product us thing market integrate us markets for and help acquisitions also is

tooling in part the just XXXX, as we the for months. first of XXXX side six packaging Precision, Big an driven demand and the On strong X by hygiene exceptional had is through

You that been based recall to formal may Canada it’s strong include And to this very to organization. to expanded X a we was addition so last Hailing Big – business. overall two-step July. added offering Precision in our It Ontario, tooling. the hailing

side, commercial we the with pleased this and fully couldn’t On more hailing integrated, is addition. really, be

this of body invested well. am Eberhard products Eberhard can note the I not Lock we businesses, of has integration, the believe this and the with while topic Illinois digital to And Eberhard these Lock, bring in capabilities working truck N are combination extremely Now of on XXXX, of that progressing on Lock the we and I few now will and these many and of also we currently of customers. and including and completed a consolidation can importantly, working of best many our Through they than into adoption our many and lock, is combination, accessories footprint. it the years, Load of In streamlining to on these manufacturing of acquisition electromechanical past the their We are building, synergies, the more from digital But markets. electromechanical Illinois benefits which in by our products drive will capabilities, third XXXX. body sales Eberhard combination from more service total that products. Illinois come of only

Chris Moulton

of goal more company? one have How a question. the discontinued your $XXX operations becoming we like impact looks does EBITDA sale It Alright. of million

Gus Vlak

Well, our core EBITDA think as of our continuing away, or from most far John I and options comes mentioned, businesses. the

what And purely bolt-on impact are top growth a going from but minimal. capital So, mathematical perspective, the I these highest – line have our us But allocate and is would result, say importantly, our to see is to faster businesses. we should to will of capital allow this do accretive from more return for bottom we line acquisitions. businesses. And more as all

Chris Moulton

via Okay. I further the not questions webcast. any seeing am

So the operator, for can we questions. open line

Operator

phone. no There be the questions Instructions] appear over [Operator to

Chris Moulton

will I closing Gus for remarks. the that, call you. With Thank turn to Okay. over

Gus Vlak

optimism we difficulties the the back material of raw into are enter of some and supply year despite signs half volatility. you. continued chain the the There Thank for as many price

beyond. is we flow progress backlog the Thank into on Velvac of pricing, focus we Big core cash remainder strong, X that making and and XXXX Precision, and our earnings and are Our translate growth our confident Eberhard businesses, sales, material on will throughout and are you.

Chris Moulton

hand I Thanks, to call will operator. Gus. back now the the

Operator

this you and your Ladies gentlemen, you. teleconference. Thank We today’s does for participation. again thank conclude

time disconnect at have lines day. may You a great and your this

The Eastern Company (EML) 16 Aug 212021 Q2 Earnings call transcript