STRATTEC SECURITY CORPORATION (“STRATTEC” or the “Company”)
(NASDAQ:STRT) today reported operating results for the fiscal first
quarter ended September 27, 2020.
First
QuarterNet sales for the first quarter ended
September 27, 2020 were $126.2 million, compared to net sales of
$120.0 million for the first quarter ended September 29, 2019. Net
income was $8.0 million in the current year first quarter, compared
to net income of $1.2 million in the prior year first quarter.
Diluted earnings per share for the first quarter were $2.11
compared to diluted earnings per share of $0.33 in the prior year
first quarter. The prior year quarter had a $2.2 million non-cash
compensation expense charge relating to the termination of our
Defined Benefit Pension Plan which reduced our diluted earnings per
share by $0.46.
The current year quarter tax provision included a
favorable tax adjustment due to recently enacted changes to the
Federal tax law generally referred to as the “Tax Cuts and Jobs Act
of 2017,” which reduced our income tax provision by $675,000 and
increased our diluted earnings per share by $0.18 in the current
year quarter in comparison to the prior year quarter.
Net sales to each of our customers in the
current year quarter and prior year quarter were as follows (in
thousands):
|
|
Three Months Ended |
|
|
September 27, 2020 |
|
|
September 29, 2019 |
|
Fiat Chrysler Automobiles |
$ |
25,083 |
|
$ |
25,482 |
General Motors Company |
|
37,756 |
|
|
33,838 |
Ford Motor Company |
|
15,846 |
|
|
15,812 |
Tier 1 Customers |
|
17,495 |
|
|
17,747 |
Commercial and Other OEM Customers |
|
21,435 |
|
|
21,346 |
Hyundai / Kia |
|
8,619 |
|
|
5,737 |
TOTAL |
$ |
126,234 |
|
$ |
119,962 |
Sales to Fiat Chrysler Automobiles (FCA) in the current year
quarter decreased slightly over the same period in the prior year
quarter due primarily to lower vehicle production volumes on the
FCA minivans for which we supply components. The Dodge Grand
Caravan minivan went out of production during July 2020. The
increase in sales to General Motors Company in the current year
quarter compared to the prior year quarter related primarily to
higher production volumes between periods. The impact of the
General Motors UAW strike reduced net sales by an estimated $3.0
million in the prior year quarter. Sales to the Ford Motor Company,
Tier 1 Customers and Commercial and Other OEM Customers were flat
in the current year quarter compared to the prior year quarter.
Sales to Tier 1 Customers, Commercial and Other OEM Customers
primarily represent purchasers of vehicle access control products,
such as latches, fobs, driver controls and door handles, that we
have developed in recent years to complement our historic core
business of locks and keys. The increased sales to Hyundai / Kia in
the current year quarter were principally due to higher levels of
production on their recently launched new Kia Sedona minivan for
which we supply components.
Gross Profit margins improved to 17.8% in the
current year quarter compared to 13.2% in the prior year quarter
primarily due to cost improvements implemented in our operations at
both Milwaukee, WI and at our facilities in Mexico, along with a
favorable Mexican Peso to US dollar exchange rate affecting the
cost of our Mexican operations and product sales mix. The prior
year gross profit margin was also reduced by 1.1% due to a non-cash
compensation expense charge relating to the termination of our
Pension Plan.
Engineering, Selling and Administrative expenses
as a percent of net sales in the current year quarter were 9.0%
compared to 10.8% in the prior year quarter. This decrease in
overall operating expense spending in the current year quarter was
primarily due to lower new product development costs in the current
year quarter, a temporary reduction in salary work force wages in
the current year quarter and overall improved operating expense
management between periods. The prior year Engineering, Selling and
Administrative expenses were also higher by .7% due to a non-cash
compensation expense charge relating to the termination of our
Pension Plan.
Included in Other Income (Expense), Net in the
current year quarter compared to the prior year quarter were the
following items (in thousands of dollars):
|
|
September 27,2020 |
|
|
|
September 29,2019 |
|
|
|
Equity Earnings of VAST LLC Joint Venture |
$ |
825 |
|
|
$ |
487 |
|
Net Foreign Currency Transaction Gain (Loss) |
|
(123 |
) |
|
|
(85 |
) |
Other |
|
(137 |
) |
|
|
(15 |
) |
|
$ |
565 |
|
|
$ |
387 |
|
The increase in equity earnings of VAST LLC related
primarily to higher profitability in our VAST China operation
during the current year quarter as compared to the same period in
the prior year. VAST LLC (including VAST China) is a crucial part
of our global strategy and we anticipate that it will contribute to
our overall long term market and financial strength as it continues
to grow.
Frank Krejci, President and CEO commented: “As we close out our
25th year as an independent company, spun off from Briggs &
Stratton, I am exceptionally proud of the efforts by our team over
the last 6 months of the COVID-19 pandemic.
For the quarter ending in June 2020, we had our worst quarter in
the history of STRATTEC. Our customers shut down their automotive
operations in North America for most of the quarter which impacted
our facilities in Milwaukee, WI and Mexico. We used the time to
build inventories where we could and make efficiency improvements
which has benefited us going forward.
This current quarter ending in September 2020, was the second
best in the history of STRATTEC, only exceeded by an unusual
quarter when we were very busy making spare service parts for a
customer recall campaign. It was a very welcomed turnaround which
made up for most of the losses suffered in the previous
quarter.
Compared to the same quarter last year, sales were similar, but
this year’s quarter net profits were significantly higher. Most of
that was the result of improved efficiencies and a permanent
reduction in headcount. The temporary wage reductions taken by our
salaried workforce on May 1, 2020 have now been restored effective
September 1.
During this quarter, we also further strengthened our balance
sheet by paying down $5 million of debt. In the last 9 quarters, we
have both eliminated our defined benefit pension plan liabilities
and improved our debt to equity ratio from 31.5% to 18.5%. The
Company remains cautious as to how we deploy our free cash flow as
we manage through the COVID-19 pandemic.
The strength of sales was likely due to a combination of market
demand and to some degree, trying to restore inventory levels on
dealer lots. Industry forecasts currently indicate a continuation
of these production levels for the next 2 to 3 quarters, however,
this may be modified based on changes in the severity of the
COVID-19 pandemic and its impact on STRATTEC and our supply base to
meet customer production orders.
Earlier this calendar year, we were one of four companies
worldwide to win the General Motors Innovation Award. It recognized
our design for a power open and close tailgate on their Silverado
pick-up truck. It has proved to not only meet technical hurdles,
but it is also rapidly gaining acceptance in the market. This
quarter we have begun the launch of a similar product for the
market share leading Ford F-150 pick-up truck line.
This year we are also celebrating the 20th anniversary of some
other innovative thinking. With two privately held companies, WITTE
Automotive of Germany and ADAC Automotive of Michigan, we formed
the VAST (Vehicle Access System Technology) Automotive Group. It is
a unique partnership where together we have expanded our global
footprint in China and India. We have effectively leveraged each
other’s technical and manufacturing capabilities for our mutual
benefit and increased competitiveness.
The VAST partnership has matured and evolved over these twenty
years. Finding ways to work better together has continued to
accelerate especially during the last few years. It appears that
the idea of partnerships has recently started to gain acceptance in
a variety of ways in the automotive industry. Partnerships can come
with their challenges, but our 20 year track record has proven that
we have found ways to make it work.
All in all, I am very proud of the efforts of our team at
STRATTEC and how it has been reflected in our earnings. We have
used our time wisely when the industry was shut down, continued the
pace of technical innovation in these very rapidly changing markets
and are rapidly ramping up production to serve the demanding needs
of our customers. I hope that the same pride is being felt by our
team, which includes you, our shareholders, and we are grateful for
the support that you have provided.”
STRATTEC designs, develops, manufactures and
markets automotive Access Control Products, including mechanical
locks and keys, electronically enhanced locks and keys, steering
column and instrument panel ignition lock housings, latches, power
sliding side door systems, power lift gate systems, power deck lid
systems, door handles and related products. These products are
provided to customers in North America, and on a global basis
through a unique strategic relationship with WITTE Automotive of
Velbert, Germany and ADAC Automotive of Grand Rapids, Michigan.
Under this relationship, STRATTEC, WITTE and ADAC market each
company’s products to global customers under the “VAST Automotive
Group” brand name. STRATTEC’s history in the automotive business
spans over 110 years.
Certain statements contained in this release
contain “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements
may be identified by the use of forward-looking words or phrases
such as “anticipate,” “believe,” “could,” “expect,” “intend,”
“may,” “planned,” “potential,” “should,” “will,” and “would.” Such
forward-looking statements in this release are inherently subject
to many uncertainties in the Company’s operations and business
environment. These uncertainties include general economic
conditions, in particular, relating to the automotive industry,
consumer demand for the Company’s and its customers’ products,
competitive and technological developments, customer purchasing
actions, changes in warranty provisions and customer product recall
policies, work stoppages at the Company or at the location of its
key customers as a result of labor disputes, foreign currency
fluctuations, uncertainties stemming from U.S. trade policies,
tariffs and reactions to same from foreign countries, the volume
and scope of product returns, adverse business and operational
issues resulting from the coronavirus (COVID-19) pandemic, and
fluctuations in our costs of operation (including fluctuations in
the cost of raw materials). Shareholders, potential investors and
other readers are urged to consider these factors carefully in
evaluating the forward-looking statements and are cautioned not to
place undue reliance on such forward-looking statements. The
forward-looking statements made herein are only made as of the date
of this press release and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect
subsequent events or circumstances occurring after the date of this
release. In addition, such uncertainties and other operational
matters are discussed further in the Company’s quarterly and annual
filings with the Securities and Exchange Commission.
Contact: Pat HansenSenior Vice President
andChief Financial Officer414-247-3435www.strattec.com
|
STRATTEC
SECURITY CORPORATION |
Condensed
Results of Operations |
(In
Thousands except per share amounts) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
First Quarter
Ended |
|
|
|
|
|
|
|
|
|
|
September 27, 2020 |
|
|
September 29, 2019 |
|
|
|
|
Net
Sales |
$ |
126,234 |
|
|
$ |
119,962 |
|
Cost of
Goods Sold |
|
103,723 |
|
|
|
104,076 |
|
Gross
Profit |
|
22,511 |
|
|
|
15,886 |
|
|
|
|
|
|
|
|
|
Engineering,
Selling & |
|
|
|
|
|
|
|
Administrative Expenses |
|
11,314 |
|
|
|
12,954 |
|
Income from
Operations |
|
11,197 |
|
|
|
2,932 |
|
|
|
|
|
|
|
|
|
Interest
Expense |
|
(112 |
) |
|
|
(340 |
) |
Other
Income, Net |
|
565 |
|
|
|
387 |
|
Income
before Provision for Income |
|
|
|
|
|
|
|
Taxes and Non-Controlling Interest |
|
11,650 |
|
|
|
2,979 |
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes |
|
1,577 |
|
|
|
299 |
|
|
|
|
|
|
|
|
|
Net
Income |
|
10,073 |
|
|
|
2,680 |
|
Net Income
Attributable |
|
|
|
|
|
|
|
to Non-Controlling Interest |
|
(2,065 |
) |
|
|
(1,436 |
) |
|
|
|
|
|
|
|
|
Net Income
Attributable |
|
|
|
|
|
|
|
to STRATTEC SECURITY CORP. |
$ |
8,008 |
|
|
$ |
1,244 |
|
Earnings Per
Share: |
|
|
|
|
|
|
|
Basic |
$ |
2,13 |
|
|
$ |
0,34 |
|
Diluted |
$ |
2,11 |
|
|
$ |
0,33 |
|
Average
Basic |
|
|
|
|
|
|
|
Shares Outstanding |
|
3,765 |
|
|
|
3,710 |
|
|
|
|
|
|
|
|
|
Average
Diluted |
|
|
|
|
|
|
|
Shares Outstanding |
|
3,788 |
|
|
|
3,728 |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
Capital Expenditures |
$ |
1,514 |
|
|
$ |
4,298 |
|
Depreciation |
$ |
4,885 |
|
|
$ |
4,733 |
|
|
|
|
|
|
|
|
|
|
STRATTEC
SECURITY CORPORATION |
Condensed
Balance Sheet Data |
(In
Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2020 |
|
|
June 28, 2020 |
|
|
(Unaudited) |
|
|
|
|
ASSETS |
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
Cash and cash equivalents |
$ |
11,983 |
|
|
$ |
11,774 |
|
Receivables, net |
|
79,764 |
|
|
|
41,955 |
|
Inventories, net |
|
51,673 |
|
|
|
54,400 |
|
Other current assets |
|
17,527 |
|
|
|
17,239 |
|
Total Current Assets |
|
160,947 |
|
|
|
125,368 |
|
Investment in Joint Ventures |
|
23,723 |
|
|
|
22,068 |
|
Other
Long Term Assets |
|
12,949 |
|
|
|
12,961 |
|
Property,
Plant and Equipment, Net |
|
102,610 |
|
|
105,148 |
|
|
$ |
300,229 |
|
|
$ |
265,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts Payable |
$ |
40,809 |
|
|
$ |
18,549 |
|
Other |
|
35,494 |
|
|
|
29,591 |
|
Total Current Liabilities |
|
76,303 |
|
|
|
48,140 |
|
Accrued Pension and Post Retirement Obligations |
|
1,961 |
|
|
|
1,956 |
|
Borrowings Under Credit Facility |
|
30,000 |
|
|
|
35,000 |
|
Other Long-term Liabilities |
|
4,945 |
|
|
|
5,008 |
|
Shareholders’ Equity |
|
318,210 |
|
|
|
309,991 |
|
Accumulated Other Comprehensive Loss |
|
(20,665 |
) |
|
|
(22,113 |
) |
Less: Treasury Stock |
|
(135,640 |
) |
|
|
(135,656 |
) |
Total STRATTEC SECURITY |
|
|
|
|
|
|
|
CORPORATION Shareholders’ Equity |
|
161,905 |
|
|
|
152,222 |
|
Non-Controlling Interest |
|
25,115 |
|
|
|
23,219 |
|
Total Shareholders’ Equity |
|
187,020 |
|
|
|
175,441 |
|
|
$ |
300,229 |
|
|
$ |
265,545 |
|
|
|
|
|
|
|
|
|
|
STRATTEC
SECURITY CORPORATION |
Condensed
Cash Flow Statement Data |
(In
Thousands) |
(Unaudited) |
|
|
First Quarter
Ended |
|
|
|
September 27, 2020 |
|
|
|
September 29, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities: |
|
|
|
Net
Income |
$ |
10,073 |
|
|
$ |
2,680 |
|
Adjustment to Reconcile Net Income to Net |
|
|
|
Cash Provided by Operating Activities: |
|
|
|
Depreciation |
|
4,885 |
|
|
|
4,733 |
|
Equity Earnings in Joint Ventures |
|
(825 |
) |
|
|
(484 |
) |
Foreign Currency Transaction Loss |
|
399 |
|
|
|
85 |
|
Unrealized Gain on Peso Forward Contracts |
|
(335 |
) |
|
|
- |
|
Stock Based Compensation Expense |
|
208 |
|
|
|
413 |
|
Non-cash Compensation Expense |
|
- |
|
|
|
2,228 |
|
Deferred Income Taxes |
|
- |
|
|
|
(524 |
) |
Change in Operating Assets/Liabilities |
|
(7,443 |
) |
|
|
5,638 |
|
Other, net |
|
338 |
|
|
|
239 |
|
|
|
|
|
|
|
|
|
Net Cash
Provided by Operating Activities |
|
7,300 |
|
|
|
15,008 |
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
Additions to
Property, Plant and Equipment |
|
(1,514 |
) |
|
|
(4,298 |
) |
Proceeds Received on Sale of Property, Plant |
|
|
|
and Equipment |
|
3 |
|
|
|
15 |
|
Net Cash
Used in Investing Activities |
|
(1,511 |
) |
|
|
(4,283 |
) |
|
|
|
|
|
|
|
|
Cash Flow from Financing Activities: |
|
|
|
Borrowings
on Credit Facility |
|
- |
|
|
|
- |
|
Repayment of
Borrowings under Credit Facility |
|
(5,000 |
) |
|
|
(6,000 |
) |
Dividends
Paid to Non-Controlling Interest of Subsidiaries |
|
(490 |
) |
|
|
(980 |
) |
Dividends
Paid |
|
- |
|
|
|
(522 |
) |
Exercise of Stock Options and Employee |
|
|
|
Stock Purchases |
|
19 |
|
|
|
239 |
|
|
|
|
|
|
|
|
|
Net Cash
Used In Financing Activities |
|
(5,471 |
) |
|
|
(7,263 |
) |
|
|
|
|
|
|
|
|
Foreign
Currency Impact on Cash |
|
(109 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
|
|
Net Increase
in Cash & Cash Equivalents |
|
209 |
|
|
|
3,432 |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents: |
|
|
|
|
Beginning of
Period |
|
11,774 |
|
|
|
7,809 |
|
End of
Period |
$ |
11,983 |
|
|
$ |
11,241 |
|
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